The Heath Brothers on Incentives | Organizations and Markets

The Heath Brothers on Incentives

26 January 2009 at 4:41 pm Peter G. Klein Leave a comment

| Peter Klein |

Dan and Chip Heath worry that incentive plans backfire because of focusing illusion — managers place too much weight on a single variable in the incentive contract, ignoring the likely side effects. I don’t disagree that this is possible but Chip and Dan seem to be knocking down a pretty feeble straw man. The drawbacks of single-variable, quantitative incentive schemes are well known in the organizational design literature, spawning oodles of studies of multi-tasking, the use of multiple performance measures, the benefits and costs of subjective evaluation criteria, and the like. (There’s a nice overview in BSZ chapter 16.)

Entry filed under: - Klein -, Management Theory, Myths and Realities, Strategic Management, Theory of the Firm.

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