The recent crisis is leaving us many lessons for corporate responsibility. One of the clearest is the importance of aligning incentives the objectives. We have seen, particularly in the case of some financial institutions, the objectives have been to maximize profit and incentives have been a bonus in the short term. And we have seen and suffered the evil that this alignment can be. But they were aligned. Incentives can be very powerful and can be used to encourage the good. These lessons can extend towards achieving the objectives of social and environmental responsibility.
How do this alignment?
The issue of promotion of responsible practices is an emphasis on the reaction of interest groups outside the company, with some disregard for the impact of domestic incentives, positive and negative, facing employees. It seems as if these were not needed, which is sufficient policies, code of ethics (which no one knows) or the orders of senior management to encourage responsible behavior. However, they have published a series of recent news and reports, in part stimulated by the thoughts that caused the crisis, which may give us some guidelines, if we read well and learn the relevant lessons.
several stories have been published on the initiatives of some companies, mostly Dutch, who report on their efforts to link part (in some cases half) of bonuses (Not salary) to achievements related to social and environmental sustainability of the company and partly to financial sustainability (without the financial sustainability itself there's no heaven!). These bonuses are usually addressed to the top of the company, its executives. It is a great step forward, since supposedly these bonuses to the top influence the behavior of the lower, middle management and workers, workers and officials.
Eurosif, the European organization that promotes sustainable investment in its report on remuneration in the 300 companies in the Financial Times Index of Sustainable Enterprises, reported that 29% of companies had some commitment to linking pay to performance on environmental, social and corporate governance. Recommends that shareholders put pressure on companies to adopt these performance-related bonuses. If you've read the news about the results of these initiatives in the general meetings of shareholders may have noticed that very few have been successful.
Is it enough to link bonuses to good practice in social and environmental responsibility? Appears to be a step forward. Supposedly we all want more money and would be willing to change behavior in exchange for more money. However, the current state of social performance measurement and environment is much more backward than the measurement of economic performance, and incentives are biased to what can be measured.
Moreover, some argue that bonuses tied to performance, whatever, are pernicious. For example, Akerlof and Kranton ( Identity in Economics, George Akerlof and Rachel Kranton, Princeton University Press, 2010 ) go on to say that performance-related pay shows that the company does not trust its employees to do the right thing, that there be encouraged to do so. They allege that employees want to do a good job because it is right and when you enter these bonuses make them think are doing things that go beyond their obligations and encourage them to take more risk than necessary to achieve the bonus and carry out activities that can be harmful. See the case of the impact of subsidies on the behavior in some financial institutions.
responsible behavior These incentives seem to work in the short term, but once you are part of the expectations of the individual, who see them as part of "salary", they lose effectiveness over the medium and long term. If you think about it, seems to be an aberration having to give bonuses to comply with the duty to behave responsibly. But expectations are to receive bonuses to go beyond the minimum. Even that seems logical, it seems easier to follow the requirements of these authors to abandon the performance-related bonuses to be counterproductive. The reaction could be very negative.
Is it enough to have incentives at the highest levels of the company?
not enough. At last, after all, are the employees who are in contact with soil, in contact with customers, with the means of production, etc., Which can realize that there are better ways of doing things. The corporate culture is important, the mandates of the directors are important, but so is the initiative and action of individuals in contact with everyday reality. They are the ones that implement the change. It is the personal commitment to individual intrinsic factors, which lead to change. You have to align individual motivations of wanting to do good with the company, especially in social and environmental issues.
Like all who have worked in a for-profit company should know, orders above are necessary but not sufficient to motivate the labor force. Those below should also receive incentives. In many companies implement sustainability actions of the labor force. Of little use for our directors or managers have bonuses for good labor policies, when the plant manager with bonuses or salary is based on the volume of production. Their incentive is greatest production in any way possible. See the case of maquiladoras in Latin America or the garment factories in Asia. If it is necessary to violate the labor principles are violated, in order to conform or get bonus shares. Or if their incentives are minimization of costs, shall ensure that they are minimal, including environmental damage. And if these costs are accounted for, possibly falling into another department, so it is not my problem. "
Can incentives lead to low levels of the company? Should they be monetized?
The answer to the first question is that we must try. The solution, as always, goes through the details and discussion between monetary and nonmonetary incentives is very relevant. For several reasons. One reason is fairly obvious is that many companies, especially in the current situation can not consider additional expenses for incentive payments. But you can add non-monetary incentives to the existing monetary, aligning with CSR.
The other reason is a bit more complex. It means that when the transaction between the employee and the company is strictly monetary, both parties put the transaction in the commercial, market. You give me and I give you. Several recent studies have shown that when the transactions between the parties are placed in another area, the social, when the company and the worker is viewed as part of a society, which are mutually beneficial, transactions become less shortsighted, less interested You can search for the common good.
What does it mean to transactions (or relations) between the parties in the social field?
many times have we heard and even said "I do not pay for it" or "I only paid to do my job," "I do my work, do they pay and if I see someone less competent I will pay more, do less. " Payment relates to work and the work is done on the basis of payment. Is a strictly commercial transaction.
But how many times we do much more to a friend or family member without a reward immediately or waiting in the future. Moreover, we can get offended if we offer payment. How often do volunteer work personnel, regardless of the company, community, church, school. These are transactions in the social sphere, which are made by intrinsic motivation.
In commercial terms, the market, as seen in the crisis, the work is manipulated to exploit incentives currency, monetary incentives are the end, work the middle, which is twisted to the end. According to the case at issue between the Securities and Exchange Commission U.S. and Goldman Sachs, the client was less important for these benefits, customers were an instrument for benefits, all conditioned by the subsidies (which as we mentioned in previous article ("God's work or the purchase of indulgences? www.cumpetere.blogspot.com) reached U.S. $ 740,000 per employee for 2009, an average that includes everything from the janitor to the president.
was a famous teacher martial arts in Japan who taught free of charge to students. After a while students thought that it was unfair that they paid and offered to pay. The teacher responded that if the classes were for payment, they could not pay what the cobra. Was a compromise in the social field. To put it into the commercial arena, would be buyers and sellers.
Could not we bring some of this to the company to align employee motivation with company goals incorporating non-monetary incentives? Can we behave as friends and family?
These questions and other topics, try the second part of the article. Antonio Vives
http://www.cumperte.com/
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