Wednesday, 2 April 2014


Management Masala Do You Know your Boss is Overpaid For Your Sake V K Talithaya OVERPAID BOSSES
Overpaid Bosses
Tim Harford, author and columnist begins one of his articles in Forbes magazine wondering what will be the reaction of a 'cubicle slave' in the office when he reads that his CEO sacrifices a mighty $2 million from his measly compensation of $6 million. The cubicle slave already gets pants stitched from sandwich bags!

In his famous book, Logic of Life Harford writes, “Not many people lie on their deathbeds wishing that they had spent more time in the office. Ah, the office: the mournful gloaming under the fluorescent strips, the monotonous swish of  the photocopier, the ‘ping’ as e-mails arrive from bullying bosses, work-shy colleagues and backstabbing rivals. Much of it is little better than spam.”

The source of all these curses of the office is the lack of information – data on who does how much and what quality of work, who is hard-working and who is a laggard, who is honest and who compromises etc. Lack of data muddles the organization’s decision on compensating the employees for their work. Much of this vital information is hard to come by, so it is hard to pay people truly as they deserve. HR managers grapple with these challenges by designing what they call performance management systems, drawing intimidating forms and charts, meetings and discussions with aw-inspiring jargons (ah! ‘assessment centers’,'performance drivers', 'score cards') and so on. Though these ‘initiatives’ create an aura about performance management, their real effect is obfuscation of the working of the office. That is why Harford wonders, “The office is routinely satirized as the world’s most illogical place: could there possibly be a rational explanation for it all?”

A look outside the office throws some light. Being a writer and columnist naturally Harford looks at publishing. A publisher pays the author by the number of copies of the book sold. Copies sold can be tracked correctly. But that is not the case with decisions a manager makes or its consequences.

Management Masala Do You Know your Boss is Overpaid For Your Sake V K Talithaya

Overpaid Bosses

In factories, piece rate payment is logical, improving output, productivity and quality. Piece rate is payment based on output or performance. But even in factories there are many operations or functions which cannot be accurately measured and attributed to an individual. Monitoring and measuring these are too cumbersome.

Since rewarding better performance is important for the organization, but measurement and monitoring is not cost effective, bosses look for other ways of evaluation and rewarding. Rather than looking clearly at targets, objectives, measurable results etc. they use discretion, which is based on their impressions of how well the employee has done rather than on any dependable data. Presumably, though performance cannot be defined it can be recognized when an employee has performed. This is in contrast to management philosophy of every action to be based on data and every re sult to be measurable. Discretionary decisions of bosses mean that pay rises are given to employees on the basis of performance which everybody claims to know but nobody can define.

That is where tournament theory enters. Two economists, Edward Lazear and Sherwin Rosen came out with the brilliant idea of turning the office life into a tournament. In a tournament you pay for relative performance. The winner gets the highest reward; the runner up gets the next highest, usually half of the winner’s take and the loser none. So, in office where you cannot be specific about performance, you pay the best performer the highest, the next one less and so on. Even though it is difficult to assess absolute performance, it is easier to assess the performance of one compared to the other. According to Lazear, “The essence of tournament theory is that relative performance matters. The theory predicts that workers should be judged and rewarded on the basis of their performance relative to others in their comparison group”.

Management Masala Do You Know your Boss is Overpaid For Your Sake V K Talithaya OVERPAID BOSSES
Overpaid Bosses
The problem with this is that employees may adopt one of the following three strategies:
(a)    Work hard to get the reward
(b)   Create obstruction to others from doing better than them, backstabbing.
(c)    A combination of (a) and (b).

However, tournament theory has stood the test of time and has been supported by subsequent empirical research. Ed Lazear, has comments: “The salary of the vice president acts not so much as motivation for the vice president as it does as motivation for the assistant vice president”. Tim Harford says it also makes a perverse kind of sense: the more grotesque your boss’ pay, and the less he has to do to earn it, the bigger the motivation for you to work with the aim of being promoted to have what he has (and do not have  to do what he does not do).
Management Masala Do You Know your Boss is Overpaid For Your Sake V K Talithaya

But who does the CEO compete with? Hartford goes on to say, “This is one of tournament theory’s more entertaining implications…the idea that a CEO’s pay could be entirely unconnected with any decisions the CEO might make. In this view CEOs have been removed from the productive flow. They are mere figureheads, more like he Queen or the recipient of a lifetime achievement award than people who do anything important”.

So, next time you feel you have Overpaid bosses , relax! The CEO does not take this onerous burden lightly. In Alexander Kjerulf’s words, the CEO laments, “Sure it is tough to be ludicrously overpaid, but it is a burden I gladly carry for your sake”

By V.K.Talithaya (
Management Masala Do You Know your Boss is Overpaid For Your Sake V K Talithaya OVERPAID BOSSES

On 4/02/2014


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