What should a Compensation Reward for?

In today’s world given the premise that “People respond to incentives”, we in our personal and professional roles are goaled to achieve desired outcomes- of course, it has to do only with ‘Gain’ as a desired outcome. For instance, we want our kids to attain 99.99% in exams. We want our management team at office to focus only on “Outcomes”.

But then this is all so good under another premise “All humans are rationale in their decisions at all times.” Without overstating, this fact was ‘never’ true ever since it was premised in all of the key economic theories.

If a doctor performs an operation and the patient survives, this is weighted higher than if the patient dies. Extending the logic further, is doctor’s decision to follow a particular operation procedure driven by his past experience or based on the medical records presented to him?

It can safely be argued that any of the approach followed – experience or existing medical records- the outcome is unknown. This means the factor of ‘luck’ on whether the patient survives or dies is significant enough to ignore. So if a compensation structure premised purely on the ‘outcome’ of the patient surviving then the probability of Doctor earning a reward is 50%.

If the Doctor is assumed to be the rare individual who is ‘rational’ all the time, he will stick to the same process that is most appropriate whether this rewards him or not. If this is true,on the contrary, the probability of success is equally higher when a bad processes is followed. Hence, a compensation structure should also factor in a process of effective risk management. For e.g. an inappropriate compensation structure will not help reduce dependence on a single large customer.

Given the intricacies involved in fixing an appropriate compensation structure a due consideration to:

a. Absolute wealth of an employee- He is prone to take more risks since personally he has limited risks for failed outcomes.

b. Compensation relative to an average employee- It should be only to ‘differentiate’ optimally. It cannot be 200% more than what an average employee is currently earning. If this is the case then it points to the notion that shareholders believe in Super Hero who is in limited supply in industry.

My Father!

My father was operated for cataract in one of his eyes. He was on a follow-up visit at the hospital when the Doctor says, “You are not 40 years old. You are 60 today. Your eye is perfect.” Doctor’s assistant says, “He is 30 actually. I have known him for decades and he is one of fittest at his age.”

My father was narrating this to me over phone and he was satisfied with feedback from the 2nd Doctor whose opinion was to go ahead and get operated for the 2nd eye as well from the same Doctor.

My father was at his best when he decided to shift me to Indore under the watchful eyes of his friend despite my refusal. He was at his best to continue to transfer me enough money to meet my love back in Chandigarh from Indore without letting him know. Its 1400 km away and a 1 day journey.

He was at his best when he decided to counter his father’s comment, “You earn too less to afford the education of your kids in an English medium school.” This was way back in 1980s in a small industrial town – Jamshedpur.

He was at his best when he said, “It will be better kids if you atleast remember to dust the books lying idle and waiting for you both (my younger sister and me) to turn their pages to atleast browse over wisdom spread in black letters.”

He was at his best when he agreed to my argument to let my sister move to Patiala for higher studies while he was hesitant to let his only girl child alone in a remote city. He was at his best when he managed to get a TV for first time at home despite his father disapproving of it.

He was at his best when within minutes of receiving a call from his mother from village in Punjab, “Your father fell in bathroom. He is not in hospital but very depressed.” I was incidentally visiting Jamshedpur from Chandigarh and we both were in train to Punjab within hours. He was at his best when he decide to de-board the same train at Jalandhar station since the same train was getting delayed further due to some disruption ahead. He was at his best when after traveling in a bus to Pathankot and then to Gurdaspur decided to walk the 8 km distance to the Tibber – my village where my grandparents were staying.

He was at his best when we cried for his only daughter when she was departing to her new home after the marriage. He cried, “Please do excuse her for any mistake(s).” He made me cry as well. He continues to be at his best when he does not mind to wash dishes in kitchen and sweep the house while my mother with her back problem keeps talking to him and prepares breakfast.

My father is at his best when he with his wife cares for my grandmother (their mother as well) who is almost 100 years old. They care and attend to her with no delay. My grandmother narrates to me the effort my parents make towards her. She cribs why is she living so long but then she also wants to be present when my daughters to get married.

My father walks, cycles and is agile to take stairs to his house on 7th floor. He says, “Atleast once in a day I have to be using stairs.”

I want to be like my father. I want him with me forever…till I live on this earth. Amen!

Getting better and better

We may keep getting comfortable at things we do with passage of time. But to be good we may have to keep putting more effort and thought. ‘Comfort’ here also means getting accustomed with symptoms of helplessness.

The reason for being so philosophical is that despite this realization, I have got into similar situations multiple times but my approach to handle the situation has not changed. I introspect and one thing that struck me last time was that I did not think about the situation – What is it?; Why am I facing it? ; What should not be done? I was just happy that it went by and hoped I never faced it again.

Two important traits are very important to keep getting ‘Good’ are: Forgetfulness and Being unemotional. Forgetfulness helps us unlearn and hence we try finding an alternative approach. Devoid of emotions frees our mind of biases, ego and hence limits the focus on facts and not on perceptions.

May be I keep getting better.