Managers and the ratchet effect
Describe under which set of conditions factory managers may be inclined to incur in the “ratchet” effect (i.e., moving standards of the incentive system upwards after workers have achieved performance above the previous standards) even if doing that is not in the best interest of the firm.
This policy will destroy de incentive system very soon. Workers frequently react by reaching an implicit agreement about the standard of performance to be exerted. They will enforce this standard by informal means, advising new workers about the due performance rate, and punishing over-performers with ostracism and occasionally even violence.
Absent technological change, moving performance standards will them damage the firm. Managers may, however, hope that the effect will happen in the long term. If they are motivated on a short term basis, it may pay to them to cheat workers that way, even if it is bad for the firm as a whole.
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