Reasonable Incentives Instead of Prohibitions


The Swiss people are united by one issue-outrage over the bonuses of the bank managers.  Offenders and victims are quickly identified, and suggested solutions are not long in coming. The offenders in this case are the managers; the victims, the rest of society. Solutions can be seen in the demand for maximum wages and the abolition of performance bonuses; individual politicians have even demanded nationalization and a reduction of the market economy.

But are these solutions useful? Do managers think and act differently than the rest of society? Do organizations managed by the government accomplish their tasks better? Motivation research provides impulses for the development of solutions. It shows that extrinsic and intrinsic incentives influence human behavior. Applied to the sport of tennis, it is the medals (extrinsic incentive) and the heart (intrinsic incentive) that motivate the athletes.Extrinisic incentives are not immoral. It is important, however, that they promote desired behavior and that their use is controlled. Performance-based compensation should not lead to a focus on quick returns, but must instead promote a behavior that provides long-term benefit to the company or organization (e.g., customer satisfaction, few correlation risks, profits over five years). The granting of bonuses must be controlled by the owners of the company. Therefore, a clear strengthening of shareholder rights (voting on bonuses and competitive election of administrative board member) is necessary. Politics is no different. Legislatures and direct democracy prevent self-serving actions by executives.

When extrinsic incentives are too high, there is the risk that the intrinsic ones will be suppressed. The latter, however, are important because a medal can be won only when the heart of the athlete is actually involved. This includes the joy of the executives and their colleagues in their work. Such identification with one's work cannot be regulated by law. It has to do with values. In this regard, parents and schools carry great responsibility, since education must demonstrate that commitment to society and customers, respect for individual stakeholders, and joy in the work itself are critical factors of success for a healthy national economy.

I am convinced that the establishment of reasonable incentives and controls, as well as an investment in values, will produce far greater results than the cultivation of outrage and the introduction of prohibitions. This applies to the private sector as well as to the state, since people act according to the same patterns in both institutions!