🌎 Incentives Rule The World
Hello! Adam Thornhill here. ‘The Podcast Guy’ saving you 10 hours a week.
Enjoy the 134th Podup, with special thanks to RhinoRating.
Today, we’ll dive into the best insights and ideas from Founders Podcast.
“You get what you reward for … if you have a dumb incentive system, you get dumb outcomes." - Charlie Munger.
This Mungerism sets the stage for the underappreciated power of incentives.
In today’s post, you and I will learn from Munger on how to use incentives to drive exceptional results.
Align rewards with goals
One of my favorite cases about the power of incentives is Federal Express.
Their system required all packages to be shifted rapidly in one central airport each night. They had a hell of a time getting the night shift to do the right thing. They tried everything in the world without luck.
Finally, someone had the happy thought that it was foolish to pay the night shift by the hour, when what Federal Express wanted was fault free, rapid performance of a particular task.
They decided to pay employees by the shift and told them they could go home once all the planes were loaded. Suddenly, because the incentive structure changed, they got fault free, rapid performance for the first time.
David Senra
Why it matters
Well-aligned incentives can drive innovation, boost productivity, and lead to outstanding results.
However, crafting these incentives is a delicate art. Sam Altman says "Incentives are superpowers; set them carefully.”
This serves as a prudent reminder. Poorly designed incentives can lead to unintended consequences, causing more harm than good.
It's a balancing act that requires thoughtful consideration and a keen understanding of the potential second order effects.
Next steps
Write down your desired outcome. Don’t play with incentives willy nilly. First, make sure you have a purpose and goal you want to achieve.
Review your incentive structure. Examine how your employees or suppliers are rewarded and see if it aligns with your desired outcome.
Experiment with different models. Don’t be afraid to try new incentive models. What works for one team or task might not work for another.
Communicate clearly. Ensure that your team understands the incentives and how they are linked to the desired outcome you want to achieve.
Gather feedback. Engage with the stakeholder who you changed the incentives for to understand the impact this had on their productivity.
Your thoughts?
More from Podup
Have you heard of the story of cobras in India? Learn how the wrong incentives can backfire with unintended consequences.
Thanks to RhinoRating for making this post possible…
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Quotes were pulled at different points of the episode. Sentences were left out to make the narrative more concise. Podup is not associated or affiliated with any podcast.