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Time To Change Bonuses & Incentives

May 28, 2010

In an excellent article in the Financial Times, historian and social commentator Simon Schama issues a stark warning. He observes that periods of great public anger are often followed by a period of relative quiet. It is in that period that leadership has a chance to take decisive action – or risk a violent backlash.

Schama is of course referring to the recession and the ending of the belief – at least in much of the Western world – that the future will be better than the past, that we can expect our children to have greater economic opportunities than we had. He argues that these conditions carry all the hallmarks of past revolutions and that people are expecting change. The key point is that the change must not be cosmetic – it is not just a case of re-arranging the deck chairs.

In today’s environment, much of the pent-up anger appears to be based around a feeling of social inequity. This is not just about inequality, but rather a feeling that rewards are unmerited. In particular, the financial services community is a target because many within it are seen as both the cause and the benficiaries of the economic downturn. While others suffer, they are once again on the rise. But it goes further than that. Executive pay is another area in which a majority of the public cannot see justice. Most business leaders are not entrepreneurs. They do not take significant personal risks. Their ‘windfall’ bonuses and pension rights appear out of all proportion to the level of effort and personal sacrifice demanded of them. Even when they fail, they leave with a significant pay-off, equal to many years’ salary for the average worker.

And in the end, this perhaps all comes around to the effect of today’s measurement and motivation systems. Whether it is bankers, executives, sales representatives or procurement groups, we all know that measurements drive – and distort – behavior. Those of us in the world of contracting see evidence of this every day. Too often, these measurments are acting against the public interest. It is time to engage in serious discussion – and in the case of the more extreme examples, it is time to take action.

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