What role did incentives play in supporting this longer-term mindset?

I’m massive on incentives. I had the pleasure of being on stage at a large finance event, and anybody who’s worked in finance always talks about bonuses. The amount of energy and effort that goes into managing bonus schemes, KPIs, all the organisational effort and the emotion that goes into it is a huge tax on the organisation and normally, a burden on finance teams.

I remember sitting on stage and saying, “Fundamentally, I don’t like bonus schemes because if you’re trying to get people aligned around putting the organisation first and thinking long-term, then you incentivise the individual on short-term deliverables and cash. How does that align them to thinking long term and building the company first?” It’s a misalignment. I asked this question on stage, and the finance committee all agreed with these statements, which was great.

My follow-up question was, “How many of you guys have a bonus?” The majority of the hands in the room went up. “So, if you agree with the principle, I urge you all to go into the office tomorrow and say, ‘I don’t want my bonus.’ Now you’re saying you believe this doesn’t work; you have to take a stance. Feel free to send me an email, all you guys who walk in tomorrow and say, ‘I don’t want my bonus. You can find a different way of compensating me, but this bonus structure doesn’t work for me. It’s not aligned with the organisation. I don’t think it fits with the right values.’”

I didn’t get one email. That’s the challenge. “Fundamentally, I believe this stuff, but I’m not willing to act on it.” In the end, we get into this selfish mindset of, “I’m better because I want my cash. I’m not willing to change the organisation, fight for it, and say, ‘I don’t want this.’”
At Amazon, there’s no bonus scheme; you’re invested in the equity of the organisation. Therefore, over the long term, the organisation does well, you do well. You also don’t get into, “I’ve got my sales target or my cost centre,” so you get out of this silo mentality. It’s about, “Is this better for the organisation?” It encourages collaboration and teamwork. “Is this better for the organisation? Then I’ll go and do it,” as opposed to, “But if I do that, I won’t hit my bonus.”

Then you get into this negotiation of, “You need to adjust my target down because now, I’m helping this guy out.” That is way too much energy invested in all the wrong places. We’ve seen it in so many organisations. “I can’t afford to travel because I don’t have the budget.” “But is it the right thing to do?” “Yes.” “Well, why don’t you just go and do it?” “Because it’s going to hit my cost centre and my bonus.” That’s the worst thing. Then you hire a finance team to move that from one cost centre to another. You’re building an organisational overhead just to do the right thing. It’s a mess.
Once you get rid of all that stuff, you’ve saved the organisation a lot of overhead and back-and-forth, and decision-making becomes a lot faster and more aligned.

I assume it’s a longer-term vesting schedule. The equity compensation at Amazon — was that over a period of multiple years?

Yeah. An interesting scheme. If I look at my scenario, it’s a four-year cycle. You’ve got line of sight of how your compensation will play out over four years, and yes, it goes up or down depending on the share price, but if you believe in the company, you know over the long term, it likely will go up. There will always be moments where it’s a different scenario, but long term, it will go up if you’re doing the right thing, if you’re working with your colleagues to do the right things. If you start getting into that mindset, “I’ll take it as an article of faith that this is going to be successful,” you dial compensation towards the company’s success, rather than short-term cash.

The logic’s very simple. The more cash you take out of an organisation, the less cash it’s got to grow. Strangely, if you want higher equity, lower cash, you’re helping the organisation be more successful, so the value of the equity should go up, as long as you’re making the right decisions.
Having that personal vesting in the company, to say most of my value is in the success of the company, not the cash I’m taking out of it — it’s more of a start-up kind of mindset.

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