COLUMN: Incentive Pay for Execs Is Overrated

By Kahr, Andrew | American Banker, June 8, 2011 | Go to article overview
Save to active project

COLUMN: Incentive Pay for Execs Is Overrated


Kahr, Andrew, American Banker


Byline: Andrew Kahr

Have you tuned out the shrill, interminable debate about incentives for executives in banks, from CEOs down? It's an ill-informed and increasingly misdirected and distracting hubbub.

We are told short-term incentives promoted foolish risk-taking, causing financial crisis. Ridiculous. Angelo Mozilo's drive to achieve a 30% market share in mortgage originations wasn't fueled by desire for immediate financial rewards. He was the longest of long-term investors, starting in 1984 or earlier. Likewise, Joe Cassano at AIG "earned" $280 million over a period of eight years by selling what proved to be disastrous credit-default swaps. He didn't have his head turned by one year's bonus calculation. The same was true for Wamu: Kerry Killinger is reported to have received $88 million from 2001 through 2007. So, let's skip the simplistic claptrap.

A green beacon shines from On High: Charlie Munger (Warren Buffett's partner) asserts repeatedly that incentives have a huge influence on employee accomplishment. So, we are doomed to go on yammering about three- to five-year plans, clawbacks and their endless variations.

I bow to the authority of Charlie's age and particularly his wealth. But my view is different. Excepting only lone-wolf salesmen, I haven't seen incentives improve anyone's decisions and accomplishments within a large organization. Monetary incentives never made me work harder, or smarter.

Charlie's favorite example is itself antique. He says workers at FedEx performed better when sent home after finishing the day's parcels (whether few or many). Should we try that on bank employees working item processing volume? These people aren't unionized either. But overtime has to be paid under state wage and hour laws. And we actually have more work for these employees, beyond the day's volume of debits and credits.

Paying fixed compensation for fixed hours of work was neither obvious nor an inspiration. At the beginning of the Industrial Revolution in England, people who had previously done piecework at home were hired into textile mills and allowed to come and go as they pleased, to meet output quotas. Chaos ensued.

The notion of working and getting paid for an eight-hour day came later. And circling back to doing white-collar work at home, even empowered by the most modern technology, has nearly always failed - despite the savings in occupancy and commuting cost. We need fixed hours and fixed pay at the workplace. Without that, we lose both work discipline and financial discipline.

I know managers who started handing out $20 and $50 gift cards at the end of a productive day.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

COLUMN: Incentive Pay for Execs Is Overrated
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?