Stakeholders & Incentives

List the people and organizations whose choices move your numbers, write down how each one is paid or measured, and use that to predict what they will do, so you can redesign the one incentive that pulls hardest against you.

Stakeholder theory and salience are influential theory with mixed, uneven evidence (Freeman, 2010; Mitchell, Agle & Wood, 1997). Agency theory is mixed: its empirical record is contested, and critics argue that people also act on fairness and reciprocity (Jensen & Meckling, 1976; Eisenhardt, 1989; Bosse & Phillips, 2016). The grid and the red-flag list are practice, not research.

Use it when:

• Someone keeps doing something that hurts your margin or your plan, and you suspect the reason is how they are paid rather than who they are.
• You are about to design a commission, a partner deal, a rebate or a bonus and want to see what behavior it will buy.
• You are new to a business or a role and need to see quickly who wants what.

Skip it when:

• You need the political map of a change, not the economic one: use 3.2 Power & Influence Grid.
• You are designing a specific deal with one party: use 5.5 Deal Structure Sketch.

Two theories sit behind this template. Stakeholder theory treats a business as a web of relationships with everyone who affects it or is affected by it, and asks managers to judge who really counts, with power, legitimacy and urgency proposed as the test (Freeman, 2010; Mitchell, Agle & Wood, 1997). It is a disciplined way of seeing rather than settled science. Agency theory adds the engine: when one party acts for another, their interests drift apart unless pay and monitoring hold them together (Jensen & Meckling, 1976; Eisenhardt, 1989). The evidence here is mixed. Results are contested, and critics note that people also act on fairness and reciprocity, so pure incentive logic will sometimes predict a cynicism the real person never shows.

That is why Step 1 starts from how each party is paid, not what they say they want. Step 2 predicts behavior from that pay and then checks it against what you see, because the gaps are where the critique bites. Step 3 is the salience judgment in grid form, and Steps 4 and 5 find and fix the drift that is already costing you.

Pick the five parties whose choices move your revenue, costs or cash most: customers or buyers, your sales team, key suppliers, platforms or distributors, financiers. Write how they are actually paid or measured, from contracts and pay plans, not from what they say.

Strong answer: "Sales team: commission of a share of invoiced revenue, paid monthly, no clawback; horizon one quarter." Not: "Sales team: wants growth."

Illustrative example: the business and all numbers are made up.

A regional electrical contractor in Norway, 30 electricians, finds that revenue grows while profit shrinks.

Step 1: the two salespeople earn commission on invoiced revenue; the wholesaler pays a year-end rebate when purchases pass a volume threshold; subcontractors are paid by the hour; the bank tracks a debt covenant once a year; housing developers, the largest customers, buy on price per apartment.

Step 2: pay predicts that sales will discount large developer jobs to win them. Observed: they do, on new developers. Pay predicts that subcontractors stretch hours. Observed: no, because the foreman knows them well. The rebate predicts end-of-year overbuying, and the stock room confirms it.

Step 3: high influence, low alignment: the sales commission and the wholesaler rebate. High influence, high alignment: the foremen.

Step 4: two flags ticked: commission on revenue, and a supplier who earns more when the contractor buys more. Most dangerous: discounted developer jobs, which fill the calendar at thin margins.

Step 5: commission moves to gross margin per job from next quarter. Side effect to watch: salespeople avoiding large jobs. Owner: managing director; review after one quarter.