Wednesday, December 3, 2008

Capitalism in the Workplace

Plot of S&P Composite Real Price Index, Earnin...Image via WikipediaA bit more on the compensation end of what I spoke of.

I would love to see people derive a large part of their compensation from revenue from the projects they've worked on. Employees could be given a percentage of the project's profits (shares) in exchange for not getting part of their salary.

If a project fails, employees would lose money too.

But what if employees could buy and sell those shares of the project's future revenue (or some amount of money earned by success) in an internal market? A stock price for all your projects would give you a pretty good idea of what employees working on the project really think.

What could be more valuable? Believe me, employees will not be blowing sunshine you know where when their own money is at stake.

I'd also make it so everybody could select what projects to work on and could leave them if they decided another project would be more profitable. By having some skin in the game and being able to act in their own interests, employees would be helping make decisions about where the company can most profitably deploy its capital.

Can't get on a project? Maybe you need some skills development or a course in manners. The company can offer a coach that gets his extra compensation only when you're on projects that succeed.

Still can't get someone to pick you for your team? Well maybe your base compensation starts declining gradually until you change that situation or decide another easier company is right for you.

I think such an approach would make everyone in the organization tune in to what really matters. High value opportunities, revenue-rich markets, eliminating effort wherever it doesn't create value. And everyone would be selling themselves, selling others on opportunities and selling to the world.
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How About Really Going Capitalist?

Adam Smith (1723-1790) {{he|דיוקנו של אדם סמית}}Image via Wikipedia

Why is capitalism more productive than centralized economic systems? Perhaps its because people have incentives to make decisions that benefit the system as a whole.

Most companies make their decisions from the top down, making them more like the Soviet Union than a free market economy. But could they make a change?

I would like to see companies be more like startups internally. Employees know an enormous amount about the markets, technology and other employees that goes unleveraged when decisions are made from the top down.

I'd like to see people rewarded for the risks they take and for making decisions when their own compensation is at stake in the projects on which they work.

An important strength of capitalism is its decentralization of decision making, with commensurate risks and rewards. But traditionally companies are run from the top down, which makes slower to react and much more inaccurate when they do.

Startups do a much better job at taking risks and responding to the market. But there are advantages to scale that they cannot benefit from at the same time. But a large company could combine both with the right philosophy and information systems.

Interestingly, part of the appeal of scale comes from the tax code. Transactions between companies are taxed, but transactions between employees in a company are not, so the tax burden is lower per transaction. But often the loss of effectiveness more than swamps the advantages in size.

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