How can we give the right incentives?
Bengt Holmström has a beautiful, sunlit office at MIT’s newly refurbished Economics Department. The view is stunning: blue sky and sailboats on Boston’s Charles River. "I was most productive when I didn’t have a window overlooking the river," the professor begins. "I had no window at all, I sat in a small office and there wasn’t much else to do other than work."
The Nobel laureate points out how every working relationship, in the end, is about the right balance of constraints and incentives. Whether you’re just starting out or are the rising star at executive level, your employer wants you to act in the company’s best interest. But how can they enforce that? A wonderful view, for example, may cause distraction. "You must be under some pressure to deliver," Holmström explains. But, he adds with a smile, a window isn’t the crucial factor. Other things may be, and they’re part of good contract design that aligns all parties’ interests.
Why money isn’t the most important thing
You think money’s a driver; people like money. But it turns out it isn’t the only driver by far. You worry about how you’re perceived as an employee. Partly because you know that it’s going to affect your career. But there’s also another component, we want to be liked or appreciated.