Barry Schwartz Argues Against Monetary Incentives for Executives on BusinessWeek.com

Maki Somosot '12

Barry Schwartz Argues Against Monetary Incentives for  Executives on BusinessWeek.com

by Maki Somosot '12
12/4/2009

Barry Schwartz
Barry Schwartz

In his recent article published on BusinessWeek.com, psychologist Barry Schwartz discusses the moral dangers of doling out monetary incentives to executives in the business and financial industry. He writes that such incentives “don’t just fail but often backfire” in terms of motivating people to positively change their behavior. Instead, executives who are incentivized will figure out how manipulate the system in such a way that maintains their present financial comfort - even at the risk of jeopardizing their company.

Such incentives, Schwartz argues, undermine the intrinsic moral motivation of people to do the right thing. Schwartz also argues that most people have the fundamental moral interest in “doing right” and want “their work to improve the lives of others.” Monetary incentives seem to serve as a diluting force in the context of human morality.

Schwartz draws upon revealing real-life scenarios to support his arguments. He explores the moral motivations of credit unions and community development banks, which approve loans geared more towards community service rather than profit-making. He also cited an experiment wherein Swiss citizens were offered money to approve of the construction of a nuclear waste facility in their local neighborhood. Willingness to accept the facility fell by half after the incentive offer was made.

Schwartz, the Dorwin P. Cartwright Professor of Social Theory and Social Action, explores the social and psychological effects of free-market economic institutions on moral, social, and civic concerns in his work. He is the author of The Costs of Living: How Market Freedom Erodes the Best Things in Life and The Paradox of Choice: Why More is Less.