"Buffett ties the performance of each manager to their own business, not Berkshire Hathaway (BRK-A) as a whole. Thus, each is treated on their own individual merits."
While Buffett gives his managers a stake in the company they are running, I would think what he does mentioned above, is more important as a motivator than the cash.
Most great managers want to be judged on what they do and influence, not on some type of group performance where individual success is passed over ... as far as being rewarded and as well in being recognized.
A good way to encourage mediocrity is to throw everything into one pot and let it stew. It demotivates your good people and encourages the less productive to continue on with things as they are.
But when each person is rewarded or penalized based on individual performance, it's a powerful incentive both ways to thrive and become excellent.
In the back of the mind of any individual that wants to perform well, is the reality that their performance will be measured against and rewarded in contrast to the performance of their competitors and peers. Truly great business leaders and managers wouldn't have it any other way.
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