Many will say that our country is run by bureaucrats who do anything possible to make your life harder and then exploit that hardship by offering their service to make your life easier for ‘X’ amount of money. Aligning incentives is the first thing an HR consultant will recommend for fixing an operation. Aligning just means having the same incentives of “the owners” or “the people” whether they are of the management or the work force.
Let’s study the incentives that govern the simple process of approving the legal documents of starting a company for example. If the bureaucrat signs your paper, you benefit by the potential stream of income from that company while he gains nothing. He receives the same income for more work he has to do processing your request, he is exposed to the scrutiny of the auditing committee, and he might even be accused of bribery. If the bureaucrat disapproves or delays approving your letter, you lose potential gains but he gains by avoiding scrutiny.
In “game theory”, the economical science of predicting incentives and reactions would be called “zero-sum game”. In other words, if you gain he loses, and if he gains you lose. The problem is that he has more power than you, and he will always use it to his benefit: his gain, your loss or, in other words, he will not sign it. Since the incentive system is currently not aligned, bribery will be created to solve the problem, to reach “the equilibrium”, and balance it out.
The solution: Aligning incentives so that your gain becomes his gain and so that he legitimately gains as much as you do by approving the said letter. Your incentive is profit, if achieved it contributes to GDP, and to “the people” as a whole. In other words, “the people’s” incentive is more profit. Now we need to tie that somehow and make it influence the bureaucrat’s incentives for financial gains.
We know that the “people’s profits” is positively influenced by the number of start-up businesses, which is in turn affected by the speed of starting up the business. If the bureaucrat’s income or salary increases in direct relation to how fast he approves the legal documents, then we would surely have aligned the incentives by motivating the bureaucrat to processes it faster. This is what is known as Merit-based pay; you get paid based on your performance. We currently operate under a Step-based system which links getting paid to the amount of time spent in the organization which only serves to encourage the bureaucrat to be even more bureaucratic. The shift to Merit-based pay is essential.
For the Merit-based system to succeed, clear objectives have to be set, performance has to be accurately measured, and a clear ‘performance-compensation’ formula has to be identified and communicated. Performance could be measured against individual, team-based, or even organizational objectives through a variety of means such as surveys, interviews, or result assessments. Whichever technique is used, the most important factor is that the measurements are quantifiable, fair, and objective.
A strong system of checks and balances, in addition to the Judiciary Power’s control system, will ensure the integrity of the system. With clear and efficient policies, inefficient layers and redundant cycles of approvals will be replaced with a leaner system providing each bureaucrat with the necessary objectives and, most importantly, the authority and tools to achieve them. And with that, we can be proud to state that our country is run by the type of bureaucrats who will do everything possible to make your life easier through the lawful services they provide.