webinar: motivating and evaluating performance
Post on 06-May-2015
402 Views
Preview:
DESCRIPTION
TRANSCRIPT
1
Motivating and
Evaluating Performance
2I sure hope she knows how to use that thing!
3
Questions about Paying for Performance
Why tie pay to performance?
What are the unintended consequences of tying pay to performance?
How can (and do) accountants help?
What if people are Homo Sapiens, not Homo Economicus?
4
Free pdf: http://ssrn.com/abstract=2427106
If you have objectives you wan to accomplish, this book is for you!
• Are we achieving your objectives?
• Is our strategy working for achieving our objectives working? If not, what should we do differently? Are we executing our strategy poorly, or is the strategy flawed?
• How can we encourage others to pursue our objectives, rather than their own?
• How should we reward people for their contributions?
5
Why Pay for Performance?
Motivation
Communication
Risk-Sharing
Screening
6
Motivation
7
The Piece Rate System
8
Communication
9
Risk Sharing
10
Why Share Risk?
11
Screening
12
Principal-Agent Theory
13
Choose Your Poison
Low Motivation
High Pay
Costly Reporting Systems
14
No System is Perfect
15
The Participation Constraint
16
• I returned, and saw under the sun, that the race is not [always] to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favour to men of skill; but time and chance happeneth to them all.• Ecclesiastes 9:11
17
Incentive Intensity, Motivation & Risk
18
The Compensating Differential
You need to pay extra to get people to take risky jobs—even if the risk is “only” unpredictable pay
19
Incentive-Compatibility Constraint
20
The Law of Measure Management
Measure Management
Distorting operations or
reporting to manage the measure of
performance, rather than the underlying
performance the measure is intended
to capture
Measure management arises when measures capture performance constructs with error, the people being evaluated are aware of this fact, and people have discretion to distort either operations or reporting.
21
Constructs & Proxies
22
23
The Allegory of the Cave
24
The Modern-Day Cave
25
Skepticism
A belief that shadows are unreliable representations of underlying reality (forms).
26
Cynicism
A belief that people act in their own self-interest, and intentionally creating shadows that are unreliable representations of underlying reality (forms).
27
Imperfect Measures Cause Moral Hazard
• Being insulated from the full consequences of your actions
• Arises when the principal cannot distinguish luck from other factors that determine performance
Moral Hazard
28
Outputs vs. Outcomes (GASB)
• Measures that quantify the amount of a service provided. For example, the lane-miles of road repaired, school graduation rates, number of patients treated in the emergency room, tons of garbage collected, or number of fires extinguished.
Outputs
• Measures that gauge the accomplishment or results that occur at least partially because of the services provided. They provide a basis for assessing how well a service's goals and objectives are accomplished. Outcome measures indicate the quality or effectiveness of a service.
Outcomes
29
Why Governments Care
“Bragging about how many new schools you’ve built counts for little until children start graduating with economically useful skill sets.
(Link)
30
Outcome-Based Contracting
• Charge for outcome (reliable operating time) not output (hours of repair)
‘Power by the Hour®’,
31
Is Our Causal Model Correct & Complete?
32
Three Problems To Watch For
• Omitted underlying constructs• Mistaken links between underlying constructs
Flawed Theory
• Poor representations of the constructs• Omitted variables
Flawed Proxies
• Unintended consequences
Flawed Application
33
Implementation Problem # 2
Incentive Intensity
Slope of Pay-Performance
Line
Quality of Performance Measurement
System
Noise in Proxy Measures for
Effort
Compensating Differential
Level of Pay Given Expected Output
Higher incentive intensity increases motivation, but imposes risk on the agent—risk averse agents will demand higher pay (a compensating differential)
A better performance measurement system reduces this cost of incentive intensity
34
In a Nutshell:
• If you have good measures of how hard or smart people are working, you can base pay on them with high incentive intensity
• The noisier your measures, the lower incentive intensity must be
Output measures
• If you can’t easily measure how hard or smart people are working, you must base pay on outcome measures
• Omitted variables make outcome measures uncontrollable, so incentive intensity can’t be too high
Outcome measures
• The better your performance reporting system, the more cheaply you can motivate workers and screen for ability or work ethic
• The worse your system, the more you will have to pay in compensating differentials and the more you will screen for risk seekers
Performance Reporting Systems
35
LIMITATIONS OF THE MODEL
36
Effort and Pay are Not Enough
• The head of a Federal agency might not agree with the President’s goals
• Requires a “disagreement-based” model
Agents might care about the outcome
37
Paying for Creative Advertising
• Effort doesn’t improve creativity
• Effort can even harm creativity
Effort might not improve performance
38
The Crowding-Out Effect
Extrinsic incentives can
dampen intrinsic motivation.
Don’t turn play into work!
“Fat Kids Who Hate To Read”
39
Gamification
Dollars are not as motivating as you might think
“Winning” is motivating, even if there is no prize
40
Free pdf: http://ssrn.com/abstract=2427106
top related