clair015

Bankers’ bonuses continue to receive ample critique, being qualified as immoral and unethical. However, that the bonus system suffers this critique seems largely the result of awkward semantics. “Bonus” suggests a reward for good performance, which seems something at odds with banks over the past few years. However, in reality, these bonuses do not really serve the role of rewards for good performance. Instead, they are just a form of “flexible pay”. That is, most bankers’ salary consists of a fixed and a flexible component. The flexible component decreases if their firm performs less well, which it has done for most bankers over the past few years. If banks would just rename their “bonuses” into something like “flexible pay” that might not only be closer to the reality of things, but also shield them from much of the vigorous critique of outraged outsiders. Instead, some might even be inclined to applaud them for taking such a heavy pay cut in these meagre times. I do not see many oth...

There is a great divide in business schools, and one that not many outsiders are aware off. It is the divide between research and teaching. There is very little relation between them. What is being taught in management books and classrooms is usually not based on rigorous research. Vice versa, the research that gets published in the prestigious academic journals seldom finds its way into the MBA classroom. The consequences of this divide are grave. First of all for research: because none of this research is really intended to be used in the classroom, or to be communicated to managers in some other form, it is not suited to serve that purpose. The ultimate goal is publication in a prestigious academic journal, but that does not make it useful, or even offer a guarantee that the research findings provide much insight into the workings of business reality. It is not a new problem. In 1994, the then president of the leading association of business academics called the Academy of Managemen...

Last week’s report of the Presidential Commission examining the oil rig disaster in the Macondo well in the Gulf of Mexico draws a sharp and clear conclusion about its cause and who is to blame: it is the systemic failure of management; at BP, its partners and subcontractors Transocean and Halliburton. At the end, it also places a bit of guilt on the US government, which provided inadequate regulation and resources. The report is to be applauded for its clarity and thoroughness, and for recognising the complex and systemic nature of the cause. However, what it fails to recognise is that the structural failure of management is embedded in an even wider context, namely how in our society we run our economies and corporations. Given this wider economic context, it is inevitable that similar disasters – of similar apocalyptic proportions – will happen in the future. *********** Strikingly, when reading the report, the parallels between this debacle and other corporate disasters of the rece...

Goal setting works. Give your employees some concrete goals and they will work harder to reach them than when you just tell them “do the best you can”. There are ample studies confirming that relationship. Professors Edwin Locke and Gary Latham, from the University of Maryland and the University of Texas, even called goal-setting “the most effective managerial tool available”. So, I am not arguing with the effectiveness of goal-setting, but I would say it should come with a health warning. And that is because it also induces some more dubious behavior. Let me explain. “Stretch goals” is one of these terms that have persistently entered managerial vocabulaire, earning a prominent and enduring place in consultant speak. The idea is that you set your people goals that they might just reach if try really really hard – or just not. Hence, they stretch your people’s effort to the limit. However, there is a little catch to that. We also know from research that if people almost reach this goal...

How to set up a remuneration system that gets the best out of your employees continues to be a tricky – and sometimes controversial – topic. Whether it concerns labourers or top managers, it seems difficult to get it right. Individual incentives, team incentives, tying bonuses to firm-wide performance, quantitative metrics, qualitative metrics, stock or options; all of them can potentially stimulate desired performance but could also trigger all sorts of unintended and undesired behaviours. What does not help is that management theory about remuneration seems often to be based on a set of completely erroneous assumptions about human behaviour. And a theory with the wrong foundations can hardly make helpful recommendations. Basic assumption: they will work more if I pay them more Consider, for example, what we call the price elasticity of wages, as defined in economics to capture the relationship between pay and employee effort. Simply put, we tend to assume it is positive: If people ma...