The idea of aligned incentives is kind of a holy grail. The goal is always the same: to align the interests of managers and employees with the owners of the business.
We pay commissions to salespeople because we want them to get energized about selling things. We use profit-sharing and stock options to get people excited about increasing the value of the business. We try to align executive pay with incentives like earnings growth, revenue growth or stock prices.
But too often these attempts fail to get people to think and act like owners. Why?