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Are Incentives the Bricks or the Building?

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  • Ron Schmidt

Abstract

The efforts of economists to emphasize the importance of incentives as determinants of organizational performance, while successful to some degree, may have left the mistaken impression that "getting the incentives right" is the only task requiring the attention of senior executives when designing corporate organizations. The author identifies the incentive-intensive companies envisioned by economists as "mercenary organizations" (or MOs), or companies whose distinguishing feature is near-complete reliance on financial rewards and controls. Citing the difficulties of devising an effective incentive system that cannot be gamed (which he calls the organizational equivalent of "an anti-gravity machine"), the article questions whether such organizations are likely to yield superior performance. Copyright Copyright (c) 2010 Morgan Stanley.

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  • Ron Schmidt, 2010. "Are Incentives the Bricks or the Building?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 129-136.
  • Handle: RePEc:bla:jacrfn:v:22:y:2010:i:1:p:129-136
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