Why are short-term incentive systems so damaging?
Replied byTobi Lütke
Founder & CEO at Shopify
Niche: Technology
Revenue: Not Publicly Disclosed /month
Location: Ottawa, Ontario, Canada
Started: 2006
Because they are rational for the individual inside them. A CEO who needs to demonstrate progress quarterly will never rebuild the product from the ground up for the AI age because that takes time and removes the local feedback loop. It is not that executives want to think short-term. It is that they are intelligent actors optimizing for the incentive structure around them. Show me the incentives and I will show you the outcome, as Charlie Munger always said.
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