Generosity in Sharing, Wisdom in Allocating: Rewards Are Not Incentives

Willingness to share takes generosity; knowing how to allocate takes wisdom. First, we must clarify an important concept: an “incentive.” The emphasis in equity incentives is on motivating people. Their primary criterion is future value creation, not past contributions. If something is based on past contributions, it is a “reward,” not an “incentive.” The two must not be confused. Many companies that have introduced equity incentives classify employees by criteria such as current tenure and position: how many years someone has worked in a particular role and how many shares that person should receive. What happens? Distributing the shares may backfire, because this allocation method can leave everyone feeling unfairly treated. Anyone who has worked in an organization will recognize the thoughts: “I am the most capable person in this department,” “I have contributed the most to the company,” “Nobody has been here longer than I have.” Everyone believes they have contributed the most. Allocate shares this way, and nobody is satisfied or accepts the others’ claims. Instead of motivating people, it can intensify conflict within the business. That is not the worst of it. Worse still, employees who receive equity may think, “These shares were mine by right. You owed them to me when you withheld them before. Now that you have returned them, I have no reason to thank you.” That is hardly a good sign. From the founder’s perspective, it is often a double loss. Authority has been delegated, equity distributed, and benefits shared. Surely that should motivate people? Yet the internal climate has changed. Rules are the surface; human nature is the foundation. Willingness to share takes generosity; knowing how to allocate takes wisdom. A mistaken starting point determines a mistaken outcome. When equity incentives are designed using the logic of equity rewards, the moment that thinking emerges is often the turning point toward the company’s decline. This distinction must take root in founders’ minds: rewards are not incentives. Rewards recognize past contributions; incentives encourage future value creation. Focus on the future, share the benefits, and share the risks. The best plan is the one that fits. Rigidly copying someone else’s template will not work. A company must design an equity-incentive plan suited to its own development, establishing a mechanism that looks to the future, shares benefits, and shares risks. Only then can it fully realize the potential of its key people and get founders, senior managers, and frontline employees working together to expand the business’s “pie.” Nobody wants their company to remain mediocre and stand still forever. You should still have a dream—what if it comes true?