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Facebook changes up its incentives

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February 6 · Issue #285 · View online
The Interface
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On Tuesday evening, Fortune’s Michal Lev-Ram reported that Facebook employees were about to be “judged on a whole new metric.” Going forward, she said, employees would be evaluated based partly on how well they helped Facebook respond to major social issues:
The change to the bonus structure was announced by Zuckerberg at an all-hands meeting at Facebook’s Menlo Park, Calif. headquarters Tuesday morning, one day after the company celebrated its 15th anniversary. According to the company, none of the new, individual factors are “assigned any specific weighting or dollar amount of the target bonus,” leaving the exact formula up to its compensation and governance committee. […]
In a call with Fortune Tuesday afternoon, Facebook’s chief technology officer, Mike Schroepfer, said there isn’t an easy formula for figuring out progress on its new goals, including improvements to safety and security, though the company is tracking and now publishing many metrics, like how many fake accounts it takes down daily. “This is going to be our first time figuring this out,” Schroepfer said about the change.
The news caught my attention in part because I had just written about the difficulty of capturing the idea of social progress in metric form. As I wrote yesterday:
One of Facebook’s key challenges is that it’s simultaneously working on hard problems across so many dimensions that it’s difficult to quantify what “progress” really looks like. Fighting information operations doesn’t resolve down neatly to a handful of metrics that you can nudge up or down over time. It’s impossible for me to identify the goal posts that, if Facebook could only kick the ball through, would lead most of its critics to agree that the platform had been “fixed.”
It now appears as it Facebook is working to identify exactly these sorts of metrics and goal posts — and holding employees accountable to meeting them. The bigger question, at least for now, is exactly how accountable employees will be. And to learn more, we will have to do some math.
We know that at Facebook the median annual compensation is $240,000, including salary, bonuses, and stock grants. So let’s say an average worker might earn a salary of around $150,000 per year.
To my surprise, Facebook actually discloses its bonus structure publicly. Our fictional worker is given an individual bonus target — say, 15 percent. Then there’s an individual performance multiple, which as you might imagine varies widely. Finally, there’s a company performance multiplier, which is typically the smallest of the three multiples. Add the percentages together, multiply them by your base salary, and that’s your quarterly bonus. In the case of a worker making $150,000, who meets expectations in a quarter where the company also meets expectations, the bonus might be $22,500.
If the worker met expectations, but the company had a good quarter, the bonus multiple might rise 25 percentage points — in which case the quarterly bonus would be $28,125.
That’s a meaningful amount of money to just about anyone. But how much of the difference will be explained by social progress? According to a Facebook spokeswoman, the company performance multiplier is based on how well Facebook achieves four distinct goals:
First, continue making progress on the major social issues facing the internet and our company.
Second, build new experiences that meaningfully improve people’s lives today and set the stage for even bigger improvements in the future.
Third, keep building our business by supporting the millions of businesses — mostly small businesses — that rely on our services to grow and create jobs.
And fourth, communicate more transparently about what we’re doing and the role our services play in the world.
It’s not clear how those will be weighted. If Facebook has a monster quarter from a revenue perspective, and democracy collapses in Germany, what score do employees get? We’ll learn in time!
I asked some former employees how significant they thought the change was for Facebook. “Seems like a big deal,” said one. “Actually meaningful,” said another. “Not that meaningful,” said a third.
“This will definitely change things. Most teams at Facebook make decisions based on running tests and measuring how it affects metrics,” one source said. “If you take that away, it changes everything.”
But, they cautioned, the difficulty in measuring impact could have negative knock-on effects on company culture. “I suspect this will be a feeding ground for politics and infighting unless it comes with some sort of additional empirical rubric. If it’s just he said vs she said that’s a very different conversation and more of a political skill.”
I believe in the power of incentives, and I also believe that incentives can have unintended consequences. (Googling around a little today, I learned that creating rewards programs for killing pests like rats and snakes leads people to breed rats and snakes. You know, to kill them. For the reward.)
A potentially good scenario that could emerge from this restructuring would be that employees spend more time devising strategies to improve social welfare that can be executed in three-month periods. A potentially bad scenario is that features built in the name of “progress” have negative externalities that turn into future column items for me here. And a not-unlikely scenario is that the new incentives don’t have much practical effect at all.
Still, it’s always good to see a company put some money where its mouth is. Talking about social progress is a good first step. Putting money behind it is a much better one.

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