

The Economics of Pay Incentives: a 116% Productivity increase - smanek
http://www.slate.com/id/2197735/

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tomjen
That story was interesting, but it is properly worth pointing out that the
productivity was fruit picking, a line of work were the results are easy to
measure and compare, the requirements of skill are modest and the difference
between the highest and lowest performer small. Care should therefore be taken
before this is applied to other areas where these assumptions no longer holds,
such as software development.

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vitaminj
Definitely. And it should also be noted that the work in the story is
seasonal. I'm not sure that the incessant competition in this performance-pay
model would be entirely conducive to retaining staff long-term. However, this
may not be a big problem with unskilled industries where staff turnover is
high anyway.

~~~
netcan
Yes. The seasonal thing is central. Important assumptions here are basically:

A - Workers have no incentive not to screw the employer.

B - Employing/Retaining staff's not an issue. This is also part of the
seasonal work. It's not worth looking for a different job when it's only a
couple of weeks.

If this were a more perfect market (infinite time, perfectly informed
participants ...), the decreasing marginal rates (to avoid being over
generous), would disappear. You'd be better off pinching your neighbour's
picker that picks twice 2x fruit with 2 X minimum wage then keeping you 0.9x
picker at 1 X minimum wage.

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aristus
Also be careful about side effects. In my town the city tried a neat rule for
garbage men: finish your route and you can go home, but we'll pay you the
full-time wage. This had two results:

1) garbage routes were completed more quickly 2) on-job injuries (pulled backs
and hernias) went way up

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josefresco
Great little story, I wonder if they cut back health benefits for injuries
related to "hauling ass" if it would re-balance.

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witten
For another take on the subject:
<http://www.joelonsoftware.com/articles/fog0000000070.html> (Incentive Pay
Considered Harmful)

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gaius
Joel would say that, since "incentive pay" comes out of his profit!

The prospect of more money wouldn't convince me to do a job I actively
disliked but at the end of the day I'm a professional. I do what I do for
money. The company isn't shy about boosting its revenue and making profits,
why should I be?

~~~
cdr
Joel would be one of the least concerned about how incentive pay affects his
profit - he spends way more than average per developer, but in the areas where
he thinks it has a positive effect, like above average salary, good
desks/chair, etc.

You may dislike Joel, but but that's a stupid argument.

~~~
gaius
I like Joel, and have subscribed to his blog for years, and what he say often
seems to make a lot of sense. However, I know a lot of people in this
industry, and I don't know a single one who uses a Fog Creek product. That, to
me, speaks volumes.

~~~
cdr
You don't personally know anyone who uses Fog Creek software, and that means
what? Fog Creek is a failure?

Fog Creek looks to be doing quite well whether you know anyone who uses their
products or not.

~~~
gaius
It means that Joel's writing, while good _writing_ , carries no more weight
than any other tech blogger (of which there are many).

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boredguy8
That works because the managers can do the job of their employees. Most tech
fields to which I've been exposed, managers might have once been able to do
the job of employees, but are either out of touch with the technology of today
or their skills have ossified.

Not to mention the managers that could never do the job in the first place...

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ars
I'd hate to be a worker there - you go from an easy job to a really hard one -
without really getting more money. I wonder if they took that into account.

If I knew about this, I'd find a different farm to work on.

Also adding teams added a lot of stress to the workers, again that's not
someplace I'd like to work.

I think they should have rolled back the teams idea and stopped.

~~~
paddy_m
Well if everyone followed your path, they would find themselves making minimum
wage. You could chose to work at the minimum wage farm, or the productive farm
where you would be making more than minimum wage. You would also find that the
minimum wage farm would be likely to go out of business.

~~~
ars
No, the implication was that the whole point of doing this was to get as much
output as possible while paying minimum wage.

That was the whole premise - the whole thing about tuning the piece rate - it
was to make sure each person earned minimum wage, and no more, but also not
less, because otherwise they are paying extra (to make up the difference),
without getting more fruit.

~~~
gojomo
I think you misread the article. The farmowner was happy to pay more than the
minimum wage for more-than-minimum productivity.

~~~
ars
I'm getting down mods, and you're getting ups. But I read it _again_ and I
don't see anywhere at all where it says that!

Exactly the opposite: "their wages didn't fall below the legal hourly minimum.
Farmer Smith tried to adjust the piece rate each day so that it was always
adequate but never generous"

Where are you seeing that he is paying more? All I see is him paying the same,
but getting more output via competition.

And again:

"(If the managers made a mistake in their estimate, and the pickers didn't
earn minimum wage, Farmer Smith would make up the shortfall"

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netcan
I went over it again and had a look at the linked paper.

The farmer originally had the minimum wage problem. The piece rate needed to
keep everyone over minimum wage regardless of skill level or field quality. So

    
    
       (Piece rate) = (Minimum Wage) / (the lowest performer's fruit quantity).   

You can scale incentive on additional output, but it has to go up from there.

In this environment, he could probably work out a pay scale that works & it is
to his advantage if worker earn more then minimum wage (because he probably
pays less for marginal output).

Problem was that another productivity factor is the field. So, if he sets the
above rate based on the worst field he is over paying workers on the best
field. This is where 'generous' comes in. It means they were getting paid for
being on a good field not working faster. His solution was scaling based on
group productivity.

In a perfectly individualistic market, this is a good system . But the workers
colluded to work less for the same pay (as opposed to getting paid more).

The economist 'fixed' that by removing the group incentive (they call it an
externality) to pick less.

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paddy_m
I think the most accurate description of Farmer Smith's intention would be to
maximize the amount of productivity he received per dollar paid.
production/cost = x Solve for x, maximizing x. His objective was to maximize
x, not minimize cost.

