Ducks in a Row: Incentive Stupidity Knows No Bounds
by Miki Saxon
Yesterday I told you how a company squashed my friend’s initiative by giving him a bonus that had no relationship to the value he provided them in annual savings.
This reminded me of something that happened back in the early 1980s when sales was truly dependent on the skill, relationships and reputations of salespeople.
Another guy friend, another incredibly stupid company.
In a nutshell,
- Guy outsold every salesperson both internally and at the competition. He had years of experience; relationships with customers that didn’t quit and unmatched skill at understanding customers and convincing them that his company (whichever it was) had the best solution available.
- One day guy was called into the CFOs office and told that his commission was being capped.
- He was on track to earn more than the president and that was unacceptable; he asked if they were sure that was the only solution and told yes.
- Guy proceeded to write a resignation letter on a sheet of paper he borrowed from the CFO.
- He left the offices without speaking to anyone.
- By the time he reached home there were three name-your-own-terms offers from competitors on his voicemail.
- He started with his new company the next day.
Over the years I’ve found that actions like these usually come from the company’s bean counters. (In this instance, ‘bean counters’ is definitely a derogatory term.)
Apparently, some bean counters involved never learned to do the math.
In both cases the actual cost was zero, since they were funded from direct actions well beyond anything expected of the employees involved.
The lesson here is that you never cap a commission and the reward for saving $5 million annually should be at least 1% of one year ($50,000) as opposed to .001% ($5,000).
I realize it’s difficult for some financial types, executives and managers to understand, but that is why bonuses and commissions are called incentives—not disincentives.
Flickr image credit: Finsec
