Agreed that your second list is what’s more often closer to reality, Peter – yet that’s exactly why performance-measurement and bonus design is such a critical art. We typically get the behaviour that we reward – so given the inherent dysfunctionalities of a possession-economy (a topic for another post rather than here), the trick here is to design ‘management bonus’ such that the second list actually delivers the results of the first.

The point here is that whilst the second list is what tends to happen in practice, the first list is what works – i.e. delivers the required results overall, as an optimised win/win for shareholders, managers, customers, employees and everyone else. There are many variants, of course, but if we deviate too far from that priority-stack – i.e. if it falls too far into the classic win/lose – then everyone loses.

I accept that it’s a point that is extraordinarily hard to get over to some people – especially those who believe that they ‘win’ by making others lose – which again is why performance-payment design has to be done with so much care. All that I’m doing here is pointing out is what the end-result needs to look like, to make it work: I’m well aware that ‘the devil is in the detail’, but unfortunately that detail is always specific to the context of the individual organisation.

J&J’s ideal is great but reality
1. Service to Mgt bonus first,
2. Service to customers to ensure 1.
3. Service to shareholder distribution to ensure 1.
4. Service to employees so that they remain loyal to achieving 1 and
5. Better publish something about community to ensure 1 occurs.