Koch Industries applies the ideas of Friedrich Hayek to making money. Hayek, dean of the so-called Austrian school of economists, celebrated the chaos of decentralised decision-making as a way for individuals to decide what’s in his or her best self-interest. So while ownership is concentrated in the hands of two men, Charles—who has had management control since his father designated him as chief executive in 1967—tries to train each of the company’s employees to act as if they own the portion of the business they oversee. The Kochs have trademarked their take on Hayek: Market Based Management. Koch Industries has no centralised pay scale. It doesn’t peg bonuses to firm-wide profitability, and even the salaries of machine operators are often calculated in part on how efficiently they run the processes they oversee. Middle managers can earn far more than their base salary in bonuses, which are determined partly by the long-term return on the capital they invest. Market Based Management dictates they can earn more by turning around a faltering business than playing it safe in a consistently profitable one. “We try to evaluate how much value an employee is creating here and reward them accordingly,” says Charles, in an inversion of Marx’s famous equation.
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