Resetting Incentives, Remuneration and Trust
33 Pages Posted: 22 Apr 2020 Last revised: 15 May 2020
Date Written: April 18, 2020
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: Suggested Citation