The double-edged sword of financial incentive schemes

Abstract

In this paper, we argue that performance-contingent incentive schemes represent a double-edged sword for organizations’ corporate social responsibility (CSR) and thus should be a factor in research on CSR. On the one hand, these systems are used to align organizational and individual goals, helping to steer employee and executive performance. On the other hand, these systems can motivate irresponsible behavior by evoking conscious and unconscious processes that eventually lead to unethical decision-making, which directly concerns an organization’s CSR. On this basis, we provide a review of the theoretical and empirical arguments for and against the use of incentive schemes in organizations. We further show the individual psychological processes that lead to the desired and undesired behaviors. Finally, we conclude that CSR research should work to integrate different research streams in order to strengthen CSR’s central role in organizational management.