The Perversity of Incentives

How do you make sure you aren't creating adversaries out of your stakeholders with bad policies?

Leadership Moment: Tipping Over The Edge

A summer camp that hires mostly young adults (high school/college) as its camp counselors has what is probably a standard policy: its counselors do not accept tips (while an understandable choice, not one supported by an argument that the counselors are well-compensated, but that’s a conversation for a different day). A multi-year counselor is, on the last day of camp, handed a sizable gratuity–but not by the parent, who the counselors don’t interact with, also by policy, but by the young camper.

The counselor turns the gratuity in to the camp office (as specified by policy), expecting it to fund the counselor end-of-summer party. To their surprise, they’re informed it will go into the camp’s scholarship fund for next year. To a friend, the counselor confides, “That’s the last time I turn in a tip.”

With a handful of policies, the camp creates an environment that teaches future leaders to be adversarial with their employers (maybe that was their point, but I doubt it), rather than thinking through how their policies incentivize the wrong sort of behavior.

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One Minute Pro Tip: People and Systems Aren’t Static

“Unexpectedly.” It’s one of the more expected words to hear from a policymaker, when they are surprised by a policy change not having the desired outcome. This ranges from family units to small organizations to nation states, and represents a failure of imagination. Of course when a policy change happens, people affected by the policy might make different choices–whether it’s to leave your jurisdiction (by quitting when you mandate 5 days a week in the office, perhaps), or to change their behavior.

When you’re going to change a policy, take a few minutes to ask what behavior you’re hoping to not see after the policy change, and then ask yourself how someone might still engage in that anyway. This should probably be on top of asking what behavior you want to see, and modeling how someone might not do that.

Leadership Q&A: Don’t Give An Easy Out

Leader P reaches out with the following problem: I own a small medspa business. In addition to myself and a few employees, I also have another individual who rents one of my rooms on the weekend, using my equipment, in exchange for a percentage of their income. Their income is small in proportion to the time the room is used, but I believe that is due to their discounted pricing. One recent weekend, however, the usage on the equipment was well above normal (about double the amount the equipment gets used in an entire week by everyone else combined). They did notice, and paid me a bit extra, but this doesn’t feel right–at that usage rate, they should be bringing in far more than they are, and my percentage would be much higher. More importantly, though, the equipment isn’t decided to be used at that high of a rate. How should I structure a penalty for going over some limit on the equipment?