We are currently living through an explosion of measurement technology. Once only athletes, salespeople and investment bankers could be managed by metrics of their performance. But increasingly everyone is, as technology opens up deeper access to performance data. It makes us all better, but it also clearly leads to greater inequality.
That will make technology which measures performance a big part of the prosperity and inequality technology narrative in the next several decades.
Athletes and Salespeople
Some people have been used to metric-driven jobs and performance-driven compensation for a long time.
Let's start with athletes. Sports like baseball have been ruthlessly measured and reduced to statistics for the last hundred years. Basketball, football, and other sports have also been measured more closely over time. The ability to measure players’ output statistically leads to a skew where superstars are paid dramatically more than the average.
Every once in a while someone comes along with a new way to measure performance, like Billy Beane. That changes the market—but not the relationship between measurability, expected performance-based compensation, and inequality.
The highly unequal market in which athletes live is based on contracts representing promises of future returns. The labor in the industry was able to negotiate the upfront contracts.
Salespeople, and probably most famously investment bankers, also exist in an equality measurement and performance-driven culture, but with the opposite compensation structure: post-performance versus pre-performance contracting.
These kind of sales-oriented jobs, broadly defined, have been measured in professional settings for a long time. That’s because it’s important to measure these jobs’ rate of success and is relatively easy to do so. So it seems like second nature that people who sell things—be they knives or ads or companies—are compensated by employers based on how they do. The "eat what you kill" mentality in these fields seems fair and rational—and it also means that different people make vastly different amounts of money.
Actors are perhaps another interesting example to study. For marquee names, the impact of their participation is relatively easy for companies to judge or bet on. And the availability of measurement means that compensation can be based on expected contributions and ends up being extremely unequal.
Each industry has its own nuances in terms of how compensation works. The key is when you can measure output, you end up with performance-driven cultures. And performance-driven cultures create efficiency and good work—but also are linked to inequality.
The Rest of Us
Most of us who are non-investment banker-hedge-fund-manager-athlete-actors historically have operated in a relative performance-metric void.
People at well-run companies might have KPIs they are trying to hit, peer feedback and some sense of their contribution. But from a practical standpoint it has been too difficult to measure second to second what everyone is doing and reduce that contribution down to statistics.
A company might understand broadly if a building project is ahead or behind, but not be able to measure every hammer stroke of every worker. A marketing company might know if someone generated a hit campaign that a client liked, but not how many new customers that work contributed to the overall goal. The same is true of doctors and schoolteachers.
But measurement is coming to all of these fields.
This is happening first because technology services, like Amazon Web Services, and modern databases enable us to measure in more detail and to work efficiently with more data at scale. Most work wasn’t easily measurable before, but increasingly technology is making it possible.
At the same time, there is demand for performance measurement as well. The best and most productive employees want to be acknowledged and compensated for superior work. If their employer doesn’t adopt performance pay, the best will simply go to a competitor that will, forcing any industry where measurement is possible toward a bonus-driven culture. Their customers also want it because implicitly measurement leads to better goods and services at lower prices.
So, it is highly likely that wherever measurement becomes possible, over time you will see compensation move away from fixed rates and toward bonus cultures.
This I think is broadly good for everyone, but we all have to admit that it will lead to more inequality as well. Merely opening the ability to measure something changes the nature of the work.