Tag Archives: Salary

Do Public Salaries Increase Performance?

With the recent news regarding Jill Abramson and the New York Times, I wanted to take a closer look at the academic literature to see if I could find something about public salaries. There’s certainly been a lot written about whether she was fired or she quit or whether it had to do with secretive salaries or her gender. I’m not writing this post to debate any of that because I consider myself grossly uninformed on what may or may not have happened, but I am writing this post to talk about pay secrecy.

The research showed that pay secrecy adversely affected individual task performance. Meaning, the absence of public salaries led to a worse performance. Why? Pay for performance. That is, because the salaries weren’t public, workers didn’t have a perception that an increase in performance would lead to better pay.

There were a couple other important pieces that I wanted to highlight.

1. The best workers were more sensitive when it came to the perception of link between pay and performance.

This certainly makes sense as those folks who are working the ‘hardest’ would want to know that they’re being appropriately compensated for their hard work. An implication from this point is that organizations that don’t have public salaries might have a harder time retaining their top talent. We can tie this back to the situation between the New York Times and Abramson. Again, I wouldn’t say I’m informed of the situation, but from what I understand, Abramson was rather high up in the NYT hierarchy, which indicates to me that it was fair to consider her “top talent.”

2. If public salaries isn’t an option, partial pay openness could mitigate the negative effects of pay secrecy.

It might be that a firm or organization isn’t yet comfortable with releasing all data about salaries, so an intermediary step could see them gently open up the salaries by talking about ranges. This point reminded me about government salaries that often have ranges for each level that an employee reaches. One may not know exactly what their co-worker makes, but if one knows that their co-worker has reached a certain level, one would know that one’s co-worker’s salary is in a certain range.

Just before ending this post, I wanted to circle back to the point about pay for performance. In this study, the task that participants completed was a “computer matching game.” Based on what’s been written about pay for performance, this is the right kind of task to test these sorts of hypotheses. However, when it comes to more creative tasks, the pay for performance model doesn’t always fit the best. Tying this back to the situation with Abramson and the NYT — it’s not clear to me whether the “pay for performance” model fits best. Having never worked at a newspaper or publishing outlet, I don’t exactly know the role of an Executive Editor, but from what I’ve been able to read through Google searches, it sounds more like creative tasks.

ResearchBlogging.orgBelogolovsky, E., & Bamberger, P. (2014). Signaling in secret: Pay for performance and the incentive and sorting effects of pay secrecy Academy of Management Journal DOI: 10.5465/amj.2012.0937

A Can’t-Miss Strategy for Making the MLB Playoffs

The baseball season is long — the regular season lasts more than half of the year. And that’s just the regular season. It doesn’t even include the preseason or postseason. As the season spans six months, one would think that it might be hard for some players to keep their focus during the middle of the summer.

In fact, this past Sunday while watching a Blue Jays game, I saw a graphic that depicted the wins/losses of the teams in the division during the last game of the series for the 2013 season. The graphic showed how the other teams were far more successful than the Blue Jays when it came to the last game in a series. As a result, it got me thinking about how to better incentivize players (maybe managers, too?)

My idea: incentivize winning series.

Before I get into the details, I want to preempt the argument that baseball players get paid too much. Grant Brisbee of SB Nation had an all-around great response:

The problem with these comparisons is that baseball isn’t the real world. There is no comparison for baseball. Try to invent one without devolving into ridiculousness. Okay, so there are 30 Walmarts in America. And there are laws that protect Walmart’s monopoly, which means there aren’t any Targets. But those 30 Walmarts can be run only by people with Ph.D.’s who graduate in the top one percent of their class from the top 10 universities. And the Walmarts are in competition only with each other, which means …

… a ridiculous scenario all around, of course. Baseball players shouldn’t be compared to the average American worker. They’re specialized, elite talents in an entertainment industry that’s sitting on a money spigot. And I feel like I should mention this at least once: If the players didn’t get the money, it would just go to the owners. You can argue that owners should get a larger share because they take the investment risk. I’m not sure I’d agree, but that’s at least a consistent argument. Saying that players should make less because it offends your sensibilities isn’t quite as compelling.

Now that we’ve gotten that out of the way, we can focus on how to incentivize players to win series. Well, just before that, let me talk a little bit about why I chose series as a unit of measurement. As there are 162 games in a season, it seemed like incentivizing a player to win every game might superfluous, as players always want to win the game. I chose a series because there are a little more than 60 of them and it seemed like a good intermediate goal (or project milestone, if you want to put it in the language of project management) between winning every game and making it to the playoffs.

Most series are 3 games long, so we can think of winning the series as winning 2 out of the 3 games. If the team wins two out of the three games, then the players all get a bonus. To guard against them mailing it in during the last game, there could be another bonus if they sweep the series and win all 3 games. What happens when the team loses the first 2 games of the series — what do you incentivize then? Well, you’d incentivize not being swept. That is, if the team loses the first 2 games, the players get a bonus if they win the 3rd game and avoid being swept.

For those series that are 4 games long, the same incentivizes for winning/sweeping a series still apply, but we’d add another one — tying a series. That is, if a team is down 2 games to 1 in the series, the players would get a bonus if the won the last game to tie the series 2-2.

Now, my first thought would be to use money as the incentive to win these games, but with the salaries that players have, one may wonder whether there could be enough money offered to actually make the incentives work. The more I thought about it, though, the more I thought that even players with massive salaries could be motivated by money.

Let’s use last year’s MLB salary figures as a basis. Fangraphs had an article that detailed the average MLB salary last season ($3.4 million) and the median ($1.1 million). The median salary is probably a better representation, so let’s use it. The median salary equates to approximately $20,000/week, assuming that players get paid every week of the calendar year. Let’s also assume that there are 60 series in a season. That means, there will be approximately 60 times to offer players this bonus incentive. There are also 25 players that are on the active roster. As a result, we’d have to decide whether we wanted to reward all players or just the players that played in the game.

With 25 players on the active roster, the calculation for offering a bonus of $1000 makes it quite the expense, but not as much as you might think. 25 players getting a bonus of $1000 across 60 games equates to an extra 1.5 million that needs to be budgeted. Given that this is approximately the median salary of an MLB player, one would think that teams could afford this. It’s also important to note that these calculations didn’t include the possibility that teams would win the series and sweep the series. In those cases, players could get a bonus for winning the second game of a three game series and then get another bonus if they win the third game of the three game series. A quick look at the total number of sweeps last year tells us that the average number of sweeps was 7. So, we can add another $175,000, which brings the total expense to $1.675 million. While certainly not a small amount of money, in the context of how much teams spend, it seems like it might be worth it to try and win a few extra games.

Let’s look at the Baltimore Orioles last season as an example. They finished 85-77, 6.5 games out of making the playoffs. Meaning, if they were to win 7 of the games that they lost, they would have made the playoffs. Looking at their streak data from last season, they were swept 5 times. In addition, they were stopped from sweeping a team 8 times. Together, that’s 13 games. If the Orioles could have won half of those (6.5, so let’s round it to 7), they would have made the playoffs.

Put differently, if they would have employed this strategy and it was successful at least 50% of the time just in the series where they almost swept a team and were swept, they would have made the playoffs.

Is It Time to Pay Politicians More?

A few months ago, I saw this very argument made in Slate. At first, I’m sure you’re doing a double-take? Why would we pay them more? They are hardly doing the job that we elected them to do in the first place. Why would we reward failure, stagnation, and an inability to get stuff done? That’s absurd!

All natural reactions, yes, but when you take a second to think about it, the idea isn’t that bat-crap crazy. For instance, consider the Governor of Virginia, Bob McDonnell. Josh Barro over at Business Insider makes the case that the Governor is underpaid. Why? Well, look to the incentives! The Governor of Virginia has a salary of $175,000, which is in the 90th percentile for Governors in the USA. That’s certainly a lot of money — almost triple the median income in Virginia. So, again, you may be thinking, why would we pay them more?

Well, consider the kinds of people that the Governor interacts with on a daily basis. Plutocrats. Governor McDonnell, on a daily basis, interacts with people who have income/wealth that far exceed the Governor’s “measly” $175,000 salary. You may be thinking, why is this a problem if the Governor got into politics for purely altruistic reasons?

Even if the Governor did do such a thing, research tells us that unethical behavior has to do with the kind of person you are and more to do with the situations you find yourself in. For instance, you may be the most ethical person in the world, but if you happen to find yourself in a bind financially and a whole host of other variables are weighing on you, there’s probably a situation that you may find yourself in where overlooking a conflict of interest may seem like an okay thing to do.

That’s the argument for increasing the salaries of politicians — to remove the incentive to be unethical. Of course, there’s still likely to be unethical behavior conducted regardless of what the salaries are raised to, but it may eliminate some of it. How much, I don’t know. What would be a fair salary?

The article in Slate discussed Sinagpore, which is known for being one of the most efficient governments in the world. He explained that in Singapore, the Prime Minister earns more than four times the salary of President Barack Obama and the President gets $400,000 a year! Government Ministers (akin to cabinet Secretaries), earn over $1 million a year. The highest paid cabinet Secretary (Secretary of the Treasury) gets approximately $190,000. So, government Ministers earn more than 5 times as much as their American counterparts.

I’m not advocating this particular raise, but I think it’s a conversation worth having.

I suppose the other option would be to remove the influential plutocrats from the equation. Although, I don’t know that with the American political system arranged in the way that it is, if that’d be constitutional. Larry Lessig, someone who’s been working tirelessly on the option of getting money out of politics was asked what a question about salaries for Congress. I’ll leave you with the question and his answer:

Question: You advocate in your book that congressmen should be paid much more than what they are right now (about $175,000/year). How much do you think they should be paid to make them lose the incentive to become a lobbyist? Does 250-300k sound better?

Lessig: Oh please don’t out me on this. Ok, but DON’T TELL ANYONE I SAID THIS: They are lawmakers. Why aren’t they paid as much as a first year partner at a DC firm? In Singapore, gov’t ministers get paid $1 million a year. Where is corruption in Singapore. NO-where.

Cutting Salary to Show Solidarity: This Isn’t Empathy

A couple of days ago, there was news indicating that President Obama was going to return 5% of his salary, which amounts to about $17,000, as a sign of solidarity with those federal workers who’ve been furloughed. In case you’re not familiar with this situation, I’ll explain a little first.

In 2011, there was the debt-ceiling debacle. One of the things that came of that was the sequester. The sequester was supposed to be such drastic cuts to the federal budget meant as an incentive to make some sort of deal before the deadline. It wasn’t ever meant to happen, (at least that’s what politicians said publicly), and the date set for the deadline to make a deal (and begin the implementation of the sequester if there weren’t a deal) was January 2, 2013. As part of the New Year’s Eve tax deal, Congress pushed the start of the sequester to March 1, 2013, which is when it began.

As the sequester has a great deal of spending cuts, this has greatly affected some of the workers in the federal government. For instance, some workers have had to take furloughs — temporary unpaid leave. Companies (or the government) don’t usually use this unless there’s a need because of the budget situation. As an aside: on Chris Hayes’ new show (All In with Chris Hayes), he went into detail with one particular worker who has had to take furloughs and had a brief panel discussion about it. That brings us back to President Obama.

A couple of days ago, President Obama stated that he was going to return a portion of his salary to show solidarity with those workers who are having to take these temporary unpaid leaves. The President may have started it, but he’s certainly not finishing it. Secretary of State John Kerry, Secretary of Defense Chuck Hagel, Secretary of the Treasury Jack Lew, and Secretary of Homeland Security Janet Napolitano are all showing similar signs of solidarity. So is freshman Congresswoman Tammy Duckworth. But this is not limited to Democrats. Senator Lindsey Graham and Senator Mike Lee have both indicated that they will return some of their salary. I think all of this is well and good, but the one thing that irked me was how Lindsey Graham wrote about his decision on Twitter. (I should note, I don’t know if any of the other politicians have said made similar claims, as I just saw someone retweet Lindsey Graham’s commentary.)

After I saw this tweet, I went on a bit of a rant on Twitter that I’ll include below:

 

Let’s first start with the issue of empathy. People often confuse empathy and sympathy. I’ve written about empathy before:

Empathy is at the heart of the beginning of the solution to many of the world’s problems. When we empathize, we are able to recognize the emotions that another is feeling. At the root of compassion is empathy. [Note: sympathy is quite different from empathy. Sympathy is simply a concern for another’s well-being, where empathy usually refers to one sharing the same emotional state.]

I should note that the “note” in that quote actually comes from the post. So, now that we know what empathy means, let’s return to Senator Graham’s comment. He said he was cutting 20% of his pay to empathize with those furloughed. In order for Senator Graham’s actions to demonstrate empathy, it’d actually have to affect his life in the way that those furloughed are affected. For an example of this, scroll up in this post and watch the video I linked to with Chris Hayes talking to someone who is being furloughed. Senator Graham’s current salary for FY2013 is $174,000. If we take 20% away, that leaves him with about $140,000. Something else that’s important to this conversation is Graham’s net worth, which is now pegged at $1.5 million. I understand that politicians have to keep up two offices (one in DC and one in their district/state), but does anyone think that Senator Graham’s going to have as hard a go as thing with a $140K salary as the military serviceman who had to get a second job delivering pizzas?

This is not empathy.

~

As an addendum to this conversation, I wanted to include data about the current Congress’s net worth, but there doesn’t seem to be a list out there. However, I was able to find a list for all members of Congress in 2010. Some things of note: of 100 Senators, only 7 had a net worth of less than $100,000 and 24 had a net worth of more than $10,000,000. Of the 435 member of Congress, 81 had a net worth of less than $100,000 and 42 had a net worth of more than $10,000,000.