Aligning Incentives to the Purpose

blogs.informatica.com, accessed 12/10/2017

A major problem in organizations is understanding how to properly and effectively align the interests and functions of the individual with the overall organization and the world outside the organization. This is what I believe to be a core piece of the puzzle for improving outcomes and performance in organizations at doing their collective jobs in the human society, and key to improving life in human society and the environment.

For private for-profit organizations, getting workers aligned with the interests of management is simpler in theory, but often seen as distasteful under capitalism by capitalist owners and managers.  Workers and employees who do not have legal ownership, inclusion in determining the direction of an organization, and/or do not perceive a positive return on their investment in labor are, hypothetically, not likely be as effective as those who have ownership, are included  meaningfully in decision-making, and receive net positive benefits for their efforts. In private for-profit organizations, the solution is basic enough to achieve if the current key decision-makers have the inclination to make it so.  Democratic governance and pro-social divisions of the wealth labor produced are basic keys to ensuring the success of the group and individuals within that group. The process of transitioning to this state is likely to be more complex and complicated, and would require case by case analysis in order to understand how to do it better in a greater variety of contexts.  Nevertheless, for private corporations to do better, it stands to reason that a more democratic approach to ownership and a more equitable division of the produced wealth could be more helpful than the existing status quo logic under capitalism.

For public or private non-profit organizations, aligning the interests and functions of officials and employees with their internal and external demands is likely more challenging.  In public organizations, employees cannot be given a greater ownership share of the organization, because their organizations by definition are collective organizations that are responsible to the greater society around them.  Private non-profit organizations are likewise responsible to the greater society with which they work.  Both public and private non-profit organizations also do not directly produce wealth independently of the private for-profit sector.  Their revenue streams are, by definition, derived from taxation and fees (public sector) and grants and donations (private non-profit).  Neither organizational type can offer all of the same financial and material rewards that the private for-profit sector can.  It stands to reason that both public and non-profit organizations needs to spark internal motivation for people to do their functions well, have well-defined and well-designed roles that work together by design, have enforced legal incentives to align their workers logic and functions with the needs of the task/community at hand, and be staffed with well-qualified and well-vetted people instead of financial rewards to produce the best outcomes for the larger social group around them.  Unfortunately, most of the literature I found looks at non-American examples, or focused on the private non-profit sector.  There does not seem to be literature for the American public sector and, what little literature there is, focuses on financial rewards rather than the other intrinsic or extrinsic rewards and penalties that can be offered.

To flesh out our understanding of how to make better organizations and institutions, it would be logical to explore psychology, anthropology, sociology, and behavioral microeconomics. History could also be helpful to find case examples of successful and unsuccessful organizations, as well as to help understand why those organizations succeeded or didn't succeed. Agent-based making, as well as experiments with humans can also be helpful at unwrapping this puzzle. This is only a hypothesized path forward with the research into organizations and organizational function.

If discovered at the organizational level, the principles behind creating cohesion and success in an organization can likely be scaled up to the whole organization of society, inclusive of all people, organizations, and institutional groups. The main difference is that those society-scale choices have to be made by government through enforced and enforceable law, just as organizations rely on their executive committees and Boards of Directors to implement and choose policies and organizational structures in a single organization. Governments must then, in theory, seek inclusion, grant ownership by workers for companies, and enforce fair compensation packages in favor of workers without creating seeds for the workers to actually cause harm to the private companies in order to create society-level cohesiveness (asabiya, as Ibn Khaldun would put it). If one wants a nation to thrive, it cannot accept the egoism and caprice of top executives or influential individuals, just as organizations do not seem to do as well with that egoism and caprice from their management. It stands to reason that society must also be kept internally balanced economically, socially, and politically for best results, just as it can be done within a single organization.