Balancing Incentives to Avoid Eroding Trust

Let’s be honest with marketing incentive programs—the reality is business leaders reward quick wins, like high ROAS or short-term conversions. I agree it is natural for business leaders to motivate their teams to win big and win fast. And metrics like ROAS make it easy. BUT, here’s the problem: This mindset has been a major failure for businesses over the past decade. What if you could balance immediate results with the long game of building a sustainable brand? --------------------------------- Here’s how to get it right: → 1. Restructure your incentives to include both short-term and long-term KPIs I'll give you a real-life example. We worked with a premium footwear brand that: • Tied bonuses solely to quarterly revenue targets • Encouraged aggressive discounting and heavy retargeting Which led to: - Temporary sales boosts but hurt margins - Diluted their brand image The solution? They revamped their incentive structure to include: • Contribution margin • Customer lifetime value (CLV) Result? A 20% increase in net profitability over a year. → 2. Implement a weighted KPI system that ties: • 50% of incentives to immediate campaign results (e.g., incremental revenue) • 50% to brand metrics (e.g., awareness lift, sentiment improvement) Why this works? - Your team hits short-term numbers while investing in future growth - It creates a culture that rewards both efficiency and vision Bottom line: Balancing incentives this way ensures your brand thrives in the short and long term. --------------------------------- How are you structuring incentives to drive both immediate wins and sustainable growth? Let’s discuss.

The Hidden Risk of Misaligned MSOPs: Balancing Incentives with Long-Term Growth When not properly structured, Management Stock Option Plans (MSOPs) can shift from being a powerful incentive to a strategic liability—where short-term stock gains take precedence over long-term enterprise value While MSOPs are designed to align leadership ambition with shareholder interests, a misalignment often creates a performance paradox—driving executives to optimize for immediate stock price movements rather than fostering enterprise resilience and transformational growth. This short-sighted approach doesn’t just distort decision-making; it gradually erodes a company’s ability to maintain a sustainable competitive advantage Where Does the Disconnect Happen? ⚠️ Over-fixation on stock price incentives leads to risk aversion, discouraging bold, transformative decisions ⚠️ Rigid vesting timelines fail to accommodate the unpredictable pace of innovation and market evolution ⚠️ Misaligned MSOPs reward individual achievements over collective success, fragmenting leadership focus How Can We Realign MSOPs with Strategic Vision? 📌 Integrate broader KPIs: Move beyond stock price metrics—incorporate innovation milestones, strategic impact, and stakeholder value. 📌 Shift to milestone-based vesting: Replace time-based rewards with goal-oriented incentives that drive meaningful outcomes. 📌 Encourage cross-functional collaboration: Design MSOPs that align executive incentives with company-wide synergies, preventing siloed decision-making. 📌 Extend vesting horizons: Link MSOPs to long-term strategic initiatives, ensuring leadership remains focused on sustainable growth. When leadership incentives are tied solely to short-term performance, true innovation suffers. The most significant victories aren’t achieved overnight—they are the result of forward-thinking strategies that may seem small today but position companies far ahead of the competition tomorrow MSOPs should be more than just incentives; they should be the cornerstone of sustainable leadership and long-term value creation What are your thoughts on structuring MSOPs for lasting impact? Let’s discuss!

The Cobra Effect: When Short-Sighted Incentives Poison the System During the British Raj, officials in Delhi faced a growing menace: venomous cobras. To curb the threat, they introduced a reward, a bounty for every dead snake. Initially, it seemed brilliant. Carcasses flooded in, and the population appeared to drop. But human creativity had other plans. Enterprising locals started breeding cobras to exploit the bounty, turning snake eradication into a lucrative hustle. Once the government discovered this unintended consequence, they scrapped the program. The breeders, left with “worthless” snakes, simply released them. The result? More cobras than before. A textbook backfire known as the Cobra Effect. It is a striking example of how short-sighted monetary rewards can derail good intentions. The TQM Lesson: Beyond the Bounty What does this have to do with Total Quality Management (TQM)? TQM is not just about setting goals and paying bonuses. It is about building a culture where improvement is intrinsic, not merely driven by short-term cash incentives. Here is where we must distinguish between rewards and intangible enablers: Monetary Rewards (the “bounty”): If used disproportionately, they risk becoming like the cobra payment. They can encourage superficial performance, manipulation of metrics, or “performance theatre” over genuine progress. This creates a financial and psychological loophole in the organizational culture. Awards and Intangible Enablers (Motivation, Recognition, Trust): These are far more profound drivers. True TQM thrives on a sense of purpose, professional respect, and a sustained commitment to excellence. Finding the Right Balance Our intent must always be to foster continuous improvement. To achieve this, we need a balance. We must use recognition and incentives wisely, ensuring there is no direct, transactional relationship between a quick improvement and a huge financial payout. When financial rewards are implemented carelessly, they can rust the very machinery they were meant to fuel. When recognition is used to genuinely celebrate and reinforce a strong, risk-taking, improvement-focused mindset, it strengthens the culture. Let us focus on nurturing trust, mindset, and sustained commitment. That is the foundation of true quality. Our reward systems should reflect a deeper, long-term vision, not just a quick count of cobra heads. These are my personal reflections. Your perspective may differ based on your own knowledge and experience. Thoughts 💭 #CobraEffect #TQM #TotalQualityManagement #OrganizationalCulture #Incentives #Motivation #Leadership #ContinuousImprovement

Sales incentives can destroy your brand reputation. (Unless you know how to use them right) Most companies believe they should: - Reward top performers at any cost - Push for aggressive sales targets - Maximize short-term revenue But here's what actually happens: 63% of customers lose trust in brands with pushy sales tactics. Here's how to design better sales incentives: 1. Focus on behavior-based rewards - Track relationship-building activities - Measure customer satisfaction scores - Monitor lead quality metrics 2. Set sustainable targets - Balance short and long-term goals - Consider customer lifetime value - Avoid unrealistic quotas 3. Implement quality controls - Review sales practices regularly - Get customer feedback - Address aggressive tactics immediately 4. Train for value-based selling - Develop relationship skills - Focus on customer needs - Build long-term partnerships Smart incentives create sustainable growth. Pushy tactics might work today, but tomorrow's a different story. Success or failure → It's in your incentive design.

Should Startups Reward Disloyalty? Ingrid had been with her company since the beginning. She worked through weekends, held the product together during early chaos, and believed in the mission long before investors did. When times were tough, she stayed. When new opportunities came calling, she turned them down. She was, in every sense of the word, loyal. Then one day she heard that a colleague, who had quietly shopped around for another job, was rewarded with a "loyalty bonus" to stay. Ingrid got nothing. The message was unmistakable: if you want to be valued here, don't be loyal. Pretend to leave. This is the paradox of loyalty bonuses. They don't reward commitment; they reward the performance of disloyalty. This may keep people in place for six or twelve months, but they undermine the culture that makes a company worth staying in. Once employees see that brinkmanship pays more than devotion, trust begins to evaporate. I have seen this at a larger scale. During an M&A process, a private equity firm brought in a new CEO with a consulting background. In fairness, these leaders can be useful in the short term: they bring structure, they cut costs, they steady the optics. But in this case, something else happened. Every crisis became an excuse for the top layer to find new ways to reward themselves, retention fees, stability packages, adjusted titles. Meanwhile, the real value-creating part of the company, the R&D department, was labeled "hopeless." Executives had decided shutting it down or moving it to another city. Innovation was the only way forward, yet innovation was the first thing starved. We left the deal. The company - technically bankrupt. For me, it was an eye-opener: rewarding disloyalty and executive opportunism doesn’t just demoralize. It can kill the very core of a business. Startups should pay close attention. You don't have the cushion of billions in revenue or state ownership. You cannot afford to erode trust by teaching your team that opportunism is smarter than loyalty. If you do, you will lose the people who stay late because they believe, who innovate because they care, who carry the company through the dry seasons. The leaders we need are not the ones who treat loyalty as naive. They are the ones who make loyalty feel like the smartest, safest bet in the room. They reward builders, not brinkmanship. They understand that trust is the only true capital a young company has. If you're building a startup, the temptation to copy big-company practices will always be there. But look closely. Some of those practices are not just unsustainable; they are actively corrosive. Rewarding disloyalty may keep a few executives in place for another quarter. But it will erode the trust that could have kept your company alive for a generation.