Glamor Economics

Chapter 143

Chapter 18 Section 5 A Good System Should Comply with Human Nature——Incentive Compatibility

At the beginning of the 20th century, the dual-tiered incentive mechanism implemented in some companies in the United States was a career system and incentive mechanism designed to provide professional and technical personnel in the organization with equal career development opportunities as managers.Under this mechanism, professional and technical personnel can have two equal career paths: one is a management career path, and the other is a technical career path. Those who walk the technical ladder can enjoy equal development opportunities and levels of development with managers .In this way, on the one hand, those employees who have advantages and potential in business technology can be encouraged to concentrate on the road of business technology and make unique contributions to the innovation and development of the company's business; Taking entry into management as the only career development path opens up more channels for employees' personal careers.

A good system is not to prevent people from benefiting themselves, but to form an internal restrictive system that uses people's unchangeable self-interest to guide them to do things that are beneficial to society.Therefore, the system must follow human nature from the very beginning, so as to form an effective incentive system that adapts to the situation.This involves the concept of "incentive compatibility" in institutional economics.

In the theory of mechanism design created by Harvitz, incentive compatibility means: In a market economy, every rational economic person will have a self-interested side, and his personal behavior will act according to the rules of self-interest; if there is an institutional arrangement , so that the actor's behavior of pursuing personal interests coincides with the goal of maximizing the collective value of the enterprise. This institutional arrangement is incentive compatibility.Modern economic theory and practice have shown that implementing the principle of incentive compatibility can effectively resolve the conflict between individual interests and collective interests, making the behavior and results of actors in line with the goal of maximizing collective value, so that each employee can be Make more contributions to the enterprise to achieve your own career, that is, to achieve the consistency of the two objective functions of personal value and collective value.

So, how can we design an incentive-compatible mechanism for personal and corporate value, so as to achieve a win-win road to maximize the value of both?

One is to design a reasonable incentive mechanism and means.Enterprises that produce "mutual complaints" all have a common feature, that is, the absence or distortion of incentive mechanisms.Phenomena such as seniority ranking, job rigidity, fixed wages, and average benefits are common in some companies. Enterprises assess individuals mainly based on qualifications, education, positions or titles.This situation encourages employees to one-sidedly pursue high education, high positions, and high professional titles, to be busy with various assessments, and to devote a considerable part of their energy to meeting these indicators, while ignoring the cultivation and development of actual capabilities.The result is that there is a deviation between labor remuneration and labor contribution, which affects the working attitude of employees, and even slows down, working without effort, and exerting effort without living.The way to solve the problem is to design a reasonable incentive mechanism and means, directly link labor contribution and remuneration, dilute the impact of qualifications, education, professional titles, etc. Use talents and cultivate talents.In the incentive means, personal income should appear more in the form of monetary income, try to restrain the individual’s motivation for non-monetary income, make the two objective functions of the individual and the collective consistent, and make the two value pursuits compatible. To achieve a win-win situation for individuals and enterprises and lay a good institutional foundation.

The second is to provide employees with multi-channel career development paths.At present, the remuneration of most enterprise employees increases with the improvement of personal management status. That is to say, for those engaged in specific businesses, if they want to increase their income, they need to obtain a higher management position.This essentially functionalization of income distribution has led to the blinding of employees' personal development paths.Some employees have their own advantages in professional items, but in order to obtain higher material income, they have to take a considerable part of their energy from studying business to seek jobs.Designing multi-channel career development paths for employees can effectively solve this problem.

The third is to create a healthy and progressive corporate culture to gather outstanding talents.Without a good corporate culture, it is difficult for employees and the company to have a real sense of solidarity.Practice has shown that enterprises cannot effectively solve many problems in the organization's operation only by relying on rules, regulations, and systems, especially the well-designed corporate governance structure cannot play its due role, and corporate culture as a variety of regulations The basis of the function of the system, as the "software" that can convince people, plays an important role in mobilizing the potential of human resources.It is necessary to implement people-oriented thinking in management, emphasize understanding and respect for human nature, manage people according to the laws of human nature, and integrate the company's business ideas, values, and behaviors into employees' thinking and work, so as to promote everyone The enthusiasm of individual employees can be fully released.

Only a system design that fully respects the fruits of labor and stimulates individual potential is an effective and incentive-compatible system.When designing an incentive-compatible mechanism, an enterprise must truly realize that the job is needed and that people have value, realize the optimization of human resource allocation, and effectively turn human resources into human capital, so as to ensure the realization of corporate value and at the same time make employees themselves The advantages and specialties of the company are fully utilized to promote the improvement of the overall quality, the sublimation of knowledge and the realization of value.Only in this way can we truly realize the win-win situation of personal and enterprise value.

[links to related words]

Positive motivation specifically refers to the motivation art that has positive meanings such as affirmation, recognition, praise, rewards, and trust to the motivation object.

Negative motivation specifically refers to the motivation art that has negative meanings such as negation, restraint, neglect, criticism, and punishment of the motivation object.

The key to grasp the combination of positive and negative incentives is to distinguish whether the behavior of employees is correct or wrong.Correct behaviors are reinforced with positive incentives, and wrong behaviors can only be stopped with negative incentives.

(End of this chapter)