Perverse Incentives

“And what else?” I asked.

“This is a tough one,” she started. “Our bonus system. I think our bonus system is causing some of the problems.”

“How so?”

“Well, we wanted to make sure we didn’t get into lawsuits based on construction defects, so we pay a bonus to our engineering manager when we have zero claims. It sounds noble, but that sets up someone to over-work against our operations manager, who is just trying to get the job done.

“To make matters worse, we diligently work the project schedules to avoid delay claims. Delay claims can do more than suck the profit out of a job. So we pay a bonus to our operations manager when we have zero delay claims.

“So, now I have two people on the same team who are working against each other.”

“What else?”

Alicia began with a blank stare, then a hint of something in her mind. “I think,” she replied, “the worst part about our bonus system is that it creates mistrust.”

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