Executive incentives as an instrument of leadership – Says who?

Abstract

There is currently wide consensus concerning the notion that corporations can and should call on executive incentives, particularly cash bonuses and stock options, to shape executive behaviors and enhance company performance. To be sure, much controversy surrounds the implementation of such incentives, but the lightning rod is typically the matter of how much, not the use of incentives themselves. Contemporary research, by and large, seeks to fine-tune an existing paradigm rather than probe its underlying assumptions. This article calls on the methodology of history to probe the underlying assumptions and construction of executive incentives in order to ask those fundamental questions. By exploring the work of General Motors president Alfred Sloan and McKinsey & Company consultant Arch Patton, both prime movers of the widespread use of such incentives, the article notes that their beliefs were an outgrowth of a particular historical context. The assumptions that emerged as a result of that context have since become embedded into our collective institutional consciousness and have impacted society far beyond the borders of corporations; helping to support an ever-widening gulf between the top 1% of society and the remainder. A reconsideration of the underlying assumptions is encouraged. The impact on organizational performance would be either negligible or positive; and the effect on economic distribution in the company and the host society would be profound. Abandoning the outmoded notion of executive inventive, in other words, would be an act of true leadership.