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Design Incentives, Expect Gaming
- Incentives power behavior and can make people act illogically or immorally when misaligned.
- Design incentives and counter-goals to prevent gaming and promote long-term company value.
Pair Rewards With Counter-Goals
- When you set a reward, also set counter-goals to stop employees from gaming the system.
- Ask what action you intentionally reward and what bad behavior you unintentionally reward.
Bookings-Based Pay Led To Bankruptcy
- A 1990s data-center vendor paid sales on bookings and ignored customers' ability to pay, which inflated bookings but destroyed cash.
- That misaligned incentive system contributed to the company's bankruptcy.