Economists have a lot to answer for here, too. Once we began teaching that workers were interchangeable parts like machines, and just as replaceable, we opened the way for the idea that there is really only one person who counts in a business, and that's the CEO. While it may be a convenient way to model labor markets for some purposes, the unintended effects on business behavior, especially compensation practices, have been devastating. Not only the growing inequality of the American income distribution and American society, but also the modern wave of business scandals and the financial collapse of 2008 have their roots in this type of thinking. We need more people to say it out loud, as Prof. Mintzberg has.
Monday, November 30, 2009
No more executive bonuses!
I very much like the article in today's Wall Street Journal by Henry Mintzberg. I think he has the right idea. He sees the business firm as a community of people, and executives as leaders and members of that community. He also argues that the success or failure of a business can not be attributed to one or a few individuals with exalted titles. Under these conditions, bonuses can not be justified as in any sense deserved. Bonuses send the wrong message to employees, namely that their contributions to the firm don't matter. And bonuses create incentives for excessive risk-taking and short-term decision-making. It's better to loot the firm's intangible assets for short-term profit gains than to tend the business for a sustainable future.