From Traditional Bonuses towards Sustainable Bonuses
A common way to reward employees and especially executives for outstanding performance and the achievements of set standards/targets has been the use of bonuses. These bonuses were supposed to increase efficiency and thereby performance.
However, it is now increasingly recognized that many of these bonuses are not beneficial at all. Rather, they only stimulate excessive risk-taking and short-term egoistic business behavior that does not take into account long-term environmental and societal objectives
. Bonuses often lead to prioritizing shareholders at the costs of stakeholders, which triggers irresponsible behavior and leads to governance failures.
The negative side of bonuses became apparent especially during the global financial crisis that started in 2008. It is now recognized that a broader perspective on bonuses need to be taken: bonuses that do not only take into account the shareholder but also stakeholder considerations. The recognition of this point has resulted in the development of so-called “sustainability bonuses”, referring to bonuses that also take into account environmental and societal criteria besides financial performance, and deal with both shareholder and stakeholder considerations
. Such bonuses can be a move towards Corporate Social Responsibility.
However, there are still many cases in which managers use those bonuses to serve there own interests, especially when transparency is lacking.
In conclusion there are 2 important preconditions for successfully implementing “sustainable bonuses:
- Managers that do not only serve self-interests;
- A high level of transparency.
Source: Kok, A. and P. Perego (2014) “Sustainable Bonuses: Sign of Corporate Responsibility or Window Dressing?” Journal of Business Ethics Vol. 119 Iss.1 pp. 1-15