Do bonuses work or don't they? Will CEOs and general employees work harder when they are offered more money, or would a small gesture be enough to encourage them to work a little harder? The debate about the level of bonuses is always dominated by heavy emotions: If you increase the bonuses earned by bankers, you will probably unleash a revolution in the Netherlands. Dr Kelder talks about Robert Dur, Professor of Economics of Incentives and Performance at Erasmus School of Economics, about bonuses, on the occasion of the news of a.s.r. that it will stop paying bonuses to its personnel.
According to Professor Robert Dur, the news of a.s.r. is a very refreshing message. I am very happy to hear that there is at least one company in the financial world that (implicitly) states that it is not going to reintroduce bonuses. However, eliminating bonuses does not necessarily imply that CEO's will not be remunerated generously any longer. It is something we see more often: when bonuses are eliminated, other forms of rewards emerge. That is also the case when it comes to a.s.r., the fixed salaries of its top personnel are increasing and it is expected that they will obtain a greater interest in the company.
The tendency we observe now is that people are talking more often about which form remuneration should take and how high it should be. This is a good development, because transparency is needed. This week, a law has been adapted which states that shareholders will get more control over the remuneration of the top people. Works councils will also play a greater role in this. Hopefully, this will cause the business community to give more information about what is being paid.
But is there a connection between the level of the bonus and the quality of the business operations? This is an essential question, but there is not clear-cut answer to it. We don't know it yet, but there are two ways of thinking about it. On the one hand, it is thought that the amount of the bonus is related to how the management of a company is organised. If, for example, the top can decide on the amount of the bonus, more will be paid. On the other hand, we also see that CEO's who are successful in creating value get paid more.
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Listen to the entire podcast on NPO Radio 1 programme Kelder & Co., 13 April 2019