Paying for Performance

I came across this article recently that detailed an economics experiment where field workers compensation was based on their performance. They conducted a series of experiments where compensation was tightly tied to performance and saw significant productivity gains each time.  From the article:

"They proposed a "tournament" scheme in which workers were allowed to sort themselves into teams. Initially, friends tended to group themselves together, but as the economists began to publish league tables and then hand out prizes to the most productive teams, that changed. Again, workers prioritized money over social ties, abandoning groups of friends to ally themselves with the most productive co-workers who would accept them.

In practice, that meant that the fastest workers clustered together, and again, productivity soared—by yet another 20 percent.The series of experiments provided a fascinating confirmation that financial incentives can trump social networks, with some precision and much detail about the mechanisms involved."

Being able to pay solely on results seems to be an ideal situation.  For online advertising one of the panacea's is being only able to pay for ads that actually being you revenue (so being able to target people that are likely to be customers).  This is also ideal for an employer, paying for the actual work done.  One of the biggest problems with these pay per work sort of situations is that it neglects to take into account the influence an action can have on future desicions.  For example, with online advertising a user might see an ad and while they might not click it they remember the brand or the website for future purchases--so in effect that ad influenced a later purchase decision.  It is also the same reasons why you don't just hire a bunch of consultants to do all your work (since they essentially get paid for what they do)--as having full time employees creates team unity, encourages sharing and collaboration, and the knowledge spread around the team has a greater impact in overall performance than a bunch of people working independently.Thought I would share the article and the findings since they are very interesting and can help many people rethink the way to compensate their employees.