Brian Harney questions the future role and nature of executive incentive packages

27th August 2009

Author: Brian Harney, Lecturer in HRM, DCU Business School
Published by: The Irish Times, 23rd August 2009

Gasps at the size of executive compensation and incentive packages have not yet faded. Even within the business world, a previous era of corporate exuberance and financial excess is now looked upon somewhat shamefully. Rather than serving as a means to encourage the desired behaviours necessary to drive a give strategy incentive, building largely became an end in and of itself.

Consequently, the very incentives set up to create corporate value facilitated its destruction. Even children are continuously reminded that they must 'earn' their pocket money - while at the same time, this income is often subject to reprimand for undesired behaviours.
 

Whether similar basic principles and market punishments have been heeded in the corporate world is an open question. The signs among those who have survived and prospered are not encouraging. This year investment banks such as Goldman Sachs are likely to reward their employees with record breaking bonus payments fuelled by a dramatic upsurge in profits.
 

To criticise firms for benefiting from the economic crisis would be a bit rich, this is simply capitalism in action. Yet to offer excessive rewards on the back of this should set alarm bells ringing.
 

Financial incentives, if they are to be used, should reward value enhancing activity - to reward on any other basis is to make linkages and understanding between organisation strategy and management behaviour weaker rather than stronger.
 

Getting this basic principle right should come more easily to organisations. Getting it wrong might mean offering rewards for something that has not been earned or, even more concerning, risks rewarding undesired behaviours.
 

Child's play or not, one would have hoped that the era of spoilt executives was over and done with.