Incentives

This is a less serious video this week.

It’s about incentives.

I tell a story about a friend who has a $75,000 a year meal & entertainment budget, but the negative incentives put upon him by his accounting department have some unintended consequences.

In evaluating an investment, public or private, be sure you think about the managers, organizers, and CEOs to ensure their goals are aligned with yours and with the right supportive incentives.

Take 2.5 minutes to watch/listen to my video

 

TRANSCRIPT:

Hi Clients and Friends, Mike Brady here. I just got done with the detailed video of “Vix” (Volatility Indexes) from last week, and if you haven’t seen it, go ahead and click on my archives and watch last week’s video, kind of a more technical, showing more graphs on Vix, which is volatility indexes.

I just have a funny story that I wanted to share, I just wanted to share it with you because I think it is funny. It’s about incentives. I’ve got a buddy who is a salesman for a company and we go out for a beer. And he has two beers and I have two beers over a couple of hours and ready to pay the bill and he’s like “no Mike, let me take the bill.” And I’m like, “Oh, OK.” He’s like, “Mike order some food, take it home for your wife!” I’m like, “I’m not going to take any food home for…, you know, I don’t need to take advantage of you like that.”

He’s like “No, no, no Mike, you don’t understand. I have a $75,000.00, a year meal and entertainment budget. And if I submit this bill with our beers on there without food, I’m not going to get reimbursed.” I’m like, “OK.” He’s like, “…so order food for yourself, order food for your wife because if you don’t do it, I’m going to have to order, I’m going to have to pick a table here and buy the people food.” I’m like, “OK, wow, I can’t believe that.” I order some food.

And he’s like, “yeah.” He goes “Next they’re going to start looking at the ratio of food to alcohol to insure that it is the right ratio.” And I’m like, “wow, that seems extreme.” He’s like “and Mike, if I don’t spend the entire $75,000.00, a year, they’re going to take it off my, the difference between what I spend and what I have to spend, they’re going to take it out of my bonus.” He goes, “so here I am, all I want to do is spend $10 or $12 on a few beers with a buddy, and instead I’m forced to spend $30, $40, $50 just so I can get reimbursed!” He goes, “What kind of an incentive is that?”

And so, I think that is a really interesting, disturbing, but interesting story about making sure you have the right incentives. And from an investment point of view, of course, it is make sure that the people who are either proposing a project, or working in the project, or managing the project, whatever it might be, the investment, whether it is private investment or public investment, doesn’t matter, make sure that their incentives are aligned with the positive outcome that you want- both for the project and, of course, for your particular investment.

Anyway, I was just thinking about that and wanted to share it with you. And so that’s this week’s video. You have a wonderful week.

I’m a registered representative with Cambridge Investment Research. My company is Generosity, let’s see if I can get out here, Generosity Wealth Management in Boulder, CO. 303.747.6455. A little bit lighter video for this week but I’ll try to get something more technical next week. You have a wonderful, wonderful time, bye bye.

Generosity Wealth Management in Boulder, CO

 



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