From Charlie Munger “Poor Charlie’s Almanack”
“I think I’ve been in the top 5 percent of my age cohort almost all my adult life in understanding the power of incentives, and yet I’ve alway underestimated that power. Never a year passes but I get some surprise that pushes a little further my appreciation of incentive superpower.” (p. 450)
Example:
- Federal Express needs to get all of their packages shifted to one central airport each night. They tried all kind of persuasions to get their night shift workers to accomplish this but the night shift workers couldn’t get it done. Finally Federal Express decided instead of paying the night workers by hour, they paid them by shift. Just like that, the workers did their job! The night workers were only allowed to go home when all the planes were loaded.
“If you would persuade, appeal to interest and not to reason.” – Ben Franklin.
“Never, ever, think about something else when you should be thinking about the power of incentives.”
Example:
- Xerox’s older inferior machines were selling better than their newer better machines. Xerox was wondering why? It was because the sales people were given large incentives to sell the old machines! Even though it was clearly better for the customers to get the new machines.