Show Me The Incentive!
“Show me the incentive and I will show you the outcome” — Charlie Munger’s quote was relevant back in 1995 and continues to be equally relevant today.
A lot of folks in startups (some founders, most 2nd level) may be new to people management. While being a ‘manager’ is something that just improves with time (like fine wine), there are a few pitfalls that one can avoid.
👑 Too Little, Don’t Care: When the offered rewards are perceived as too little for the achievement or objective, this can backfire and result in folks not giving a damn about achieving it
❌ Extreme Results: When companies have extremely severe penalties combined with extremely high rewards, this can lead to employees doing anything and everything to achieve their targets.
A prime example here is everyone’s favourite poster child, Byju’s. With growing sales pressure daily, employees resorted to any tactic they could to survive, which led to predatory sales methods, failing to issue refunds etc
⚖ SAME, Same, same: When offering tiered incentives/rewards, there needs to be a significant difference between them. If the rewards for different achievements feel too similar, this can lead to folks ‘settling’ for the lesser reward, since relatively there isn’t much difference.
This could lead even top performers to drop performance, as they feel there isn’t enough recognition for their work.
⚔ There Can Only Be One: Team motivation targets with only a single winner can create an environment where no one wants to collaborate with each other, since it’s a Zero Sum game.
A SaaS business moved from a team + individual incentive system to individual only. They saw sales drop over 40%, team cohesion disintegrate and some top performers leave.
Until this change, the team was fully motivated to help others close deals, even passing over warm leads to help team members hit their targets so team goals were met.
Suddenly, it was a me/myself jungle, so leads were hoarded. Filling in for or supporting colleagues had no benefit, so it was disregarded. The very best team members recognized this and quickly left.
🧢 Capped Rewards: Sales is a gift that keeps giving. If there’s a team member who can go hunt 6, 7, 8x their CTC, let them!! Capping rewards, especially ones that pay for themselves, is shooting oneself in the foot.
Positive example! One of my portfolio founders had fixed sales incentives. One day, as a test, he offered 3 months with a % of sales, uncapped (base targets remained the same).
The median increase was ~3x in sales, since team members were hungry. They suddenly saw a chance to earn $$$ and leapt on it.
🧗♂️ Stretch Goals: Sensible stretch goals help organizations strive for more, usually in the range of ~20% higher than your safe projections.
Setting significantly unachievable targets (such as me being able to climb Everest next week), sets the team up for failure, kills morale and over time, leads to goals being treated as a joke.
