Incentives matter, part 23,567

This is a fascinating line from an academic paper I’m reading:

Stanwick (2001) found a strong association between CEO compensation and a firm’s reputation for being environmentally progressive.

This can be read several ways, but one interpretation is that CEOs sign up to green initiatives because it justifies their higher pay, or reduces criticism of it. Which would explain one hell of a lot, frankly.

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9 thoughts on “Incentives matter, part 23,567

  1. Probably true but there is also the point that organizations which can afford massive CEO salaries have more discretionary money available to p*** away on assorted piety posturing.
    A smaller company, unless being eco or whatever it is a central part of its business model, can’t afford either.
    Of course, over time, the expensive fripperies might damage the business but by then the CEO, gleaming with virtue, has probably long ago jetted off to run another organization into the ground.

  2. Another gem from the same paper:

    For instance, Leonard, Levine and Joshi (2003) in a study of more than 70,000 employees in 700 retail stores found little payoff to matching employee demographics to those of their customers, except for when the customer did not speak English.

  3. And this:

    Other research has shown that
    ethnically homogeneous teams can be more productive (e.g., Hamilton, Nickerson & Owan, 2007) and that, unless carefully managed, diversity in groups is as likely to have negative effects as positive (e.g., Jehn, Neale, & Northcraft, 1999).

    Who knew?

  4. I don’t intend to read this paper but would suggest that the points it makes have become far more mainstream and that there would be an abundance of more recent and pointed data to support this conclusion since it was written.

    In addition, this point made in the abstract, is in my experience absolutely valid:

    Boards with female outside directors are more generous and this results,
    ceteris paribus, in higher CEO compensation

    To avoid running the risk of making a career limiting and poverty inducing post here, let’s just say that I am aware of a firsthand account of this type of generosity transpiring. Said female was a NED and amongst other things, she chaired the REMCO, she was also the only female on the Board although the company secretary was also a female. She is a highly respected, qualified lawyer and comes across quite strong in her presence, she is a highly experienced public company director that sits on a number of boards of successful international organisations that I am familiar with.

    But here is the rub, at the end of the day she was a pushover when it came to the executives getting huge annual short term and long term incentive payments for the all-male executive team through the REMCO sub-committee and the eventual Board approval process, no recommendations that were put up to the REMCO were ever modified downwards. I also know for a fact that when it came to the structure of the actual executive remuneration packages as well, she endorsed a way of setting them that was totally inconsistent with industry practice and was heavily biased towards the executive as opposed to the employer.

    I liked her a lot.

    On environmental objectives I think the research is a little dated and that there is an abundance of more recent and blatant examples of this type of Board approved rorting at play.

  5. “Other research has shown that
    ethnically homogeneous teams can be more productive (e.g., Hamilton, Nickerson & Owan, 2007) and that, unless carefully managed, diversity in groups is as likely to have negative effects as positive (e.g., Jehn, Neale, & Northcraft, 1999).”

    Maybe, but I’ve always thought that there are some ethnic groups that need an alien overseer in order to get any productive work out of them. That’s why their countries worked better as colonies.

  6. Would have thought the both were indications of a company has lost touch with the interests of the majority of its shareholders. Remarkably common. The management forget who actually owns the organisation & go on as if they do.

  7. That is how communism works. You have to virtue signal all the time and prove that you are ideologically pure to gain success. This is also reason why all system is corrupt to the core and not reformable. CEO is not your first job after high school. You must pass College and work yourself up. Now human nature kicks in. When somebody followed Marxist ideals 24/7 last 20 years, he or she can,t change anymore .

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