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Job performance - Coggle Diagram

- - - - Standard direct price effect  makes the incentivized behavior more attractive
        
        Indirect psychological effect  in some cases, it works in an opposite direction to the price effect and can crowd out the incentivized behavior
- - - - multiskilling: flexibility- less value in larger than in smaller firms, communication, innovation, profitability
      - multitasking: lower transaction cost, supply considerations, complementary in production, on the job learning, monitoring difficulties, can increase intrinsic motivation compared to narrow - specialised jobs
    - - specialisation vs multitasking: spec. increases productivity, smaller firms are using more multitasking
    - - Multitasking not only requires that the worker develop the broad set of skills required to perform each individual task, it also places a premium on workers with greater thinking skills
      - The knowledge that workers develop in multitask jobs will often be relatively specific knowledge
    - - positively related to skills
        
        Performing a larger set of tasks implies that workers need a larger set of skills
        
        Learning coupled with decision making implies that multitasking workers also tend to need analysis and thinking skills
- - - - advantage you know exactly what to do to be promoted, but just because your the best five
      - evaluates performance relative to competitors
      - this might distort incentive
      - manipulation comes in when you are in group work and it is therefore bad
      - evaluatoion based on competitors, this distorts groupwokr due to competition
    - - evaluates individual worker
      - individual evalkuatuon
      - not much sabotage -
- - - - likely to signal differences in ability, however iif the cost of obrtaining is too high only a few might have it
  - - - is more profitable when the test is more effective
      - is more profitable when the stakes are higher
        
        longer stay and bigger downside risk both increase the value of screening
      - Screening may not always be profitable
        
        It is likely that both the employer and the employees will share the benefits (and costs) of screening
      - screening: better quality people are committed to survive the probation and
        willing to accept the lower pay during the probation which is the economic model of signalling
        worse quality workers are not willing to accept a lower pay uprforn then their worth on the market because they know they would not survive the probation - this all aims to tackle the problem of adverse selection where low quality workers want to disguise themselves as high qualitiy
  - - - conditions for signalling are not met
    - - conditions are met
- - - - counterargument
        
        firm specific productivity other than ( asymmetric information )
        
        Firm-specific job matches or human capital
    - - more individualistic industries, information about the worker can be delayed so the labour market cannot compete with higher wages to take away your employee, this comes fro the fact that if your employee is a star other firms will want them
      - To the extent that your firm can delay the ability of the labor market to figure out who your stars are, it can profit from the informational advantage
    - - value of a risky hire is larger if the worker is younger, and therefore lower the turnover in the company
  - - - optimal level of skill rises as the use of capital relative to labour increases
      - A firm should improve the quality of workers that it employs as it increases the amount or quality of its capital stock
  - - - Hire until the point where marginal productivity is less than or equal to marginal labor cost
      - If the marginal cost is less than marginal productivity, profit rises from hiring more workers
      - If marginal productivity is below marginal cost, profit can be increased by laying off some workers
  - - - Questions to answer
        
        What are we trying to learn and why do we want to know it?
        
        Will obtaining the answer have a large or small effect on profit?
        
        What kind of data are necessary to answer the question?
        
        How costly is it to obtain these data?
        
        Will the data that we are likely to collect provide a reliable answer to the question?
- - - - NPV of investing in education formula with direct and indirect costs ( tuition and opportunity costs)
    - - Education is a better investment when your labor market opportunities are weaker
      - Interest rates do not usually have dramatic effects on schooling decisions (long payout period and implicit borrowing from parents)
      - Career length:
        
        The longer the work life, the larger the optimal investment in schooling
        
        People are more likely to invest in schooling when they are young, because they expect to be able to enjoy the return on their investment for longer
        
        Average woman spends less time in the labor market than the average man, which reduces the return on investment in education
    - - People generally specialize in advanced education because one of the most important factors in an economy: comparative advantage and gains from trade
      - education has diminishing returns
  - - - GHC: skills or knowledge that a worker can acquire that raise productivity equally at both the current employer and with many other employers
      - FHC: raises productivity at your current employer, but does not raise your value to other firms at all
      - Special case of intellectual property, sometimes combines elements of FHC and GHC because you are able to take information to you next job
        
        noncompete agreements aim to solve this issue
    - - matching, recruiting, arbitrage all all exeptions (Anything that raises the outside value will tend to force the firm to raise compensation )
    - - hold up problem: when one party makes an investment and expects to earn the benefits later, but a second party is tempted to renegotiate after the investment is made
        
        to avoid this and lower the risk, split both costs and benefits
    - - The lower the turnover in a firm, the more workers tend to invest in a mix of skills that is a strong fit for the current job and employer
      - The higher the turnover, the more workers tend to invest in skills that can be easily applied at other firms
      - Firms that desire an unusual mix of skills will generally adopt policies to try to reduce turnover
      - The longer an employee has been with the firm, the more likely she is to have already invested in skills that are closely matched to that firm - increase incentive to stay with this employer - reinforces the tendency to invest even more in FHC
- - - - A firm’s organization must provide certain functions as a market:
      -  Use both central and local knowledge effectively
      -  Coordinate decisions as necessary
      -  Provide strong incentives to make good, coordinated decisions
      -  Innovate and adapt
  - - - general knowledge: cheap to communicate more likely to centralise
    - - specific knowledge: costly to communicate, more likely to decentralise, information that is perishable, complex , requires technical skills, subjective information
  - - - decision control: hierarchy, decision management : more flat structure
        
        Designing the perfect structure: Type I and Type II error graph Decision control (ratifying new ideas or monitoring implementation) works in the direction of reducing false positive error and increasing false negative error - hierarchical structure
        Flat authority structure - fewer false negative errors and more false positive errors , there are also the second opinion structure that are in between the 2
        
        Which structure to choose? Depends on payoff structures - small upside large downside, large upside small downside, symmetric
- - - - quantitative: more tied to performance, hours worked, , more objective
  - - - Signal-to-noise ratio= the variation of a measure due to uncontrollable and controllable factors
      - event is partially controllable iif the employee can have some effect on the impact of the event on firm value
        
        adverse event
        
        positive event
    - - • The ideal performance measure should reflect the employee’s total impact on firm value and nothing else, but focused measures can distort incentives
        
        By using measures closer to the employee’s job, it is possible to focus more on things that the employee can control and filter out more things that are uncontrollable  reduce the risk of the performance measure!
      - Distortions can be: intangibles, opportunity costs, group size ( individual vs group measure) , time horizon ( most measures a re backwarrds looking and can distort incentives,
        
        differing rewards can maybe help to solve this, but it can also be risky to the employee because they might leave the firm before they get the reward
      - Manipulation vs distrotion:
        
        Distortion arises from unbalanced incentives across multiple tasks, set at the time the incentive plan is designed
        
        With manipulation, the quality of a performance metric will degrade over time once it is used for incentive purposes