When I think of team production with gift exchange I think of small businesses with one boss over a handful of employees. The employees each do their own unique job tasks and collaborate with one another in order for the business to run while the boss supervises and manages. It's clear that, in a small business model such as this, the boss is higher up on the hierarchy and most commonly receives a larger portion of the business's overall profits and distributes agreed upon wages to his/her employees. Even though the boss is receiving more money, it doesn't necessarily mean he/she is working harder than his/her employees, though. Similar to Jonathan Haidt's example of two children getting different amounts of marbles, the boss may get a higher payout simply because he is in the position to.
On a regular basis a business will make money, the boss will pay due wages to his employees, pocket a more generous share of the income for him/herself, and then reallocate the remainder of the money to other expenses to resupply or help the company grow. The employees are on set wages so as long as their marginal cost is less than their marginal benefit the boss is happy and the business will expand. However, perhaps on a given pay period the boss calculates that the business's revenue is substantially larger than it's previous periods. The boss could keep this information a secret, because it may be unobservable data to the employees, and just increase the amount of money he/she keeps from him/herself or increase the amount of money that goes into capital for the company. Another option would perhaps be an example of gift exchange in the form of a pay bonus.
Instead of selfishly increasing his/her own income, the boss could gift some of that money to one or multiple employees in the form of a bonus. The boss's allocation of who to give the bonus money to could have multiple possibilities. Perhaps the boss gives all of the employees an equal sum to reward their work as a collective group. If all of the employees got the same bonus it's possible that this gift would increase everyone's motivation to do good work for the business in order to receive the same results. However, the problem with this approach may be that it was really only the increased efforts of one or two employees that resulted in the business's increased financial success. If this were the case, the employees that did their job as they always have would be rewarded for doing nothing more than what they already have been doing.
In this hypothetical, but not too unrealistic, situation the employees that put in extra effort might feel like they are being gipped. From a "fairness" perspective it's not unreasonable for the employees who worked harder to desire a larger bonus than their teammates who hadn't worked as hard. What's interesting is that the harder working employees would most likely be more satisfied to have earned a larger bonus than their teammates even if that meant they were getting a sum equal to or less than the amount they were given. To put it in numbers, if the boss gave every employee in the company an extra $1,000 regardless of how hard they worked then the ones that worked harder would feel cheated. However if the boss gave the employees that worked harder an extra $800 and the ones that didn't work as hard an extra $100, then the ones that worked harder would most likely feel satisfied even though they would be getting less money.
Another interesting idea that I'm proposing is that there would be less animosity between the employees if the boss didn't give out any bonuses compared to giving all the employees an equal bonus. The extra income the business made is potentially unobservable data and the boss didn't have to share the fact that they had made more than before. The employees would have been paid their regular wages and continued to work as usual. In addition, the harder working employees most likely weren't working harder than everyone else as a result of economic motivation. After all, they weren't promised more money if they worked harder and therefore they didn't work harder than their teammates to make more money. Their motivation to take it upon themselves to put in the effort to increase the productions of the business most likely stemmed intrinsically. Implementing a gift exchange in the form of economic motivation may have negative results by diminishing this intrinsic motivation to work hard as explained in "The Power of Altruism".
The reason that the monkey who received the cucumber as opposed to the grape felt angry and that the child who received only one marble as opposed to three felt entitled to one of his teammate's marbles is because they believed they completed the same task and therefore deserved the same reward. In my example, a similar psychology in economics is taking place. If putting in the same effort and doing an equal task as someone else nets you the same reward, then putting in more effort and doing more than someone else should, theoretically, net you more than that person. As related to in "The Power of Altruism" gift exchange, though sometimes it may seem harmless or positive, may result in worse outcomes in team production.
I actually had something like your hypothetical scenario when I was the Director of the Center for Educational Technologies and my staff provided support for something called the Faculty Summer Institute - a week long workshop. There normally aren't bonuses at the U of I, but the FSI payment to CET allowed me to pay bonuses to my staff. As I recall, each got $500 and that caused some resentment because not everyone put in the same effort to support FSI. The odd thing is that I could have simply used the money to amplify the CET budget and not paid the staff anything at all. FSI would have then just been part of the job. (That's what it was for me. I didn't get a bonus.) But by paying the people this extra pay, it created some issues about fairness and resentment.
ReplyDeleteSimilarly, I've had people resent how much a new hire is getting paid, because they feel they are better than the new hire and yet they are not making that much more. (This is called the salary compression problem.) It makes managing things harder, especially at the U of I, where all the salary information is publicly available.
The point about discussing the monkey, and the other examples, is that there may be asymmetric expectations as to what is fair. The issue is how to reconcile those so everyone is in agreement on what is deserved, especially when everyone has been a contributor.
I figure the writing "The Power of Altruism" was on the right track when stating the concept of fairness seems to be ingrained in us quite powerfully even from a young age. It's interesting that our own personal expectations as to what is fair can sometimes result in making us worse off as noticed in your example that EXTRA pay resulted in resentment.
ReplyDeleteI propose that in general we feel this "resentment" when our expectations of fairness are breached only when we aren't getting what we think we deserve. For example, I'm sure not everyone in your company was angry at the fact that everyone got $500. The one's that probably didn't put in as much effort may have felt satisfied with the amount given to them even if it was the same magnitude of "unfairness" that they got an equal sum. In other words, they probably felt like they got more than they deserved and thus didn't complain. Perhaps this is why the child who got the extra marble had somewhat of an easy time sharing his 3rd marble to even the spoils between the two.
An interesting read, but I do not agree with the statement that the boss can get a higher salary simply because he is in a position to. Although true in some situations, mostly the boss has reached that level of seniority through his experience. Agreed that the effort put by each employee (in the sense that they are trying their hardest, and committing an equal amount of time to work) might be true, but the output of the boss's work is usually higher and more consequential in nature. The boss usually also has more risk associated than his employees and thus should be entitled to larger benefits.
ReplyDeleteI agree with the points you brought up in regards the the bonus system. That is why many companies, specially in investment banking have a lower base salary and compensate the employees with a higher bonus.