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10/30/2016
Bossy vs. Buddy
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| Michael Waraksa |
Which is more important to your boss: to dominate people or to be liked by them?
Most leaders can be divided into these main two camps and there is a time and a place for both styles, says Prof. Jon K. Maner of the Kellogg School of Management at Northwestern University. “Dominant leaders mandate a vision. Prestige leaders want to be liked and admired and facilitate their group’s vision.”
“You see dominance across many species, including many other primates,” he said. “In those species, the biggest and the strongest usually wins and ends up on top of the hierarchy.” That isn’t always the case with people. Sometimes being liked and admired helps propel a person to the top.
Professor Maner has analyzed leadership styles by administering questionnaires and by watching people interact in lab settings. He has found that dominant people exhibit behavior like speaking more often and more loudly, while prestige types spend more time listening and synthesizing other people’s contributions.
“Dominant leaders hoard information and ostracize talented group members. They closely monitor talented group members to make sure they don’t get out of line, and they prevent their subordinates from forming close social bonds with one another,” he said.
Whereas dominant leaders want to be in control of everything, “prestige is about leading in the domains in which you have expertise,” Professor Maner said.
Donald J. Trump is a dominant leader, while Hillary Clinton has more prestige-leaning qualities, Professor Maner said. Steve Jobs of Apple, who was known for his brash, uncompromising style, was a classic example of a dominant leader.
The dominant style can lead to damaging behavior like bullying. Overall, the prestige style tends to work better in our culture, he said.
But dominance is not always bad for an organization, he added. “If you’re running a company and you have a very strong vision for the direction the company needs to move, and your job as a leader is to get everybody aligned and moving toward that vision, then dominance actually works quite well.”
Dominance can also be effective in times of organizational crisis, he said. “You want somebody to come in and lead the charge — there isn’t time for a big brainstorming session.”
The prestige leadership style is most effective when a leader does not have a strong vision and instead wants employees to come up with innovative and creative strategies, he said.
In a working paper that Professor Maner has written with Ms. Case, he details the way that the prestige style can get leaders into trouble. Because they gain their prestige by building relationships, they will sometimes make a popular decision over a wise one, he said, and “they also have trouble giving negative feedback to employees.”
While most leaders tend to lean toward dominance or prestige, the best ones know how to use both styles — and to deploy the right one at the right time for the good of their organization, Professor Maner said.
Working style in Japan
This month the first ever Japanese government report into the scale of karoshi, or death by overwork, found that employees put in over 80 hours of overtime a month at almost a quarter of companies surveyed. At 12% of those firms, the figure rose to a whopping 100 hours. These numbers may underestimate the problem; under a fifth of 10,000 companies contacted responded, which is a normal response rate, but firms with still worse overtime figures may have kept out of the study.
Little wonder that 93 people committed or attempted to commit suicide in the year to the end of March 2015 because of overwork. However, activists against karoshi reckon the number is too low. Other workers perish from heart attacks or strokes due to long hours.
Things are currently somewhat better; more overtime is paid, for example. Yet, further steps are needed. Shinzo Abe, the prime minister, says that changing the working style in Japan is one of the main aims of labor reforms that he plans to introduce next year. Yuriko Koike, the new governor of Tokyo, wants to improve the city’s work-life balance and has banned workers in her office from staying past 8pm.
However, it remains hard to overhaul business practices when the culture values face time and dedication to the job far ahead of performance. “The company is like a big team. If I leave work early, someone else has to shoulder my work and that makes me feel terribly guilty,” says a 42-year-old IT worker who preferred to remain anonymous.
It does not help that the shrinking and aging of Japan’s population means labor shortages. And all this overwork does little for the economy, because (thanks to the inefficient working culture as well as low use of technology) Japan is one of the least productive economies in the OECD, a club of rich nations, generating only $39 dollars of GDP per hour worked compared with America’s $62.
So the fact that workers are burning out and sometimes dying is pointless as well as tragic.
edited from The Economist
Next US President Faces Challenges (video)
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10/29/2016
A lack of parking spots in China
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| It's more than a parking-at-home problem in Xi'an, which is about 300,000 parking spaces short of what it needs. These cars lined up outside a supermarket, waiting for someone to leave and open up a space, about 8 o'clock on a weeknight. [Photo/China Daily] |
I
It is barely eight in the morning and the two levels of a hospital's car park are already full. A queue of backed-up vehicles snakes around the corner and onto a major street, causing a traffic jam. “Reverse, reverse, reverse,” barks an attendant, blowing on a whistle and pointing this way and that as he guides one car out to let another in. A young man, Yang Linfeng, seems untroubled by the chaos as he walks back to his car. In for his annual physical, he says he knew exactly what to expect: he came an hour early just to find a parking spot.
Similar scenes play out around China every day. Whether at hospitals, near schools and offices or outside popular restaurants and shopping malls—just about anywhere people congregate—parking has become a major aggravation of urban life. It is in some ways a good problem for China, a sign of growing prosperity. Car ownership is expanding by about 10% a year, even as the economy slows.
But it also suggests a flaw in the country’s approach to building cities. In their rush to construct roads and housing to accommodate the 400m people who have moved to cities from the countryside over the past two decades, officials have paid insufficient attention to many basics such as drainage and green spaces.
In March parking was identified as a priority in the prime minister’s annual report to parliament. China has a shortage of roughly 50m parking spaces. Its target is 1.3 parking spaces per car, the norm in richer countries (including residential parking). In China’s biggest cities, the ratio is 0.8. Smaller cities have just 0.5 spaces per car.
Frustration is spreading. In an official survey conducted over the past two months, nearly two-thirds of respondents said that parking had become “unbearable”. By contrast, only about a third said they lived in places with frequent traffic jams, a problem for which China is much more notorious. The two nuisances can be related. The harder it is to find a place to park, the more cars circle around and around.
One solution might be to build more car parks, but many apartment blocks were built before car ownership became common, so neighborhoods have limited space to build places to park.
Some cities have started to experiment with making parking spaces a prerequisite to buy a car. Would-be car owners must first show they have a space, an approach that Japanese cities have used successfully.
Cars jostle for cheaper roadside spots, leaving more expensive ones beneath office buildings underused. The occupancy of car parks in major new commercial buildings in Guangzhou, a southern city, never exceeds 58%.It would help to charge more for roadside parking, forcing drivers to use underground car parks.
Stricter enforcement of no-parking zones could curb superfluous parking demand in busy areas and encourage people to use public transport.
Many cities are investing huge sums in public transport and are also raising roadside parking fees together will illegal parking fines. In Wenzhou, an officer walks methodically up a line of cars parked under a no-parking sign next to a tall commercial building. He writes out a fine for each one and takes photos for use as evidence. But the car park inside the building is two-thirds empty.
An attendant there clearly doubts the efficacy of fines. “People here have so much money that they don’t know what to do with it. So they donate it to the traffic department.”
Will rugby be the next craze in Brazil?
WHEN Charles Miller, son of an English railway engineer posted to Brazil, returned to São Paulo from a British boarding school in 1894, he brought back a football—and popularized a game that would help define Brazilian identity. Miller’s other sporting import, rugby, had less appeal. It was played at a few posh boarding schools and almost nowhere else. But now rugby is beginning to find a mass audience.
Asked which sport would grow most, more Brazilians picked rugby than any other in a survey conducted in 2011 by Deloitte, a consultancy. Since then its popularity has shot up as if propelled by a well-taken conversion kick. Some 60,000 Brazilians are thought to play rugby, far fewer than the 30m who play football or the 5m-10m who take part in volleyball—but up from 10,000 five years ago. The national team - the Tupis, named after a family of indigenous peoples - draws audiences of 10,000 to stadiums and 7m to television screens. (The league is still amateur.) Highlights from European games pop up on the São Paulo metro’s in-train television.
The Brazilian Rugby Confederation (CBRu), which replaced an amateurish association in 2010, is run like a business. Its chief executive, Agustin Danza, holds an MBA and answers to a 12-member board. In November last year a non-profit group gave the CBRu Brazil’s first sport-governance trophy. The volleyball federation has sent five scouts to learn its management tricks.
The Tupis now have two dozen sponsors, including Unilever, a consumer-goods giant, and Bradesco, a Brazilian bank. The CBRu’s budget has gone from 1.3m reais in 2011 to 18m reais ($6m). Mr. Danza has used the money to lure coaches from rugby powerhouses like New Zealand and Australia. His objective is to qualify for the World Cup in 2023.
It will take plenty of training. Brazilian women came a respectable ninth in the Olympic seven-a-side tournament, but the men came last. They are ranked 36th in the world. Argentina, Brazil’s rival in all things sporting is ninth. Mr. Danza (himself Argentine) is banking on support, and cash, from the sport’s global governing body. He hopes that World Rugby will soon name Brazil as one of its priority markets. With more exposure and money, the amateur league could turn professional.
The biggest obstacle to rugby’s popularity remains Brazilians’ obsession with football. Mr. Danza thinks football’s woes, including corruption in the federation and the national team’s underwhelming performance (by Brazilian standards), give rugby an opening: “When the footballers disappoint, Brazilians start looking for someone else to cheer.”
10/24/2016
Tilting, sinking San Francisco high-rise raises alarm
SAN FRANCISCO (AP) -- Pamela Buttery noticed something peculiar six years ago while practicing golf putting in her 57th-floor apartment at the luxurious Millennium Tower. The ball kept veering to the same corner of her living room.
Those were the first signs for residents of the sleek, mirrored high-rise that something was wrong.
The 58-story building has gained notoriety in recent weeks as the "leaning tower of San Francisco." But it's not just leaning. It's sinking, too. And engineers hired to assess the problem say it shows no immediate sign of stopping.
"What concerns me most is the tilting," says Buttery, 76, a retired real estate developer. "Is it safe to stay here? For how long?"
Completed seven years ago, the tower so far has sunk 16 inches into the soft soil and landfill of San Francisco's crowded financial district. But it's not sinking evenly, which has created a 2-inch tilt at the base - and a roughly 6-inch lean at the top.
By comparison, Italy's famed Leaning Tower of Pisa is leaning more than 16 feet. But in a major earthquake fault zone, the Millennium Tower's structural problems have raised alarm and become the focus of a public scandal.
Several documents involving the downtown building were leaked in recent weeks, including exchanges between the city's Department of Building Inspection and Millennium Partners, the developer. They show both sides knew the building was sinking more than anticipated before it opened in late 2009, but neither made that information public.
In a February 2009 letter, a chief buildings inspector, Raymond Lui, wrote to the tower's engineering firm to express concerns about "larger than expected settlements." He asked what was being done to stop the sinking and if the building's structural safety could be affected.
DeSimone Consulting Engineers replied that the building had already unexpectedly settled 8.3 inches. But the engineering firm concluded, "It is our professional opinion that the structures are safe."
City Supervisor Aaron Peskin, who has convened hearings on the matter at City Hall, asked Lui why the building was then certified safe for occupancy.
"We felt they had it under control," replied Lui, now employed in San Francisco's public works department. He did not elaborate.
City officials, owners of the building's high-end apartments, its developers and politicians are arguing over who is to blame. Meanwhile, key questions remain.
"When is this building going to stop sinking?" asks Jerry Dodson, an attorney and engineer who paid $2.1 million in 2009 for his two-bedroom apartment on the 42nd floor. "That's something that no one has been able to answer."
On the sidewalks outside the Millennium Tower, engineers last month started working to figure out why the building keeps sinking and if there's a way to fix it. But the process, which involves drilling deep holes and testing soil samples, is expected to take several months.
The geotechnical engineer leading the operation, Pat Shires, said existing data indicates the tower "might" sink between 24 to 31 inches in total, but nobody knows for sure.
When the Millennium Tower opened, it became a haven for the city's well-heeled, and all 419 apartments quickly sold out. Tenants have included former San Francisco 49er Joe Montana, late venture capitalist Tom Perkins and Giants outfielder Hunter Pence.
The building has a 75-foot indoor lap-pool, a health club and spa, an in-house cinema, and a restaurant and wine bar run by celebrity chef Michael Mina. Penthouses have sold for more than $10 million.
The tower's troubles are apparent in its five-floor underground garage, where Porsches and Lamborghinis sit near walls bearing floor-to-ceiling cracks, many bracketed by stress gauges to measure growth.
Meanwhile, accusations and lawsuits are piling up.
Dodson and other residents blame developers for what they say is a flawed design. The tower's foundation, for instance, uses piles driven 60 to 90 feet into landfill, rather than the pricier option of going down at least 240 feet to bedrock.
Millennium Partners maintains its design is safe and says many San Francisco high-rises have similar foundations.
"We did this building the right way," Chris Jeffries, a founding partner at Millennium Partners, told a news conference. "The building is 100 percent safe."
Jeffries blames the building's problems on an adjacent construction site where a city rail terminal is being built. He says the Transbay Joint Powers Authority, the public agency building the $4.5 billion transit hub, dug a 60-foot hole to create a dry construction site and pumped out millions of gallons of groundwater that wound up compressing and weakening the soil under the Millennium Tower.
Transbay says the tower's "inadequate foundation is the sole cause of the excessive settlement and tilt." It released a statement saying the building had sunk 10 inches and started to lean before the agency broke ground in 2010.
It has continued to sink at a rate of about 1 inch per year.
"We are all living there and wondering about our safety," another resident, Nina Agabian, said at a recent City Hall hearing. "We've been told it's going to take years to solve this, and I don't think we have years."
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| Stress gauges are placed along a wall with floor-to-ceiling cracks in the parking garage of the Millennium Tower. |
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| Jerry Dodson and his wife Pat stand inside their home on the 42nd floor of the Millennium Tower in San Francisco. |
10/23/2016
New rules for delayed luggage (audio)
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Chinese Tourists Behaving Badly
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| Chinese visitors at Gyeongbok Palace in Seoul, South Korea, during China’s weeklong National Day holiday.Kim Hong-Ji/Reuters |
BEIJING
— Two young Chinese tourists carve their names on the Great Wall. Hundreds
of picnickers leave their garbage moldering on the banks of the Yellow
River.
Such
episodes during the recent National Day holiday are raising questions as to why
a “tourism blacklist” the government set up last year to name and shame
misbehaving travelers does not seem to have had a greater impact.
In May
2015, the government announced the blacklist to counter the impression left by widely
publicized episodes that included travelers storming a buffet in Thailand to
consume all the prawns, throwing hot water at a flight attendant, carving
inscriptions on an ancient Egyptian monument, allowing children to relieve
themselves in public places and opening emergency exits on airliners “for fresh
air”.
People
may land on it either for legal crimes or for moral offenses at home or abroad, according
to the Communist Party’s main newspaper.
Possible
offenses include interfering with aircraft or public transportation; damaging
public property or the environment; defacing cultural relics; disrespecting
local customs; and participating in gambling, illicit drug activities,
prostitution or “dangerous sexual activities.”
People
added to the list remain there for three years, during which their names are
made available to travel companies, airlines, work units and the Public
Security Bureau, among other groups. This puts the people on notice that they
are under watch and could be barred from tour groups. They may be barred from
flying or from visiting scenic spots. But there is no financial penalty.
Over
all, the blacklist appears to have had a slow start, suggesting the difficulty
even in an authoritarian nation of policing human behavior.
The
list is unavailable on the website of the China National Tourism
Administration. But according to
the Shenzhen Metropolis newspaper, only 24 people are on it.
That
number includes two people added over the recent holiday,: Hou Geshun from
Heilongjiang Province, who was accused of burning Vietnamese money in
a bar in the Vietnamese city of Danang, and Lu Shan from Beijing, who beat up
her tour guide in Yunnan Province.
Hundreds
of millions of Chinese people made 593 million domestic trips on national
transportation networks during the weeklong holiday. That number does not
include trips by private car. An additional six million traveled abroad during
that period, the tourism administration said.
Last
week, after the fresh round of episodes over the holiday, Xinhua, the state
news agency, questioned the list’s effectiveness. “Carving Names and Drawing Pictures on the
Great Wall, Throwing Garbage in the Yellow River, Why Does the Blacklist not
Control Uncivilized Tourists?” its headline asked.
One man
added to the blacklist shortly after it was set up said that being on it
did not change his life much.
“I got back from Thailand and am off to
Korea,” said the man, from Jiangsu Province and identified only by his surname,
Wang. “At the worst, you can’t join a tour group. Independent travel is the
thing to do.”
Edited From The New York Times
Whistles On Mexico City's Subway (audio)
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10/15/2016
Bottle-Flipping Craze
Gurgle. Thud. Crunch.
Gurgle. Thud. Crunch.
That is the noise of water bottle flipping — the compulsion
promoted through online videos to toss a partly filled plastic bottle and try
to get it to land upright — which has captivated children across the USA.
Boys and girls view it as a harmless pastime, but for
parents the repetitive noise of the children flipping (gurgle), landing (thud)
and grabbing (crunch) the bottles is torture.
Dayle Tuna, 40, of Rockaway, N.J., described a refrain
directed at one of her sons: “Would you stop with the bottles? Stop with the
bottle! Stop with the bottle!”
To hear other parents tell it and to read their posts on
Facebook, she has plenty of company.
The craze gained
notice in a YouTube video posted in May of a school talent show in Charlotte,
N.C. A contestant, Michael Senatore, held a water bottle and strutted up to a
table while music worthy of a blockbuster movie blared. With a dramatic pause,
he flipped the bottle, which landed upright on the table. The crowd erupted in
pandemonium. That footage has been viewed more than six million times.
The start of school seems to have ignited the obsessive
behavior among young people. Ms. Tuna said she was unaware of the online videos
and thought the activity was something her sons cooked up.
Ms. Tuna, who has five children, four of whom are living at
home: three boys, ages 10, 12 and 13, and an 11-year-old daughter. She said
they all toss bottles, though the girl less so.
Ms. Tuna said she had banished the practice to the outdoors,
and then one day found them trying to land bottles on her car.
Wendy Cinnamon, 44, of Rockaway, N.J., said that among
parents, “this is driving us all insane.”
Her son, Alex Venezia, 12, is a constant practitioner.“I tell
him stop and he won’t stop.”
Ms. Cinnamon has threatened to take away his smartphone. But
nothing worked and after he tossed a bottle that landed upright on top of the
refrigerator, she just gave up.
How many of his friends were doing this? All of them, Alex
replied.
“When he said ‘all of them,’ he’s not kidding,” Ms. Cinnamon
said.
“It makes you feel accomplished,” Alex added.
“That’s what makes you feel accomplished?” she asked
incredulously.
Alex said he acts on the impulse to flip bottles “whenever
I’m bored.” He predicted that the fad would soon fade.
For Ms. Cinnamon and other parents, that moment cannot come
soon enough.
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10/13/2016
Bob Dylan Wins Nobel Prize in Literature
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| Bob Dylan performing at the Hollywood Palladium in 2012. Christopher Polk/Getty Images |
LONDON — The singer and songwriter Bob Dylan was awarded
the Nobel Prize in Literature on Thursday for “having created new poetic
expressions within the great American song tradition,” in the words of the
Swedish Academy.
He is the first American to win since the novelist Toni
Morrison, in 1993. The announcement, in Stockholm, came as something of a
surprise. Although Mr. Dylan, 75, has been mentioned often as having an outside
shot at the prize, his work does not fit into the traditional literary canons
of novels, poetry and short stories that the prize has traditionally
recognized.
The Nobel, one of the world’s most prestigious and
financially generous awards, comes with a prize of 8 million Swedish kronor, or
just over $900,000. The literature prize is given for a lifetime of writing
rather than for a single work.
The prize announcement came hours after news of the death at
age 90 of Dario Fo, the Italian playwright, director and performer whose
satirical work was recognized by the 1997 prize.
10/10/2016
The History Of The Nobel Prizes (audio)
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Where-were-you Nobel Prize stories
Throughout a week the committees that select the winners of
the Nobel Prizes announce their choices sometime around noon Swedish time.
With the Eastern part of the United States six hours behind
Sweden and the West coast nine hours behind, American researchers tend to be
asleep when that life-changing call comes. Here is how five
scientists learned about their Nobel Prizes.
Carol Greider, Johns Hopkins Medicine -
Co-Recipient, 2009 Nobel Prize in Physiology or Medicine
 |
| Dr. Greider with a flask of mouse tumor cells in 2009. She was recognized for her discovery of telomerase, an enzyme that is critical for the survival of all living cells.Mark Roth for The New York Times |
I don’t usually do the laundry so early in the morning, but
I was already up, and there was all this laundry staring at me. I was supposed
to later meet two women friends to take our morning spin class.
After I got the call, I sent my friend an e-mail: “I’m sorry
I can’t spin right now. I’ve won the Nobel Prize.”
Peter Agre, Johns Hopkins Malaria Research
Institute
2003 Nobel Prize in Chemistry
 |
Dr. Agre was awarded for his discovery of aquaporins, the plumbing system for cells. David Goldman for The New York Times |
There were some clues that this would happen. Like getting invited to Sweden to give lectures. But at 5:30 a.m. on an October morning, the phone rang. “Hello, Professor Agre, this is Stockholm. You have just won the Nobel Prize in Chemistry. In about 10 minutes, we’re having a press conference and the whole world will hear — so you’d better get on with your day.”
I sprinted into the shower, and my wife, Mary, called my
mother, who said, “That’s very nice, but don’t let it go to his head.”
Linda Buck, Fred Hutchinson Cancer Research Center -
Co-Recipient, 2004 Nobel Prize in Physiology or Medicine
 |
Dr. Buck was recognized for her efforts to decipher the workings of the sense of smell. Dan Lamont/Howard Hughes Medical Institute, via Associated Press |
It was close to 2 a.m. here in Seattle when they tried to
reach me. The committee did not have my phone number, which is unlisted, but
they managed to obtain the home number for the director of my division. The
Nobel member calling him said he was from Sweden and would like my number.
Since I was on a faculty search committee, the director
guessed it might be someone from Sweden who was calling about the faculty
position, but wasn’t aware of the time difference.
He therefore told the caller that if he was interested in
inquiring about a job here, this was probably not the best way to go about it.
The caller then told the director why he was calling, and
the director responded, “That will get you a job here!”
Carl Wieman, Stanford University -
2001 Nobel Prize in Physics
 |
| Dr. Wieman and his team were recognized for producing a state of matter in which atoms merge into a single wavelike entity that is much like a beam of laser light.Kevin Moloney for The New York Times |
I was in bed asleep, of course! Actually, I was awakened not
by a call from Sweden, but by a call from my brother. The Swedes were not able
to get my phone number, but my wildly optimistic brother got up in the middle
of the night to check the announcement of the physics prize on the Internet,
and his congratulatory call woke me up.
Since it was my brother, my first reaction was to go check
the Internet to make sure he was not playing a practical joke.
Eric Betzig, Howard Hughes Medical Institute -
2014 Nobel Prize in Chemistry
 |
| Dr. Betzig was recognized for developing a new class of microscopes that may transform biological research by permitting researchers to observe cellular processes as they happen. Drew Angerer for The New York Times |
I was in Munich to give a talk at a conference when the
committee called to tell me about the prize.
The Nobel was the furthest thing from my mind. When my
cellphone rang, I wondered who the heck would call me at 5:30 in the morning
East Coast time and immediately worried that there was a problem at home.
They had actually called my ex-wife’s phone first, but my
16-year-old told them where to find me.
After about 20 seconds of shakes and another 20 seconds to
tell them “yes,” I hung up in shock. The closest analogy I can make is that it
feels like getting hit by a bus. You know that you’ve just experienced a
completely unexpected and life-changing event, and you have no idea how it will
impact you and your plans for the future.
2016 Nobel Prize in Economics for Work on Contracts
Oliver Hart and Bengt Holmstrom were awarded the Nobel
Memorial Prize in Economic Science on Monday for improving the
design of contracts, the deals that bind together employers and their workers,
or companies and their customers.
Dr. Hart, a professor at Harvard, and Dr. Holmstrom, a
professor at the Massachusetts Institute of Technology, have sought to
determine how contracts can encourage mutually beneficial behavior.
Their work has helped to shape the way companies pay senior
executives and when governments decide to hire private companies to provide
public services.
Dr. Holmstrom’s work has focused on employment contracts.
Companies would like employees to behave as if they owned the place: working
hard, minding costs but also taking smart risks. Employees, on the other hand,
would like to be paid as much as possible, for as long as possible, while
working no harder than necessary. And performance is difficult to assess.
Dr. Hart’s work has focused on a related issue: Contracts
are incomplete instruction manuals. They cannot specify what should be done in
every case. Instead, they must stipulate how decisions should be made.
“His research provides us with theoretical tools for
studying questions such as which kinds of companies should merge, the proper
mix of debt and equity financing, and which institutions such as schools or
prisons ought to be privately or publicly owned,” the Royal Swedish Academy of
Sciences, which awarded the prize, said in a news release, referring to Dr.
Hart.
Dr. Holmstrom, speaking via an audio connection to a news
conference hosted by the academy, said he had been “very surprised and very
happy” to get the news. Asked how his day was going, he said there was “a sense
of things being surreal.”
Dr. Hart said he had hugged his wife, roused his son from
sleep and then spoken by phone with Dr. Holmstrom, whom he has known for years.
Both scholars teach in Cambridge, Mass.
“I woke at about 4:40 and was wondering whether it was
getting too late for it to be this year, but then fortunately the phone rang,”
Dr. Hart said.
Dr. Holmstrom’s work, beginning in the late 1970s, presented
evidence that companies should tie pay to the broadest possible evaluation of
an employee’s performance.
One important implication of his work is that it makes sense
to wait and see how things turn out. That can be done by setting aside a
portion of compensation. If the company benefits, the value of the bonus set
aside can be increased. If the company does not, it can be reduced.
Companies have turned increasingly to this kind of deferred
compensation, particularly for senior executives, a trend Dr. Holmstrom noted
with satisfaction on Monday morning.
He has also found that companies should tie pay to the share
price of other firms in the same industry. It makes little sense to reward an
executive for an increase that reflects broader economic factors, or to punish
them for setbacks beyond their control.
Much of Dr. Holmstrom’s subsequent work has focused on a
variety of important wrinkles. He noted, for example, that measuring results
can cause problems, too, by encouraging employees to focus on those parts of
their jobs. Paying teachers based on test results, for example, may lead them
to devote less time to teaching other skills. This suggests that employers
should balance fixed pay with performance incentives.
One of Dr. Hart’s most important insights is that the power
to make decisions is, in effect, a form of compensation. His work has shown
that it makes sense to give the decision-making power to the parties whose
performance is most difficult for the owners to assess and reward.
Investors in a company, for example, are well served by
giving money and control to the executives in exchange for the promise of a
fixed return and the right to seize control if things go badly. This
illuminates the underlying logic of most lending.
“Incomplete-contract theory predicts that entrepreneurs
should have the right to make most decisions in their firms as long as
performance is good, but investors should have more decision rights when
performance deteriorates,” the academy said in an explanation of Mr. Hart’s
work.
Who Are the Winners?
Dr. Hart, 68, was born in London. He studied at
University College London, Cambridge University and Warwick University, all in
England, before receiving his Ph.D. in 1974 from Princeton. He has been a
professor of economics at Harvard since 1993.
Dr. Holmstrom, 67, was born in Helsinki, Finland. He
received his Ph.D. in 1978 from Stanford and has been a professor of economics
and management at M.I.T. since 1994. He previously taught at
Northwestern and Yale.
Press HERE to read Oliver Hart’s and Bengt Holmström’s 6-page Contract Theory, the Nobel Memorial Prize in Economics Sciences
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