The power of incentives

"Show me the incentive and I'll show you the outcome" - Charlie Munger.

I've experienced this first-hand. When I was at school, I had a job at AutoTrader when it was just a magazine, before the internet. We had to phone people who had ads in the local paper and sell them on a photographer coming round to take a picture of their car to put in the magazine.

It was commission only, zero salary, and I did well.

It switched to basic plus limited commission and I did poorly.

I felt I was working just as hard but I couldn't have been. The incentive determined the outcome.

I've since seen this many times in my career. It will affect you and the people around you.

Make sure your incentives match your desired outcome. Watch the incentives of the people around you to predict their outcomes.

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