The Cobra Effect and The Law of Unintended Consequences

[et_pb_section fb_built=”1″ _builder_version=”3.22″][et_pb_row _builder_version=”3.25″ background_size=”initial” background_position=”top_left” background_repeat=”repeat”][et_pb_column type=”4_4″ _builder_version=”3.25″ custom_padding=”|||” custom_padding__hover=”|||”][et_pb_text _builder_version=”4.5.7″ hover_enabled=”0″]There is a famous story of how the British tried to solve a problem in Delhi, India and unintentionally created a much bigger one. This is a vivid real life illustration of The Law of Unintended Consequences.

What do snakes in India have to do with you? Most construction firms wrestle with this iron law when they attempt to install incentive compensation plans. Please tune in this week as we give four specific reasons why contractor incentive plans often fail and reveal the very best “incentive plan” a contractor can implement.

Thank you.

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  1. Spot on! I make sure to tell everyone when they receive a bonus that this is based on profits for the current year and all future years will be based on that as well.

    • Good call, Jon! I’m with you.

  2. We have an incentive plan that is 50% based on how well you demonstrate our company’s values and 50% based on individual goals for the employee (typically 3-5) that may be behavioral or outcome-based. With the main principle being, that it’s not just “what” you achieve that’s important, but also “how” you achieve your goals. The employee also knows what their bonus potential is for the year.

    Using an example: if you have a bonus potential of $10k, if you get a score of 4/5 for values and 3.5 for goals, your total score is 7.5 out of 10, so you get 75% of your bonus i.e. $7,500. We essentially use this framework at all levels. There is minimal paperwork, with a greater focus on conversations and receiving and giving constructive feedback.

    Ideally, you have a separate component that is linked to the overall performance of the company.

    • Thanks, JD. Glad to hear you have a program that works for you!

  3. From another angle, it’s important that an incentive program doesn’t have an unintended consequence for the client. I’ve seen incentives in place for margin that may actually encourage employees to cut corners on a job that have a negative impact on the client experience. It’s all a balance that needs a 360 degree view.

    • Yep.

  4. Wayne,
    Enjoyed this a lot; you are right on with the culture, communications and care, paying attention to people, and nurturing them is more important long term than short term incentives.

    • I agree, Jerry. Thanks for commenting!

  5. Wayne,

    You are dead on! I’ve seen it happen when we had “project” or “division” bonus plans and the hoarding of resources that took place to the detriment of other projects and the company as a whole. For some 30 years now, we have had a bonus program based solely on the company’s success. If the company makes a profit beyond a predefined benchmark, we all share in it. It is the best way. Word of caution…after consecutive years of bonuses being paid, everyone comes to expect it, and when that bad year hits, they are demoralized.

    • That’s right, Mike. Even the best thought out program can become a sort of “entitlement” instead of an incentive over time.

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