Tournament-style incentives

Tournament style incentives are like tournaments: the bests get most of the bonus, much less (if anything) is left to the others. The ones that outperform the peers are given more than the others. Now, you can outperform in two ways: 1) working better 2) make sure your peers do a bad job.

Another interesting note is about luck: the more luck impacts the outcome, the higher the incentive has to be. Easy example: nobody works hard to win the lottery, which is 100% luck. So in order to make somebody work really hard in a tournament style incentive environment, the incentive has to be very substantial. What you end up with is a team with a lot of internal competition, where the performance of one doesn’t necessarily translate into the performance of the team, and the overall output could be suboptimal despite a few strong performers.
Thoughts?

One Response to “Tournament-style incentives”

1. Jared says:

   September 25, 2011 at 12:48 am

   I’m trying to think of an example of such a “tournament,” but I’m not getting anywhere. Or maybe this is another way to describe a Pareto curve?