False Incentive Systems
People's motivations are crucial to the efficiency of an economic system. Those who have nothing to win or lose have no incentive to make an effort. Incentive systems are thus necessary to spur managers to achieve. The effect material incentives have on people's behavior is often enormous; for that reason, it is important to avoid undesirable side effects. If incentives are designed so that managers profit from success, but are not held responsible for errors, errors rather than achievements are bound to occur, for managers will always decided for the more risky strategy in case of doubt. In addition, the establishment of reward systems has sometimes degenerated into self-service. Those who receive bonuses or premiums regardless of profit or loss have no incentive to perform. Here boards of directors have failed. Higher payments to managers first of all cost stockholders. They are only justified if these costs are balanced by corresponding increases in yield. Since the incentive system motivated erroneous decisions, this was obviously not the case.