Track 15

Speaker 1:
What are the advantages and disadvantages of these different reward systems?

Speaker 2:
Well, there are different advantages and disadvantages. There is a cost involved in
paying people by time, as you have to try to ensure that people work by
supervising them, but the advantage of payment by time is that it's simple. And
also you don't have to think of what to tie the payment to. This brings me to the
disadvantage of the payment according to output. You have to find the measure
of output that produces the desired results for the company. To take the apple
picker, you pay them by the number of apples picked. Well, then the apple picker
might just choose to throw the apples into the back of the truck and bruise them
as he only cares about the number of apples, but that perhaps isn't so bad. The
worst case of course, is when you pay executives, according to the share price,
they have an incentive to take all sorts of risky accounting decisions to make the
share price high.

Speaker 1:
Yes, as we have seen.
Speaker 2:
So, you can twist incentives to suit your own personal benefit. The advantage of
payment by output is that you get more effort. The disadvantage is that you tend
to get a sort of gaining of the system if you like. That's inevitable. So I suppose
most systems are imperfect and pay systems are too. Many jobs simply don't lend
themselves to payment by output. And so inevitably payment, according to time.
Also needs including, I mean, as a university professor, I am sort of paid by output
the number of articles I write or the books I write, govern my pay, but I'm also
paid by the hour. So it's a sort of mix.