Why your boss is overpaid

Why your boss is overpaid.

The ugly truth is that your boss is probably overpaid–and it’s for your benefit, not his. We work our socks off in underpaying jobs in the hope that one day we’ll win the rat race and become overpaid fat cats ourselves. Economists call this “tournament theory.”

The second, and more counterintuitive, prediction of tournament theory is that the more luck is involved in work, the larger the pay gaps should be between the winners and the losers. If Jack’s promotion is 90% luck and 10% effort, Jack may be inclined to goof off–unless, of course, the rewards for promotion are absolutely astronomical. And they sometimes are.

Finally, tournament theory also helps to explain why insiders, not outsiders, get cushy jobs. You thought it was all about the old-boy network, but in fact, the logical reason for promoting insiders is clear: These jobs are designed to keep your workforce motivated.

  1. joey says:

    interesting analysis. no wonder the top execs in usa are paid enormously regardless of whether the company does well or not

  2. Rghu says:

    A professor in a US school once told to me ‘one of the reasons you have a job is most managers are unsure of anything. All they do is follow the ‘latest trend’, be it Java or .NET or something fancy demanding more funds every few months and adding more people’. Well I worked for a boss who didn’t know the difference between a ‘bit’ and a ‘byte’ and supposedly led technical teams for many many years!