I’m a big fan of economist Tim Harford, and recently read his book “The Logic of Life”. In one chapter he deals with an economic idea which offers an explanation of the reasons both for high executive pay and office politics – Tournament Theory.
The argument – supported by some statistical evidence – runs like this. Modern workplaces reward relative performance, not absolute performance. Good performers are defined, not by specific targets, but by being better than other performers. So work becomes a series of endless tournaments between ostensible colleagues – if one wins, another loses. And with victory comes reward.
Now just like in the current World Cup, victory can be obtained in various ways. You can go all out to achieve success, putting in lots of discretionary effort – the equivalent of playing free-flowing, attacking football. But there are equally successful strategies that will win you the match without necessarily benefiting your employer. You can be risk averse, blocking anything new and sticking to the tried and trusted, stifling your more innovative opponent – the work equivalent of “parking the bus“. Or you can go out of your way to discredit, disrupt and stab your colleague in the back – the equivalent of trying to kick your opponent off the park. Your tactics are determined by doing not what is best for the organisation but what will work for you – and just like the group stages of the World Cup will be decided not just by who your current opponent is but also what your other colleagues are up to.
In this model, the prize for getting to the next level has to be sufficient to make it worth competing at all. So if you earn £20000 pa, the prospect of a promotion to a salary of £25000 is a big jump. At £70000, an increase to £75000 will have far less effect but an increase to £90000 may well incentivise you. Chief Exec salaries of say £500000 aren’t designed to reward the individual in the role, but to act as an incentive to Directors below them who may be earning a “mere” £300000.
Of course, it’s easy to spot problems with this theory from an HR perspective. For example, it makes no allowance for intrinsic motivation, despite increasing scientific support for this playing a major part in the way individuals behave in the workplace.
But what the theory does do is to explain why many of our HR initiatives fail. If our organisation structure and pay and benefits system is set up to reward relative performance, it will inevitably encourage people to behave in the way that tournament theory predicts. No amount of family friendly policies, team building exercises, empowerment or innovative recruitment strategies will change this if we have designed systems that work against what we are trying to achieve. So while OD and “compensation & benefits” are seen as the less ‘sexy’ end of HR, maybe they are the ones we should be paying more attention to if we really want to change the world of work.