What about Those “Special People”?
A few years ago, before the financial crisis of 2008, I was invited to give a talk to a select group of bankers. The meeting took place in a well-appointed conference room at a large investment company’s office in New York City. The food and wine were delicious and the views from the windows spectacular. I told the audience about different projects I was working on, including the experiments on high bonuses in India and MIT. They all nodded their heads in agreement with the theory that high bonuses might backfire—until I suggested that the same psychological effects might also apply to the people in the room. They were clearly offended by the suggestion. The idea that their bonuses could negatively influence their work performance was preposterous, they claimed.
I tried another approach and asked for a volunteer from the audience to describe how the work atmosphere at his firm changes at the end of the year. “During November and December,” the fellow said, “very little work gets done. People mostly think about their bonuses and about what they will be able to afford.” In response, I asked the audience to try on the idea that the focus on their upcoming bonuses might have a negative effect on their performance, but they refused to see my point. Maybe it was the alcohol, but I suspect that those folks simply didn’t want to acknowledge the possibility that their bonuses were vastly oversized. (As the prolific author and journalist Upton Sinclair once noted, “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”)
Somewhat unsurprisingly, when presented with the results of these experiments, the bankers also maintained that they were, apparently, superspecial individuals; unlike most people, they insisted, they work better under stress. It didn’t seem to me that they were really so different from other people, but I conceded that perhaps they were right. I invited them to come to the lab so that we could run an experiment to find out for sure. But, given how busy bankers are and the size of their paychecks, it was impossible to tempt them to take part in our experiments or to offer them a bonus that would have been large enough to be meaningful for them.
Without the ability to test bankers, Racheli Barkan (a professor at Ben-Gurion University in Israel) and I looked for another source of data that could help us understand how highly paid, highly specialized professionals perform under great pressure. I know nothing about basketball, but Racheli is an expert, and she suggested that we look at clutch players—the basketball heroes who sink a basket just as the buzzer sounds. Clutch players are paid much more than other players, and are presumed to perform especially brilliantly during the last few minutes or seconds of a game, when stress and pressure are highest.
With the help of Duke University men’s basketball Coach Mike Krzyzewski (“Coach K”), we got a group of professional coaches to identify clutch players in the NBA (the coaches agreed, to a large extent, about who is and who is not a clutch player). Next, we watched videos of the twenty most crucial games for each clutch player in an entire NBA season (by most crucial, we meant that the score difference at the end of the game did not exceed three points). For each of those games, we measured how many points the clutch players had shot in the last five minutes of the first half of each game, when pressure was relatively low. Then we compared that number to the number of points scored during the last five minutes of the game, when the outcome was hanging by a thread and stress was at its peak. We also noted the same measures for all the other “nonclutch” players who were playing in the same games.
We found that the nonclutch players scored more or less the same in the low-stress and high-stress moments, whereas there was actually a substantial improvement for clutch players during the last five minutes of the games. So far it looked good for the clutch players and, by analogy, the bankers, as it seemed that some highly qualified people could, in fact, perform better under pressure.
But—and I’m sure you expected a “but”—there are two ways to gain more points in the last five minutes of the game. An NBA clutch player can either improve his percentage success (which would indicate a sharpening of performance) or shoot more often with the same percentage (which suggests no improvement in skill but rather a change in the number of attempts). So we looked separately at whether the clutch players actually shot better or just more often. As it turned out, the clutch players did not improve their skill; they just tried many more times. Their field goal percentage did not increase in the last five minutes (meaning that their shots were no more accurate); neither was it the case that nonclutch players got worse.
At this point you probably think that clutch players are guarded more heavily during the end of the game and this is why they don’t show the expected increase in performance. To see if this were indeed the case, we counted how many times they were fouled and also looked at their free throws. We found the same pattern: the heavily guarded clutch players were fouled more and got to shoot from the free-throw line more frequently, but their scoring percentage was unchanged. Certainly, clutch players are very good players, but our analysis showed that, contrary to common belief, their performance doesn’t improve in the last, most important part of the game.
Obviously, NBA players are not bankers. The NBA is much more selective than the financial industry; very few people are sufficiently skilled to play professional basketball, while many, many people work as professional bankers. As we’ve seen, it’s also easier to get positive returns from high incentives when we’re talking about physical rather than cognitive skills. NBA players use both, but playing basketball is more of a physical than a mental activity (at least relative to banking). So it would be far more challenging for the bankers to demonstrate “clutch” abilities when the task is less physical and demands more gray matter. Also, since the basketball players don’t actually improve under pressure, it’s even more unlikely that bankers would be able to perform to a higher degree when they are under the gun.
A CALL FOR LOWER BONUSES
One congressman publicly questioned the ethics of very large bonuses when he addressed the annual awards dinner of the trade newspaper American Banker at the New York Palace Hotel in 2004. Representative Barney Frank of Massachusetts, who, at the time, was the senior Democrat on the House Financial Services Committee (he’s currently the chairman) and hardly your run-of-the-mill, flattering “Thank you all so much for inviting me” speaker, began with a question: “At the level of pay that those of you who run banks get, why the hell do you need bonuses to do the right thing?” He was answered by an abyss of silence. So he went on: “Do we really have to bribe you to do your jobs? I don’t get it. Think what you are telling the average worker—that you, who are the most important people in the system and at the top, your salary isn’t enough, you need to be given an extra incentive to do your jobs right.”
As you may have guessed, two things happened, or rather did not happen, after this speech. First, no one answered his questions; second, no standing ovation was given. But Frank’s point is important. After all, bonuses are paid with shareholders’ money, and the effectiveness of those expensive payment schemes is not all that clear.
Public Speaking 101
The truth is that all of us, at various times, struggle and even fail when we perform tasks that matter to us the most. Consider your performance on standardized tests such as the SAT. What was the difference between your score on the practice tests and your score on the real SAT? If you are like most people, the result on your practice tests was most likely higher, suggesting that the pressure of wanting to perform well led you to a lower score.
The same principle applies