Misaligned Incentives and How to Fix Them

How we’ve gotten them wrong. What we can do to get them right.

In Antifragile, Nassim Nicholas Taleb writes about a class of people he dubs “fragilistas” — those whose default response to any challenge is to intervene.

One such example of a fragilista is a doctor who prescribes medication for high blood pressure instead of working with the patient to eliminate unhealthy behaviors. Taleb’s argument is that this bent towards positive action (positive in the sense that you’re adding something to the system) leads to fragility and unintended negative consequences further down. Taleb’s suggestion is to focus on the elimination of the unnecessary first and to only add additional complexity to the system in cases that call for it.

The way I see it, coaches and doctors are similar. At their core, both 1) work with people 2) who have a series of problems, and 3) are trying to get better.

But, it’s not as pure as that. As with anything in life, there are incentive and disincentive structures that encourage actions to happen. Just as an understanding of the constraints-led approach is necessary for coaches who want to maximize their athletes’ potential, identifying and understanding the underlying incentive structures is a vital skill if you want to do more meaningful work and gain any sense of personal leverage in your coaching career.

Incentive Structures Rule Everything Around Me

You can’t talk incentives without talking about Charlie Munger.

If you’ve never heard of Munger, it’s about time you did. He’s Warren Buffett’s business partner at Berkshire Hathaway and has a net worth of a cool $1.9 billion (with a B).

He’s well-known for being pithy, wise, and for popularizing the mental model approach to learning (later popularized by blogs like Farnam Street). And through all of his experiences, Munger has become an incentive fanatic. He says:

“Never, ever, think about something else when you should be thinking about the power of incentives.”

And similarly,

“Show me the incentive and I will show you the outcome.”

Now, that’s all fine and dandy. A billionaire telling us incentives are important. Whoop-dee-doo.

But Munger doesn’t stop at pithy quips. In a talk titled “The Psychology of Human Misjudgment“, he tells the story of FedEx’s effort to fix a seemingly-unsolvable problem.

One of my favorite cases about the power of incentives is the Federal Express case. The heart and soul of the integrity of the system is that all the packages have to be shifted rapidly in one central location each night. And the system has no integrity if the whole shift can’t be done fast. And Federal Express had one hell of a time getting the thing to work. And they tried moral suasion, they tried everything in the world, and finally, somebody got the happy thought that they were paying the night shift by the hour and that maybe if they paid them by the shift, the system would work better. And lo and behold, that solution worked.

When I hear that story, there’s one thing that jumps out to me above everything else: to get the incentives aligned, they had to be willing to break convention.

Keep that in your mind. That’ll be important.

Incentive Structures in Coaching

Wade Gilbert, author of Coaching Better Every Season, has found that good coaches talk less than their less-skilled counterparts — 50% less.

While Gilbert has the data to back it up, it holds true anecdotally as well. When I think back on my playing career with the gift of hindsight, the best coaches I had were the ones who spoke less often and only intervened when it needed to happen.

In a world driven by incentives, it makes sense that we’d want to build environments that coaches are encouraged to talk less, not more, right? That seems logical and like a good idea.

But unfortunately, the way most coaching incentive structures are set up does not allow for this.

To understand this, let’s look at a well-known coaching ground: the private lesson.

In the lesson environment, the athlete (or more often, the athlete’s parent) pays for a block of the coach’s time. The coach, being a good person who wants his “customer” to get the value they’re paying for, adopts the behavior of a fragilista. After every rep (or almost every rep), the coach offers feedback. The coach knows this isn’t ideal (and probably leads to poorer performance for the athlete), but they continue to do it because the incentive structure promotes it. If the coach wants to retain his client and continue getting paid, he knows he must give off the appearance of coaching. And what do most people think coaching is? Talking. Lots of talking. Against his better judgment, our coach adopts an intervention-heavy approach simply because the incentives tell him to do so.

This is most clearly seen in the private lesson coaching model, but this state of misaligned incentives is present all over the coaching landscape. I’ll give you two more examples from the sport I’m most familiar with.

Misaligned Incentives in Professional Baseball

Something you may not know about professional baseball is that many coaches are on yearly contracts. Every year, these coaches feel like they must prove themselves worthy of a contract renewal, so they are incentivized to trade the long-term development of the players for the short-term benefits of continuing to get paid.

One result of this is that coaches talk too much to impress coordinators, directors, and front office staff in an attempt to stand out and earn next season’s contract. In this desire to get noticed, the player is the victim who has to juggle a fury of cues being lobbed his way.

Misaligned Incentives in College Baseball

As I’ve observed and talked to college coaches, one thing has stood out to me: they don’t get to use their time like they want to. The up-and-coming generation of collegiate coaches has an earnest desire to help get players better (this is not to discount the work of some of the game’s greats who’ve been getting players better for decades). But unfortunately, collegiate baseball is not set up in a way to allow them to maximize the time they spend with athletes. As a matter of fact, coaches are disincentivized with punishment from the governing body for spending too much time with their athletes. Absolutely crazy if you ask me.

As a result, coaches try to be efficient. And they have to be. Because in addition to practice time limits, these coaches have a bunch of other duties both in-and-outside of the team. Compliance, working with academic advisors, fundraising, hosting camps, showcases, and tournaments, other jobs (yes, jobs), and not to mention their responsibilities at home. It’s truly wild what these coaches are asked to do for such little pay.

One result of this need for efficiency is that the overworked coaches apply one-size-fits-all programs to their players in a destined-to-fail attempt at efficiency. Not only do the athletes suffer from it, but the coach grows increasingly frustrated knowing that he can’t give the players he cares about the best they can get. Everyone loses, and it can usually be traced back to the incentives.

Why Incentives Get Misaligned

While there are nearly infinite possible reasons incentive structures can get misaligned for coaches, I want to cover two that seem especially pervasive — and dangerous.

1. Valuing Signaling over Results

In the most dysfunctional organizations, signaling that work is being done becomes a better strategy for career advancement than actually doing work (if this describes your company, you should quit now).

Peter Thiel, Zero to One

Coaching Certifications

I fear that much of coaching continuing education is signaling.

Because most coaches don’t really know how to get better or how to sell their abilities, we look to the crowd to figure out what we should do. Then, we imitate what the online masses are doing and end up with an alphabet soup Twitter bio that lists all of our certifications.

It looks good, but I can’t help but wonder if it’s actually valuable. That’s not to say continuing education is bad, of course. But when continuing education becomes more about signaling to people that you know what you’re talking about instead of actually knowing what you’re talking about, we’re all in trouble.

Undervaluing the Entrepreneur

For another example, we’ll go back to Taleb’s Antifragile.

He observes that generally speaking, there are two types of people: those who take risks (AKA: entrepreneurs), and those who talk about the risk-takers (AKA: journalists). This kind of thing happens all the time in sports organizations. Surprise surprise, power dynamics are a real thing.

This class distinction within an organization happens when the collective group values intelligence and “sounding smart” more than getting results. When being able to write the story backward is more valued than the willingness to take risks and tinker with athletes, teams, and systems on a daily basis to get results.

Of course, nobody explicitly does this.

I’ve never met anybody who has “I value sounding smart over getting results” on their list on My Personal Operating Principles. But implicitly, this kind of thing is pervasive throughout organizations through the promotions given, decisions that are made (more specifically how they’re made), and the stories that are told afterward. If those who get results are marginalized, this fault in the organization can split and cause a major fallout.

When an organization devolves to a place where the journalist is valued more than the entrepreneur/risk-taker, there’s a problem. With this implicit incentive structure woven into the fabric of an organization, coaches (entrepreneurs) stop taking risks and start distancing themselves from the action so they can be found amongst those who can tell the best story.

And when that happens, everybody in the organization loses.

2. A Lack of Personal Leverage

You’re not going to get rich renting out your time. You must own equity – a piece of a business – to gain your financial freedom.

Naval Ravikant, How to Get Rich (without getting lucky)

The second reason incentives get misaligned in coaching is because coaches lack leverage.

Broadly speaking, coaches are good people. Sure, we all know a knucklehead or two, but on the aggregate, I think it’s fair to say that coaches are a net positive.

And because coaches are good people, we all tend to be generous with our time. We love our players and teams and will go to great lengths for the people in our lives.

Unfortunately, as I covered in What’s the worst thing about coaching?, this willingness to go the extra mile is exhausting. And the worst part is, without leverage, we’re running ever-faster and never getting ahead. Technology is anything that allows us to do more with less, but coaches are so caught up in the business of trading time for money that they neglect ever building any sort of leverage into their lives.

And this lack of personal leverage becomes disastrous when combined with misaligned incentives.

Let me explain:

Let’s go back to the private 1-on-1 lesson model. In this case, the rate is $60 for a 1-hour less. $1/minute, a pretty standard rate where I grew up.

Now, let’s just say that this coach decided he wanted to earn a little bit of extra money to buy a new 3 Wood before his upcoming golf trip with his friends. How would he do that?

Well, unless he had some other leverage-giving job on the side (he doesn’t), his only option would be to trade more hours of his time for more money. To buy the club he wanted, he’d have to do five additional lessons, trading 5 precious hours of his time for the club when he would rather be out on the range practicing.

The coach spends his days (and nights — lots of nights) trading time for money. A bad deal wrought by poor incentives.

Let’s do another example.

This time, let’s take a look at professional coaching.

Most professional coaches I know are after one main thing: career advancement.

If they’re a coach, they want to become a coordinator. If they’re a coordinator, they want to become a director or MLB coach. If they’re in one of those roles, they may want to ascend to working in the front office or may finally be content to sit there and do the job. The road to the top is arduous, filled with randomness, and highly-volatile. For example, the average NBA GM’s tenure is a few months past 3 years, and I can’t imagine that it’s all that much longer in other sports.

With that much turnover at the top, it’s no wonder that coaches find themselves riding around on the professional “merry-go-round” from team-to-team, organization-to-organization year-after-year.

But one thing that I’ve been bewildered by in recent months as I’ve examined the difference between my current role at Tread Athletics and my former role as a MiLB pitching coach has been the lack of any sort of personal leverage that comes from working in professional baseball. There are two reasons for this:

1. You don’t own your time

The team can (and does) tell you where you have to be and when you have to be there. This is not an indictment on professional baseball; it’s a necessary component to have any hope of group continuity. Things simply would not function if coaches, operational staff, and front office executives were allowed to come and go as they pleased.

2. You can’t take your work with you

This is the one that bothers me the most.

As with any knowledge work job, the organization is renting your time and your brainpower. And the contract you signed — if it’s anything like my professional baseball contracts from 2019 & 2020 — has a clause in it that says you can’t bring anything with you when your contract is over.

This means your career has no compounding advantage except your reputation. Obviously, your reputation is important, but if you hope to ascend the ladder of professional baseball by jumping between organizations, you’re going to spend a lot of time rebuilding your systems and processes from the ground-up instead of building on the foundation you’ve already laid. This might be for you, but it sounds rather annoying to me.

So it should be obvious by now: leverage is important. If you don’t have it, you’re going to want to get it.

But wanting leverage and getting leverage are very different things. While it looks different for everybody, there are some general leverage-building principles that apply universally. Here are three leverage-awareness questions I suggested asking yourself in What’s the worst thing about coaching?

  1. Can I delegate this task/responsibility to a machine or another person?
  2. If I do this often enough, will compounding work in my favor?
  3. How can I do something now that will make my future easier?

In my experience, simply being aware of these questions has made me more conscious of leverage and has helped me build it. Practically speaking, leverage is a big reason why I write and publish online. It doesn’t cost me any additional time, effort, or money for the 1000th person to read this post than it did for #999. That’s leverage.

How to Get Incentive Structures Right

So we’ve talked a lot about what it looks like to get incentive structures wrong, but we haven’t really covered what it looks like to get it right.

This is the toughest part to write about, because so few teams, companies, and individual coaches I know have done it. While Charlie Munger exhorts us all to think about incentive structures, the truth is that getting it right is insanely difficult.

But nonetheless, I’ll try to outline a few “best practices” and things to look for when trying to properly align the incentive structures for your coaching career.

1. You Have Responsibility

Incentive structures get out-of-whack when personal responsibility is thrown to the wind. When everyone involved with a project or initiative thinks it’s everyone else’s job to bring it to completion, the group is in trouble.

While it may be scary to step up and say, “I’ve got this”, this is a tremendous way to align incentives. When the supervisor knows who’s taking the project on, they know who to assign the credit to. You want to put yourself in these positions.

2. Credit’s given where credit’s due

As organizations get bigger, it becomes increasingly difficult to identify who was responsible for a positive change. In coaching, it becomes almost impossible. As Ben Falk points out in a reflection about his experience with the Portland Trailblazers, team results emerge from nexus causality: the understanding that outcomes are caused by an intersection, or nexus, of factors.

To demonstrate this, let’s imagine a situation where a relatively-unknown minor leaguer gained 4 MPH on their fastball in a year, made his MLB debut, and had a positive WAR. The people at the top of the organization are obviously delighted and want to figure out who they should reward with a promotion at season’s end. The sad truth is that it’ll be nearly impossible.

The most obvious person who could’ve contributed to the change is the pitching coach, but it’s equally possible that the improvement was driven by changes to the strength and conditioning protocol, improved movement by cleaning up limiting mobility issues, dedication to mental performance, or maybe the player realized his career would be over if he didn’t do something and simply started caring more. Or, more realistically, it was the combination of all of these! This makes it extremely difficult to give credit where credit’s due, and even more challenging to promote based on merit.

As Paul Graham writes in How to Make Wealth:

For most people the best plan probably is to go to work for some existing company. But it is a good idea to understand what’s happening when you do this. A job means doing something people want, averaged together with everyone else in that company.

Most coaches are in this position.

Because coaches fail to build personal leverage, their work gets averaged together with everyone else. As a result, they struggle to get credit when they’ve done something well and are blamed when things go poorly. This makes their professional existence extremely fragile: the downside of making a mistake (or being loosely associated with a mistake) is much greater than the upside of doing something well. It’s no wonder why the coaching carousel spins as fast as it does.

So, what’s the answer? If large organizations fail to distribute credit where credit’s due, what should you do?

The simple (yet non-obvious) answer is to work within a small team. Later in the article, Paul Graham suggests working at startups. As someone who’s been at two of baseball’s most innovative startups, I’d echo that. But if the startup environment isn’t for you, I suggest getting in a position where you have as much responsibility as possible. When you feel nervous about what could happen if you fail to deliver, you’re in the right spot.

3. You’re creating less work for yourself over time

As I mentioned earlier, leverage is a foreign concept to many coaches. Because incentive structures are so broken, coaches pride themselves on “the grind” — working as many hours as possible for little pay. When this is the game, it’s more about proving your worth by devaluing your skills and contribution than finding ways to build leverage into your work. Call me crazy, but that’s a game I want to stay away from.

When this is done right, you will be building towards a future where you can spend less time working on administrative tasks and more time actually coaching. It won’t happen overnight, but you want to be in a situation where future you benefits from building systems, processes, and structures that allow you to get more output with less.

4. “Incentives” aren’t just money

When most people think about “incentives”, they think of money. This is where performance incentives come from. We’ve all heard about Tom Brady’s incentive-laden contract, right?

But I’d like to suggest that for many coaches, money isn’t the motive. The proverbial carrot and the stick doesn’t have to be a financial incentive. Instead, it can be things like:

5. Beware the race to the bottom (and a better path forward)

I’ll close with this thought:

Incentive misalignment causes us to enter a race to the bottom.

As Paul Graham points out, “the more rewarding some kind of work is, the cheaper people will do it.”

While I agree with him, I don’t think he went far enough. I’ll add another layer: “The more rewarding some kind of work appears from the outside, the cheaper people will do it and the more hours they’ll put in.”

If you’ve worked in sports, you’ve almost certainly talked to someone who would do “anything” to do what you do. But those of us who have lived it know that it’s not as glamorous as it may seem from the outside.

Ultimately, the real danger is that the incentive structures of coaching don’t encourage entrepreneurship, innovation, and positive-sum thinking. Instead, we’re drug down into low-level, zero-sum status games. While this is the way coaching’s always been, it is not the way of the future.

It recently hit me that the mission behind my writing is to teach coaches how to operate in the 21st century. To do this, we are going to need to break free from convention and be willing to rewrite the game we’re all playing. A better future for coaches is possible, but not if we keep trying to play a losing game.

I’m sure some of you will disagree with what I’ve said here. You’ll write it off as utopian, idealistic. You may be right. But I’ve recently taken solace in a Jeff Bezos quote:

“When you play long-term games, always be prepared to be misunderstood for many, many years.”