Incentive-wise

People respond to incentives by doing what is in their best interests. What is noteworthy however is how radically people’s behaviour changes when incentives come in to play; when the response is to the incentive & not the grander intention or aim

Imagine, for a moment, if soldiers & warriors in the medieval era were not allowed to take the riches of who they plundered & instead were paid by the hour! We will have effectively incentivised them to take as long as possible & not end the battle, right?

Sometimes incentives are gamed.

• Remember the old tales of King Arthur & his knights who roamed the earth fighting battles all the time, led a miserable & dangerous life & maybe returned home once in a while to a “loving wife & children”. As a kid, I used to wonder, does this guy not have a life? But later I understood what made these medieval warriors to bid adieu to their families, comfortable lives, swing themselves up on a horse & take part in crusades, for months on end. The answer lies in the incentive system. If they came back alive, they could keep all the riches & spoils of war & live out their days as rich noblemen. If they died, they were told that they automatically passed on to an afterlife as martyrs - & the benefits that came with it. It was a win-win!
• What do we do with lawyers, counsels, architects, consultants, accountants, tutors, driving instructors etc. For example, a lawyer essentially wants money on tap, to be determined by the lawyer himself, who actually uses a counsel (another highly paid lawyer who doesn't want to do the grunge work!) & is no hurry to conclude a case in court, as they get paid by the hour or by number of appearances. Who in their right frame of mind will agree to this? The desperate one’s maybe. My advice: forget hourly rates. Always negotiate a fixed price in advance for outcomes & not effort! Incentivise them for efficiency.
• Some doctors charge by the minute. They actually keep a stop watch & operate it in front of you. (I am not joking & am not making this up!) They are incentivising the patient to be efficient! And who pays for the doctor's mistakes? The patient naturally!
• Be wary of investment advisors endorsing specific financial products. They are not interested in your financial well being but are more interested in earning a commission on those products. Higher their commission on a product, the better their recommendation, for you to invest in that specific product! Same goes for an investment banker’s proposal. Useful tip - Never ask a barber if you need a haircut!

Good incentive systems comprise of both intent & reward

• In ancient rome, engineers were made to stand underneath the bridges during their “opening ceremonies’ & “fully tested”

Poor incentive systems overlook & sometimes pervert the underlying aim.

• Like the controversies created by the CBFC seeking cuts in a film, which actually ends up promoting the film & those very same “cuts” they want
• Like Incentivising bank employees to sell more number of loans, & inevitably, it ends with a bad portfolio embellished with a long tail
• Or the numerous people who bought the Satanic Verses, never to read it. It was just cool!

In life, personal, professional &/or anything else, watch out for the Incentive response tendency. If a person or an organisation’s behaviour confounds you, ask yourself what incentive may lie behind it, monetary or otherwise. I guarantee that you will walk away from 90% of cases. The rest 10% maybe explained away as idiotic, psychotic or malicious!