Designing an equitable compensation system is not an easy task for the top management of any company, as the attention the subject has received in these pages and elsewhere makes clear. But the difficulties of designing a compensation program for managers in a service business are particularly severe. When a company’s product—be it flying lessons, cleaner offices, waffles, or Caribbean cruises—is manufactured and consumed almost simultaneously, there is not second chance to sell or perform.
A version of this article appeared in the July 1974 issue of Harvard Business Review.