Koch promotes performance-based pay, doled out in the form of bonuses and other incentives to people who "create value," and thereby, profit. Top executives can pull down million-dollar bonuses, but Koch will share the bottom-line love with secretaries, janitors or anyone who comes up with a way to make the company some money.
When a team of pipeline operators in Minnesota took it upon themselves to figure out how to change pump pressures to boost capacity by 15 percent instead of spending tens of millions of dollars on expanding the pipeline, Koch cut each worker involved a check averaging 15 percent of his annual pay.
"Koch is known for rewarding people," said financial economist Mark Skousen, who used Koch Industries as a case study in a management class he taught last year at Columbia University in New York. "Koch is very focused on having and hiring the right kind of people --- hardworking people who are comfortable with this idea that creativity comes from the bottom up.
"But that cuts both ways. People who are just rolling along probably won't make it," Skousen said.
And more snippage:
Of all the virtues Koch sees in his free-market philosophies, none may cut closer to home at Georgia-Pacific than freeing the company from the frustrations of Wall Street. Georgia-Pacific stock has languished --- hamstrung, Correll contends, by the fixation on asbestos litigation.
The litany of Sarbanes-Oxley regulations and disclosures hasn't made public life any easier either.
Koch company literature, on the other hand, extols the blessing of being private.
With no pressure to live quarter-to-quarter, Georgia-Pacific can now focus on long-term goals, Koch told employees in announcing the deal. Rather than paying out dividends, Koch typically reinvests 90 percent of profits into the businesses where they are generated.
Koch told Georgia-Pacific executives Tuesday that he's still learning quite a bit himself about Market Based Management, likening it to the North Star."You know you'll never actually reach it but you still use it as a guide because it moves you in the right direction," he said.
Bingo! Isn't this how business should be run? Contrast this with the myopia and short-term thinking that dominate most corporate cultures and strategies. "Hitting numbers" and pleasing secondary constituencies (shareholders, SEC regulators, business magazines/forecasters, etc.) become ends to themselves rather than the means by which successful businesses are run. It used to be that "success" was achieved by pleasing customers as measured by the good old-fashioned profit and loss test: maximize profit by bringing goods or services to market at prices sufficiently above the costs needed to produce them. Now the whole incentive structure is distorted by short-term forecasts and "leveraging" things, instead of cultivating long-term, symbiotic relationships. I don't get it.
Lest you think I've gone soft, I'm going to sound my usual drumbeat here: much of the blame for this crazy thinking lies with the government and its depredations. Corporate America is way too focused on flattering the state and its surrogates: it must comply with a litany of SEC regulations, negotiate the minefield of tax laws, deal with anti-trust issues, keep unions fat and happy, satisfy environmentalists, and manage operations in a society whose litigiousness goes beyond reckless.
Koch has similar problems but quietly manages to send the message that incentives matter. And this is the essence of economics! There are consequences to making life difficult for the entrepreneurs who enrich our lives and make civilization possible. Civilization flourishes when free people are left alone to peacefully trade and exploit their comparative advantages. Government intervention, mercantilism, and corporatism wrecks prosperity and impoverishes us all.
Many of us work in a setting way too reminiscent of the film "Office Space" but it doesn't have to be that way. Koch gives us a glimpse of what embracing freedom and innovation can do, and to me, that's pretty damn cool.