Incentive Compensation, Part II

This one is simple: we're structuring a formal incentive compensation plan where I work and there is, not surprisingly, some disagreement internally.

I believe that most people, and likely most comp plans, would tend toward the individual: reward people based on their contribution right? I believe that is a flawed view because, at least in our firm, it is cooperation that gets the job done. Individual productivity has some merit, of course, but, as a web company, we do not make money from beatiful designs or lines of code. Instead, we profit through the value we provide. We need to encourage that teamwork and not, as I pointed out in the last blog, fodder for their resume or portfolio.

We do, however, have to counterbalance people who might slack while others work hard. To do so, we create demand for efficient workers by rewarding profitable projects, and split the rewards based on demand for that employees services, which we can also measure relatively easily.

So for us, the measure becomes (in order of priority):

1. Total company profit (measure of long term value to our customers)


2. Membership on profitable projects (measure of short term value)


3. Relative utilization (demand for individual services)

All in a nice little package. With some proper reporting and communication, these will go far to incent people to work in their own and the greater (company) good. More on this as we have some results.