Thursday, February 25, 2010

Reward for hard work

There's been a lot written lately about an alleged lack of competitiveness in the club-med countries.

One theme I've seen is that Spanish view financial success as a sort of gift from above, and thus feel that it should be shared, contrasted to the Anglo-Saxon approach where individual success should lead to individual rewards.

I don't think either side has a monopoly on the truth... I've experience the grasshopper and ant story first hand with my extended family here (we get to be the ants). On the other hand, in the US, the attitude that "I'm rich because I work really hard" leads to all kinds of problems with social inequality.

In addition, most of the research that I've seen about performance-based pay suggest that it doesn't really lead to better results. It tends to lead to an obsessive focus on benchmarks vs reality, and decreased cooperation and trust among employees. My guess is that much of the justification for performance-based pay comes from the CEO's office, who would like to think that he makes huge amounts of money because he does such a good job.

Accidentally rewarding destructive behavior also played a big role in the financial crisis, with bankers thinking more about the commissions they would get for writing loans than about the long term health of their company.

To the outside world, Spain might look like a country of funcionarios and lazy workers with ultasecure jobs, but with 3 million small businesses of 10 employess or less, it also has one of the largest rates of small business employment. From an economic perspective, small business provides the ultimate in pay-per-performance, without having to construct weird and artificial benchmarks.


Charles Butler said...

Nicely put, Coog.

The most important side effect of having so many small firms is that economic statistics become unreliable. Most use family members as employees so wages end up not being very distinguishable from profits which themselves are unknowable because of the cash economy. It becomes hard to argue that Spain is not undergoing a type of internal devaluation.

Jeremy Holland said...

somewhat on topic