Most organizations claim they want alignment between individual success and collective performance. Yet they consistently build systems that reward the opposite.
The result? Politics flourish while enterprise value withers. Employees optimize for power over productivity. Resource hoarding trumps resource sharing. Local power bases become more important than serving customers.
This isn't a motivation problem. People are clearly motivated to work within this structure. Instead, it's a design problem.
The only sustainable incentive system links every role to the creation of enterprise value. True fairness emerges not by suppressing self-interest, but by harnessing it and linking it to value creation. When you have this transparency, the best performers thrive while value drainers exit the system.
Here’s how organizations can boost performance. It's done by creating systems where serving others leads to quicker personal success.
Leaders spot a performance gap and rush to patch it with new incentives. Sales teams aren't hitting revenue targets? Add volume bonuses. Customer satisfaction drops? Reward support tickets closed.
These patches create second-order disasters. Volume bonuses drive unprofitable deals. Ticket-closing rewards sacrifice service quality. Each quick fix spawns three new problems.
The real issue isn't the symptom. It's the underlying system that created the symptom in the first place. You must look further upstream for the source of issues downstream. Fixing it locally won't improve performance.
Most managers lack systems thinking. They see the immediate problem but miss the ripple effects of their solutions.
Consider performance-based incentives focused on speed. Teams hit their deadlines, but quality plummets. Customers complain. Other departments scramble to fix rushed work. The total cost far exceeds any speed gains.
This pattern repeats across organizations. Local optimization destroys global performance. You can likely recall times when a team focused on its own needs instead of the bigger picture.
Even well-intentioned leaders face a fundamental bias. When central authority controls rewards, employees focus on serving those in power. This comes at the expense of contributing to overall value creation.
The result is inevitable. Political games replace productive work. Influence matters more than impact. The system rewards those who manage up rather than those who create value. This, of course, is not the path to long-lasting success. Either for the company, or the individuals in it.
A capitalistic economy provides a great example of aligned incentives. Individual entrepreneurs succeed by identifying unmet market needs. It is through serving others that they best serve themselves. Their ability to serve customers has a direct impact on their profits.
Companies must recreate this dynamic. Everyone needs reasons to help others instead of just taking from them.
The goal isn't to end self-interest. That's impossible and counterproductive. The goal is to channel self-interest toward collective success.
Great systems make serving the whole the most reliable path to personal advancement. Employees pursue their own goals by helping others achieve theirs. This should be done in a decentralized way, similar to a traditional market system.
Systems fail when individuals serve their self-interest by taking value rather than creating it. This happens when rewards depend on politics, tenure, or closeness to power instead of actual contributions.
Effective performance-based incentives reward value creation while filtering out value extraction. Both mechanisms are essential.
High performers should see rewards scale with their impact. The greater the contribution to enterprise value, the greater the personal return. Nothing could be more fair.
But reward alone isn't sufficient. Organizations also need clear thresholds below which people cannot remain. Like evolution, people or teams that drain value must exit the system.
This dual approach pulls people upward while preventing drag. Rewarding without filtering leads to freeloading. Filtering without rewarding creates fear.
People need to see the connection between their actions and their outcomes. When rewards feel arbitrary or political, employees optimize for the wrong things.
Create transparent links between individual contributions and enterprise results. Show people exactly how their work drives collective success. Make the path to advancement crystal clear.
When rewards come from higher-ups, employees tend to focus on impressing them instead of creating value. Performance becomes secondary to politics. How could it be any different? Some in centralized control might support overall benefits, but this is rare. A great example of a decentralized reward system is how the stock market sets prices.
Financial markets distribute value through collective judgment rather than centralized control. No single authority determines worth. Supply and demand create price signals that reflect true value.
Organizations need similar dynamics. Employees should feel their rewards flow from genuine impact, not from the grace of a manager. When everyone votes on others' contributions, a strong allocation system can develop. The INFIN is a tool that helps organizations set up this decentralized reward system.
A company is already an informal network of feedback and evaluation. When peers, managers, executives, and cross-functional partners join in performance assessment, real-time market results are possible. Using multiple sources of recognition, instead of just one, gives a clearer picture of each person's contribution.
This approach mirrors how markets work. Value is recognized through diverse perspectives rather than top-down decree.
Total transparency creates new problems. When everyone sees everyone's performance scores, comparison and envy distort behavior. People game appearances rather than focus on actual contributions. There is a happy balance between privacy and publicity in sharing the results of the market.
Individuals should have complete clarity about their own contribution metrics and advancement paths. They need to see exactly how their work translates to enterprise value. This is the best way to direct improved performance and to reward progress. Individual initiative is best served this way.
But not everyone needs to compare themselves to peers. Private clarity eliminates ambiguity without creating destructive competition.
Managers need visibility into their teams' contributions to guide development and resource allocation. Executives need enterprise-wide analytics to spot patterns and opportunities.
The key is matching information access to decision-making responsibility. Provide people with the data they need to make smart choices and avoid overwhelming them with unnecessary comparisons. When their job performance depends on better understanding the market analytics, they must be enabled with better data. When their job does not, no need for the added transparency.
The biggest mistake organizations make is designing department-level incentives. This fragments the system and creates conflicts between local goals and enterprise success. A system must optimize for the whole, even if that means some local entities will be sub-optimal. Otherwise, the enterprise will lose significant value.
Every role must have a clear line of sight to enterprise value creation. If a position doesn't connect to the organization's success, ask if it should exist.
Customer service improves retention and referrals. Operations reduces costs and improves quality. Marketing drives awareness and demand. Finance optimizes resource allocation.
Make these connections explicit and measurable. In this way, people know how their role contributes to overall value creation. When everyone has the needed transparency, they can adjust to the needs that lead to overall success.
The fairest system distributes rewards in direct proportion to value contribution. This eliminates favoritism, politics, and ambiguity.
When someone regularly achieves results that help the entire organization, they should gain personal benefits in proportion. When someone consistently drains value, they should face consequences.
This creates natural alignment between individual incentive plans and collective success. What could be more 'fair'?
To create a fair, value-driven system in an organization, you need careful planning and execution. It's a journey that involves more than just new policies; it demands a shift in mindset and culture. To shift to a system that values real contributions and builds teamwork, keep these key steps in mind:
Monitor both leading and lagging indicators. This helps you confirm that your goal alignment system is effective.
Leading indicators include employee engagement scores, cross-functional collaboration frequency, internal customer satisfaction ratings, and decision-making speed.
Lagging indicators include overall organizational performance, customer satisfaction and retention, employee retention and talent attraction, and innovation rates.
Monitor both sets of metrics to ensure short-term changes translate to long-term value.
Aligning individual incentives with collective success requires more than adjusting compensation formulas. It demands fundamental restructuring of how organizations operate.
The most successful implementations combine structural changes with cultural transformation and behavioral insights. Aligning individual and collective interests takes effort. However, organizations that do this gain a competitive edge. They foster engaged, collaborative, and entrepreneurial workforces.
Companies like Toyota, Haier, Morning Star, and W.L. Gore show that these principles apply to different industries, cultures, and sizes. The key is to create systems where helping others is the best way to help yourself.
If your rewards system doesn’t link each role to creating enterprise value, you’re missing out on performance and fairness. The question isn't whether to change. It's whether you'll lead the transformation or watch competitors gain the advantage.
