Reward good decision processes more than outcomes, which are often influenced strongly by factors other than the person who decides

Rewarding or penalizing inside attorneys based on outcomes of legal matters overestimates how much of the random variability of the world the attorneys actually control. A din of “noise” clutters what happens out there, which means that good managers can suffer from bad outcomes as much as bad managers can enjoy undeserved outcomes.

An article in the Harvard Bus. Rev., Dec. 2010 at 40, by Dan Ariely dandan@duke.edu urges companies to reduce their reliance on evaluations of stochastic outcomes. One step he recommends would have managers in legal departments document their crucial assumptions at the time they make decisions they recognize are import. If, in retrospect and regardless of what eventually happened, it was sensible to make the decision based on the assumptions at the time, it is unfair to punish the decision-maker. Second, check to see whether the person who made the decision took available information into account.

Third, did the person genuinely consider the range of available options. Fourth, were there any conflicts of interest tugging against the lawyer’s making an objective call. Fifth and finally, taking into account these indicia of solid thinking, it is important to “reward good decisions at the time they’re made.”

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