6 Responses to “The wrong incentives”

1. Cornelis de Maijer says:

   23 January , 2009 at 19:12

   This is so true, always remember ALL departments and coworkers – its one team -one goal – as logic outcome there is one incentive / reward and that goes for all.

2. richardderwentcooke says:

   23 January , 2009 at 19:29

   Yes. How you balance the rewards as well as what you reward is crucial.

3. Louis Sequeira says:

   23 January , 2009 at 19:34

   “but we were the poor schmucks who are paying for them!

   One can blame it on the “bankers”, blame it on the “fast food chains”, blame it on the “supermarkets” etc….
   None of them would be where they are today, either up on the peaks or down in the dumps without their “customers”.
   The more that their “customers” wanted the more innovative they got and I think that the “customers” bear as much of the
   blame as those “bankers”, “fast food chains” etc..

   These corporations like banks, supermarkets etc. are one clear unified target that we can shoot at. The “customers” on
   the other hand are a very amorphous lot. In many cases I may be even one of that amorphous lot, therefore there is a great
   reluctance to raise my hands and own up to my share of the blame.

   The same “feedback loop” applies to me as well, because I came up with a better ways of writing out my loan application.
   I rewarded myself with my ingenuity and bought a bigger house than I would otherwise have been able to afford. I also had
   a great celebration party and did not have to pay for it, well not until later that is, because it was paid for on a credit card.
   Yes, those other “schmucks” did not for a moment tell me I was doing the wrong thing, or did they? and was I listening?

4. richardderwentcooke says:

   23 January , 2009 at 19:36

   That is very honest and very responsible of you Louis. Collectively we did conspire in the illusion that house prices just go up and up, and we all are entitled to two holidays a year and a new car every other year. [I have to say,with no sense of smugness that I didn’t!] However, there was and is a big component of Corporate responsibility and greed in this problem and one of keys is using the worng measures of success (short term rather than long term, paper rather than real)

   Choosing the right measures to drive the right behaviours and offering the right rewards is key to good business

5. Peter Ramsden says:

   23 January , 2009 at 19:38

   Hi Richard,

   As well as high incentives there were other factors that also fuelled the problem. Greed and herd instinct really made people do things that they knew were inappropriate and risky.

   Despite internal risk management sounding alarm bells about current practice, management chose to turn a blind eye as massive short term profits were easily and rapidly attained. Consequently this put pressure on others within the banking industry to follow suit and to jump on the bandwagon. Soon others started to buy the toxic assets in bundles without really knowing the risk profile of what they were buying. By the time everyone realised how bad these assets were it was too late – the whole of the industry had caught the cold.

   Without greed and herd instinct this credit crunch would largely have been kept to a few risky banks but sadly we all wanted a piece of the action.

   The rest is and will be history.

   The real sad part of this is that some people made themselves very rich and it is the rest of us who have to pay the consequence.

6. richardderwentcooke says:

   23 January , 2009 at 19:40

   Agreed Peter. See my answer to Louis above