Even in my limited years of business experience, I know one thing that holds true about money, it drives behavior. So when my company looks at compensation plans, I always look at what results I want and method I would like them achieved before I put together a compensation plan. For example, if I want my team to give more focus on selling a certain product, I will put in tangible incentives if they achieve a high water mark, and I also put in penalties if they don’t achieve a low water mark. This way there is both a carrot and the stick approach. I also make sure that I set expectations on how they are allowed to achieve the goal, what the exact metrics for success and when their work will be audited so that there is less chance of failure all around. Sometimes I get it wrong, but most of the time this method gets the results I am looking for.
This bailout package defies conventional logic of a free market economy and in my opinion is a sham of global proportions. The “free market” is a carrot and stick model. If you build a business that does well, you earn money, and if you fail, you loose money, thus driving people to succeed. I know this I probably oversimplified but if the government rewards the individuals (note that a corporation is legally seen as its own entity) who have failed, then why would these individuals change their behavior? Why wouldn’t they just find yet another way to engage is high risk, high yield ventures that have short term success? I would gamble all the time if tax payers would just payoff my bad debts. The markets will not correct unless companies who are unsuccessful are allowed to fail. It shows poor judgment on both Obama and McCain for voting for this bailout.
The real crisis that should be addressed is that sound businesses can’t short term loans from each other. This is root of our current crisis. When companies can’t borrow money for a few weeks to cover payroll, then we have a true disaster. This is now in discussions and it should actually help, so why the bailout package?