Incentives

Yesterday was the Dhanteras festival in India when we worship the Goddess of Wealth. We did puja in my wife’s clinic. She gave the much-deserved Diwali bonuses to her clinic’s staff members. That’s when someone said that one should only receive money on Dhanteras and it's not auspicious to give money on that day! The statement's irony struck me – if no one gives, how can someone receive? :)

This Diwali, as we reflect on the year gone by and plan for Samvat 2080, let’s double-click on one subject that is always top of the mind for everyone – Incentives!

As business owners, employees, or stakeholders in any larger context, we all understand incentives intuitively. So, I decided to collate some general views, learnings, and experiences on the topic and list them down (in no particular order) for some food for thought as we celebrate the festival of wealth.

• Incentives drive humans.
• All people are not driven by the same incentives. Different incentives drive different people.
• Long-term alignment of interests can be achieved by fixing incentives that accrue over the long term.
• Long-term alignment of interests requires short-term incentives to build trust for the long term.
• Set incentive structures and trust the process.
• Incentives act as both explicit and tacit signals.
• It is not always the obvious incentives that drive outcomes.
• Being creative with incentives can drive outcomes across types, magnitudes, or tenures.
• Incentives need to be understood and internalized. Communication is also important.
• Loyalty cannot be bought by just incentives.
• The culture of incentivization transcends.

In the startup world, we think a lot about this topic and try to solve for it in creative ways. Tangible incentive structures around long-term ownership, stock options, variable payouts, outcome-based earn-outs, etc. get deployed alongside intangibles of enabling environments that foster ownership, innovation, and trust. At times we are successful in aligning interests, and at times we fall short of the desired outcomes. It remains an iterative process of building ventures with hope and the right incentives, at least until AI takes over… :)

Happy Deepavali :)

P.S.: We all have views on this topic spanning across the spectrum, that am sure have been shaped by experiences good and bad. Please do share your perspectives in the comments below.