Sunday, 10 October 2010

A bit more on pay and motivation

We recently got hold of James McConvill's The False Promise of Pay for Performance at work. It was rather expensive for what is quite a short book (and I notice the price has gone up significantly further on Amazon since we got it). The subtitle is 'embracing a positive model of the company executive'.

As such I thought that this would be right up my street. And in some respects it is, as a big part of the argument is that agency theory provides a poor model of human motivation and that as such the focus on remuneration that derives from it is mistaken. So far so familiar. But what surprised me is that the section on what really motivates people is much more influenced by so-called Happiness Economics than what I was expecting - motivation crowding.

I was actually very surprised by this as I personally think this is weaker ground from which to develop a critique of what is indeed a false promise of performance-related pay (at least for complex tasks). It led me to dig out my copy of Richard Layard's Happiness (which is frequently referenced) to see what he said about performance-related pay. The answer seems to be not a lot, there are only about three pages on it. So whilst I find the book interesting, this was probably more because it critiques the topic from a different angle, than because I found it particularly convincing.

Again just my personal view, but I think you can develop a better analysis drawing on people like Frederick Herzberg, Douglas MacGregor, Deci & Ryan etc than by straying into the 'happiness' field. And just to push this on a bit further, I think you could probably develop a really powerful critique of performance-related pay for complex tasks by trying to make advocates make explicit the model of decision-making that lies behind it. What I mean by this is surely at the executive level what we are really interested in is directors making good decisions. Yet how is an incentive scheme supposed to achieve this?

To put it in real-life terms, imagine asking a director 'what was your most effective or important decision?' and then 'what role did remuneration play in it?'. I think a lot of people would answer the second question 'not a lot'. At this point you might get the answer back that whilst incentive schemes don't directly influence decision-making in that way they do provide a sort of background incentive to keep the director wanting to do well. But then that starts to sound quite a lot like a hygiene factor, doesn't it?

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