Money Talks – Know How People Get Paid to Understand Their Actions

I love this Upton Sinclair quote I saw recently.

“It is difficult to get a man to understand something, when his salary depends upon his not understanding it!”

It made me think of Deep Throat in All the President’s Men when he tells Bob Woodward to “Follow the money.”

One of the things I’ve learned in my career is that when I can’t understand why somebody is doing something that seems nonsensical, understanding the flow of money typically brings clarity.

I’ve seen this play out both in internal corporate tug of wars over getting people to “do the right thing” when there was nothing in it for them and in partner/channel relationships where people say one thing and do another that seems counter to their interests, until you really understand the whole picture.

A few examples I’ve personally witnessed:

The sales rep who “gives stuff away”

I saw a classic example of this recently. The sales team was paid straight commission on every dollar of sales and the formula rewarded them with a huge kicker for “growth dollars”, which in their world meant new accounts or a big bump in an existing account.

Well, every sales dollar looks good when you get paid for it. Reps unrelentingly looked for growth at any cost, didn’t take care of existing accounts (because they essentially didn’t get paid to) and would price deals to sell. The result was poor profitability and overstretched resources. They oversold what they could handle, priced it unprofitably and chased away their good accounts. Oops. Guess they should have thought more about how the sales force got paid.

(Thanks Carl for reminding me of this one.)

The CEO focused unrelentingly on operating and net income at the cost of everything else.

Strong arguments were made, backed with data that the company and share price would be better served by slight margin relief and increased internal investment. Shockingly, when he fled for greener pastures it was revealed that his bonus and options grants were tied exclusively to earnings per share. None of the rest of us got paid that way, but the cause of years of pain became immediately clear.

The car dealership that lets everyone make money any way they can, above or below the table.

My team at 3M was trying to drive programs that we could prove were quite profitable for the dealership and yet we couldn’t get consistent traction. My key learning (which isn’t profound or surprising); “holy bleep!, car dealerships are swimming in under the table money that never gets reported anywhere.”

It was really staggering. I lacked adequate imagination to have figured out all the people getting “spiffed” and how much they made. One guy funded his kids’ private school tuition entirely from his under the table payments from one vendor. It was a “hidden in plain sight” reality.

For people early in their career or who haven’t been in a rough and tumble setting, I think the reality of pay driving behavior so clearly isn’t obvious. In most bureaucratic settings it’s moderated by clear salaries, decorum etc. But a lot of environments it’s “eat what you can kill”.

So follow the money and you may have a better sense of why people are acting the way they are.

Do you have any examples?

2 thoughts on “Money Talks – Know How People Get Paid to Understand Their Actions

  1. Couldn’t agree more Phil. In my nearly 15 years of analyzing investments, I haven’t come across a more important topic in determining if the investment will work. Incentives drive behavior.

    • Doug – It’s crazy how transparent it is once you see it. I’m no longer “surprised” by it, but can still be struck by how completely it can drive some people’s behaviors. Thanks. P

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