15.301/310, Managerial Psychology Prof. Dan Ariely Lecture 9: Labor and Compensation Used to meet 3x week, 1 hr, if meet 1.5, more class time More difficult to schedule other classes? -yes, hits 2 slots 1x week for 3 hrs? -yes -during day, or night? -evening 7-10 -3 hr friday Now back on time, I gained info, we can start Guess what? This class is going to be what? Exciting, interesting, insightful Learn a lot, sorry it ends Today we will talk about some aspects of work Where have you worked? -Golf technology -wear the Chucky suit at Chucky Cheese How many liked your job so far? How many would like to go back to your job for the next 10 yrs? What made you happy about this job? -people worked with, funny, nice Social atmosphere at work very imp -fact knew make money -exiting What was exiting? -fun, pressure What is it about that makes exiting? -pressure, win or lose Intangible rewards, challenge, sense of progression -gratifying to build things people might use -enjoyed task, process of working towards somethingInputs for why people work Bazaar aspects of people working We think people work because they need money Think about things you said, not about money Except one, enjoy idea of making money Other things important besides having food and clothing. Have money, would still work? You have a trust, $3000 a month, don’t need to work, would you still work? Not many people would say no, and in this group, I think the majority would say yes. What are the other things that work gives you that are the important things? Why would you work? If you are a boss, need to figure out why people work If it’s not just about the money, have to think about how do we motivate people? Standard perspective (slide) Standard model in economics, when people work for us, we buy their time Like animals working in a cage, can do something else, or work for food pellet. But only reason work is for reward If animal very hungry, work to get food pellet Turns out, even for animals, this model wrong If squirrel option nuts in or out of shell, prefers in shell Prefer to work for nuts than get free nuts So this model not just wrong for people, also wrong for squirrels This assumption, theory – people work for money – nothing else relevant but money So how do we motivate people? We pay them. How do we motivate them more? We pay them more. How do we motivate them less? Pay less. Simple equation with one variable, how much we pay. Today we see this simple perspective not accurate on multiple grounds All the aspects you described about the hoy of work Talk about: Relative vs absolute levels of compensation (like last wk) Payment vs performanceormance 15.301/310, Managerial Psychology Lecture 9 Prof. Dan Ariely Page 2 of 151Meaning of labor, joy we get Relation, payment, effort, motivation, performanceormance Older people have jobs,st description of self includes, often the first thing they mention is their job: I’m Joe, I’m a carpenter, etc. people take a lot of pride in labor – what is the meaning of that? Sabotage. When people take advantage of the company they work for, when they destroy things. Computer viruses, break furniture, do things they do not benefit from just to ruin, revenge 1st topic – relative vs absolute compensation What can we say about this topic? - relative matters more than absolute compensation You might think people would look at absolute compensation, see what it can get them, what they can buy But in fact very few people think this way. How many of you have gone through and said, what is the lifestyle I want, and let me think about the cost of that lifestyle, and infer a profession that will allow that lifestyle? Not very many Reality, people should care absolute but in fact very few people work this way Lifestyle, infer profession, not often Like doing x, how do I want to behave? Few decisions based on abs comp Imagine 2 people A $80,000 80-100 company range B $70,000 50-70 company range Who would you rather be, person A or person B? A? B? Have to admit, seems silly to choose person B So let’s not talk about you. How many other people happier A than B? B than A? (more) So, other people are clearly going to be stupid. One thing to think about choice, another to ask about happiness. Which will stay longer? Work harder? Be more loyal to company? Recommend others to company Probably 2nd person, right? Relative salary more important to happiness w/ job 15.301/310, Managerial Psychology Lecture 9 Prof. Dan Ariely Page 3 of 15When making decisions, sometimes we don’t recognize this If 2 job offers of this nature, hard to explain to parents if chose B. or self or friends. But be happier Happiness at least partially determined by relative salary; relative to what? What are some factors that we consider? -last year, if raise People like to be paid more over time Actually difficult Assumes More valuable to co. when stay longer, but sometimes decline in profession as get older But salaries not reflect. People very upset if wages get cut. People would leave immediately. Issue of wage increase very important Many people can’t afford to retire, but unhappy getting ½ pay Solution, keep people work, pay them less but not make unhappy with that? -charity work What if they need money? Switch people jobs further away switch to new job, easier it will be Why don’t we take as a plan, people to retire from higher paying job and offer them to be teachers? Relative to last year and what else? -friends and neighbors Wife’s sister’s husband -people in your field From all of those, biggest determinant is social ones Last week, I talk to MIT alumni One was manager in big investment company. Took salaries of all into 1 database Worried most that this database would leak out And people would find out what everyone else was making How many people would be happy with this process? 15.301/310, Managerial Psychology Lecture 9 Prof. Dan Ariely Page 4 of 15 -1Chances are everyone finds someone gets paid more than them, think they shouldn’t Say you work for Fidelity and you know when people find each other’s wages, is very dangerous. What can you do? -justifiable performanceormance measure -everyone same salary, bonus system -non-cash compensation Cars, yachts, nobody figure out exactly how much worth What else? One approach, prevent people from talking to each other