Much ado is often made about the results of outcome-based remuneration policies, about sharing in the success of an endeavour, particularly between those who enable it and those who make it happen.
Business is enabled by capital provided by shareholders. Business success is manifest by people. It stands to reason that the spoils must be shared between these stakeholders.
Every now and again such an arrangement will spew out what may appear to be an outrageous result, but that isn’t cause enough to cancel the construct, given the principles of vested and common interest it is founded on. Maybe there should be limits, ratios and an extent of immunity from exogenous variables, but not disqualification.
In fact, I would argue for this aligned interest model to be expanded beyond business.
I read (in a recent Economist tweet) about the high standard of education being achieved in Vietnam, despite lesser success in their other measures of economic endeavour. While environment and natural ability obviously play major roles, this Vietnam success story is largely attributable to the quality and management of their teachers. Teachers’ assessments (and prospects) are driven by the performance of their students — so a pretty obvious result emerges.
India has to educate hundreds of millions of children every year (and employ them) if they hope to remain competitive in the global economy, while looking after the biggest population in the world. India has to create and sustain an education system that will produce an employable, productive population as an output. So do we.
In both cases a vested interest ecosystem will be required, where the final users of the product (employers of qualified school leavers, artisans, graduates) secure a suitable supply of specific skills by way, perhaps, of a contract that pays for successfully completed studies, in return for a post-qualification service obligation. The supply-demand imperative is obvious.
In business, success is determined by satisfied customers being prepared to pay for products and services at a fair price. If you produce the best value, you’ll get the most customers and make the most money — that’s neither surprising or unfair.
Sports superstars, or rock stars, get paid vast fortunes, by any standard. Again, this is as a result of an enabled environment and evidenced talent coming together to produce the best teams and individuals in the world. Those on top of their game attract the biggest crowds. If all sports people simply got a percentage of the ticket revenue they generate, its difficult to ague against the result. Taylor Swift reportedly earns about R250m a concert, I wouldn’t earn a cent if I started singing in a stadium. That’s fair.
Better results
Public service needn’t be an exception to this rule. If politicians got paid on a scale determined by performance, we’d get a better result than we do from fixed-term, fixed-pay contracts, where logic dictates that the less you work, the more you get paid per unit of effort.
It is fundamentally flawed to have what you earn bearing no relationship to what you achieve. The stakes in state-owned enterprises (SOEs) are even higher that in most private sector businesses. What wouldn’t we pay to incentivise an increase in the Energy Availability Factor, or a functional railroad, or a universal education or healthcare system, or a lower murder statistic? The estimates of what dysfunctional state initiatives cost the economy and the country vary considerably, but it runs into hundreds of billions of rand, ultimately making us a less competitive exporter and less likely to attract (particularly foreign) capital into local enterprise development.
Competence and experience, not allegiance and popularity, are to fill positions of effective leadership in vital industries. Only outcome-based remuneration structures that compete with the private sector will attract these individuals.
If you think that will be expensive, I guarantee it’ll prove to be a lot better value for money than what we’re paying now.
• Barnes is an investment banker with more than 35 years’ experience in various capacities in the financial sector.
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