Skin in the Game

“Skin in the Game” is a powerful book by Nassim Nicholas Taleb. Skin in the game requires exposure to not only the upside of your own actions but also the downside. That is the problem with the grant of large stock options to executives of public companies. There is no downside to such options. Thus, these public company executives are incented to take risks that offer large upsides without regard to their downsides. This puts their interests at odds with those of the shareholders.

Do your employees have skin in the game? Taleb contends that workers who build things that they take pride in, have skin in the game. This arises not from a financial perspective but from a human need to create. This is a powerful observation that needs to be considered when designing processes. A process that de-humanizes workers will lead to negative second order effects. These include increased turnover, process non-compliance, and safety issues. Look for ways to design jobs that allow for creativity. This can be involving employees in process design, engaging them in root cause analysis, and building cross-functional teams.