What do the National Basketball Association and Danish companies have in common? Apparenty, their reward system — or at least, that’s the upshot of recently released research on tournament theory.
According a study conducted by Beck Taylor of Baylor University and Justin Trogdon of Duke University, you don’t have to look any farther than the NBA draft to see how losing is a win-win situation.
Under the NBA setup, bottom-ranked teams at the end of the regular season get first pick of the cream of the year’s college crop. The theory: such a system encourages fair distribution of talent for the teams and the league — and therefore increases competition.
But Taylor and Trogdon say what’s really happening is the NBA is rewarding teams for losing. And team managers take full advantage of this benefit, the study’s authors assert.
Based on analysis of three seasons, the researchers say “NBA teams eliminated from the playoffs lose in order to secure higher draft choices.” For example, during the 1983-84 season, Taylor and Trogdon calculate that teams eliminated from the playoffs were about 2.5 times more likely to lose than those that qualified, and that’s taking into account quality of the team and the venue of the games.
Interesting, but what does this have to do with the compensation in Denmark? Well, one academic has linked tournament theory to executive compensation. According to his survey of more than 200 Danish companies, Tor Eriksson of the Aarhus School of Business, says the greater the number of managers involved in the “tournament,” (the company), the bigger the prize, or compensation. Further, there is some evidence, Eriksson says, that companies which have a better spread of compensation (and which therefore better reward lower-end managers) actually outperform their business competitors.
CFOs on the Move
Child-care center operator Childtime Learning Centers Inc. named Frank M. Jerneycic Svp and CFO. Jerneycic was previously SVP and CFO of Decision Consultants Inc… Former Bio-Rad Laboratories finance chief Thomas C. Chesterman named SVP and CFO of drug developer Aradigm Corp… Party City Corp. VP of finance Linda M. Siluk promoted to CFO of party-supply chain.
(Editor’s Note: Compare cost management at Bio-Rad and Aradigm with the CFO PeerMetrix interactive scorecards.)