The Billable Hour Turns People into Workaholics

My last post on Jeff Pfeffer’s next book, What Were They Thinking? reminded me of Jeff’s recent research on how people in jobs where “time is money” fall into a trap: They start devoting more time to their jobs, and less time to “unpaid” activities like family, friends, and leisure. There is a splendid summary of this research on the Stanford Business School website, Time is Money When You are Paid by the Hour, “In a series of recent studies, Pfeffer and doctoral student Sanford E. DeVoe found that people who are used to being paid by the hour start thinking of time as a commodity almost equal to cash. And given the choice as to whether they’ll take time or green bills, they’ll usually take the latter—meaning they’re nearly always willing to put in more hours to get the pay.”

Writer Marguerite Rigoglioso quotes Pfeffer further: “Being paid by the hour causes people to endorse the idea that they’d rather make more money and spend more time at work,” says Pfeffer, the Thomas D. Dee II Professor of Organizational Behavior. “This shows how a commodified view of time spills over into how people view their personal and leisure time.”

“Once you’re paid by the hour,” he says, “you start placing a monetary value on that hour. The opportunity costs of not working become clearer. People gravitate toward things that are easier to evaluate, and it’s easier to figure out the value of a paid hour than it is, say, the value of an hour spent in a leisure activity. So they chose work over play.”

Pfeffer and DeVoe also review related research, including one study that found “lawyers watching their kids play soccer admitted to mentally ticking away lost income for each minute they stood on the sidelines.”

Ouch… I feel sorry for both the kids and the parents.

Unfortunately, many professional service firms – especially those like law firms that bill by the hour – systematically weed out people who don’t think and act this way, as they are less “profitable.”  This is the kind of research that gives me chills and makes me wonder if a little less “productivity” might be a good thing at times.

Comments

[John Sloan]

I'm a latecomer to this discussion, which makes it even more difficult to say: I don't agree. At age 50, I recently made the switch voluntarily from salaried employee to contractor in the software development field. Although it is much to soon to know whether this was the best thing or the stupidest thing I've ever done, I much prefer to have a fixed price for a unit of effort on my part than give my employer an strong incentive to motivate me (typically with negative incentives) to work crazy hours, effectively decreasing the cost of a unit of my effort. For me, the equation is simple: if I want to take a day off, I know the cost of that, and can make a fair comparison of that cost is versus what I want to do with that day off. This is opposed to having a vacation benefit which I am strongly encouraged not to use in order to make schedule dates, then lose that vacation benefit at the end of the year because I can't carry it over. (And yes, this was quite typical of where I worked, which also had a policy of forced ranking.)

[Crawdaddy]

I am a father of four, and I am a salaried worker. I love devoting my entire weekends to my wife and kids. I coach my 7 year-old's little league team, I drive my kids to their birthday parties and playdates, I play 1-hour games of wiffle ball and one-on-one in the driveway with them. In the evenings, after they're in bed, my wife and I make and eat a delicious dinner, and I enjoy reading, working out, playing guitar, or watching sports on TV. I know that if I were paid by the hour, my family life would be much less satisfying. And, ironically, I would bring much less positive energy and passion to my work. When I'm at work, I focus completely on work; and when I'm at home, I focus completely on home. And anyway, work is all about getting a job done well, not about how much time you spend at your desk. Great post, Bob (by the way, I'm reading your "half-truths" book right now.... very engaging stuff).

[Anne Okkels]

Thank you, Bob for this post - and thank you Alexander at positivesharing.com for sharing it. Since January 1st, I'm on leave from my (excellent) job in the public sector, starting up my own consulting firm, wanting to find my own balance in job & life satisfaction. People have met me with positive reactions from the beginning, but it's funny to hear them now, saying: "Now every hour is a billable hour" or even "now you're never off from work, you have to earn your money all the time".
I don't want to do things that way - your post and the comments are a good inspiration, I'll put it on my fridge to remind myself about that!

[Maureen Rogers]

Bob - Great set of posts. (I'll need to go back and re-read and follow the trails.)

My personal story in this regard: Two years ago, I left a full-time corporate product marketing job for consulting work.The conscious trade-off I thought I was making was money for time, i.e., I made the decision to live on (far)less in exchange for more time for volunteering and creative writing. Two years into it, I find that I do have more day time free for volunteering and creative pursuits, but I have less evening free-time, since I'm often devoting that time to working on consulting projects (which only require periodic face-time). So far, so good. Even during the periods where consulting doesn't look and feel all that different from full-time work, what has changed is the flexibility. If I want to work in a homeless shelter on Fridays, or spend a day or two a week writing short stories, it's my call.

The traps I see (personally)? Giving in to the fear that "if I don't take this project I'll never work again and will go broke". And getting sucked into all sorts of small, ad hoc additional volunteer projects now that I have all this "free time".

Re: hourly vs. project. I very much try to work with any clients on a project basis, in which I price to value and assume the risk that I will or will not finish up in a time that translates into the implicit hourly rate I want. Far preferable to hourly projects where it's easier to let time-consuming freebies creep in ("...I'll just answer these e-mails, it's really no bother...I'll just check a few things...")

[Jeffrey Pfeffer]

DeVoe and I started this research to understand how organizational practices "spill over" into other domains. We have found, using nationally representative survey data, that people paid by the hour (and these are not all, or even most, technical contractors, lawyers, etc., but instead are manufacturing and service workers), are, controlling for many other things, more willing to trade more time for more money and less likely to spend time volunteering. The research we have done cites an article by Steve Barley (a colleague of Bob's) and two co-authors who found a paradox: people who went into contracting to presumably increase their freedom actually acted like they didn't have any. This sort of paradox--acting in ways that are inconsistent with our preferences--is something that we continue to pursue in this research project.

So, two points--this is not just about professional or technical contractors or lawyers or accountants--the evidence is that the phenomenon is widespread. And second, there are other ways to get the same results--namely, priming people (using a sentence descramble task) to think about money or economics terms, or to have people calculate their own hourly wage (regardless of how they are paid). There is evidence that having people think about money causes them to act in a more independent (not wanting to ask for or give help, not wanting to associate with others) way.

In light of the pervasive use of economic language in our society, and in light of the prominence of "money," it does sort of make one wonder. The article on money is in Science and Vohs is one of the co-authors--it is both short and interesting.

[Diego Rodriguez]

Great post, Bob.

I've worked in both a pure salary environment, where hours didn't matter (but facetime did). And I've worked in a pure-hours system. They both have their problems.

In the pure salary environment, there are also pressures to work crazy hours, such as a push to make the schedule for a holiday season product ship, or the more usual "just because", which is usually the result of someone up in the corporate hierarchy shitting on your boss's boss's boss. So you do or die. The problem with that environment is that you can work hellish hours, but since nobody is tracking hours, there's no paper trail, and thus no pile of evidence which allows one to go back and say "wow, you all are working way too much relative to your results, or relative to where you want your life to go."

I always felt I had an advantage in a pure-salary environment coming from a billable hours culture, because deep inside I'm always asking "is this hour spent in this staff meeting productive use of my time?" When you're billing hours, you're acutely aware that someone else is paying for those hours. That makes you want to deliver good value to them. It may be a naive stance on my part, but I do think that it's best treat other's money as if it were your own, so this sense of not wanting to work on stupid stuff, or spend time in boring meetings, makes one more productive and hopefully rubs off on the culture of workplace. True performance cultures, such as those found on a good automotive racing team, work under tremendous time pressure, and typically foster individuals with an aggressive "no bullshit" attitude when it comes to time management. I've hired and worked with more than a few ex-racers (though you're never an ex-racer, you're always a Racer), and they all carry that same sense of urgency -- the race starts with or without us -- even though they're nowhere near a racetrack.

So, perhaps billable hours are a good source of evidence for good management? Perhaps we should track hours but not bill them. A hybrid of sorts.

[Ethan Allen]

So : that which is measured is that which drives behavior ... which I would guess is pretty well understood.

The valuable thing I am looking for is an alternative. If my business (IT management consulting) could agree with clients on the value of completed projects, we could, at least in theory, work for a percentage of that value. Obviously value is often realized over many years, so that becomes problematic.

Since I'm talking about the obvious, I may as well mention that billing by the hour supports a (more or less) early and predictable cash flow. That's important for us.

[Wally Bock]

To some extent, I think, this is one of those "devil you know versus the devil you don't" issues.

For years I've tried to move clients to project based billing with very little success. There are obvious benefits in terms of cost control, so why don't they want to do it?

I think it's very daunting to try something new, even when it looks good. You wonder where the monsters are hiding. It's even more daunting if you thing you have to convince your boss or the accounting department.

[Robert Hruzek]

Bob, I think I understand what you mean. I worked many years as a contract engineer and always got paid by the hour. During over 20 years of contract work, I always thought of my time at work in terms of the money it was bringing in, and on average worked at least a 50-hour week. I "couldn't afford" to NOT work because it interrupted the flow of cash.

Although I still work as an engineer, I am now a direct, salaried employee (but only in a sense - my salary is $X/month, but it's still based on the hours on our timesheets). The main difference is I now have sick/vacation hours to use (as a contractor I was on my own for this). I work a straight 40-hour week, and I'm loving it! The pressure to keep the dollars flowing is no longer the driving force at work, and I have more time to enjoy myself (and my wife).

I can see Carmine's view above, but it seems to me it's only (or at least mainly) applicable to professional service people, specifically those who bill by the hour like CPAs or lawyers.

[Carmine Coyote]

As you know, Bob, I write about this viewpoint fairly extensively in my book "Slow Leadership: Civilizing The Organization."

However you organize billing, time and work are simply not equivalents. Billing by the hour may be an easy way of keeping track (very, very approximately) of the amount of work devoted to an individual client, but it actually makes little sense in a professional environment.

For example, suppose you devote two hours to some piece of mind-numbing data collation, which is necessary but produces almost no direct value to the client. Then you take a break and start looking at something entirely different. In an instant — like a flash of intuitive genius — you spot a change that can transform the client's business and make them millions of dollars.

What will you charge for each activity? $600 for two hours of boring clerical work, and $30 for the two minutes of true insight that will earn your client millions?

Besides, in my own experience of working for a professional firm years ago that charged by the hour, individual budgets for fees to be earned quickly exceed the number of hours it's even possible to work multiplied by the standard hourly rate. Just about everyone in the firm where I worked had to bill more than one client for the same hours simply to get within calling distance of their budgets for the month.

Hourly wages may once have made some kind of sense when the job was shoveling coal and time worked closely approximated to actual tons moved. It never made sense for professional work, though clients were so used to it that they didn't object. I am sure most just paid the invoice and never even looked at the (imaginary) number of hours worked.