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Incentives Rule The World
Whether your team does what you ask depends on what is in it for them.
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I speak with many CEOs who are frustrated that they give their team direction and it isn’t followed. They get more specific and more forceful in giving direction and it’s still not followed. They repeat themselves over and over again and it’s still not followed.
Wait, hold on, aren’t you paying your team to do what you ask? Isn’t it their job?
The reality is that you are giving your team two competing directions. There is what you say you want, and there is the incentive you give them. Those two things don’t always agree!
For example, you can repeat how important customer satisfaction is over and over at every all hands meeting. But, if your team gets a bonus based on the number of new customers, they are going to focus on new customers instead.
Most incentives are not so obvious. In another example, many people on your team want to get promoted and move forward in their career. They will listen to what you say they need to do to get promoted, but they will also watch who else you promote. What did that person do to get promoted? They are more likely to do whatever that person did rather than trust your words.
Not all incentives are positive. If you encourage your team to take big risks, but then you fire someone that took a risk that backfired the team is going to avoid risks. They don’t want to get fired! Even if the situation is nuanced, they might not see the nuance. All they see is an incentive not to rock the boat so they don’t get fired.
The more consistent you are as a leader the easier these incentives are to understand. If you have a consistent policy around promotions, then the incentive around promotions should be straightforward. If you are not consistent, then good luck guessing what incentive your team sees there.
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Mastering incentive structures is important because those incentives need to change as the company changes. My favorite example of this is how the incentives provided to sales teams as enterprise software companies grow:
At first, sales people earn commissions on signed contracts (aka “bookings”). Once the customer signs the contract the salesperson gets paid, so they are going to focus 100% of their effort on getting contracts signed.
Later, as you grow, you realize that the time between when a contract is signed and the product is live has been getting longer. You can’t recognize the revenue from the customer until they are live, so this delay starts to slow down your growth. You change the sales commissions so that the salesperson now gets paid when the customer goes live on the product, not when the contract is signed. The salesperson now focuses on signing contracts that can go live quickly.
Even later, when you’re a big company, you realize that not all of your customers are paying their bills (Yes, this is a real problem). You change the incentive again, so that the salesperson gets paid when you collect the money from a customer. Now, the salesperson focuses on signing contracts with customers that can go live quickly, and will pay their bills.
This is a typical progression, and it reflects how the incentives need to change to address the changing needs of the business. At first you need more contracts, and later you need more cash. It would be bad to base sales incentives on cash collections at first, as your sales people would waste a lot of time on something that isn’t very mature yet.
This is just an example, but every person and every role goes through similar changes. Mastering incentives means that you are constantly adjusting the incentives so that everyone’s effort matches what the company needs today. If you allow prior incentives to remain in place too long, the company will not grow as it will be chasing its own shadow.
There is a category of people who create their own incentives! These are self-motivated people, who are driven to do their best by their own internal drive. Often they are extremely ambitious and see excellence in their job as a fast track to bigger and better things. If you hire these people, do whatever you can to hold onto them! They are magical forces that will drive your entire company forward.
While they are rare, you can design your recruiting process to look for them. Self-motivated people typically teach themselves new skills, unrelated to their jobs. They excel at things even if there is no financial benefit or reward. If you look at someone’s life outside of work, self-motivated people look like they have invisible incentives everywhere driving them to do their best in every situation.
But, most people are not self-motivated and that is okay. They look to you to provide the incentives that will motivate them to go in a certain direction. Your job is to provide those incentives, and make them consistent and clear.
If you do, you have a killer competitive advantage. That’s your incentive.
For more on Team Building and People Strategy, see:
Avoid Mis-hires at all costs
Invest in your employees’ Personal Growth
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