Stop Pretending. Start Producing.
LAW 6: ALIGN INCENTIVES
For most of the twentieth century, if you worked in an office, you wore a suit. S&K Menswear was built to corner that market.
Founded in 1967, they grew to over 200 stores across 26 states with a business model that gave men access to nationally recognized brands at 20–40% below department store prices. At their peak they were debt-free, funding their own expansion, and still posting a profit in 2007. But by February 2009, they didn’t exist.
So how does a company go from debt-free with 200 locations to liquidating everything in a matter of months?
The easy answer is the one the former CEO gave: “The suit business isn’t a good one.” Business casual was eroding formal wear. The Great Recession was hammering consumer spending. But Men’s Wearhouse faced the same headwinds and posted $1.97 billion in revenue the year S&K went bankrupt.
The biggest problem was that S&K’s leadership didn’t have clear answers about what the business was supposed to prioritize.
I was an assistant manager at one of their stores during that time. We had a floor full of capable salespeople. But they were being asked to chase targets that were always shifting.
Every month, corporate sent down a new incentive program. Different combinations of metrics, different thresholds, structured less like a bonus plan and more like a monthly challenge you had to solve. You’d spend the first week or two of the month figuring out what kind of sales you had to build to hit it.
Then someone actually hit it.
The next month’s packet from corporate came in, and the incentive program was revised.
Then it happened again.
We listened to the Store Manager read the new bonus plan, and the other assistant manager just lost it.
“They don’t really want us to hit this, do they?”
I looked over at our top salesperson. He was the only one who’d ever earned the bonus. The look on his face was pure disappointment. He put in a lot of work to figure out the system. And the revised targets were always moved further out of reach.
The manager didn’t say anything. He was just as frustrated as we were.
After that, people would glance at the new sheet when it came in, shake their heads, and wouldn’t give it a second thought. Nobody chased the bonus, because nobody believed there was a bonus to chase.
It was embarrassing when new candidates asked whether there were any additional earnings beyond base pay because you knew nobody ever hit it.
People were always looking for other work. I didn’t stay long myself.
S&K went bankrupt in 2009. The recession and shifting dress norms were real challenges. But when headwinds are hitting, the last thing you can afford is a team full of unmotivated salespeople.
Poorly designed incentives are worse than having no incentives at all. They’ll create resentment and drain the belief out of any organization.
Where This Fits
Expectations define the target. Measurements make it visible. Training closes the gap. Tools remove the barriers. The environment makes it sustainable.
Law 6 asks whether your reward structure is channeling effort in the direction you need it to go.
The foundational work of Laws 1 and 2—clear expectations and visible measurements—must be in place first. If it isn’t, you end up with what S&K had: constantly changing challenges that reflect your own uncertainty about what matters most.
What Most Managers Get Wrong
They believe people should perform just because it’s their job.
They should be giving 110% anyway. I’m paying them enough already. Why would I pay extra for someone to just do their job?
If “that’s their job” is your philosophy, then you’ll find yourself with a team doing just enough not to get fired. People will show up, do the bare minimum, and go home. Every dollar of growth that could have moved your business forward will sit unclaimed.
They assume compensation is the only incentive.
Pay matters. But it’s not the only thing that motivates people. Sometimes it’s not even the most important thing. Additional time off. Recognition. Write your own schedule. Lunch with the boss. Premium parking. Choice of projects.
These are all incentives. Most managers squander these opportunities without ever considering what could be reinforced with non-monetary perks.
They believe they can’t afford it.
They only see a bonus structure as an additional cost. But a properly designed incentive plan doesn’t work that way. If nobody performs beyond the baseline, nobody earns extra. If they do perform, the payout comes from the increased value that growth generated.
You’re not adding an expense to your overhead. You’re sharing new profits with the people who helped create it.
They reward activity instead of outcomes.
When you consistently reward activity for its own sake, you train people to pretend, not produce.
If your incentive is tied to calls made, emails sent, or hours logged rather than results produced, you'll just get more empty work.
They confuse equal treatment with fair treatment.
Across-the-board raises. Team bonuses where everyone gets the same cut regardless of individual output. Blanket recognition that doesn’t distinguish who carried the weight.
When a top producer consistently carries extra weight and receives the same reward as the person doing the minimum, you’ve built an incentive to stop going above and beyond. That’s a crippling tax on both your business and your best people.
Law 6 Defined
The simplest truth in production management: you get what you reward.
“Show me the incentive and I’ll show you the outcome.”
• Charlie Munger, Vice Chairman of Berkshire Hathaway
Incentives are the signals your organization sends about what it values.
When incentives align, self-interest and organizational interest run in the same direction. People don’t need to be pushed toward the right behaviors The system makes the right behaviors the rational choice.
Aligning incentives means everything you reward should have a clear line back to your core drivers. When the system is right, you don’t have to manufacture motivation. People already want to do the things that drive results.
What It Looks Like
The jewelry retailer where I tripled a store’s revenue in three years built their incentive plan around five core drivers.
Top line sales volume was the anchor. Warranty and protection agreements drove additional revenue and were crucial to customer satisfaction and retention. Add-ons increased the average sale. Repair sales supported in-house jewelers which kept customers returning to the store rather than going somewhere else. Credit applications expanded buying power and drove higher-ticket purchases. Every one of those drivers had a clear line back to the same thing: top line sales.
They offered a small direct cash incentive for each extended service plan sold, because those were important enough to reward specifically and immediately. But the most significant bonus came from where the store landed in sales by the end of the month.
If the store didn’t beat the prior year’s volume, associates earned half a percent commission. Beat last year and the commission doubled to one percent. From there it tiered up until selling thirty percent over last year’s numbers was paying out three percent commission to everyone in the store.
I used a similar model when I took over my trucking agency.
The dispatchers had been running under a single incentive. They had to hit a monthly revenue volume to earn a half-percent bonus. The target was unreasonably high. They never got close to it and stopped trying after the first few months.
I threw that out and built something with two levels.
The first level was the big picture. I put a wall thermometer in the office and as we booked volume each month, we’d fill it up toward the target. Hit 10, 20, or 30% over last year’s volume and they received a bonus on their first paycheck after the end of the month. It was anywhere from $200 to $1,000 per person. I designed the bonus structure so the payouts came to roughly thirty percent of the additional profit we generated.
The second level was for every load they covered, they earned a small cash incentive of one to three dollars depending on the revenue the load generated. On average, each dispatcher was making an extra forty to sixty dollars every week in cash. Some weeks it was closer to a hundred.
The per-load incentive served a critical purpose. It made every load matter. Even in a slow month where the big goal became out of reach, a dispatcher who pushed hard each week could still walk away with something to show for it.
Word got around and I started getting calls from other agents asking what I was doing differently.
This Week’s Directive
Before you build anything, go talk to your people. Ask them to give you three to five things that would genuinely motivate them.
Of course you’ll hear money, but you’ll also hear things you hadn’t thought of. Some of these things may matter more to certain people than a dollar figure, and don’t cost you much, if anything, to provide. Let them tell you what they want. It’ll help you shape a better system and build buy-in before you’ve even launched it.
Now build the structure around your business metrics. Start with the primary business driver that most affects your profitability or bottom line.
Set the target. It needs to be a stretch, either above last year or tied to operational goals. That’s what separates it from an expense line item and turns it into a real driver of growth. But don’t get greedy about what “stretch” means. If it’s always out of reach, they’ll lose belief in the system and you’ll end up with a resentful team that’s less productive than if you’d offered nothing at all.
Then decide what you’re able to share. I don’t know where that is for you, but it’s usually between 10-50% of the revenue or profit upside generated above the target.
You’re solving for a few things at once:
It should be meaningful enough to motivate your people.
It needs to leave enough on your side to reinvest and grow.
It should allow you to compensate yourself fairly as well.
Keep these things in mind as you build the structure:
Build in line-of-sight at multiple levels.
Each person should see a direct connection between their daily effort and their reward. A single large goal with no intermediate rewards creates a plan most people mentally abandon by mid-month if they’re behind.
Balance individual and team components carefully.
A plan weighted too heavily toward individual performance creates a cutthroat environment. Weight it too heavily toward team performance and your top producers end up being dragged down by weaker colleagues. The goal is a structure where individual contribution is rewarded directly and team performance creates a multiplier so individual collective interests pull in the same direction.
Design the largest portion of payouts to come from growth.
This builds a plan that scales without eroding your margin.
Once the structure is set, make it visible. Keep it in front of them every day so they can see exactly where they stand.
Now build in a secondary layer. It should be a shorter-term, individual incentive that runs alongside the big goal.
Identify the core behaviors or individual actions that drive revenue or results, and reward people for hitting those marks regardless of the stretch goal. Create at least one of these shorter-term incentives. Design the reward to be meaningful and paid out frequently. Either daily, weekly, or at least every pay period.
One thing to watch: if the big goal is never getting hit, don’t ignore that signal. Either the target needs to be adjusted, or there’s a deeper problem with the business model.
What This Forges
When you offer incentives people genuinely care about, you stop having to push them from behind because you’re directing them toward something they already want.
That secondary layer of shorter-term individual incentives will keep a team pushing to the end instead of watching effort and attention drift off from discouragement in a down month.
Petty squabbles, territorial behaviors, and the frictions that drain energy out of a team start to ease when every individual’s reward is tied to how the group performs.
And motivation will be baked into your system. Not something you have to constantly manufacture through pressure, pep talks, or micromanagement.
Next up: Law 7. The system is built. The incentives are aligned. Next, we need to make sure people are getting the honest, direct feedback they need to keep improving and stay on the right track.
Phil • Killing Crucibles
Stop Torching Talent • Start Rewarding It
New here? Start with the introduction to the Nine Laws.
Next in the series: Law 7: Give Specific & Timely Feedback