We are big fans of incentive compensation for two reasons: First, a well-designed system can motivate employees to deliver the performance you want.

Second, if you structure the compensation system correctly, you will have plenty of money to pay your employee if he or she earns the incentive, because your company will have done well.

One caution, however, is that in our experience, employees will do exactly what you incentivize them to do, and not necessarily what you want them to do. That’s reasonable. It’s unfair to expect an employee to behave in a way that will not be in his or her economic self-interest. You don’t need to look any further than the recent troubles at Wells Fargo for an example. Read More