From “The Wrong Incentive” by Roger Martin, Baron’s, Dec 23, 2003:
How, then, should incentive compensation be structured? It should be based exclusively on features of the real market — sales, costs, investments, margins, profits. These are items over which management and employees have some control and their actions can be directly linked to such items. Compensation plans should look more like royalty streams than annual bonuses.
I’m not sure what a royalty stream for the janitor would look like.
Comments 1
The crux of the entire dilemma here is in exactly what you have stated “I’m not sure what a royalty stream for the janitor would look like”.
The “Wrong Incentive” implies that there is a right one yet the conclusion time and again is that there is something wrong with the incentive scheme. The fact of the matter is they are irrelevant and don’t work. (Having said that I am not so highly principled as to have declined the stock options and bonus provisions my employer has offered me. To promote however that they are a compelling motivator in me executing my accountabilites would be entirely false.) I would refer you to my article published during 2004 that should be available elsewhere on this site via this link. http://www.manasclerk.com/bloghost/manasclerk/images/Incentive_Systems_Promote_Corporate_Corruption.pdf