Counter Incentives Balance Growth

A framework for creating balanced incentive systems that drive both growth and quality in business operations.

Core Concept of Counter Incentives

• When incentivizing employees, pair primary metrics with opposing metrics to ensure balance
• Primary incentive drives growth/quantity
• Counter incentive ensures quality/sustainability
• System prevents optimization of one metric at expense of others

Example Applications

• Sales Team Structure
  • Primary metric: Sales quota/revenue targets
  • Counter metrics:
    • Revenue collection (ensuring customers can actually pay)
    • Customer retention rates
    • Quality of customer relationships

Benefits of Counter Incentives

• Attracts driven people who can hit aggressive targets
• Maintains quality while pursuing growth
• Creates sustainable business practices
• Prevents short-term thinking
• Balances quantity with quality metrics

Real World Example: Constellation Software

• Executive Compensation Structure:
  • No stock options (prevents short-term stock price manipulation)
  • 75% of after-tax bonus must be used to buy shares
  • Purchased shares held in escrow for 4 years
  • Creates long-term alignment with company success
  • Forces executives to buy at market prices like regular investors

Implementation Considerations

• Need clear, measurable metrics for both primary and counter incentives
• Must be balanced - neither side should completely negate the other
• Should align with long-term company goals
• Regular monitoring to ensure system works as intended
• May need adjustment over time as business evolves