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Managerial incentives and environmental compliance

Author: Gabel, H. Landis ; Sinclair-Desgagné, BernardINSEAD Area: Economics and Political Science ; Technology and Operations Management Series: Working Paper ; 91/48/EP/TM Publisher: Fontainebleau : INSEAD, 1991.Language: EnglishDescription: 23 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: This paper builds a multi-task principal-agent model and uses it to analyse the implementation of corporate environmental compliance policies. The main finding is that it may be inneficient to link managerial effort expended on reducing the risk of environmental accidents to the corporate compensation system. One implication is that monitoring of managerial performance on this activity should not be implemented for the sole purpose of supporting salary-based incentive schemes. To stimulate environmental risk reduction, firms' principals shoud rely on such means as job design, individual liability, or corporate culture, rather than on monetary incentives
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This paper builds a multi-task principal-agent model and uses it to analyse the implementation of corporate environmental compliance policies. The main finding is that it may be inneficient to link managerial effort expended on reducing the risk of environmental accidents to the corporate compensation system. One implication is that monitoring of managerial performance on this activity should not be implemented for the sole purpose of supporting salary-based incentive schemes. To stimulate environmental risk reduction, firms' principals shoud rely on such means as job design, individual liability, or corporate culture, rather than on monetary incentives

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