Resetting Incentives, Remuneration and Trust

33 Pages Posted: 22 Apr 2020 Last revised: 15 May 2020

See all articles by Christopher Hodges

Christopher Hodges

University of Oxford - Centre for Socio-Legal Studies; Faculty of Law

Date Written: April 18, 2020

Abstract

Significant reform of remuneration practices has occurred in the past decade since the global financial crisis. These changes respond not just to popular outrage at the perceived disparity of levels of remuneration but also at the belief that remuneration incentives have driven extensive non-compliance with rules, the failure of organisations, and even threatened the systemic sustainability of markets and financial systems. A series of changes has occurred, some aimed at reducing the total level of remuneration and others at the basis on which performance is incentivised, assessed and rewarded. Based on the scientific and outcome evidence to date, it is unclear to what extent any of these will prove to be successful.

This article argues that the basis of incentivising, assessing and rewarding performance has to be reset. Current practice does not align with the fundamental shift in the purpose of corporations from maximising shareholder value to maximising stakeholder value and long-term sustainability. This article reviews the evidence on some simple but key questions. Do we need to incentivise workers? Do some current incentives increase the risk of disasters? If so, how do we remove or reduce that risk? The issues of fair distribution and social solidarity arise as fundamental issues to be resolved in responding to the Corona-19 crisis.

Keywords: remuneration, incentives, trust, targets, assessment, regulation, governance

JEL Classification: K, M

Suggested Citation

Hodges, Christopher, Resetting Incentives, Remuneration and Trust (April 18, 2020). Oxford Legal Studies Research Paper No. 14/2020. Available at SSRN: https://ssrn.com/abstract=3579419 or http://dx.doi.org/10.2139/ssrn.3579419

Christopher Hodges (Contact Author)

University of Oxford - Centre for Socio-Legal Studies ( email )

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Oxford, OX1 3UQ
United Kingdom

Faculty of Law ( email )

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Oxford, OX1 3UL
United Kingdom

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