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by Laurent Bossavit.
Original Post: The Compensation Game
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Feed Description: You're in a maze of twisty little decisions, all alike. You're in a maze of twisty little decisions, all different.
One reason occasionally advanced for wanting to measure individual performance is that compensation is individual. A manager may therefore want to tie compensation to individual performance or "worth", at the very least so that the ranking of compensation levels reflects the ranking of individual "worth".
In a recent discussion over on the Extreme Programming list, Ron argued (or seemed to argue) that the "better" performers should be paid more, and that this was obviously desirable and proper of any given compensation scheme. My response was that this was far from obvious, on at least two grounds - ethical and utilitarian (i.e. is that policy actually in the best interests of the businesses which practice it).
The utilitarian issue is interesting in its own right, but for some reason the notion that "better people are paid more" is not necessarily fair seemed the more controversial of the two.
The point of forming a team, or for that matter a business, is that several people together will produce more value than the sum of what they could produce separately. An assessment of "better" is to be taken as "contributes proportionately more to the extra value", or variations thereon. A first-order measurement of this might be how fast a person codes - his or her individual velocity.
The owner of the extra value does have the right to distribute it however he/she/it sees fit, by definition of "ownership". (That authority is usually delegated to the manager.) In particular, the owner might well decide to keep all the extra value for him/her/itself. That might have a negative impact on morale - an illustration of the utilitarian issue.
The ethical issue is about redistributing the "extra value". Who is to get a bigger share ? And who is to decide on how big a share everyone gets ?
Our current understanding of the corporation yields definite answers to these two questions, with a small range of variation. Management typically gets a bigger share than performers (regardless of demonstrable contribution to added value), and management gets to decide who gets a bigger share. It is far from obvious that this is a fair arrangement.
I proposed a game which allows exploring both questions.
First, postulate a team: Alex, Bri, Chris and Dee. Three are male, one female. Two are US citizens, two are immigrants. One is wealthy enough (by family) not to really need a salary; two are middle-class; one sends money home to a poor family. One of them, when part of a pair, consistently causes that pair's stories to be done much faster. One of them is "appointed leader" of the team. One has been in the team three years, one joined three months ago. One was brought in during the job market's darkest days at a low salary. And so on; we can make this game more interesting by filling in plausible life details.
In the second round of the game, you (and three other players) will be handed a card: A, B, C, or D. The card stands for one of these life histories. On the table will be a project case study, with financial results. These results may translate into either a global raise budget to be apportioned to the team, or into a decision to reduce personnel cost by a given amount (i.e. firing someone). You will play your hand according to the rules agreed to in the first round.
In the first round, you don't know which of Alex, Bri, Chris or Dee you will play. Nor do each of the three others. The object of the first round is to negotiate a "fair" procedure for conducting the second round.
If "codes faster means paid more" is your move in the first round, it could well come to pass that in the second round you will be awarding the biggest raise to (say) Alexander, a wealthy male with no dependents, who happens to code like a demon but hardly ever cracks a smile, and has consistently refused to chip in for team parties or presents to other members on special occasions, for the three months he's been there. (Someone else is holding the team together, but Alexander definitely isn't her.)
I would argue that this distribution isn't fair. Would you ?
Now, the huge advantage of "worth more means paid more" is that it's a simple procedure (assuming you have a simple, objective, fair way of measuring "worth more"). Simple procedures have (I think) a better shot at being fair than complex procedures, such as one where you would take the weighted average of a gazillion factors (such as suggested by the above life details).
Another simple procedure would be "split the raise budget evenly". There might even be other simple procedures which would also be readily agreed on as fair; if we should fail to find one that simple, maybe we'd have to settle on a less simple one.
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