Let's take another example from factory piece rates.
So in a factory, if you're paying a piece rate, that is a dollar value for
every unit that they produce, then quality might suffer.
That's because you're paying for quantity.
But you're expecting both quantity and also quality.
And so, if we look at the measurement problem, we're saying that we can't, and
so, kind of related is the measurement problem.
We might not be able to keep track of the numbers that workers produce, and
it also might be very difficult to measure the quality of the items that they
produce as well.
That's why to solve the measurement problem,
we also might have to have some sort of a way of using serial numbers or
something to track the quality of the items as they come down the assembly line.
That way, we can solve the liner problem.
Now we get to metering and control.
Our metering problem might be that first specific task,
we can't define good performance.
So let's say that a worker perhaps gets a new piece of technology,
a new piece of equipment.
And we find out that there's a 2% defect rate on the items that they're producing.
Now is that good performance?
Well, we don't necessarily know because we don't have experience with that item.
We don't have experience with that new piece of capital.
It could be the case that that 2% defect rate is very high or very low,
but we just don't know because we don't have good data on that yet.
Also, we have the question of control, again,
the control problem here would be that employees don't necessarily have control
over the workmanship of their inputs.
So for example, if we're paying workers for the quantity that they produce and
also for the quality of the items that they produce,
it could be challenging because perhaps the materials,
perhaps the steel that they're getting is defective, or of low quality.
Or if they are assembling cars,
it could be that the suppliers are giving them poor engines to put into their cars.
And that's leading a lot of these cars to be returned to the manufacturer.
And again, these are for things that are outside of the workers' control.
Because they're only getting those poor inputs from somewhere else.
And so, kind of the big idea here is, again,
short term incentives are only one element to the pay mix.
And also we can include multiple different short term
incentives as part of our whole short term incentive package.
So for example, a piece rate,
where we're just paying workers per unit they produce, might have quality concerns,
as workers allocate their effort more toward a quantity of production.
And so one thing we can do is we can incorporate piece rates
into a plan that also includes bonuses for quality.