(Players) should be getting paid for the overall team performance. Incentives are (probably) not aligned.This comment perfectly illustrates one of the main performance-evaluation tradeoffs. Here's how:
Imagine you're the Memphis Grizzlies. Your record this season is 16-46. Not too good. But you've got rookie OJ Mayo, who's averaging more than 18 points per game.
Is it Mayo's fault that the Grizzlies are so bad? Should his pay be lower because the other players on his team stink? Mayo cannot, after all, help Quinton Ross (a 39% FG shooter) make shots.
Or...
Should we pay OJ Mayo based on how HE plays?
If we pay Mayo based on how he does, then we face the problem of measuring his performance. And this is hard. We usually think points-scored is a good measure, but as the Shane Battier article points out, there are times when the best thing for a player to do is pass the ball. If we use "points" as a performance measure, then Mayo might be motivated to shoot when that's not the best thing for the team.
If we pay Mayo based on how the team does, then he'll never shoot when he should pass. That is, Mayo's incentives will be aligned. But his pay will depend on whether Quinton Ross can shoot or not. And this means Mayo's pay will depend on random factors beyond his control. And just like we don't like it when the stock market goes up and down (affecting our investments in a way that's beyond our control), employees usually don't like this.
So, there's your tradeoff. Firmwide performance measures get good alignment, but subject employees to risk. Individual performance measurement can reduce risk, but won't necessarily get good alignment.
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Perhaps my employer is an anomaly, but I suspect not. In my job, actual performance data is fairly well-hidden from the employees, for reasons that are not clear to me. Feedback is usually given to the general group in the form of, "Some of you are not pulling your weight," which usually means that the already well-performing employees, who are fairly conscientious, step up and do more, and the low performers continue on blissfully unaware. Salaries are based on years of experience and go up and down, based on how well the top performers are bringing money into the organization. I suspect many organizations function more along these (less-than-ideal) lines.
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