Performance Pay Plan at Safelite (MONV, Thursday, Week 1)
monvyear-twoIncentive systems: formal and informal rules that determine how value creation and destruction are allocated to members of an organization, which affects the amount of value created or destroyed.
Key point: how you divide the pie actually influences the size of the pie.
Two key considerations in designing compensation systems: motivation and selection.
Competing schools of thought on what motivates people >> extrinsic vs. intrinsic.
Extrinsic (Classic economist perspective)
-- $$$ = motivation
-- People mostly look out for themselves
Intrinsic (Dan Pink's "Drive" and lots of experimental research)
-- Autonomy, mastery, purpose
-- Need a base level of extrinsic reward. Above the base level, material rewards actually decrease performance. Ergo, pay people enough so that "money is not an issue."
Try telling people that you're going to build a business around many smart, educated people working super-hard on something with no obvious material compensation. It sounds stupid.
But: Wikipedia, Apache, Linux, etc.
Atlassian Software = good case study. One free day per quarter to work on whatever; only rule is that you need to share your work the following day. Produced more good ideas and quashed more bugs than organized projects.
Takeaway: When the "profit motive" gets unmoored from the "purpose motive," bad things happen.
Unethical behavior, poor customer service, trouble recruiting and retaining employees, etc.