I've been banging on for a few years about incentives and motivation. It's been interesting to watch as the common sense that performance-related pay is A Good Thing has lost legitimacy. However even despite the growing awareness of problems with relying on incentives the practice has continued to expand. Some people in Responsible Investment are enthusiastic advocates, believing that tying ESG metrics to exec pay (for example) would deliver better behaviour. I'm sceptical to say the least.
A couple of recent examples demonstrate why this is a live issue. First up is the news that Neil Woodford and his firm have decided to stop paying bonuses. This decision has been argued in terms that will be familiar to anyone who has been following this debate - relying on incentives to get people to do things can actually encourage some pretty dodgy/damaging behaviour and/or crowd out intrinsic motivation to do the right thing. The Woodford example is particularly striking as it comes from the sector - finance - where reliance on incentives is most extreme. But perhaps we shouldn't get too excited. There's a good blog from Chris Dillow on why others in finance may be unlikely to follow.
And this leads on to the other recent story where performance-related pay was a big factor: the Deliveroo strike, which was ultimately victorious. At its heart was a new incentive structure. Rather than being offered basic flat rate with a small incentive on top, the company was proposing paying couriers entirely on performance - i.e. a payment for each delivery. This is of course simply piece work, and I know other delivery firms have used it, but it is dressed up by Deliveroo as somehow more "flexible" for staff. Essentially this model is 100% performance related.
If I remember rightly, the founder of Deliveroo comes out of investment banking so he is likely to be used to big incentives, and might be perplexed as to what all the fuss is about. It reminded me of a conversation I had with a private equity manager when he was hugely enthusiastic about paying bar staff entirely in tips. Why wouldn't anyone want to be paid like that, he asked?
This adds even more complexity to the incentives discussion - what if some people simply don't like being paid on performance-related basis? This is probably partly context. In the case of Deliveroo couriers, or any low-paid workers, this style of remuneration might simply represent an economic threat. If you can't deliver the performance at an effective rate you could lose out financially and be pushed close to the edge. This, of course, has been a big bit of the piece rate story through time. Rather than offering more to the worker, it just ends up being exploitative, or degrading. (The power dynamics around rich private equity types getting people to work for entirely tips don't feel quite right do they?)
But people also have different intrinsic attitudes to risk, competition and so on. No doubt there's an interplay here. People can learn to behave in a more competitive/self-interested way, and the use of incentives can facilitate this (let's leave aside whether this is desirable or effective, even in profit-driven organisation). But some people won't ever want to have more risk in their remuneration, even if they are well-paid - this was picked up by research done by PwC a few years back. It might actually only be a minority of people (maybe even executives) who like a large variable element of pay.
When you think about it, this is an even stranger part of the performance-related pay story. We are increasingly encouraged to expect to be treated as individuals, with our own tastes, values and so on. So why do companies/sectors employ a blanket approach to remuneration where often faulty assumptions are made about what we want and how we might respond to the use of large incentives?
Personally, I think that we will only get into a more productive discussion about remuneration when we abandon the assumption that "performance linkage" is an unqualified good, and an inherently desirable objective in pay design. That still seems like a long way off.
PS - Even where we have a company that needs entrepreneurial talent, and even where the executive(s) are amongst those that DO like a large variable element, we should not assume this marries well with what performance-related pay "reformers" are offering. I think it is likely that many entrepreneurs are incentivised by relatively short-term success. I think they may have to be a bit "short-termist" in their thinking to get over over all the barriers that face them. I don't think they are likely to be incentivised by share schemes that are locked up for years. But then that's another argument for not adopting a blanket approach.
Friday 26 August 2016
Thursday 18 August 2016
Altruism, reciprocity, fairness and the Left
One of the things that troubles me about Labour at the moment is the apparent retreat into "worthy" politics. It's typified a bit by that slogan "Standing Up, Not Standing By" and most of all by that godawful meme where Jeremy Corbyn says that socialism is sensible because it's all about caring for each other.
Let me state from the outset the altruistic aspect of the Left has always appealed to me personally (though I do find that "caring" meme nauseating), and I think it must be part of any successful Left in the future. But I also believe that when the labour movement was strong in the past it appealed to a wider range of values, and motives.
Let's start with unions. The large majority of normal people don't join unions as an expression of altruism. I hope this isn't too shocking, but really I don't think most people are 'proud' union members and they don't have a lump in their throat when they set up their direct debit to Unite or whoever. They join because they think there is a benefit - be it a sort of "insurance" against anything bad happening at work, or because they think they can earn more through being a member or whatever.
Most people don't join unions because they are attracted to the idea of solidarity either. They learn solidarity as co-operative tactic that pays off. In time they may get the same rosy glow from the idea and experienced reality of solidarity that altruists are probably naturally attracted to, but first and foremost it's a tactic, not a virtue, and it's none the worse for it.
I hope most people will find this relatively uncontroversial. Unions were formed to advance the material interests of their members, so it's not surprising that self-interest is important. What is worth registering is that for a very long time millions of people thought their self-interest was served by joining unions, and by showing solidarity with other workers. When we look back, in the past unions obviously appealed to the idea that we help each other. But the way this was expressed was very different - through solidarity working people primarily projected strength and self-determination more than being virtuous and altruistic.
This makes a lot of sense now we know a lot more about how people behave. In behavioural economics there have been hundreds of experiments that seek to understand competitive versus co-operative behaviour, and the factors that affect it. A very rough picture emerges of the make up of society. About one in five of us are altruistic by nature, so we'll always tend towards co-operation just because that's who we are and what we like. A quarter of us are the opposite - inherently competitive, and so will always default to the self-interested option. But the biggest chunk of us are in the middle. We will play nicely, but on the basis that it's reciprocated. And if it isn't reciprocated we will punish those that infringe.
This is also important because it gets into the territory of "fairness". Now a lot of Righties these days argue that because fairness is hard to define we should forgot the concept when looking at economic rewards. Probably a fair chunk of them are in the quarter of us who are simply competitive and self-interested. But equally most people aren't into unreciprocated fairness. Altruists think about what is fair on you, most people in the middle primarily think about what is fair on them. They don't mind collective solutions if everyone is in, but they hate getting ripped off.
This says a lot about why the Left has such a problem with welfare reform. Most of us hate the idea that people cheat the system, or take out more than they deserve. Some of us (many of us on the Left) feel very passionately to any attempt to take away welfare provision which we feel should be provided as a right, but those of us are in a minority, probably even amongst Left voters. Most people feel that reciprocity must be part of the mix. Obviously people's knowledge of the true extent of benefit fraud etc is typically miles off target, not helped by media who stoke the fire. But the fact those stories generate such anger, and can be used so effectively by the Right, is perhaps a good indication of how strong the pull of reciprocal fairness is.
So to come back to Labour, I think we need to be aware that trying to appeal to altruism, being virtuous, or caring about each other is going to resonate with a small minority of people. Much as I hate the term "virtue signalling" I do think there is a point in there somewhere. Most people are not going to be won over to the Left by appeals to treat others fairly, and appeals of this nature can come across as pious or simply out of touch (leaving yourself open to being ripped off).
A successful Left will have to appeal to self-interest, and should not be afraid of this. When we have been at our strongest it was when millions of people felt that they and their families benefitted from being part of the movement. It was not through an upsurge in caring. In practice, working together collectively, expressing solidarity, delivered and so it both showed strength and felt good. And collective solutions were durable when people felt "this is fair on me" not "this is fair on you". If we can reformulate these things we can win again.
Like the man said: the meek ain't gonna inherit shit.
Let me state from the outset the altruistic aspect of the Left has always appealed to me personally (though I do find that "caring" meme nauseating), and I think it must be part of any successful Left in the future. But I also believe that when the labour movement was strong in the past it appealed to a wider range of values, and motives.
Let's start with unions. The large majority of normal people don't join unions as an expression of altruism. I hope this isn't too shocking, but really I don't think most people are 'proud' union members and they don't have a lump in their throat when they set up their direct debit to Unite or whoever. They join because they think there is a benefit - be it a sort of "insurance" against anything bad happening at work, or because they think they can earn more through being a member or whatever.
Most people don't join unions because they are attracted to the idea of solidarity either. They learn solidarity as co-operative tactic that pays off. In time they may get the same rosy glow from the idea and experienced reality of solidarity that altruists are probably naturally attracted to, but first and foremost it's a tactic, not a virtue, and it's none the worse for it.
I hope most people will find this relatively uncontroversial. Unions were formed to advance the material interests of their members, so it's not surprising that self-interest is important. What is worth registering is that for a very long time millions of people thought their self-interest was served by joining unions, and by showing solidarity with other workers. When we look back, in the past unions obviously appealed to the idea that we help each other. But the way this was expressed was very different - through solidarity working people primarily projected strength and self-determination more than being virtuous and altruistic.
This makes a lot of sense now we know a lot more about how people behave. In behavioural economics there have been hundreds of experiments that seek to understand competitive versus co-operative behaviour, and the factors that affect it. A very rough picture emerges of the make up of society. About one in five of us are altruistic by nature, so we'll always tend towards co-operation just because that's who we are and what we like. A quarter of us are the opposite - inherently competitive, and so will always default to the self-interested option. But the biggest chunk of us are in the middle. We will play nicely, but on the basis that it's reciprocated. And if it isn't reciprocated we will punish those that infringe.
This is also important because it gets into the territory of "fairness". Now a lot of Righties these days argue that because fairness is hard to define we should forgot the concept when looking at economic rewards. Probably a fair chunk of them are in the quarter of us who are simply competitive and self-interested. But equally most people aren't into unreciprocated fairness. Altruists think about what is fair on you, most people in the middle primarily think about what is fair on them. They don't mind collective solutions if everyone is in, but they hate getting ripped off.
This says a lot about why the Left has such a problem with welfare reform. Most of us hate the idea that people cheat the system, or take out more than they deserve. Some of us (many of us on the Left) feel very passionately to any attempt to take away welfare provision which we feel should be provided as a right, but those of us are in a minority, probably even amongst Left voters. Most people feel that reciprocity must be part of the mix. Obviously people's knowledge of the true extent of benefit fraud etc is typically miles off target, not helped by media who stoke the fire. But the fact those stories generate such anger, and can be used so effectively by the Right, is perhaps a good indication of how strong the pull of reciprocal fairness is.
So to come back to Labour, I think we need to be aware that trying to appeal to altruism, being virtuous, or caring about each other is going to resonate with a small minority of people. Much as I hate the term "virtue signalling" I do think there is a point in there somewhere. Most people are not going to be won over to the Left by appeals to treat others fairly, and appeals of this nature can come across as pious or simply out of touch (leaving yourself open to being ripped off).
A successful Left will have to appeal to self-interest, and should not be afraid of this. When we have been at our strongest it was when millions of people felt that they and their families benefitted from being part of the movement. It was not through an upsurge in caring. In practice, working together collectively, expressing solidarity, delivered and so it both showed strength and felt good. And collective solutions were durable when people felt "this is fair on me" not "this is fair on you". If we can reformulate these things we can win again.
Like the man said: the meek ain't gonna inherit shit.
Tuesday 9 August 2016
Sports Direct AGM: Vote FOR resolution 19
I've blogged quite a bit about Sports Direct previously, now it's your chance to do something about it.
The Sports Direct AGM takes place on 7th September, and the company has just issued its notice of meeting. Resolution 19 has been filed by Unite and Trade Union Share Owners in response to the appalling workplace practices that have been exposed at the company's ShireBrook facility.
The resolution calls for the company to undertake a genuinely independent review of its workforce practices, using an organisation or person acceptable to both the board and workforce. This review should look at issues such as the Living Wage, secure employment (the split between temporary & permanent), training and development and union recognition.
Given everything that has happened at Sports Direct over the past year there is nothing at all controversial in what is being asked for. This is a sensible resolution, with a clear and reasonable ask at a company which has demonstrably failed to manage its workforce properly. Any responsible shareholder should Vote FOR Resolution 19.
If you are a trustee, you need to ask your asset managers how they intend to vote on the resolution NOW. And if you don't like what they say you should instruct them how to vote.
To all colleagues in the labour movement please do all you can to raise awareness of the vote, and to encourage those who are shareholders to make sure they vote in favour.
Vote FOR resolution 19
The Sports Direct AGM takes place on 7th September, and the company has just issued its notice of meeting. Resolution 19 has been filed by Unite and Trade Union Share Owners in response to the appalling workplace practices that have been exposed at the company's ShireBrook facility.
The resolution calls for the company to undertake a genuinely independent review of its workforce practices, using an organisation or person acceptable to both the board and workforce. This review should look at issues such as the Living Wage, secure employment (the split between temporary & permanent), training and development and union recognition.
Given everything that has happened at Sports Direct over the past year there is nothing at all controversial in what is being asked for. This is a sensible resolution, with a clear and reasonable ask at a company which has demonstrably failed to manage its workforce properly. Any responsible shareholder should Vote FOR Resolution 19.
If you are a trustee, you need to ask your asset managers how they intend to vote on the resolution NOW. And if you don't like what they say you should instruct them how to vote.
To all colleagues in the labour movement please do all you can to raise awareness of the vote, and to encourage those who are shareholders to make sure they vote in favour.
Vote FOR resolution 19
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