All Managers Get What They Seek

This is a companion piece to my article “All Men Get What They Seek”. If you have not read it you may want to take a look at that first.

People respond to the incentive structures in which they find themselves. I’m not talking about bonus pools and compensation. I’m talking about real incentives — what is promoted in your company and what is extinguished. Whatever your organization values will eventually come to be valued by the people who work there. Everyone else either fails, quits or reluctantly joins the bandwagon.

Most people bundle incentive structures in with culture and values, but for the purposes of this post we’ll be examining them separately. It’s helpful to replace the phase ‘managing’ with ‘aligning incentives’ as this is the principle responsibility of any manager. Keeping the incentives of investors, management, employees and vendors aligned is critical to the success of any organization. This does not mean all the incentives for each group are the same, just that all the incentives are compatible and lead to mutual prosperity. If employees feel exploited or when they feel that company growth/success does not translate into personal success, progress grinds to a halt. The same is true when founders and management feel like their goals are different than that of their investors, or vice versa.

Organizations thrive when all their constituents are rowing in the same direction and they spin in circles when this is not the case. As a leader you are responsible for managing the incentives both above and below you. It is critical to make sure your boss, the board or whomever you are accountable to has incentives that align with yours and the people who work for you. If you can keep these incentives properly aligned, you can make real progress.

The Elephants in the Room

Most of what has been written so far has been said, often more elegantly, elsewhere. This is the section I want you to remember.

If you ask employees, investors, your co-founders, and management at any company if they want to make money they’ll say yes. If you ask them if they want the company to grow and thrive, another yes. Incentives aligned. On paper most organizations seem very aligned, but under the surface they’re way out of sync.

When you look at only the big picture incentives most everything will seem aligned. That’s because the big picture rarely changes and its easy to talk about because it’s so far removed from the behaviors of individuals. The stuff that’ll trip you up aren’t the big misalignments, it’s the smaller ones, the mundane things that become insidious. Small misalignments, compounded over time, can take a ship far off course.

I promise you everyone, yourself included, cares more about the little things than the big things — those just seem so far away. Here are a few examples of where this leads (anonymized). I’m sure you can think of more of your own.

Startup A

Startup A has investors and a founder who want to make a lot of money and have an impact. Great Fit! But the investors blow up over every inkling of trouble or hint of wasted resources. They raise hell and high water, but never try to actually the solve the problems. The founder gets the implicit message “don’t come to us with problems”. This founder knows they need to pivot, but also knows that any admission of failure will get them fired. Founder keeps silent, company stutters along as a zombie, cash runs out, company dies.

• Investors with short term aversion to facing company problems or having to consider that they have made a bad investment costs them everything.
• Founder with short term interest in pleasing investors ignores indicators and their own intellect and lets company sail into the abysses.

It’s terrible, but everyone was responding to the incentives.

Company B

Employees know there are emerging solvency issues with Company B’s key vendor. They recommend switching vendors ASAP, but management does not want to report a high cost project during the Q4 (bonus season) so the project is postponed. Ends up costing 3x as much in Q1 and some of the employees are laid off to cover cost.

• Management with short term interests in maximizing their margins ahead of bonus season put company into financial chaos instead of preventing this problem from happening.
• Compensation committee has set incentives for short term performance and does not factor in long term risks incurred during the same period

It’s terrible, but everyone was responding to the incentives.

Entrepreneur A

Entrepreneur A just had a good exit and wants everyone knows it was not a fluke. They start Startup X and it does not go well, the market just was not right. Rather than admit defeat, Entrepreneur A keeps shoveling their own money into the project hoping it’ll turn around. They end up spending 5 of their golden years (late 30s) and millions of dollars on a failed experiment.

• Entrepreneur A’s pride and fear of being considered “lucky” made him behave irrationally in the short term.

It’s terrible, but everyone was responding to the incentives.

Conclussions

The stories above are just some examples of how certain unspoken, subconscious, goals can get in the way of the bigger shared goal of an organization. This is the natural way of things. By default we have all these biases and subconscious goals that drive the lion-share of our behavior.

We’ve all found ourselves on both sides of the equation; as the one setting the wrong incentives and as the one knowingly submitting to that self destructive incentive. We do this when we give our teams a bad goal and we do this when we choose to shut up and do our jobs.

There’s no silver bullet or adage to inoculate yourself or your organization from succumbing in this vicious cycle. What you can do is try your best to become aware of the systems of incentives you create and follow. Only then can you start to change them. Most of all do not submit to a faulty system, even if it’s easier to submit. Changes only happen when people push back.

Do your part to rid the world of poor incentives. Encourage your peers to do the same.