Coming to Terms

I have a rule, and this rule is a core tool I use when I’m evaluating any system.  The tool is the simple question: What is the incentive for the participant in the activity?  In some cases the incentive is very obvious:  If you work for us and sell our product we will pay you a percentage of sales and call it a ‘commission’.  The more you work the more you get paid.

An example is a grant program with the goal of a particular outcome or behavior.  A workforce example would be a grant program built around the concept of “give a job to person who is difficult to place  and we will give you a bond, or pay their wages”.

The inherent challenge with this rule is identifying the less obvious incentives.   For example if the above mentioned grant program requires a tremendous amount of paperwork, and limited awards.  Even if it’s ‘free money’ if the grant is more problems than it’s worth you won’t see people interested in the grant.  Additionally if there is deep levels of validation and reporting for the grant facilitators they won’t be incentivized to give themselves more work.

In the sales question above there may be nuances in the product line where no matter how high the commission rates are, if the product is faulty then the sales rep won’t want to piss off their customers and they will defer to the less commissioned product because a little of something is better than allot of nothing.

The trick to the rule of incentivization is really about always asking the question: What are they really incentivized to do?  Quite often you’ll be surprised at the answer.

Here is A good example on incentivization done right and wrong.

The Coming to Terms posts will are explanations the language we use and what the underlying meaning they offer.

Here is A good example on incentivization done right and wrong.

Posted by Mike Peluso

Mike Peluso writes about the collision between between the business / professional world and life. He also writes about the journey involved with the Peluso Presents efforts including the Blog, Books, and Podcast so that others may benefit from his efforts. From Mike: I spend hundreds of hours working on these articles every year with no compensation other than support I get through donations. You can support with a tip and by Subscribing to the Podcast (and writing a review on iTunes would be really appreciated as well!) One time tips:

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