Get the incentives right and the world works for you. Get it wrong, and watch out.
One key to incentives is that they have to be certain or trustworthy. If an employee does x and a company promises y, the employee should be justly rewarded. When an employee does x and gets y-1 or 0, they will not be happy. Untrustworthy companies are not sustainable enterprises.
The Uber and OLA strike in India, along with other ride sharing apps across the world, are a perfect example of poor incentives.
In the beginning of this year, and the end of 2016, numerous strikes over reduced Uber and OLA driver earnings have occurred in India. Why? Because OLA and Uber are committing an incentive sin: creating uncertainty.
Initially lured by Rs 70,000 to Rs 1 lakh (USD$1,000-$1,500) a month in total pay, individuals signed up in droves. The individuals who entered the system were given Rs 500 a trip and promised a minimum guaranteed monthly rate. The incentives were significant; total earned commissions could be four times the total fares charged in early 2015. The taxi app companies got the significant potential payout right for drivers to start, but those rates, while nice for a short time, were unsustainable.
OLA and Uber have changed their fee structure to compete with each other. Subsequent fare cuts have driven driver commissions down significantly. The companies have made it tougher for drivers to earn incentives. Drivers who initially earned Rs 80,000 in early 2015 are now working more hours and earning half the wage.
This strategy is not uncommon with Uber in other areas. In March…. [Click to read more]