My fiancé previously worked for a construction company founded and owned by an individual who held the title of CEO but operated largely as a passive investor. He was frequently away on vacation and minimally involved in day-to-day operations. The company’s success rested almost entirely on two key leaders: his brother, Adam, the Director of Construction, and my fiancé, John, the Senior Project Manager. Adam served as the primary estimator and secured nearly 90 percent of the company’s projects, while John managed and delivered most of those projects. Both were highly respected in their community, and their combined expertise was central to generating approximately $12 million in annual revenue.
A major contributor to the company’s strong performance was its incentive structure. The bonus program was substantial, often providing employees like John with year-end compensation equal to half their annual salary and sometimes matching it entirely in exceptional years. This system aligned employee effort with organizational success, motivating long hours, high standards, and an ownership mindset. Consistent with the principles outlined in “On the Folly of Rewarding A, While Hoping for B,” the company’s incentive system effectively rewarded the outcomes it desired. Under this model, the business grew steadily, maintained an excellent reputation, and benefited from enduring employee commitment.
This equilibrium collapsed when the largely uninvolved CEO reconsidered profit distribution. After more than two decades of benefiting from a business he did not actively manage, he decided he wanted a larger share of the returns. Determining that Adam was overcompensated, he reduced Adam’s salary despite his central role in securing work and sustaining revenue. The decision revealed a significant disconnect between leadership’s perception of value creation and the reality of who was driving the company’s success. As highlighted in “Most People Have No Idea Whether They’re Paid Fairly,” compensation is more than a number; it is an emotional signal of how valued employees feel by their employer. Feeling devalued and undermined, Adam left the company and John left with him.
The consequences were swift and severe. Within two years, the company experienced pronounced operational decline, laid off half its workforce, and lost the reputation for quality construction that had distinguished it in the region. The departure of these two pivotal leaders was far more than a staffing issue; it represented the loss of institutional knowledge, client confidence, and operational continuity. Without them, the business was unable to maintain its standards or secure comparable levels of work.
This situation illustrates that compensation is not simply an HR cost, it is a strategic mechanism for retaining the capability, trust, and motivation that underpin organizational performance. When leadership prioritizes short-term profits over equitable and well-designed incentive structures, the damage to employee trust and organizational capacity can destabilize the entire enterprise.
Kerr, S., (1977) Folly of Rewarding A While Hoping for B, Academy of Management Executive
Smith, D. (2015). Most people have no idea whether they’re paid fairly. Harvard Business Review
