The New Hunters and Farmers: Compensation is about Risk, Not Incentives

The New Hunters and Farmers: Compensation is about Risk, Not Incentives

One of the most common tropes when thinking about business developers is the dichotomy between “hunters” and “farmers”. It tends to crop up when looking at business development styles: hunters going out and finding new business, then quickly move on. Farmers cultivating relationships over the long term. David Maister used a similar distinction to describe firm cultures. Hunter firms are made up of entrepreneurial partners working on their own books, while farmer firms work together collaboratively to invest and develop value in the firm itself. But there’s a missing aspect to the hunter-farmer dichotomy that’s almost completely overlooked, and is one of the most important lessons you can learn from looking at actual societies of hunter gatherers: Hunters and Farmers have a very different relationships towards risk and uncertainty.

I don’t deserve credit for this insight – it comes from Megan McArdle in the Up Side of Down, one of my favorite non-fiction books. In the interest of brevity, some of these ellipses cover large parts of the book:

In the Western imagination, hunter-gatherers were humanity’s poor cousins, trapped in an endless search for subsistence…

[but] … hunter-gatherers are actually better fed than subsistence farmers; paleoanthropologists can tell when a group started transitioning to agriculture because the bones show people getting shorter, sicker, and more prone to tooth decay. Furthermore, hunter-gatherers seem to be temperamentally the opposite of chimpanzees. They are egalitarian, male dominance is minimal, and they cooperate—they not only band together to hunt but share the fruits of what they kill on their own…Sometime around the dawn of agriculture…we became more status-obsessed, more tribal, and more possessive. Open-ended reciprocal exchange became less common, and property emerged.

We like to think that our capacity for sharing or collaboration is a function of our innate morality, or conscious cultural decisions we make. But in fact, McArdle finds that “how and when we share has as much to do with risk as it does with morals.” The best hunter in the world could go to his favorite hunting spot, but if no animals show up that day, he’ll still go hungry. In contrast, farming tends to have significant returns to labor: how much you plant, how frequently you tend your crops, harvesting it all at the right time. A terrible hunter can stumble into a herd of buffalo and eat well. Even the luckiest farmer will struggle if they don’t tend their crops. Quoting again:

Societies where there’s a lot of variance in the food supply engage in a lot of open-ended reciprocal exchange, and those where it’s pretty steady don’t. Open-ended sharing is an insurance policy in a world where there’s no way to store up physical assets…When the connection between work and output is fairly linear, people keep what they earn themselves, or share it with a select circle. When there’s a lot of risk, they learn to minimize their downsides by sharing

McCardle explores these concepts in the sense of our cultural norms around markets, but they also apply to professional firms. Just like farmers have trouble storing their excess haul, most professional services firms have fixed capacity. If you bring in more than you can work on, you need a way to share it with others. And while you may have extra capacity during a slow period, you can’t really ‘store’ it for when things get busy. Many practice areas may intrinsically reflect the dynamic of hunting and farming even within the same profession. Corporate law tends to spin off a consistent amount of work, as does ordinary consumer marketing. But even if you’re the best in practitioner out there, crisis communications or environmental torts require that an event actually occurs before you’ll find work.

When you’re designing a compensation system for your firm, you’re implementing a system that reflects a distinct cultural philosophy. This is especially true at the partner level, where compensation is really about how to allocate the firm’s profits among its’ many owners.  It embodies your perspectives on sharing risk, the returns to effort, and the value of collaboration. There isn’t a right philosophy, but your philosophy needs to align with who you are as a group of professionals and the type of work you do.

We tend to think a lot about compensation because its so tangible, but it’s really only one piece of a broader system for motivating and rewarding behavior. Hunter-gatherer societies enforce risk sharing by having very strong norms about reciprocity that ensure everyone eats and nobody slacks. Firms often look to compensation as the solution to all their incentive problems while neglecting the role management and cultural expectations.  Recognition, development, or thoughtful planning about assigning projects and new matters are all powerful motivators beyond money.

Tensions arise when the decisions you make are out of alignment. Most mid-size and large firms are an amalgamation of ‘hunter work’ and ‘farmer work’. They rely on each other to service clients more holistically and support each other’s practices. In those cases, being clear about the philosophical norms you adhere to is even more important, as you need it to balance out the natural tension between your practice areas. In firms that have grown through acquisitions or lateral hires, it can be hard to form a common identity and enforce norms around risk sharing. Firms also get into trouble when what they expect out of people, what the work requires, their compensation system, and their cultural norms are all out of sync with each other. In those cases, people end up feeling pulled in all different directions, and will simultaneously try to over-optimize compensation while getting frustrated at the uncertainty.

Traditionally, we’ve thought of hunters and farmers as individual personality types, or with a naive description about what it means for firms. In doing so, we’ve missed out an important insight.  Our compensation choices aren’t just about motivation, they’re about sharing risk as much as they’re about rewarding effort.  And if if we’re going to work together in a firm, we need to be on the same page about which of those we consider most important.

By |2016-11-10T10:20:07-04:00July 8th, 2016|People|

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About the Author:

David Dworin has spent over a decade helping professional services firms to grow and scale their businesses by developing and implementing strategies that are resilient to change.