Business Exposed202
However, downtown Calcutta would be so humid and hot in
August that he could not do anything else than lie on his bed and
be sleepy all day. However, when he spent spring in Fontainebleau
– where he lived for many years when he was on the faculty at
INSEAD Business School – which is located right in the middle of
a protected forest in France, he could not help becoming cheerful
at seeing the owers blossom: he would start to whistle a song,
run through the forest, and leap up to grab a branch!
“The problem with large organizations,” he’d say, “is that most
of them create downtown Calcutta in summer within them. And
then they send you on a training course to improve your creativity
and entrepreneurial energy. But the problem is not me!” he’d
shout; “Place me in the Fontainebleau forest in spring and you’ll
see that I have all the energy and creativity you’ll ever need. I
don’t need a course; you need to change your organization.”
Sumantra did not accept the negative view of human nature
adopted in economics and, consequently, in the way we set up
and govern the corporations in our society. He was convinced that
humans want to be energetic, creative, and contribute to the well-
being of their community (e.g. organization)
but that the way most large companies are
organized, following bad recommendations
from bad (economics-based) theories, often
prevents them from doing what they desire.
It’s not the individuals that need changing;
it’s our idea of the rm.
Pay inequality – good or bad for team performance?
Now, let me descend from this abstract cloud and discuss some
real-life implications in the reality of management: paychecks.
When you have a team of people working on a common task,
who all fulll a similar role in the team (like a football team, a
string quartet, a team of engineers, etc.) should you pay them
all pretty much the same, or would you be better off creating
different levels of remuneration within the team?
‘‘
It’s not the
individuals that
need changing;
it’s our idea of the
firm.
’’
2038
n
A rock or a soft place?
This question can stir up a fair bit of debate, and I have heard it
being argued one way and the other. “You should pay them all
the same,” some loudly proclaim, “because they’re a team and
you don’t want to create envy and inequality within the group!”
Others will bellow in agony: “But you need to incentivize people,
stupid! Equal pay kills their motivation; you should pay more
to people who (seem to) contribute more, to keep them happy
while stimulating the others to better themselves!!”
And who knows whether it is one way or the other? The
problem is, it is very difcult to research this properly, and nd
a conclusive and reliable answer. You’d need information on
the exact remuneration of all people in a team, their individual
performance, and their team performance, and have a whole
bunch of identical teams to make meaningful comparisons. And
that’s easier said than done.
However, Professor Matt Bloom, from the University of Notre
Dame, decided to give it a try. And to make sure that he had
a clean research sample, with a whole bunch of similar teams
doing the same task, for which he could collect all the relevant
info, he chose major league baseball.
And, although a bit unconventional, that’s perhaps not such a
bad idea. I don’t know much about baseball (and would prefer
to keep it that way!) but I assume the rules are the same for
everyone, the teams the same size, working on the same task,
etc. Thus, Matt collected performance data on 1,644 players in
29 teams, assessing their individual performance through batting
runs, elding runs, earned run averages, pitching runs, player
ratings and all this (for me) abacadabra. For team performance,
he measured a combination of on-eld performance and nancial
performance, using game wins and revenue and valuation data.
This gave him measures for team performance and the individual
performance of each member of the team.
Then he measured player compensation. The newspaper USA
Today apparently publishes salary and performance incentives
for all players, so he used that. Finally, he created an indicator of
“pay dispersion”, or how big are the differences in the levels of
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