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In order for someone to experience loss aversion, they must first value the thing they may lose. A Jeopardy player loses control of the board when they get an answer wrong. They may also lose part of their “bank” if they bet on a “Daily Double” question and answer incorrectly.
Recognition programs can seem like small potatoes when compared to base pay, incentive plans and other elements of compensation. We often forget them while we focus on the “big stuff.” But the strongest performing companies know the secret power of recognition.
This all seems extreme to most of you, but I assure you that there are many brilliant business people whose ideas and futures have trickled away similarly. When a business fails, it is liquidated or simple stops operating.
I like envisioning pay transparency using the idea of windows. There is a great reason we created windows many ages ago. They let light in. They allow us to look out. They can be designed to let in the fresh air, and they can provide coverage for those things not meant for the eyes of others.
Companies love equity compensation. We often use it without understanding its cost. We also use it without understanding its tangential impact. As it turns out, there has been a ton of research over the past 20 years, much of it invisible to most compensation professionals.
This is why emotional ownership is where you should start. You don’t need a new compensation plan to create the spark of ownership (although it’s a good idea.) You don’t need people to understand the mechanics of their plan for the plan to have a impact (although it certainly helps.)