BUSINESS

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Why every company has a useless VP, paid to sit at a mahogany altar

Brian Bethune February 25 2008
BUSINESS

QUICK, LOOK IDLE

Why every company has a useless VP, paid to sit at a mahogany altar

Brian Bethune February 25 2008

QUICK, LOOK IDLE

BUSINESS

Why every company has a useless VP, paid to sit at a mahogany altar

BRIAN BETHUNE

Like a market crash following a bout of irrational exuberance, it was inevitable: the newly cheerful practitioners of the dismal science would one day have to turn their gaze upon the workplace. Economists have lately been having an enjoyable— and bestselling—time, abandoning currency fluctuations in favour of suggesting links between legalized abortion and dropping crime rates, or explaining why people actually line up to hand Starbucks $4 for a cup of coffee. And since nowhere is more important or more bewildering, for most of us, than our offices, the workplace is fertile ground. Just don’t get your hopes up that enlightenment will bring peace and justice in its wake. As economist Tim Harford is at pains to state, repeatedly, in his new book The Logic of Life (Doubleday) and over the phone from his London home, “A rational world is not necessarily a wonderful world.”

Economists function much like conspiracy theorists: both groups, alone in the world, believe everything is ultimately explicable, and both believe that even bitter truth is better than ignorance. Thus Harford devotes a chapter to “why your idiot boss is paid a fortune for sitting behind a mahogany altar.” In Darwinian theory, of course, that “idiot” would be the survivor, the fittest one of all, even if, in context, that meant the meanest and most vicious. For economists, your boss may well have been all those things on his or her way up, but now he doesn’t have to do anything at all. That useless VP that every office boasts does fufill a need, but its nature only slowly becomes clear.

The question of the idiot boss is tied to a classic problem: the problem with rewarding talent, honesty and hard work in the office, a place where, Harford argues, those qualities are inherently hard to measure. There are too many variables, for one thing. The more precisely employers define what they want to reward, the more employees will rationally cut back in other areas: offer incentives for speed, and quality will suffer. A common response is to offer rewards for “good work” without being too precise about its definition. But all solutions carry the seeds of unintended consequences, Harford notes

before he sums up the problem with this one: “Managers are lying weasels.” In other words, any manager—but especially one whose own salary is linked to cost-containment—has a powerful incentive to wriggle out of bonus payments, something easily done when management defines arbitrarily what’s “good.” And a reward employees suspect might never be paid doesn’t exactly spur them on.

That problem is answered by the most common pay structure in use today, which rewards relative rather than absolute achievement. The economists who study it call their work tournament theory, because a tourna-

A USELESS VP’S SALARY, SAYS TOURNAMENT THEORY,’ IS THERE TO MOTIVATE HIS JUNIORS, NOT HIM

ment is exactly what the pay system becomes. Just as Tiger Woods does not have to reach an arbitrary standard of “good” golf—say, a minimum of six holes-in-one—to win the U.S. Open, in an office tournament the winning worker, the one rewarded with cash or promotion, merely has to be better than his coworkers. Since someone has to be best, just as someone has to win the Open (even if, in a bad year, he comes in at two over par),

employees will buy into a reward system based on relative effort, and will also pay attention to all aspects of their work.

Solve one problem, create another. What Harford, laughing, calls the “horrible, beautiful thing” about workplace tournaments is the way they “explain the misery of the office with remarkable accuracy.” Employees soon learn there are two ways to win. “Do a great job or make sure your colleagues do a bad one.” No other reward structure makes it more rational to stab your co-workers in the back. A study of 23 Australian firms found that under this system, workers did indeed put in more effort—days off fell significantly— but refused to lend equipment, tools or advice to their colleagues. (That was the behaviour they were willing to admit to; some, at least, would have taken the logic of their situation to its limit and offered wrong advice.)

How does the tournament create the idiot boss? For incentive, Harford says, nothing beats the combination of money and idleness: “The more grotesque your boss’s pay and the

less he has to do to earn it” the bigger the motivation for you to strive to reach the same level of nirvana. The salary of vice-presidents is not, according to tournament theory, there to motivate vice-presidents, but to motivate their juniors. So now you know not only why work sucks and the true nature of the service provided by the overpaid idiot VP behind the mahogany desk, but even why the Canadian Senate continues to flourish. M