Economics of Tokenized Incentives 2: Selecting Effective Performance Metrics

Other incentive mechanisms, such as long-term relationships and reputation systems, are better at aligning the goals of payers and payees in Public Relations and similar contexts, even though they are less objective or precise.

-It should be well aligned with the goals or overall long-run value of the payer. This ensures that the actions participants take are beneficial.

-It should be well aligned with activities or behaviors that are under the control of individual payee. This ensures participants are motivated to act.

The two essential criteria for an effective performance metric are:

Poorly chosen performance metrics abound. Even top companies with a plethora of resources are not immune to them. Wells Fargo famously instituted a system in which branch employees were rewarded for the number of new accounts they opened. This system was so successful in motivating the creation of accounts that employees felt compelled to open frau... See more