Monday, March 3, 2008

Who to compensate in toilet training?

Matt Asay is trying to deal with toilet training one child when there is an older one around. They decided to bribe both. The problem is that you are incentivising a team:

How you compensate a sales team can create all sorts of good incentives and/or perverse disincentives. For example, do you really want your channel sales team/person competing hard against your direct sales team...when you have fewer than five people on the team? Do you really want inside sales to hold down the value of a deal if, for example, they are required to turn over any deal worth more than $100,000? If they get paid $0 for a deal worth $350,000 and 5 percent on a deal worth $99,999, that deal is going to be held to $99,999 regardless of what would be best for the company.

And so on. My CEO calls double compensation "double bubble," and we generally try to avoid it as much as possible. But as with Greta and Lily, sometimes it makes a lot of sense to compensate two people on the same deal, especially early in a company's life when cooperation between the sales team should trump competition between the team. You will end up with times when a salesperson will get compensated when they added zero value to the close of a deal, but in the long run you're rewarding the effects of a team effort (exceeding a sales goal/potty training).

Near as I can tell, he had it easy. His eldest just demanded payment. Regular readers of this blog will recall that I tried the same thing but with worse consequences:

... we decided to implement our more explicit incentive system that had worked well with Child No.1. But there was a twist: Child No.1 was around and in many ways we need her help. So Child No.2 would receive a sweet reward -- one or two jelly babies as the case may be. But also where he was successful, Child No.1 would receive the same. We viewed all this as a team effort and Child No.1 was part of the team. To align her incentives we gave her a share of the pie.

That part worked swimmingly. She encouraged our son to sit on the potty and spent time showing her books. It seemed that we may have efficiently outsourced this activity: something valuable in our time strapped lives.

Alas, it was not quite to be. We had to put a stop to it all when we discovered Child No.1 feeding Child No.2 copious amounts of water to help the process along! (By the way, in case you are wondering Child No.1 was 4 years old at the time).

The basic rule of incentives: if you want to pay per success, make sure that the agent can't determine the number of opportunities for success.