The problem with many compensation systems is that managers have great opportunities for lavish bonuses, but hardly any risks. Entrepreneurial thinking is not encouraged in this way – on the contrary: the system creates incentives to increase sales and/or profits in the short term, which is often at the expense of long-term development opportunities (keyword reputation). For this reason it is, in our view, a logical reaction to the diesel scandal that the VW board around Herbert Diess (who has just called for more courage in a “incendiary speech”) reformed the remuneration system: According to reports, “Mali” and “clawbacks” are now also possible, which means that managers are finally taking entrepreneurial risks.
Egoism instead of team spirit – the real bonus problem
What is even more important from our point of view is that VW bonuses are more strongly oriented to the development of the company and not to individual goals. Because that promotes team spirit instead of selfishness. However, Herbert Diess and Co. should seriously consider going one step further and reducing the share of bonuses in total salary more decisively. For it is scientifically proven that extrinsic stimuli displace intrinsic motivation. In plain language: Those who offer lavish bonuses attract and breed egoists, as WirtschaftsWoche recently pointed out. Of course, this does not only apply to salaries of lower-level managers, which is the target of the current reform. We are therefore curious to see whether a reform of the remuneration of the Executive Board will follow.