Economics of Management Strategy - Assignment Example

Economics of Management Strategy BEE3027 Contents Answer 2. 6 Pay for performance 6 Performance for pay 8 References 9 Answer Incentive for primary and secondary school teachers Incentives are considered as an important element and it acts as driving force that compels people to work more effectively and dedicatedly. Incentives are mainly provided to the workers, teachers and the employees through the practice of compensation, monitoring, contracting, evaluation and different mechanism adopted for aligning the interest. Incentive establishes clear cut evidence that results in adopting necessary changes for making provision for incentives that generally affects the behavior of the workers. Incentives deal with establishing direct relationship of the productivity that is measured with the contracts that is offered. The performance of the entire UK is mainly characterized by the provision made for providing the incentives. The main area for providing incentive largely remains un-experimented for identifying the behavior of the individuals in the team or the teachers in the school (Prendergast, 1999). A simple differences in motivational factor also exist between the qualified, unqualified or the under qualified teachers. In both the primary as well as the secondary schools the unqualified teachers tend to receive significantly lower salaries in spite of the work load which generally remains the same as compared to that of the qualified teachers. The unqualified teachers if wishes can acquire the required professional qualifications. Imparting training to the unqualified teachers generally take a lot of time which becomes very de motivated. It is observed that the secondary school teachers are better motivated as compared to that of the primary school teachers. The living condition or the situation is regarded as the key factor. It is required by the UK government to identify the relationship between the paying of incentive and the risk or uncertainty (Milgrom and Roberts, 2004). A positive relationship is required to be established between the incentives and the uncertainty that is concerned with using the formal investigation for monitoring and supervising its teachers in the school. The productivity of the teachers are required to be analyzed as the group of teachers whether the primary or the secondary school teachers there should be no scope for back loading the salaries of the teachers. The efficiency theory also suggests that the provision for providing incentives may result in receiving more rents by the teachers over and above their salaries (Prendergast, 2002). The main problems that the UK government is facing in providing incentives to the school teachers are the teachers are mainly hired or recruited on contract basis and the contracts do not reflect or reveal properly the various aspects related to the behavior of the teachers. Therefore the incentive that is provided to the teacher’s results in the dysfunctional behavioral responses where only those aspects of performance are considered that is rewarded. When the behavior is taken into consideration it is observed that the low motivation may result in high absenteeism and low quality teaching by the teachers in the school. In the private school it has been observed that the attrition rate is high and the problem with the public sector teacher is the increase in the absenteeism which is mainly due to the poor accountability systems. The main reason for back loading the salaries is that the teachers are mainly paid into a trust fund when they are young and that are returned to them at the later stage of their life. This principle can be applied only if the teacher works n that school for that considerable period of time. Favoritism can also be regarded as one of the problem when the personal preferences towards the teachers affect the rating of performance. Some of the teachers tend to avoid the concept of pay for performance as a whole as they believe that it is necessary or required to understand the concept and implications of the incentive that is provided to the teachers. The pay or the salary of the primary school teachers are less in absolute terms and also in relation to the skill and unskilled occupation that is not sufficient to meet their social needs. Therefore the teachers are very poorly motivated to work efficiently (Prendergast, 1998). The relation between the incentive that is provided to the teachers and the selection can be established as: Y1 = Y + b(y). The compensation that is provided to the teachers can be derived with w VS = Ws + uw – b2/ 2 The reward that is provided to the teachers can be explained by deriving the equation W = B0 + B1YS Favoritism which affects the incentive of the teachers can be explained as YS = Y + u B1 Uncertainty can be derived as follows: a-2 = a2 +B12au2/ 1 + a2 + B12 au2 The result of providing optimum incentive can be derived as B1 = 1 / 1- 2CU a2u > 1 Recommendations for providing incentive to the teachers are the key motivator factors are to be considered for motivating both the primary and the secondary school teachers that is the workload which is to be equally distributed amongst all the teachers, career paths and the promotional scope of the teachers are required to be focused, various opportunities for development of the teachers are to be prioritized, various learning and teaching conditions are required to be modified. As it is very difficult to identify all the aspects related to the job the most effective measure of providing incentive to the teachers is through application and evaluation of the subjective performance of the teachers in the school in addition to the various objective assessment (Kadzamira, 2006). Answer 2. After the financial crisis that shook the world the compensation system that is use to pay for the salary of the employees of the financial sector came under serious scrutiny. In order to modify and change current compensation methodologies the New York City is trying to implement a pay system that focuses on pay for the teachers based on the value added by them (Fryer, 2011). It hopes that by going in for this mechanism they can reduce public spending and at the same time increase the performance of the teachers. However it remains a question whether pay for performance is always the best method to go for and always will result in better performance. Pay for performance or performance for pay these two are very similar sounding terms but actually they apply to different situations. Pay for performance Before understanding what is meant by pay for performance one must understand what is meant by a contract. A contract is enforceable by a common law which states that if a party does not fulfill his part of the contract then he is liable to pay compensation. However in a well functioning economy such as USA it is very difficult to enforce a contract. What can at best be done is to ask the person who has not fulfilled the obligation of contract requirements is to pay for a compensatory sum (MacLeod, 2012). Now coming to pay for performance contract what happens is that for normal goods in a market where demand and supply is satisfied, Buyer and seller agree upon a price for a well defined performance. The seller fulfills his side of the contract that is he performs a task and delivers the goods. Now the measurement part of the performance comes. The seller compares the performance of the service or the good that he receives with that which was promised to him at the time of or before purchase. If the quality does not match with which was mentioned in the contract then the customer or buyer tries to recover damages from the seller. In the case of employee on the contrary what happens is that the employee will face termination of employment. Basically there are two things that are part of the definition. One is the performance promise and another part is to be able to measure that performance. If the performance is not according to the defined level there comes the question of compensation. However, in order to compare performance one has to be able to measure performance first of all. However the main problem that arises is that it is not always possible to measure performance. For example there are certain commodities like a laptop, any eatables or a service such as delivery of certain items by a courier service where performance can be easily measured. Hence in these markets it is easy to ask for compensation if conditions of performance guarantee are not fulfilled. As per Gerad Debreu performance can be well defined only if all goods of the market can be ‘commodified’ (Milgrom, and Roberts, 1992). Performance for pay Performance for pay is a metaphor and is just the opposite concept of pay for performance. In pay for performance the customer or the buyer pays the money and performs his part of the contract. In contrast to it what happens in performance for pay is that in performance for pay buyer and seller agree to be part of a trade based on fixed payment plus some additional variable payment which is to be based upon future performance. In this case seller chooses his performance which is not well defined but varies from person to person and time to time. The buyer of the service or the good observes the performance and then pays for it accordingly (MacLeod, 2012). The main difference this method has from pay for performance is that since the performance term is not agreed upon in advance there is no question of litigation or compensation for nonperforming. For example there are certain cases like performance of a teacher where it is very difficult to quantitatively measure performance. Whenever the performance is measured based on qualitative terms it is very difficult to quantify the performance and hence very difficult to measure whether it has been performed satisfactorily (Cordella and Cordella, 2014). The same thing happens when one goes for a meal in a restaurant or goes for a research work by employing the service of a third party agency or goes to a music concert. One pays money for pleasure or having the work get done in each of these cases but whether the person will be satisfied by the performance totally depends on that particular person and cannot be made universal and so can’t be sued. However in these cases where performance is difficult to measure it is always better to go for rewarding performance with pay so as to get better performance (Heneman and Werner, 2005). References Cordella, T. and Cordella, A., 2014. Can pay for performance provide the wrong incentives? [Online]. Available at: http://blogs.worldbank.org/futuredevelopment/can-pay-performance-provide-wrong-incentives [Accessed 16 December 2014] MacLeod, W. Bentley. 2012. Pay for Performance or Performance for Pay: The Economics of the Employment Contract from Roman Times to Our Time. [Video online]. Available at: http://video.ias.edu/macleod-lecture-4-26-2012 [Accessed 16 December 2014]. Fryer, R. G., 2011. Teacher Incentives and Student Achievement: Evidence from New York City Public Schools. [Pdf]. Available at: http://scholar.harvard.edu/files/fryer/files/teacher_incentives_and_student_achievement_evidence_from_new_york_city_public_schools.pdf [Accessed 16 December 2014] Heneman, R. L. and Werner, J. M., 2005. Merit pay: Linking pay to performance in a changing world. NY: IAP. Kadzamira, E. C., 2006. Teacher Motivation and Incentives in Malawi. [Online] Available at: http://community.eldis.org/.59ee4573/Teacher%20motivation%20and%20incentives%20in%20Malawi.pdf [Accessed 16 December 2014]. Milgrom, P. and Roberts, J., 2004. Economics, Organization and Management. New York: Oxford University Press. Milgrom, P. R. and Roberts, J., 1992. Economics, organization and management. NY: Prentice-Hall. Prendergast, C., 1998., “What Happens within Firms?" Labor Statistics Measurement Issues. [Online] Available at: http://www.nber.org/chapters/c8364.pdf. [Accessed 16 December 2014]. Prendergast, C., 1999. Journal of Economic Literature. The Provision of Incentives in Firms. 37(1). PP: 7-63. Prendergast, C., 2002. Journal of Labor Economics. Uncertainty and Incentives. 20(2). PP: S115–S137. Read More