Charles Koch on the Role of Incentives

In his new book The Science of Success: How Market-Based Management Built the World's Largest Private Company, Charles Koch, the CEO of Koch Industries, Inc., opines on the role of and reasons to use incentive plans.

Proper incentives motivate people to work harder, be more creative, and create more value for others and, hence, themselves.

These are not, however, the only reasons for using incentives.  Even when well-intentioned and motivated people are eager to succeed, they still face the challenge of understanding where and how to focus their time and effort.  Successful entrepreneurs use the incentive of the market to determine the most productive course of action.  Likewise, employers should use incentives to guide employees toward areas where their attention and effort can create the most value.

I appreciate his point that incentives do not exist merely to motivate people who would not otherwise be inspired to do good work, but rather that incentives play an important role by signaling (in a powerful and economic way) the most important work priorities in order to provide guidance on how people should best focus their time and attention.