Data & Research September 26, 2007

Par for the Course?

It is generally thought that competitive pressures bring out the best in us, that we come with our best “game″ when we know that that is what it will take to win.
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However, that sense is challenged by a new study that found no such connection – at least on the golf course.

The study, aptly, if somewhat inauspiciously titled “Peer Effects In The Workplace: Evidence From Random Groupings In Professional Golf Tournaments,’ considered the performance of playing partners in professional golf tournaments as a proxy for peer effects in the workplace. And, contrary to recent evidence on supermarket checkout workers and soft-fruit pickers (who admittedly are performing for different stakes than Tiger Woods), the authors (Jonathan Guryan, Kory Kroft, and Matt Notowidigdo) said they found “no evidence that the ability or current performance of playing partners affects the performance of professional golfers.’ This despite the fact that many PGA players themselves perceive these so-called peer effects to be important.

In a typical blue-collar work setting, individuals can learn by example from co-workers how to best perform their tasks, and thus improve to the level of the best worker in the group, they may be motivated to perform at a higher level simply by trying to keep up with the rest of the group, and even, in situations where a production process is involved, they can by physically “motivated’ by the simple need to keep up (what the researchers termed a “production complementarity’).

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As for the golf setting, the study’s authors acknowledged opportunities for players to benefit from exposure to the expertise of their peer group; the ability to observe the ball flight of others in the playing group, the opportunity to learn how a skilled putter manages to deal with the various greens – even the challenge of attempting to match the performance of another member of the team on a given hole.

“Shocks” Treatment

Indeed, an interesting aspect of the study was that it did find a positive effect of partners’ score on individual scores – but were able (through a mind-numbing regression analysis) to discount that result not to the influences of the teams themselves, but to what they found to be “common shocks’, things like variation in weather and crowd size. So, while pairings did seem to perform well together (hence the sense that good partnerings lifted the performance of everyone in the pairing), the researchers were able to discount that to the environmental impact of playing at the same time in the same elements (“…we are able to reject positive peer effects of more than 0.045 strokes for a one stroke increase in playing partners’ ability.’).

Having been able to factor out the apparent peer influences, the study’s authors nonetheless offered several reasons for the contrast between the findings of their study, and the others. They suggest that strong performance-based financial incentives could provide incentives that transcend the influences of a peer group, that there is “heterogeneity’ in how susceptible individuals are to social effects – and that those in “elite professional labor markets’ are simply not as subject to those peer influences, and that workers learn with professional experience not to be affected by social forces – that, in effect, “…some people are better than others at avoiding the social effects…’
Another reason for the apparent lack of correlation can be found in the structure of the game of golf itself. In a golf tournament the object is to score the lowest, regardless of with whom you are playing; that pay is based on relative performance – but that performance is compared to the entire field of entrants in a tournament, not just those in the individual playing grouping. “In a golf tournament,’ they note, “there is no reason (other than better information about how the player next to him is doing) for a player to care more about the performance of his playing partner than about anyone else in the tournament.’
The study was published by the National Bureau of Economic Research. You can find out more about it at http://www.nber.org/papers/w13422
In Practice September 26, 2007

PA NC: Be Prepared: Acing Your Finals

A panel of experts at PLANADVISER’s National Conference in Orlando, Florida, offered insights on how to win a finals presentation.
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“Preparation is the key” to a winning finals presentation, according to Steff Chalk, President of CHALK 401(k) Advisory Board, Inc. Chalk suggests advisers understand what the decision-making process will be when sponsors are searching for an adviser, and that they understand a sponsor’s hot buttons – three points that are working well for their plan and three points that are not. He also suggested appointing an adviser “quarterback” ahead of time to field difficult questions from a sponsor or committee attending the finals presentation.

Panel member Wade Walker, Global Private Client Group, Merrill Lynch, added that advisers should know where the plan stands, the previous experiences of the decision-makers, and what is important to the sponsor.

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An adviser should know why a company is searching for a new solution and the sponsor’s desire for employees, according to panel member Brian Dillon, Regional VP, Investment-Only Specialist of John Hancock Retirement Plan Services. He suggests a visit to the company before even responding to a Request for Proposal (RFP).

In addition to preparation, an adviser should think, “How can my firm be the most attractive decision?,” offered panel member Peggy Whitmore, Managing Director of 401(k) Advisors. She suggested advisers think of why their firm would not get the business and answer any rationales they come up with ahead of time. She pointed out the finals presentation should convey that an adviser will be the one who will make the sponsor’s job easier – seamlessly and behind the scenes.

Chalk agreed that advisers stand apart that can explain the process they will use to keep a sponsor on track with its goals and how they will address the current solution’s shortfalls. In the finals presentation, an adviser should tell what he is going to do for participants and what he is going to do for the sponsor.

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