I will protect your pensions. Nothing about your pension is going to change when I am governor. - Chris Christie, "An Open Letter to the Teachers of NJ" October, 2009

Friday, January 27, 2012

Merit Pay Fails Outside of Schools

Merit pay is a disaster wherever it goes:
We’ve talked about this since the financial meltdown. Now it’s time to do it: Unlink pay from performance. The evidence keeps growing that pay for performance is ineffective. It also may induce executives to take company-killing risks. There are other ways to motivate employees that yield better results at lower cost.
Thanks mainly to provisions linked to performance, CEO compensation has skyrocketed in recent decades, while its correlation with actual corporate performance has remained as weak as ever. This has been most true in the U.S., where among the S&P 500 the ratio of average CEO pay to average employee salary went from about 40:1 in the 1970s to 325:1 in 2010. The ratio isn’t as extreme in most other countries, but the trend is the same. Below the top level, mismatches between pay and performance aren’t so acute. But all variable-pay-for-performance schemes still suffer from four inescapable flaws: 
1. In a modern economy, where new challenges emerge constantly, it’s impossible to determine the tasks that will need to be done in the future precisely enough for variable pay for performance to work well.
2. People subject to variable pay for performance don’t passively accept the criteria. They spend a lot of time and energy trying to manipulate the criteria in their favor, helped by the fact that they often know the specifics of their work better than their superiors do.
3. Variable pay for performance often leads employees to focus exclusively on areas covered by the criteria and neglect other important tasks. This is known as the “multiple tasking” problem.
4. Variable pay for performance tends to crowd out intrinsic motivation and thus the joy of fulfilling work. Such motivation is of great importance to business, because it supports innovation and encourages beyond-the-ordinary contributions.
The idea that people work only for money has been thrown overboard by leading scholars. Research has shown that human beings are not interested solely in material gain. They care for the well-being of other individuals and value recognition from coworkers. Many employees apply themselves because they find their work challenging and worthwhile. These nonmaterial motivations point to better ways to get results from the members of an organization.
Hey, I'm all for merit pay if I get treated the same way as Jeff Immelt. What do you say, Merit Pay Fairy?

Dem CEOs is always askin' me to wave my wand!


Deb said...


Besides the fact that your humor always makes me chuckle - and the images that you provide for us - I think that you have turned the discussion to a very important area. If the push is to corporatize education - lets look at how market systems have worked in the corporate world -who has walked off with the millions, who was left holding the bag, and who had to bail them out! So, if it goes equally as well in education, can we expect that a few years from now the Federal Government will be willing to bail out the entire country's public education system?

Duke said...

Deb, I wouldn't hold my breath on that...

I've said this over and over again: corporate America has no right to come into schools and tell educators what to do when they are such major screw-ups themselves. Get your own damn house in order before you start telling us what to do.

Anonymous said...

I thought the same thing when Corzine was pushing his socialist agenda on the school systems.

I haven't heard any such Corzine scandal amongst the billionaires you like to squeak at, Duke.

I think every teacher at every school knows who the great teachers are and who the terrible teachers are. They also know which ones are teaching calculus to special ed high school students and which ones are teaching kazoo to kindergarteners. Not to malign what you do, I'm sure the kids enjoy it.

Duke said...

Anon: do you think there are a lot of special ed students taking calculus?