Do Not Cheat Employees with Rigged Incentives

incentives

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[Photo from Shanghai Daily]

"A pupil must learn, if they learn anything, is that the world will do most of the work for you, provided you cooperate with it by identifying how it really works and aligning with those realities." - Joseph Tussman

Get the incentives right and the world works for you. Get it wrong, and watch out.

One key to incentives is that they have to be certain or trustworthy. If an employee does x and a company promises y, the employee should be justly rewarded. When an employee does x and gets y-1 or 0, they will not be happy. Untrustworthy companies are not sustainable enterprises.

The Uber and OLA strike in India, along with other ride sharing apps across the world, are a perfect example of poor incentives.

No Consistency

In the beginning of this year, and the end of 2016, numerous strikes over reduced Uber and OLA driver earnings have occurred in India. Why? Because OLA and Uber are committing an incentive sin: creating uncertainty.

Initially lured by Rs 70,000 to Rs 1 lakh (USD$1,000-$1,500) a month in total pay, individuals signed up in droves. The individuals who entered the system were given Rs 500 a trip and promised a minimum guaranteed monthly rate. The incentives were significant; total earned commissions could be four times the total fares charged in early 2015. The taxi app companies got the significant potential payout right for drivers to start, but those rates, while nice for a short time, were unsustainable.

OLA and Uber have changed their fee structure to compete with each other. Subsequent fare cuts have driven driver commissions down significantly. The companies have made it tougher for drivers to earn incentives. Drivers who initially earned Rs 80,000 in early 2015 are now working more hours and earning half the wage.

This strategy is not uncommon with Uber in other areas. In March, Australian Uber drivers under the group Ride Share Drivers United put out a city-wide call for Uber drivers to strike by logging-off for a full day. A similar strike happened in New York City in February 2016. Those two strikes were caused by Uber cutting fares and consequently cutting driver commissions.

Consistency

Just as a child learns how to approach the world by observing the behavior and values of the people around them, consistency matters in all human relations. The more consistent and certain the message and incentives, the more stable and content children feel; the more productive and content teams feel.

Quality organizations are extremely consistent in their message and actions to employees, including their incentive systems (which are sustainable). Just think, Les Schwab, Herb Kelleher, Ken Iverson and other intelligent fanatics found in our book were consistent in their incentives. Never did the leaders and their organizations rig the system to their benefit. Their incentives were consistently win-win. Then when times were tough, everyone took a hit. When times got better, the incentive returned. Those leaders earned the trust of their employees and everyone reaped the rewards.

If an organization’s incentives aren’t certain, what’s the point in people even trying?

Extra

Uber’s message to drivers from the top is also poor. This is how Uber’s CEO Travis Kalanick treats his company’s drivers. He fought with an unhappy Uber driver on tape when the man expressed his displeasure with his falling wage.


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Resources:
Changing incentives, falling income makes lives difficult for Uber, Ola drivers

Uber drivers strike to protest fare cuts in New York City

Uber, Ola drivers hit hard by falling incentives

Uber strike: Group calls for drivers to “log-off” in one day protest over pay and conditions