Tuesday, August 29, 2006

Workplace Performance and Social Connections

A research paper from Oriana Bandiera, Iwan Barankay, and Imran Rasul discusses and tests the data behind the performance of individuals and the firms they work for in relation to their social connections. Reading through all the work that they did, and pretty much convincing me on giving managers a more incentive based pay scale in some instances, they state near the end that

…our findings provide support to the idea that interplays between social relationships and incentives need to be taken into account, in order to understand how individuals respond to a given set of incentives, and to understand the optimal set of incentives within an organization.

And as with some other economic topics, it’s not a “one size fits all” explanation, but rather understanding that many workplace factors affect worker productivity. Managers who have favorites will increase the productivity of their connected workers, but the firm’s productivity will suffer on the whole. However, this does not happen if managers are paid on performance bonuses.

So, this may explain why performance bonus pay schemes could be on the rise.
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