The Tyranny of Metrics

Robert Gibbons, a professor of organizational economics at MIT, pointed out that in fact the principal (the owner of the firm, for example) profits from a variety of outputs from the agent (the employee), and that many of these outputs are not highly visible or measureable in any numerical sense. Organizations depend on employees engaging in mentoring and in team work, for example, which are often at odds with what the employees would do if their only interests were to maximize their measured performance for purposes of compensation. Thus, there is a gap between the measureable contribution and the actual, total contribution of the agent. As a result, measured performance (such as an increase in the division’s profits or a rise in the company’s stock price) may actually lead to the organization getting less of what it really needs from its employees.