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The late Charlie Munger has a well-known quote,

Show me the incentive and I will show you the outcome.

The flip of that is also true.

Show me the outcome and all know the incentive.

Humans are far simpler creatures than we like to believe we are.

We simply do what we are rewarded for.

Incentive drives all... do what we are rewarded for.

Incentive drives all human behavior.

And how this plays out, organizationally,

is think of the incentives as the compass guiding a ship. If the compass is misaligned, even slightly, the ship veers off course.

Over a long journey, that small air leads to being miles off target.

Incentives in life and business work just the same.

Misaligned incentives can lead you

to a destination far from where you intended to be.

Enron is a classic example of this. Enron employed over 20,000

employees and was a major electricity, natural gas, communications, and paper company

with claimed revenues of nearly $101 billion in 2000.

Fortune named Enron, America's most innovative company for six consecutive years.

To keep up with their Wall Street darling status, employees and executives' compensation structures

were heavily based on the profitability and stock performance, and they were rewarded with bonuses and stock options for

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