GLRPPR Sector Resource: Pay for Environmental Performance: The Effect of Incentive Provision on Carbon Emissions
Pay for Environmental Performance: The Effect of Incentive Provision on Carbon Emissions
Executive Summary -- Research has shown that reducing carbon emissions and exhibiting good environmental performance are important for corporations. But how exactly are these environmental goals carried out within organizations? In this paper, the authors analyze the incentive structures of climate change management for a sample of large, predominantly multinational organizations. The authors then characterize and assess the effectiveness of different types of incentive schemes that corporations have adopted to encourage employees to reduce carbon emissions. Results suggest that contrary to widespread belief in the effectiveness of monetary incentives, in fact the adoption of monetary incentives is associated with higher carbon emissions. By contrast, the use of nonmonetary incentives is associated with lower carbon emissions. Overall, the study suggests that socially positive tasks significantly impact the effectiveness of different types of incentives and should be considered in the design of accounting and control systems. Key concepts include:
-- Monetary incentives are associated with higher carbon emissions.
-- Non-monetary incentives are associated with lower carbon emissions.
-- When employees perceive their action as socially positive, the adoption of non-monetary incentives might be more effective than monetary incentives in reducing carbon emissions.
-- For tasks involving socially positive behavior, monetary incentives are not effective and actually detrimental unless they are provided to people for whom such tasks constitute part of their formal job responsibility.
Harvard Business School
Date of Publication:
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