In the high-stakes world of corporate leadership, traditional incentives like cash bonuses and stock options are losing their lustre. A recent study conducted by researchers at Carnegie Mellon University and Seoul National University reveals that financial incentives no longer hold the same sway over executive performance as they once did.
The study, which examined 20 empirical studies spanning over four decades, found that cash-based incentives had a minimal impact on future business outcomes. Despite the widespread belief that bonuses and stock options drive managerial performance, the reality is far more nuanced.
According to co-author Byeong Jo Kim, associate professor of public management at Seoul National University, current CEO compensation arrangements may not be justified based on anticipated market results. This challenges the conventional wisdom surrounding executive compensation and calls for a reevaluation of incentive structures.
So, if not cash, what motivates executives to excel?
Industry experts suggest that factors such as a competitive mindset, career fulfilment, and the desire to make a meaningful impact play a more significant role in driving executive performance. Scott Gaba, COO at Goodwin Recruiting, emphasises the importance of building a strong team and fostering a culture of excellence over financial incentives alone.
Similarly, Kristin Mann, senior vice president at Raines International, highlights the allure of making a mark and effecting change within an organisation as key motivators for senior executives.
In light of these findings, companies are urged to reconsider their approach to performance incentives. Rather than relying solely on financial metrics, organisations should incorporate a broader range of indicators, including employee engagement, innovation, and market adaptation.
By establishing a culture that values long-term sustainability and inclusivity, companies can create an environment where executives are motivated to drive meaningful change and deliver lasting results. In doing so, they can ensure that their incentive programmes align with the evolving needs and expectations of today’s corporate leaders.
