Lessons in performance pay from Tiger Woods


Tiger Woods can teach us all something about the negative effects of performance pay, according to a new study by Jennifer Brown at the University of California at Berkeley discussed at slate.com http://www.slate.com/id/2182671

Brown discusses how an incentive based pay system with large rewards for the top and punitive effects at the bottom can undermine performance, particularly when intense competition makes hopes of getting the top prize seem slim.

Using the example of Tiger Woods’ dominance of the golfing world (and his dominance of the prize winning, leaving less money for everyone else), Brown finds that other players perform at a lower level when Tiger is playing, particularly when Tiger is on one of his hot streaks.

This study challenges the perceived wisdom that performance incentives always improve performance across the board. As Joel Waldfogel says on the Slate – “the effects of incentives appear to be muted when the incentives are based on relative performance and the competition is tough.”

Perhaps there’s a lesson here that can be be drawn on by some golf (and performance target) loving managers from the finance sector?


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