Interest Alignment: Understanding Shared Benefits & Relationships

Image of stock prices and percentages.

Interest alignment -- or more commonly, "alignment of interests" -- describes an arrangement or relationship in which all parties stand to benefit from one particular outcome.

Usage

The concept of interest alignment comes up most often in the discussion of financial relationships, but it also applies in such fields as politics and even social networks.

Example of Alignment

A company that rewards its workers with shares of stock or an opportunity to buy shares at a discount is attempting to align the interests of the employees with those of management and shareholders. All will benefit directly from an increase in the stock price.

Example of Nonalignment

Many stockbrokers are paid commissions based on the number of transactions they make for their clients, not whether those transactions produce any returns. No matter how conscientious or diligent such brokers may be, their financial interests are not aligned with those of their clients.

Caveat

Nonaligned interests are not bad in and of themselves. Interest alignment is more about maximizing the chances of success in an enterprise than about preventing the enterprise from being sabotaged.

Dangers

There is always a danger that interests will be aligned toward the wrong goal. Aligning workers' interests with those of shareholders presumes that what's best for shareholders is also what's best for the company. That's not always the case.