The Market Chases the Money

While some folks have recently figured out that other factors sometimes make people and institutions operate in ways that do not maximize the rewards they desire, generally speaking, the rat learns the maze to get the cheese.

Years ago, I worked for a local Pepsi franchise. One of the main challenges was keeping sales up and at the same time making sure we did not overstock clients to the point of having old and unpleasant tasting product in the stores.

The salesmen and the delivery drivers were both paid exclusively by the number of cases of soda delivered. Plus, the salesman had the added incentive of a $200 monthly bonus if he made quota and an additional bonus for being 5% over quota and another bonus for getting to 10% over. This was 20 yrs ago. An additional $200 a month was even bigger than it is today.

As product rotation became a bigger and bigger problem, the president of the company came to me, a lowly salesman and suggested he and I have monthly breakfasts. He bought me eggs and toast and asked my opinion of how we could address the issue. I suggested that have mgt do various random spot checks in each salesman’s territory and if they had zero bad product they get a reward equal to the 10% bonus for sales, if they had a certain number, he would have to decide that, but a very low number they get a lesser bonus and if they had over a certain amount, they would get no bonus, maybe even tie it in with sales bonus, so that if you sold 10% over quota, but had lots of old product ( a likely situation), you might forfeit your bonus. He liked the concept, except he said he really didn’t want to do anything to discourage sales. After a few months of these discussions. One monthly breakfast he proudly unveiled his plan to me. If a salesman had zero old product in the random checks for three months in a row, he would get $100. I was dumbfounded! I looked at him and said, so if I sell 10% over quota for three months, I will get a bonus of about $1000, plus I will get a commission on every case, but if I manage to do the hard work of maintaining all the inventory in all of my customers’ accounts and have no old product, I get $100. He looked a little funny but agreed. I said, well that is a nice idea, but as long as you pay $1000 to do one thing, that isn’t near as hard as what you will pay me $100 to do. I wont worry about the old product. He was very disappointed, but he went ahead and presented the program company wide. All of his mgt team said they thought it was a great idea. All of us salesmen and drivers ignored it and kept on pushing in more new product and only worried about the old product when we were written up. I don’t think he ever paid out the $100 bonus.

I tell this story, not to make fun of my old friend. Only that sometimes I am amazed at how we insist that people ought to do things, yet we don’t seem interested in offering enough carrot to make them do it. As I told my old boss, “If you threaten to fire me every Monday for not keep old product out of my area, but every Friday you pay me a bonus for selling  a lot of Pepsi, I will take my chances on the firing and keep collecting my bonuses.”

When we think about social policy, especially, but even foreign and environmental and other policies, why not design systems that make it worthwhile for people, institutions and corporations to do good?

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