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Many organizations have difficulty assessing their employees' contributions to the total output and profit. For example, when a salesperson convinces a customer to buy a certain product, the actual purchase may be made through the local distributor. However, the parent organization will find it hard to determine which of the two (salesperson or distributor) is responsible for the sale. This is also true when evaluating IT employees’ contributions. While IT staff contribute to the infrastructure and have a strategic role in the organization, many of their activities do not contribute directly to revenue or measureable cost savings. In the economics literature, this is a well-known problem. Radner (1992) has written, “If we look at individuals in the firm, especially in the managing sector, it is rare that we find a person whose output can be realistically measured in money or any other one-dimensional variable”.
Still, management would like to reward workers as a direct function of their contribution to the profits of the organization. In response, non-financial measures of performance are used to evaluate employees. Various systems are used to allocate rewards based on these, often arbitrary, measures. Klein, Jiang, and Sobol (2001) recommend the use of “specific, challenging, and meaningful performance measures.” However well-designed, these metrics do not solve the problem of directly measuring employee contributions. A gap exists between management’s desire to reward economically productive behavior and the ability to measure that behavior.
As defined by Drory and Romm (1990), organizational politics is the minimal combination of three elements: influence, informal means, and conflict. In this case, employees will be rewarded if they influence the perception of their performance so that their evaluation by management is improved; in other words, so they are credited with more impact on organizational success than they actually had. This can be done by formal or informal means. In doing so, employees will come into conflict with one another. Thus, the opportunity arises for organizational politics to intrude upon the formal process of measuring employee contributions.
From the economic point of view, political behavior generates “influence costs” that have been defined by Milgrom and Roberts (1992) as “The costs included in attempts to influence others' decisions in a self-interested fashion, in attempts to counter such influence activities by others, and by the degradation of the quality of decisions because of influence.” In their book (pp. 192-193), the authors mention several items that represent influence costs, including:
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Expending resources trying to influence the manager to bring about unproductive interventions;
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Influencing the manager to intervene inappropriately; and
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Controlling these attempts to influence the manager.
Previous work by Milgrom and Roberts (1986, 1988, 1990) also discuss this phenomenon.
Since the benefits rewarded by management are a limited resource, there is conflict among the employees as competition develops. There are several theories that may describe or explain the motivation for engaging in the competition.
Maslow’s hierarchy of needs(Maslow, 1943) describes motivation as a series of needs, each building on the other: physiological, safety, love, esteem, and self-actualization. Self-esteem may be a factor that directly relates to compensation. Maslow includes “respect from others” in his definition of the term (p. 381). In contemporary society, compensation is often a source of self-esteem. However, it is not clear what the bounds of that compensation should be.
Equity Theory addresses compensation directly. Individuals compare their worth against others. Adams (1963, 1965) proposed that the ratio of outcomes (O) to inputs (I) is what people use to compare themselves to others. The outcomes can be the pay received and the input is the time and effort expended. When employees perceive that their ratio is lower than the norm, then they may feel underpaid. The employees may respond in a number of ways to try to increase the ratio, including: