As old men occasionally do, Christopher Fildes in this week’s Spectator makes an interesting point. Rather than pay chief executives big bonuses, he says (reg req):
I advocate executive maluses, or mali. These, in bad years, would make the chief exec contribute to the company, which could obviously use the money — a genuine incentive to perform.
This is consistent with today’s thinking about the psychology of risk. According to Kahneman and Tversky’s prospect theory, most people are loss averse. They’ll do more to avoid losing, say, £10,000 than they’ll do to gain £10,000.
Whether this is because of the endowment effect or habit formation in consumption doesn’t matter here. What matters is that people might work harder to avoid losing money than they will to make money. After all, if you want to teach someone to swim, it’s better to throw him in the deep end than to offer him a cash prize.
This raises the question. Assuming you accept standard managerialist ideology, couldn’t there be a sharp trade-off between the pay package that best incentivizes managers and the package that retains and attracts them?
Speaking of the Speccie, Paul Johnson begins his column thus:
My old friend Peregrine Worsthorne was deploring the other day the decline in the quality of courtesans. And it is true that those who get themselves into the headlines today, either by the voracity of their sexual appetite or their status as mistresses of prominent men, do not strike one as notably interesting or desirable.
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