#26 EXECUTIVE COMPENSATION - WHAT MAKES A GREAT BOARD OF DIRECTORS (PART 2)
This is Part 2 of a 3-part series into What Makes a Great Board of Directors Who Lead From Their Heart. Today we look at TWO QUESTIONS that a great board of directors would consider when setting the annual bonus and designing executive compensation schemes so that it drives the right behaviour and has a positive impact on safe & healthy outcomes in their business.
THE INFLUENCE OF COMPANY BONUSES ON ORGANISATIONAL CULTURE
Would it surprise you to know that executive bonuses tend to motivate short-term behaviour and a strong disincentive to spending on health & safety?
And the impact of incentive arrangements on senior management behaviour is claimed to have been implicated in numerous industrial disasters?
The issue of bonuses such as short-term incentives and the influence they have on organisational culture is fresh off the tails of the Australian Royal Commission into misconduct in the Banking, Superannuation and Financial Services Industry.
But there were no real surprises in the Commission’s findings in terms of how incentive schemes drive behaviour that have not already been identified in previous corporate scandals.
I mean, we could look at the 2016 Wells Fargo account scandal in the U.S. that is still creating issues for the bank today, including a 2nd CEO stepping down in a 3-year period; and multiple campaigns around re-branding and community apologies.
Or the Pike River Mine collapse in New Zealand where 29 miners died… in which the Royal Commission found that a contributing factor, amongst many, was the bonus scheme that the Board had approved which indirectly encouraged pushing ahead with production targets without proper risk management controls in place.
When we’re talking about annual bonuses that for many executives can equal or exceed their fixed salary, it’s imperative that the structure of the annual bonus is done in a way that does not render the safety component irrelevant.
For example, a comparatively low safety weighting in a balanced scorecard will ultimately render the safety component to have little influence on behaviour which will result in companies inevitably giving priority to profit when there’s a conflict with safety.
So how can you avoid this in your business?
That’s the focus of today.
I’ll give you:
2 questions that a great board of directors would consider when setting the annual bonus so that it drives the right behaviour and has a positive impact on safe & healthy outcomes in their business – not just because it’s the right thing to do by your people, but it’s also what is necessary to ensure your bonus schemes are successful in driving the right behaviours.
This is a 3-part series into what makes a great Board of Directors who lead from their heart.
While it’s not necessary to watch this series in order, definitely check out Part 1 when you have a sec.
So let’s get started…
When you’re finished watching, I’d love to know:
What do you think is critical for the board to consider when designing company bonuses, and why?
Leave a comment below and let me know.
Remember, share as much detail as possible in your reply. Your story and/or thoughts may lead to someone’s meaningful breakthrough and it all contributes to this audience knowing What to Ask, and When to Act #knowWTA
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Thank you so much for adding your perspective to the conversation!
As a business leader, you have a responsibility to lead safe and healthy work whether that’s at an executive or board level. My job is to assist you in your role by giving you the tools and knowledge to know what to ask, and when to act.
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