What should be Incentive Structure : Comparision between conventional models and making best combination

BASED ON CHAPTER “LONE WOLVES STARVING”  FROM CLAUDIO FERNANDEZ' BOOK - "It's not how or what but the WHO"

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Kinds of pay structures. 
  1. EAT WHAT YOU KILL – “PAY AS YOU PERFORM"
  2. LOCKSTEPS – “People pay is unrelated to their personal contribution and instead   varies according to some pre-established formula related to years of service, years as a partner or participation in local or global profits.
“Eat What You Kill” Vs “Locksteps”



“LOCKSTEP EFFECT” – Star A would rail against being paid as lazy C and leave to make twice as much money at an eat-what-you-kill firm. C would never leave, since he gets a free ride, compared with noting an eat-what-you-kill firm. B would be constantly weighing her options: work more and switch teams; work less and stay. With this formula, lock step firm will lose all its stars and get stuck with losers  


Great hiring in Locksteps to overcome ill effect

“WEED OUT Cs” – mainly through great hiring but also by periodically reviewing existing employees and if necessary, getting rid of the weakest – we are left with all A’s and B’s, our average performance increases and we would be able to pay everyone more


  


Though risk will be there

 There is still a threat of stars leaving, since the top eat-what-you-kill pay remains higher. That’s where a culture kicks in; we have to hire people with penchant (a strong liking) for collaboration and then constantly reinforce those values.  When we do it, performance increases again. Than need to share overall firm’s profit. People will be happy to get best-qualified colleague. Rather than hoarding, they will freely share cases, knowledge, sources, references. Hence productivity will increase and value to the customers. Performance range is no longer from B to A, but from B+ to A+, with average pay coming in at an even higher level



Best practice locksteps effect

Mixing strong culture in locksteps to overcome Risk



Yes, our superstar A could perhaps still make a bit more money in eat-what-you-kill. But she will realize that her performance might suffer when her collaborative colleagues are replaced by more competitive, self-interested ones.

If she instinctively values teamwork, or has learned to do so, she’d also feel out of place and desperately miss the camaraderie (Good Fellowship) comes with a professional family.

WHY BE A LONE WOLF STARVING WHEN WE CAN HUNT WITH OTHERS AND FEAST TOGETHER?


CONCLUSION

In today’s knowledge economy, value comes from collectively creating and seamlessly sharing information
When leading a team of any size, do whatever is in our power to make sure the incentive for meeting collective goals outweigh those for individual performance.
Then adopt the kind of people practices and culture that will keep the strongest wolves in our “pack”. 

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