Incentives Create Reality Inside Companies

Most leaders believe incentives influence behavior.
They underestimate how completely incentives define it.

Inside companies, incentives do not simply encourage outcomes. They shape attention. They determine what people notice, what they ignore, and what they quietly learn not to surface. Over time, they create a shared reality that no amount of leadership messaging can override.

This is why organizations often drift away from what leaders say they value while remaining perfectly aligned with what they actually reward.

In early-stage companies, incentives are informal and proximal. People see the impact of their work directly. Feedback is fast. Judgment fills the gaps where rules do not yet exist. Execution feels intuitive because the system is small enough to be legible.

As companies grow, that legibility disappears.

Work becomes abstracted into metrics, reviews, dashboards, and reporting cycles. What was once visible through proximity now has to be inferred through signals. At that point, incentives stop being a side effect of the system and become the system itself.

People learn quickly what gets rewarded.

They learn whether speed matters more than correctness.
Whether shipping matters more than understanding.
Whether raising concerns is appreciated or quietly punished.

None of this requires bad actors. It emerges naturally when incentives are misaligned with stated intent.

This is also why trust erodes without a single ethical failure. People are not acting in bad faith. They are acting rationally inside the system they are given.

Incentives explain why organizations struggle to change behavior through communication alone. Town halls, values decks, and leadership memos describe intent. Incentives govern action. When the two diverge, incentives always win.

The most dangerous incentive failures are not obvious ones. They are subtle and defensible.

A performance review that rewards individual heroics over durable outcomes.
A dashboard that celebrates growth without exposing the cost of exceptions.
A bonus tied to short-term delivery without accountability for downstream debt.

Each choice feels reasonable in isolation. Together, they train the organization to optimize for appearances rather than results.

Over time, a familiar pattern emerges. Leaders feel the company “losing its edge.” Teams appear more political. Execution slows despite increased effort. The instinctive response is to push harder, add process, or restate values.

None of those address the root cause.

The system is working exactly as designed.

Redesigning incentives is uncomfortable because it forces clarity. It requires leaders to confront trade-offs they have been avoiding. It surfaces contradictions that were previously hidden behind ambiguity.

But when incentives are aligned intentionally, behavior changes without drama.

People escalate earlier because the system rewards clarity, not blame avoidance.
Teams collaborate because shared outcomes matter more than individual optics.
Execution accelerates because energy is no longer wasted guessing what success actually means.

This is why strong organizations spend less time talking about culture and more time examining incentives. They understand that values describe aspirations. Incentives create reality.

If you want to change how your company behaves, don’t start with what you say.

Start with what you reward.

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Anil Mathews is an entrepreneur and author, founder of Alphabyte Ventures and author of The Start Switch. His writing focuses on execution, incentives, and building companies that endure.