Undercover Economist

A sense of entitlement is all very well – but what about a pay rise?

Companies are always on the lookout for cheap ways to reward their employees, and what could be cheaper than a grandiose title or a purely symbolic “employee of the month” award? As the comic-strip character Dilbert’s pointy-haired boss once announced, “I’m promoting you from senior engineer to lead engineer. The pay’s the same but people will disrespect you less.”

Such tactics are not entirely new: more than 50 years ago, the humorist Michael Flanders created a dogmatic cannibal who was “chief assistant to the assistant chief”, and presumably he had a particular organisation man in mind. The Economist’s Schumpeter columnist, meanwhile, notes that in the 1940s the late Senator Robert Byrd held the title “exalted cyclops” in the Ku Klux Klan.

Today, vice-presidents are commonplace, and alongside CEOs and CFOs we have chief security officers and chief privacy officers – although the title of chief apology officer for Southwest Airlines was bestowed by a journalist, not by the company itself.

I once worked for the chief economist of a very large organisation. As his only subordinate, I argued that I should be appointed deputy chief economist. My boss politely disagreed. As an economist, and a German, he was presumably opposed to inflation in every guise.

Pomposity in senior titles is paralleled by largely symbolic awards in the lower ranks. In a new working paper, the economists Michael Kosfeld and Susanne Neckermann describe the hallmarks of these awards: companies strive to make them highly visible; they create a competitive environment (not everyone can win) and “they are based on broad and vague criteria”.

Such awards involve little or no cash element, so an obvious question is, do they work? To find out, Kosfeld and Neckermann carried out a field experiment, in partnership with a large, non-governmental organisation that was fundraising by asking Swiss communities (each has a budget) for financial support. The recruits were to perform two hours of internet research, locating the names and addresses of relevant local officials to add to a database.

In the control group, students were briefed and told to get on with the job. In the treatment group, they were also told that the two best performers would receive a thank-you card and a handshake from the MD. There was no chance of additional work or promotion, and the researchers judged that even as CV glitz, an award for working hard for two hours was pretty desperate. In short, nothing was on offer but bragging rights.

Despite this, the celebratory award worked well, with recruits in the treatment group doing about 10 per cent more work, whether measured in crude quantitative terms or using a more sophisticated tally of the data entered. And it was the more capable students who increased their efforts most. While the least productive students were stuck at around one entry every 10 minutes, the most productive ones – with the highest hopes of victory – managed to increase their work rate to an entry every 90 seconds or so. Daft awards work, at least in this context.

Perhaps the students didn’t have time to think about what a flimsy piece of recognition they were being offered, or perhaps they felt a trivial award was appropriate for a two-hour job. But perhaps companies use symbolic awards because employees crave them.

And there is one significant difference between symbolic awards and symbolic job titles. Anyone can be a vice-president for customer sales support, but by design there is only one employee of the month. To a competitive character, that must mean something.

Also published at ft.com.