If you have ever designed a compensation scheme for a sales force, you know that frequently there can be unintended consequences. The sales people find the way to maximize their income regardless of what the corporate objectives were intended to be. The best sales people appear to be the most insightful in identifying the unintended income consequences. While this example might suggest more careful development of salesperson compensation schemes, the other thing it points out is that people behave in ways to maximize their compensation. That might be described as human nature, to state it politely.
Recently I was talking to a senior executive from a Fortune 500 company about their social responsibility programs. They confirmed that each project has to satisfy an ROI target and that the company could afford to do more social projects if leadership was so inclined. As a way to incentivize top management, I suggested that senior manager bonuses be broken down into two parts:
- 50% of bonus based on financial results such as profit, cash flow or stock performance;
- 50% of bonus based on the scope and quality of social programs
The executive thought such a scheme would definitely change executive behavior even if evaluation of No. 2 was purely subjective. The definition of "social" could be defined by the board or we could use a concept like Michael Porter's "shared value". I do not think such a scheme would have much negative effect on stock price and might even attract a new group of investors.
Just an idea but if you want to change behavior, change the incentives.
