• Difficult to measure doesn’t mean “do not measure”.

• Organisations innovate to produce net value over the long term.

• Profit is an excess of value.

• Doing something valuable is wasteful if there something more valuable you could be doing instead.

• A business is a collection of value centers.

• A role is a set of responsibilities, authority, and rewards.

• Rewards should be designed so that the motivation of the individual harmonises with the goals of the organisation.

• An employee’s marginal contribution determines their rewards.


the metagoal

The metagoal is the reason for an organisation’s existence. The only valid measurement for metagoals is the generation of value. An organization should develop capabilities that best serve the metagoal.

The metagoal should be based on creating more value through an accurate assessment of the organisation’s capabilities. Goals are the result of investigating which opportunities produce the most value.

The metagoal is the motivation behind all organisational action and inaction.


innovation protection

As time passes, innovations become less valuable. To decrease this deterioration of value organisations can:

• develop customer relationships,

• maintain brand integrity,

• build complex distribution channels,

• negotiate favourable contracts with suppliers and customers,

• develop novel novel applications,

• maintain an aggressive intellectual property strategy,

• aggressively protect corporate secrets, and

• improve the quality-cost ratio at an increasing rate.


All businesses must innovate and innovation is a systems-based rather than goal-based approach to finding the unexpectedly valuable.


organisational intelligence

Organisational intelligence guides resources to incrementally higher values producing more value for customers with lower required resources for the producer. To thrive in shifting, complex environments, an organization must properly utilise the dispersed intelligence of employees.

Team members must be encouraged to find new ways to create value by innovating all areas of organisational function. Knowing why something is profitable is more useful in the long term than knowing that it is profitable. Each organization must develop tools to measure and understand value drivers.


value centers



Businesses are a collection of value centers that must be continually assessed and optimised. Value centers must apply organisational intelligence to build a fundamental perspective that is based on evidence and open to criticism. This will allow them to calculate which actions are most likely to generate the greatest amount of value over the longest time horizons.

Team members should be clear about the perspective they are using and avoid unnecessarily complex mental models.


activity profits

Profit is an excess of value.


Activity profit for the seller = price – cost of transaction.

Activity profits for a buyer = value – price.


Price is what divides each transactional pie.

Waste increases transaction costs to the seller and reduces value to the buyer.

The best way to limit waste long-term is through maintaining a cost advantage  while delivering more value. Organisations must constantly innovate to generate valued competitive differences.


waste analysis

Waste analysis weighs the costs and benefits of a change by investigating whether something is worth doing, how well it is being done and whether profitable alternatives exist. This is done by estimating the additional value an investment would provide and the additional total cost of the investment.

Waste analysis answers the question: would more growth here be a waste?

Doing something valuable is wasteful if there something more valuable you could be doing instead. Opportunities and alternatives must be constantly investigated. Everything has an alternative use and so we should seek out the highest value alternative for each resource and capability.

A common management mistake is using fixed budgets to control costs. This encourages leaders to reject profitable opportunities that would exceed their budgets. Another mistake is the across-the-board cuts in budgets or people which indiscriminately removes profitable expenditures and people along with the unprofitable, thus reducing overall profitability.


responsibility, authority and reward (RAR)

The RAR of an employee defines their responsibilities, delimits authority, and structures rewards. Responsibilities are the set of expectations that are attached to a given role.

In delegated action there is no transfer of responsibility. A new RAR agreement is created between the leader and the delegate and does not alter the leader’s original RAR agreement in any way.


RAR agreement

A RAR agreement emerges from an ongoing dialogue between leaders, team members and other relevant parties.

It is the responsibility of each individual to ensure their RARs are up-to-date, accurate and aligned with the metagoal. Team members and leaders are responsible for ensuring that the RARs focus the team on maximising its contribution towards the metagoal.


responsibility expectations

Each role is a bundle of responsibilities. Responsibility expectations are written statement specifying the results required from an employee if the organization is to achieve its goals.


• clear, specific and measurable,

• focus on outcomes instead of specific activities,

• open-ended to expand each individual’s vision of what could be contributed towards each activity,

• make priorities and expectations clear.



Authority represents one’s freedom to act independently in the execution of a role. Limits should be set, but authority represents total freedom of action within those agreed limits.

Authority is based on responsibility which in turn is determined by track record. Proximity to a problem does not determine the decision-maker. Neither fully centralised nor fully decentralised authority is functional at scale. A hierarchical approach means decisions are the responsibility of those with the best information.



Rewards should be designed so that the motivation of the individual harmonises with the goals of the organization. Team members should be rewarded for creating extra value. This reward philosophy attracts and retains motivated, responsible entrepreneurs.

Rewards should work with the neuropsychology of the team to help them more accurately determine the most productive choice. Leaders should use rewards to guide the efforts of team members where they can produce the most value. The ideal reward for team member is whatever motivates them to maximise organisational value.

Value creation and value loss should be rewarded or penalised based on evidence. This encourages employees to include opportunity cost in their decision-making calculations. The value of missed opportunities should be estimated to eliminate the incentive to avoid riskier opportunities that are in the organisation’s best interest.

For instance without the proper incentives an employee may prefer to pursue a €200,000 opportunity with a 90% probability versus a €2,000,000 opportunity with a 50% chance.

There should be no upper limit on rewards so that people do not limit their value production.

The purpose of rewards is to motivate action that contributes to the metagoal. This means the marginal contribution of team members performing similar roles will vary greatly, as should their rewards.


marginal contribution

An employee’s marginal contribution should determine their rewards. Marginal contribution can be assigned to a specific employee. It is calculated as the value produced by the employee minus the opportunity costs associated with the employee.

The best evidence possible should be gathered relating to both negative and positive contributions. Calculation should include uncompensated contributions from prior periods because both positive and negative effects carry over into the future.


incentive compensation

The salary is an upfront payment for the for future value. If an employee adds more value than is reflected in the original salary, they should share in that extra value. One organisational goal is to retain and motivate those that generate the most value. Even the most profitable team members can become more profitable with the proper rewards.



  1. Ahearne, Michael, Son K. Lam, and Florian Kraus. “Performance impact of middle managers’ adaptive strategy implementation: The role of social capital.” Strategic Management Journal 35.1 (2014): 68-87.
  2. Armstrong, Chris, Stephen Glaeser, and Sterling Huang. “Corporate Hedging and the Design of Incentive-Compensation Contracts.” (2017).
  3. Armstrong, Michael, and Tina Stephens. A handbook of employee reward management and practice. Kogan Page Publishers, 2005.
  4. Armstrong, Michael. Employee reward. CIPD Publishing, 2002.
  5. Baker, George P., Michael C. Jensen, and Kevin J. Murphy. “Compensation and incentives: Practice vs. theory.” The journal of Finance 43.3 (1988): 593-616.
  6. Banker, Rajiv D., et al. “An empirical examination of the impacts from termination of a performance-based incentive plan.” (2015).
  7. Baranchuk, Nina, Robert Kieschnick, and Rabih Moussawi. “Motivating innovation in newly public firms.” Journal of Financial Economics 111.3 (2014): 578-588.
  8. Baumol, William J. “Education for innovation: Entrepreneurial breakthroughs versus corporate incremental improvements.” Innovation policy and the economy 5 (2005): 33-56.
  9. Beck, Tammy E., and Donde Ashmos Plowman. “Experiencing rare and unusual events richly: The role of middle managers in animating and guiding organizational interpretation.” Organization science 20.5 (2009): 909-924.
  10. Bettis, J. Carr, et al. “Performance-vesting provisions in executive compensation.” (2016).
  11. Bishop, John. “The recognition and reward of employee performance.” Journal of Labor Economics 5.4, Part 2 (1987): S36-S56.
  12. Castelfranchi, Cristiano, et al. “Deliberative normative agents: Principles and architecture.” International Workshop on Agent Theories, Architectures, and Languages. Springer, Berlin, Heidelberg, 1999.
  13. Chen, Yasheng, and Johnny Jermias. “Business strategy, executive compensation and firm performance.” Accounting & Finance 54.1 (2014): 113-134.
  14. Choi, Jongwoon Willie, Gary W. Hecht, and William B. Tayler. “Strategy selection, surrogation, and strategic performance measurement systems.” Journal of Accounting Research 51.1 (2013): 105-133.
  15. Chong, Vincent K., and Ian RC Eggleton. “The impact of reliance on incentive-based compensation schemes, information asymmetry and organisational commitment on managerial performance.” Management Accounting Research 18.3 (2007): 312-342.
  16. Chong, Vincent K., et al. “The effect of a budget-based incentive compensation scheme on job performance: The mediating role of trust-in-supervisor and organizational commitment.” Journal of Accounting & Organizational Change 12.4 (2016): 590-613.
  17. Chrisman, James J., Srikant Devaraj, and Pankaj C. Patel. “The impact of incentive compensation on labor productivity in family and nonfamily firms.” Family Business Review 30.2 (2017): 119-136.
  18. Cohen-Charash, Yochi, and Paul E. Spector. “The role of justice in organizations: A meta-analysis.” Organizational behavior and human decision processes 86.2 (2001): 278-321.
  19. Combs, James, et al. “How much do high‐performance work practices matter? A meta‐analysis of their effects on organizational performance.” Personnel psychology 59.3 (2006): 501-528.
  20. Condly, Steven J., Richard E. Clark, and Harold D. Stolovitch. “The Effects of Incentives on Workplace Performance: A Meta‐analytic Review of Research Studies 1.” Performance Improvement Quarterly 16.3 (2003): 46-63.
  21. Crook, T. Russell, et al. “Strategic resources and performance: a meta‐analysis.” Strategic management journal 29.11 (2008): 1141-1154.
  22. Dutta, Sunil, and Qintao Fan. “Equilibrium earnings management and managerial compensation in a multiperiod agency setting.” Review of Accounting Studies 19.3 (2014): 1047-1077.
  23. Eccles, Robert G., and Philip J. Pyburn. “Creating a comprehensive system to measure performance.” Strategic Finance 74.4 (1992): 41.
  24. Eccles, Robert G., and Harrison C. White. “Price and authority in inter-profit center transactions.” American journal of Sociology 94 (1988): S17-S51.
  25. Faigle, Ulrich, and Walter Kern. “The Shapley value for cooperative games under precedence constraints.” International Journal of Game Theory 21.3 (1992): 249-266.
  26. Fatseas, Victor A., and Mark K. Hirst. “Incentive effects of assigned goals and compensation schemes on budgetary performance.” Accounting and Business Research 22.88 (1992): 347-355.
  27. Finkelstein, Amy, Erzo FP Luttmer, and Matthew J. Notowidigdo. “What good is wealth without health? The effect of health on the marginal utility of consumption.” Journal of the European Economic Association 11.suppl_1 (2013): 221-258.
  28. Fisher, Joseph, and Vijay Govindarajan. “Profit center manager compensation: An examination of market, political and human capital factors.” Strategic Management Journal 13.3 (1992): 205-217.
  29. Gupta, Nina, and Jason D. Shaw. “Employee compensation: The neglected area of HRM research.” Human Resource Management Review 24.1 (2014): 1-4.
  30. Gupta, Nina, and Jason D. Shaw. “Let the evidence speak: financial incentives are effective!!.” Compensation & Benefits Review 30.2 (1998): 26-32.
  31. Hornsby, Jeffrey S., Donald F. Kuratko, and Shaker A. Zahra. “Middle managers’ perception of the internal environment for corporate entrepreneurship: assessing a measurement scale.” Journal of business Venturing 17.3 (2002): 253-273.
  32. Huang, Chiungjung. “Achievement goals and achievement emotions: A meta-analysis.” Educational Psychology Review 23.3 (2011): 359.
  33. Ittner, Christopher D., and David F. Larcker. “Coming up short on nonfinancial performance measurement.” Harvard business review 81.11 (2003): 88-95.
  34. Jiménez, Fernando R., Richard A. Posthuma, and Michael A. Campion. “Effective incentive compensation for sales employees during tough economic times.” Organizational Dynamics 42.4 (2013): 267-273.
  35. Kauder, Emil. History of marginal utility theory. Princeton University Press, 2015.
  36. Kirman, Alan, et al. “Marginal contribution, reciprocity and equity in segregated groups: Bounded rationality and self-organization in social networks.” Journal of Economic Dynamics and Control 31.6 (2007): 2085-2107.
  37. Kohn, Alfie. “Why Incentive Plans Connot Work.” Harvard business review 71.5 (1993): 54-62.
  38. Layard, Richard, Guy Mayraz, and Stephen Nickell. “The marginal utility of income.” Journal of Public Economics 92.8 (2008): 1846-1857.
  39. Ieong, Samuel, and Yoav Shoham. “Marginal contribution nets: a compact representation scheme for coalitional games.” Proceedings of the 6th ACM conference on Electronic commerce. ACM, 2005.
  40. London, Calvin, and Kim Higgot. “An employee reward and recognition process.” The TQM Magazine 9.5 (1997): 328-335.
  41. Luthans, Fred, and Alexander D. Stajkovic. “Reinforce for performance: The need to go beyond pay and even rewards.” The academy of management executive 13.2 (1999): 49-57.
  42. Luthans, Kyle. “Recognition: A powerful, but often overlooked, leadership tool to improve employee performance.” Journal of Leadership Studies 7.1 (2000): 31-39.
  43. Marchington, Mick, Adrian Wilkinson, and Malcolm Sargeant. Core personnel and development. Chartered Institute of Personnel and Development, 2000.
  44. Mason, Winter, and Duncan J. Watts. “Financial incentives and the performance of crowds.” ACM SigKDD Explorations Newsletter 11.2 (2010): 100-108.
  45. Massingham, Peter Rex, and Leona Tam. “The relationship between human capital, value creation and employee reward.” Journal of intellectual capital 16.2 (2015): 390-418.
  46. McKnight, Babs, Sharon McDaniel, and Vivian Ehmann. “Try point incentives for employee reward and recognition.” Nursing management 37.12 (2006): 42-45.
  47. Merchant, Kenneth A., Chee W. Chow, and Anne Wu. “Measurement, evaluation and reward of profit center managers: a cross-cultural field study.” Accounting, Organizations and Society 20.7-8 (1995): 619-638.
  48. Milas, Gene H. “How to develop a meaningful employee recognition program.” Quality progress 28.5 (1995): 139.
  49. Nalebuff, Barry J., and Joseph E. Stiglitz. “Prizes and incentives: towards a general theory of compensation and competition.” The Bell Journal of Economics (1983): 21-43.
  50. Ng, Thomas WH, Kelly L. Sorensen, and Lillian T. Eby. “Locus of control at work: a meta‐analysis.” Journal of organizational Behavior 27.8 (2006): 1057-1087.
  51. Osterloh, Margit, and Bruno S. Frey. “Motivation, knowledge transfer, and organizational forms.” Organization science 11.5 (2000): 538-550.
  52. Otto, Clemens A. “CEO optimism and incentive compensation.” Journal of Financial Economics 114.2 (2014): 366-404.
  53. Ou, Amy Y., et al. “When can humble top executives retain middle managers? The moderating role of top management team faultlines.” Academy of Management Journal (2016): amj-2015.
  54. Pérez-Castrillo, David, and David Wettstein. “Bidding for the surplus: a non-cooperative approach to the Shapley value.” Journal of Economic Theory 100.2 (2001): 274-294.
  55. Pine, Alex, et al. “Encoding of marginal utility across time in the human brain.” Journal of Neuroscience 29.30 (2009): 9575-9581.
  56. Rawsthorne, Laird J., and Andrew J. Elliot. “Achievement goals and intrinsic motivation: A meta-analytic review.” Personality and Social Psychology Review 3.4 (1999): 326-344.
  57. Reese, Chadwick, and Debra Hunter. “What about the Middle Man? The Impact of Middle Level Managers on Organizational Learning.” Journal of Management 4.1 (2016): 17-25.
  58. Shapley, Lloyd S. “A value for n-person games.” The Shapley value (1988): 31-40.
  59. Shepherd, Dean A., and Dawn R. DeTienne. “Prior knowledge, potential financial reward, and opportunity identification.” Entrepreneurship theory and practice 29.1 (2005): 91-112.
  60. Shetty, Rohan, Jayakrishnan Radhakrishnan, and John Michael Docherty. “Predicting incentive compensation for opportunities in sales performance management systems.” U.S. Patent Application No. 14/160,558.
  61. Shields, John, et al. Managing Employee Performance & Reward: Concepts, Practices, Strategies. Cambridge University Press, 2015.
  62. Sung, Sun Young, Jin Nam Choi, and Sung‐Choon Kang. “Incentive pay and firm performance: moderating roles of procedural justice climate and environmental turbulence.” Human Resource Management 56.2 (2017): 287-305.
  63. Trigeorgis, Lenos. Real options: Managerial flexibility and strategy in resource allocation. MIT press, 1996.
  64. Urı́a, M. Victoria Rodrı́guez, et al. “Meta-goal programming.” European Journal of Operational Research 136.2 (2002): 422-429.
  65. Wang, Ruifang, Patrick T. Gibbons, and Ciaran Heavey. “Investigating middle managers’ ambidexterity: a people-situation interaction approach.” Academy of Management Proceedings. Vol. 2014. No. 1. Academy of Management, 2014.
  66. Winter, Eyal. “The shapley value.” Handbook of game theory with economic applications 3 (2002): 2025-2054.
  67. Witherspoon, Candace L., et al. “Antecedents of organizational knowledge sharing: a meta-analysis and critique.” Journal of Knowledge Management 17.2 (2013): 250-277.
  68. Zahra, Shaker A., Anders P. Nielsen, and William C. Bogner. “Corporate entrepreneurship, knowledge, and competence development.” Entrepreneurship: Theory and Practice 23.3 (1999): 169-169.