Question

How can businesses integrate the idea of the law of diminishing marginal utility into their individual incentive analysis model?

Answer 1

The conventional wisdom was that the marginal utility of the incentive based pay packages was larger. But in reality it is smaller and will get smaller over time. The notion that larger the incentive , larger the marginal benefit is no longer valid. The benefits are diminishing because its effects are largely redundant of incentives arising from new corporate government mechanisms which makes the individuals responsible for poor stock performance. The marginal utility when evaluated in the light of these robust mechanisms is diminishing over time.