February 22, 2008


Quick, look idle: Why every company has a useless VP, paid to sit at a mahogany altar (BRIAN BETHUNE, Feb 21, 2008, Macleans)

The question of the idiot boss is tied to a classic problem: the problem with rewarding talent, honesty and hard work in the office, a place where, Harford argues, those qualities are inherently hard to measure. There are too many variables, for one thing. The more precisely employers define what they want to reward, the more employees will rationally cut back in other areas: offer incentives for speed, and quality will suffer. A common response is to offer rewards for “good work” without being too precise about its definition. But all solutions carry the seeds of unintended consequences, Harford notes before he sums up the problem with this one: “Managers are lying weasels.” In other words, any manager—but especially one whose own salary is linked to cost-containment—has a powerful incentive to wriggle out of bonus payments, something easily done when management defines arbitrarily what’s “good.” And a reward employees suspect might never be paid doesn’t exactly spur them on.

That problem is answered by the most common pay structure in use today, which rewards relative rather than absolute achievement. The economists who study it call their work tournament theory, because a tournament is exactly what the pay system becomes. Just as Tiger Woods does not have to reach an arbitrary standard of “good” golf—say, a minimum of six holes-in-one—to win the U.S. Open, in an office tournament the winning worker, the one rewarded with cash or promotion, merely has to be better than his co-workers. Since someone has to be best, just as someone has to win the Open (even if, in a bad year, he comes in at two over par), employees will buy into a reward system based on relative effort, and will also pay attention to all aspects of their work.

Solve one problem, create another. What Harford, laughing, calls the “horrible, beautiful thing” about workplace tournaments is the way they “explain the misery of the office with remarkable accuracy.” Employees soon learn there are two ways to win. “Do a great job or make sure your colleagues do a bad one.” No other reward structure makes it more rational to stab your co-workers in the back. A study of 23 Australian firms found that under this system, workers did indeed put in more effort—days off fell significantly—but refused to lend equipment, tools or advice to their colleagues. (That was the behaviour they were willing to admit to; some, at least, would have taken the logic of their situation to its limit and offered wrong advice.)

How does the tournament create the idiot boss? For incentive, Harford says, nothing beats the combination of money and idleness: “The more grotesque your boss’s pay and the less he has to do to earn it” the bigger the motivation for you to strive to reach the same level of nirvana. The salary of vice-presidents is not, according to tournament theory, there to motivate vice-presidents, but to motivate their juniors.

...that would be less effective is it was cut in half. One of the biggest problems being that these guys are rewarded for doing well at the tournament, not at having any clue how the lower level employees create the product the company sells or how to do so better. Indeed, the winner of the tournament is likely to be the guy who takes other employees away from the company's core task for the most time in order to squander hours on human resources hooha.

Posted by Orrin Judd at February 22, 2008 6:32 PM

"tournaments" are tests, and the biggest waste of all is the 50-60% of education spending that goes to bureaucrats pushing paper from one end of a useless school 'district' to another.

Posted by: Bruno at February 22, 2008 10:26 PM