Monday, May 19, 2008

One reason high profits don't seem to be enough...

I had always suspected that improved profit levels for farmers would boost larger operators much more than small, and the emergence of very large operations paying very high rents would seem to indicate there is some validity to that statement. Still as many of us look at current margins, even the most quarrelsome have to admit compared to as recent as 2006, business is pretty good.

[I know, I know - bad times are a-comin'. I'm just saying most of us will be paying a lot of income tax next February.]

But one big reason for the contentment shortage (the euphoria came and went pretty fast, didn't it?) is that relative reward matters more than absolute reward. In other words, we like doing better than competitors more than doing better than we used to.
But overall, the researchers say that envy trumps ambition: the negative impact of relative position outweighed the positive effects of pay incentives.

It's hard to argue, however, that the finding could be applied broadly to more conventional working environments. In the N.B.A., for example, players know how much their teammates make. If you don't know your colleague's salary, you'd be much less likely to change your effort. And the relatively higher wages professional athletes make may give them more of a cushion to slack off. Someone making 5-figures is more likely to be concerned with things like food and shelter than a player making $1 million per year.

Still, in places where an employee's output is more visible and is directly linked to his pay (like sales or asset management), incentive pay arrangements may be causing more harm than employers realize. [More, and read the excellent comments, too]
While this is eroding the high times for farmers in the midst of unprecedented gain, it also has some implications for other occupations. One in particular is performance pay for teachers. As school boards grapple with this concept, one of the most complicating factors is public knowledge of teacher salaries. In order to be successful, some information shielding may become necessary.

This brain bias sheds a whole new light on the ideal of modesty. As private wealth numbers become easier to find and compare, wealth loses its ability to bring much satisfaction.

Don't ask, don't tell could be a motto for more than one situation.

1 comment:

Anonymous said...

Pastor cornered me at a church meeting about how I gould get so much for my grain when starving people can no longer afford basic staples. After some polite discussion I asked him how many tons of rice his sailboat could provide to those same people. I was accused of not fighting fair!