Incentives

It is interesting to me that a best practice around incentive structures has never emerged. At a minimum, you would think that sales incentives would have converged to a common model. Yet, every company that comes into IBM seems to have a different approach. Why is this so hard?

Perhaps it is hard, because everyone tries to make it very precise, which often leads to hard/complex. This is a bit ironic, given that the best incentive is one that is easy to understand and easier to implement.

Here is a great excerpt from a recent Warren Buffet interview (full interview here):


Buffett:    I can end the deficit in five minutes.


CNBC:   How?


Buffett:   You just pass a law that says that any time there's a deficit of more  than 3 % of GDP, all sitting members of Congress are ineligible for re-election. 


While he said this tongue-in-cheek, there is alot of truth to the thought process. Why would this incentive work?

1) It is tied to the core motivation of the target party. In this case, a politicians desire to be re-elected.
2) It is numerical. No shades of gray on success or failure.
3) It is certain. If the target party does not achieve it, the consequences are clear.

I think if you were to look at your own organization or company, you would find that very few organizations set incentives that meet all 3 of these criteria.

Another post related to this topic can be found here.

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