Practical Solutions to Business Puzzles

In business relationships, people often are disappointed because the other parties behave in a manner that is inconsistent with what they are seeking. 

This can lead to:

Distrust

Surprises 

Frustration

Increased costs

Reduced profitability

How can we avoid this problem?  The answer is simply to incent the behavior that we want others to engage in. 

How do we do this?  That question is a bit more difficult.  Some of the steps for getting there from here are:

Defining success and deciding how and when it will be measured.  This approach sets us up to be sucessful, if we set realistic goals.  In addition though, it allows the efforts to be sustainable over extended periods of time.  And, it also gives us a bench mark against which we can decide if changes are needed.

Understanding what drives the other person or people or ourselves.  Success over the long term requires that every party to the relationship be successful.  The only way to help someone else be successful is to understand what success looks like through that person’s eyes.

Establish parameters for the solution.  For example, maybe administrative burdens need to meet particular criteria.  In some cases, the solution has to fall within specific budgetary limits. 

Communicate with the people involved.  The only way that the approach will incent anything positive - trust, loyalty, retention, or the desired behavior - is if the information is communicated to the people from whom the specific behavior is desired.  By communicating this information, they may choose to align their interests to support the goal and, when that occurs, the results can be far better than when you are doing this on your own.  That is the basic concept behind high performing work teams.

What sort of results might be realized this way?  Here too the answer depends on the context.  Consider an example.  Suppose that retention is important in an industry that has high turnover. 

If that is the case, one option that an employer might consider is the SEP IRA.  A SEP IRA allows the employer to contribute to retirement for employees that are similarly situated.  One of the factors that makes a SEP IRA unique is that the employer can require that people work for the employer for at least 3 of the prior 5 years, if desired.  (I’ve done some research on this issue, to understand a bit about what it is.  Now, I am consulting my advisors to understand if it is appropriate and whether it is the best option for me.  You are encouraged to use the same sort of structured approach.)

The SEP IRA has pretty high contribution limits so it is likely to provide strong retention incentives.  On the downside though, you can’t discriminate against anyone who meets the criteria.  What might this mean for you?

Think also about who might be incented to stay with the firm.  An employee with less than a year of tenure may have some incentive to stay with the firm.  An employee with two and a half years of tenure may be incented to stay with the firm more strongly. 

The person who is most likely to be incented to stay is the one who has over three years of tenure, provided that the contributions are substantial and the money is invested in a vehicle that is growing.  Of course, this assumes the person is motivated by money and financial security. 

If the people are motivated by something else - perhaps learning or helping others - a SEP IRA might still be a step to help get there, but it would need to be structured differently, or accompanied by other tools.

Think about this tip.  What does it mean for you?

Are you trying to incent someone else to behave in a particular manner?  If so, remember to focus on factors within your control, use the context to find opportunities, make good business decisions. be a trusted advisor to the people who you want to behave in a particular manner, and learn from experience.