Aligning Interests


When my wife and I sold our previous home, I made a somewhat unusual offer to my Real Estate agent.


This agent guaranteed a minimum sale price for our home, and we had agreed on the number before any paperwork was signed.


But once the official deal was done, I made an additional, handshake-deal with the agent.


"You've guaranteed that you will sell our house for $X. But... if you're able to sell it for at least $10,000 more, I'll write you a $1,500 bonus cheque on top of your commission. I'll make the cheque out to you personally, and you can do whatever you want with the money." Then I extended my hand and said, "Deal?"


The agent's eyes lit up. He smiled, extended his hand to meet mine, and said, "Absolutely. Wow... you get it."


I freely admit I don't know much about selling houses. But I'm a marketer, and it's my job to understand human motivation.


I also understand basic math. If an agent sells a house for $500,000 and gets a 2% commission, that's $10,000 for the agent. If the agent sells that same house for $510,000 at the same commission, that's $10,200.


An extra $10,000 in my pocket is a material amount, but an extra $200 in commission isn't enough incentive for the agent to work significantly harder to get me that extra money. For the agent, it's far easier -- and more efficient, and more financially beneficial -- to accept whatever offer comes in at the minimum guaranteed amount and quickly move on to the next sale.


My bonus offer served to align our interests: the agent was now motivated to benefit us both.


Ensuring your interests are aligned with those with whom you do business is absolutely critical.


This is certainly true in marketing: consumers generally understand that companies do well when their products and services are purchased, but there's a very good reason companies focus their marketing efforts on explaining how those products and services can improve the lives of consumers. It has to be a win-win.


Ensuring your interests are aligned is also critical when dealing with your employer, or in the case of you owning a company, your employees.


When you own your own company, aligning your interests is fairly straightforward: if you work harder, your company has a greater chance of success, and you personally benefit from that effort.


When you're an employee, your motivation to work hard is your base pay, because if you don't achieve a minimum acceptable output, you won't have a job for very long. But what's your motivation to work harder?


An annual bonus? Perhaps, but only if it's structured fairly. I've worked at companies where my bonus was "up to X%" of my salary. Then, after a stellar year where I significantly overachieved all of my annual objectives, I earned significantly less than X... because the bonus pool was shared among all employees, and it wasn't funded sufficiently to allow all over-achievers to earn their maximum payouts.


Company shares or stock options? When you're very senior within an organization, shares and options could serve to align your interests, because you personally benefit when your efforts lead to a higher share price. (Of course, I need to use the word "could" here to account for all the instances where senior leaders make poor company decisions that increase the share-price in the short-term -- and thus personally benefit them financially -- at the expense of long-term success. But for lower-level employees whose work can't directly impact the price of company shares, long-term incentives (like shares and options) often don't represent an alignment of interests.


In fact, "total compensation" is table-stakes when it comes to truly aligning employer / employee interests: you need to pay your people fairly based on the jobs they perform, and ideally at a level where they can't be easily poached by a competitor offering slightly more.


But a fair compensation system will only get you so far.


A company that clearly and publicly articulates its values -- and then consistently lives up to them -- will attract like-minded employees who are aligned with the company's success. A company that offers significant development and advancement opportunities will attract people who value growth, and will thus work towards growing the organization in order to achieve their personal development goals. A company that offers significant freedom and accountability will attract people who enjoy being largely responsible for the success and failure of their initiatives. (That's really what No Rules Rules is about, which I wrote about earlier this week.) And a company that treats employees with dignity, value, and respect will earn the same in return.


You might think the Agent was entirely motivated by the chance to earn an incremental $1,500, but that was only part of it.


It was very clear to me the Agent was delighted I had recognized the value in the services he was providing, and that it would be difficult for him to significantly over-achieve his target. It was also clear that this Agent liked the idea of being challenged, and loved the idea of "winning" the reward if he succeeded.


Money is great, but when it comes to aligning interests, it's usually not enough.


- dp


P.S. If you're wondering, the offer absolutely worked: despite believing that the minimum price our agent guaranteed was very fair and reasonable, our home sold for an additional $20,000. The extra hustle demonstrated by our agent was apparent throughout the process, and I was happy to write that check... because even after the bonus cheque and the commission, my wife and I came out more than $18,000 ahead.


P.P.S. Speaking of interests that aren't aligned, my wife and I watched "The Social Dilemma" on Netflix Wednesday evening. To be honest, nothing in the documentary surprised me... but I'm a marketer who understands persuasion techniques, a former Googler who understands technology, and a technology user who already knows I'm addicted to my devices. My newsletter on Monday will touch on the key themes in the documentary, and if you have time to watch it this weekend, I think it's worth the 100 minutes of your time.


***

ADDENDUM: When I initially published this post on LinkedIn, I had several people comment that my "side deal" was highly unethical because the Real Estate Agent accepting it violated the Real Estate Brokers Code of Conduct. I freely admit I didn't know this at the time I offered my agent the deal. But I don't think that takes anything away from the broader "aligning interests" message of my post. In fact, I think it highlights the need for the Real Estate industry to evolve so that the interests of Sellers and Agents are always fully aligned; as per my example, that's clearly not always the case today.