Is it time for an incentive mine sweep?

As Neel Doshi and Lindsay McGregor share in Primed to Perform, “no topic raises passion like pay.” And as they reflect, “pay-for-performance is neither inherently good nor inherently bad. Depending on the circumstances, it can be either, both, or neither.” There! Problem solved? Clearly not, and the authors go on to describe how the key to great performance “is knowing when pay-for-performance works and when it doesn’t.”

Indeed, corporate incentives have rightly taken a central role in discussions of risk, compliance, and ethics. Incentives are an inherent feature of every corporation, and a key part of their governance structures. They are designed to drive good behavior and performance, but they can also invariably drive conduct beyond what was intended, and sometimes far worse than top management could have envisioned. Perverse incentives can be so insidious that they can drive good people to do things that they look back on with surprise and regret, usually when...