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April 23, 2015

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Steven Clarke

"And Nobel laureate Jean Tirole has argued that bonuses can cause "significant efficiency losses" by over-incentivizing some roles and under-incentivizing others"

This supports the Hayekian argument that bosses simply lack the knowledge to run their firm effectively. There may be a great deal of tacit knowledge about important roles and staff members that aren't available to them.

Matt Moore

Bollocks. If the authors are so sure that big bonuses reduce productivity, they should be starting a company with lower bonuses, higher base salary, and making a killing, not writing papers.

If this is true, supposedly very greedy shareholders and senior managers are foregoing extra money.

It may well be true in some circumstances. Probably those we don't observe bonuses. I highly doubt that very competitive labour markets are systematically and largely wrong about productivity incentives.

Also, who are the experiment participants? Likely there are during selection effects - those who are motivated by bonuses sell them out, while those who are discouraged do not.

Procyon Mukherjee

Two of the papers by the Nobel Prize winning Economist, Jean Tirole, ‘Intrinsic and Extrinsic Motivation’ and ‘Competitive Pay, Screening & Multi-tasking’, co-authored by Roland Benabou, are replete with examples that point to the facts that incentives are not about performance, per se, but hinge on the alignment of objectives between the principal and the agent and that higher their extrinsic value, lower is their potential to succeed, while intrinsic factors remain more entrenched in the drive for achieving self-driven goals, which may or may not serve the purpose that a principal could be bent on. The biggest malaise is however the estrangement of cooperation when extrinsic factors act as impediments between individuals or groups; the great virtues of cooperation and vulnerability seem to be missing as extrinsic incentives come to play.

Larrydpowell

It takes worker bees for the Queen & hive to survive, too many Queens and the hive breaks down.

Metatone

"Very competitive labour markets" - where would those be then?
If labour markets were very competitive, we'd see constant innovation and new pools of labour being developed...

Kevin Carson

Bollocks yourself, Matt. You're assuming that senior management remuneration depends on higher productivity, when it's far more plausible that -- like the Soviet ruling class or antebellum southern cotton planters -- they prefer a less efficient way of organizing production because it lets them skim more off the top.

They'd rather have a bigger slice of a smaller pie -- and their very act of taking a bigger slice reduces the size of the overall pie.

I can easily imagine someone in the 1850s saying "bollocks" to the assertion that slavery was inefficient, by arguing that if that were so some innovative cotton planter would be organizing their slaves into self-managed cooperatives.

Have you ever considered that capitalism has structural features that limit competition, so that large corporations don't HAVE to be efficient to survive?

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