Wednesday, 13 October 2010

Pay and performance

Just a quickie - Leigh at Knowing and Making has responded to my post from the other day with a great post here. Here's a good bit I hadn't considered:
Companies offer performance-related pay because that lets the good employees select themselves for the job. If you're not willing to be paid per (goal scored/extra penny on the share price/lawsuit won) then maybe you're not so confident in your abilities after all. And who'd know your own abilities better than you?
I also agree with Leigh that a) there isn't a clear answer to this one and b) much of the stuff about the negative impact of rewards is experimental - we definitely need some real-world evidence. This to me makes it all the more surprising that performance-related pay is an ever bigger slice of exec pay - as if its effectiveness had been conclusively proved.


CharlieMcMenamin said...

Two comments:
1. Who knows whether we measure performance of individual roles accurately in collective institutions like firms? There's an awful lot of theory - and ideological 'cover' for existing practices - to unpack here. I'm with Brecht

2. Even on Leigh's own argument, performance related pay doesn't reward the good but the confident (possibly the over confident. It isn't true that you always know your own abilities better than anyone else....

Tom Powdrill said...

Hi Charlie

just on point 2, I agree it could lead to overly confident people coming forward/being promoted.

It also made me think about confidence generally. On the one hand optimistic people (assuming we think there is an overlap with confidence) tend to put failure down to external factors. So even if they don't get the bonus because they don't hit the target, they may put this down to things like poor calibration of the targets, poor general environment etc etc. So again that seems to argue against performance-related pay.

Off on a tangent Carole Dweck has done some really interesting stuff on theories of talent. Put simply, people who think of their talent as innate (rather than the result of hard work, and thus able to be develop) tend to prefer easier or more familiar tasks. I'm sure there must be some application in here somewhere....!

Andrew Curry said...

And it also depends on your definition of 'good'. Almost all the research on high performing businesses suggests that they place individuals with a range of abilities in a system which works to make everyone work better. The City delusion is that individuals make a difference to performance when we know that they make very little. The delusion of performance related pay is that it reinforces such market-driven myth-making, and creates a dangerous culture of entitlement.

ajb said...

Dunning-Kruger effect (, anyone?