[stanrivers]

Everyone has their own incentives and when things get tough, they will work to maximize what their incentives say should be maximized - keep that in mind before signing up with investors if you are a founder. The term sheets and final docs - and the specific rights in them - matter a lot.

Examples from Charlie Munger [1]:

"One of my favorite cases about the power of incentives is the Federal Express case. The heart and soul of the integrity of the system is that all the packages have to be shifted rapidly in one central location each night. And the system has no integrity if the whole shift can’t be done fast. And Federal Express had one hell of a time getting the thing to work. And they tried moral suasion, they tried everything in the world, and finally, somebody got the happy thought that they were paying the night shift by the hour and that maybe if they paid them by the shift, the system would work better. And lo and behold, that solution worked."

"Early in the history of Xerox, Joe Wilson, who was then in the government, had to go back to Xerox because he couldn’t understand how their better, new machine was selling so poorly in relation to their older and inferior machine. Of course, when he got there he found out that the commission arrangement with the salesmen gave a tremendous incentive to the inferior machine."

[1] https://www.butwhatfor.com/charlie-munger-the-psychology-of-...

[908B64B197]

In Xerox case, it was the same company that wouldn't enter the personal computing market because it might impact their copy-machine market.

[stanrivers]

I've seen that happen in hiring decisions as well. Junior people are in charge of screening candidates... really strong candidates, if hired, will make the average employee look bad.

So, why should the person screening the candidates suggest the strongest candidates?

This is why I tend to suggest equal seniority individuals should not screen candidates. It's a subconscious thing ("He's too aggressive" "She seems like not a good culture fit" "He is too senior for this role") that most people don't think of directly, but happens.

[908B64B197]

One way to offset that is to make sure that team performance is as much of an incentive as individual performance.

A stock compensation helps in that regard: hiring strong individuals will help ship a better product faster and should increase the stock value. Meanwhile traditional stack-ranking and a mostly salary compensation will encourage individuals to make sure they are seen as the top performer no matter what.

[stanrivers]

This is best - for sure; thats why I am a fan of broad equity allocations etc. The larger the company gets, the hard that can be.

But in that situation, I can give top performers more equity, but in the grand scheme of things, thats not much incremental total dilution to the average employee. We all still make more the same way - when the company makes money or is sold.

If you are at a larger company that is a going concern for a long time... it gets a bit harder and takes some more thinking.

[TimPC]

Most people want to hire the best candidates they can despite some of the misaligned incentives. You don't want to spend overtime on someone else's bug because you hired poorly. The risk of a smaller bonus or less promotion chances is complicated as sometimes there is more available if the teams performance improves as a whole. When you deliver on a major project the team's pie is often much larger, and even if you end up with a smaller slice of said pie you're usually better off.

[deckard1]

If any of that were true, we'd have universal healthcare and live in a utopia. Crabs in a bucket. If you're focused on the ladder, you're not going to hire someone that has the potential of making you look bad.