Freeman

ARTICLE

Executive Incentive

MARCH 01, 1956 by CRAWFORD GREENEWALT

Mr. Greenewalt is President of E. I. du Pont de Nemours & Company. This is an excerpt from his statement of November 9. 1955, to the Sub-Committee on Tax Policy of the Joint Committee on the Economic Report,

As our country has developed and matured, we have become increasingly dependent on an active and dynamic industry for our economic growth and prosperity. Without minimizing in the slightest the important contributions to our national economy made by the farmers, the professions, the service trades, the fact is that our standard of living is firmly anchored to our industrial development.

Industry, if it is to keep abreast of its responsibilities to the nation, must have a great number of first-class minds at its disposal. It must compete for them with all other phases of our society, for there are never enough to go around. The fields of government, education, the military, the arts, the professions—all are seeking to persuade able young men to cast their lot with them. Each has its own type of incentive to offer, and the demand for talent always exceeds the supply.

The question of incentive is essential, whether we are speaking of business getting its share of the talent crop or of encouraging the exercise of that talent once it is enlisted. It is perhaps unfortunate that human beings should require lures of any kind as the price of initiative, but I am afraid we have not yet reached that state of grace in which people will surely do their best without external motivation. People being people, they will for the most part respond with their highest abilities only when there is some stimulus or some satisfaction associated with success.

Adequate incentives, of course, differ with different people. Some are attracted most strongly by the promise of prestige. Some are more interested in leisure time, to follow scholarly pursuits or perhaps simply to meditate upon the ills of the world. To some people, public notice or outward signs of rank and importance are alluring goals. Some seek power. For most, however, the strongest and probably the most desirable incentive is financial reward. Furthermore, financial reward is not only an incentive in itself, it is the only fluid medium that can be used to balance the attractions of the more intangible compensations such as prestige, power, or public notice.

There is another aspect of the monetary incentive that seems to me worthy of comment. It is the only reward that can be cut down on a basis of fixed percentages. We do not, for example, withhold 91 per cent of an Oscar going to the best moving picture actress of the year. The winner of a Nobel Prize does not have to give the government a certain percentage of the prestige accruing to him. A brilliant violinist does not have to share his applause with the Collector of Internal Revenue. These illustrations may seem facetious, yet they are based on a serious foundation; for we do in fact make the recipient of monetary rewards, and him alone, give up significant percentages in taxes. We are, that is, penalizing only one manifestation of success; and this seems to me, frankly, not only unfair but, for the future, a dangerous practice.

I am certain that the effectiveness of the money incentive is being eroded by the tax rates that prevail in the upper brackets today. While many companies are experimenting with non-monetary incentives, basically industry must rely upon the coin of compensation most suitable to its character. I am afraid the raw truth is that, in the long run, we shall begin to lose out and our proportion of the available candidates will fall unless some relief can be obtained.

I am necessarily talking in the future tense, because it is quite clear that the point of concern is not the executive of today, nor even of the immediate future. I doubt that high personal taxation has had substantial effect upon the performance of present-day management. By the time a man has reached a position of eminence within his organization, he is influenced importantly by his sense of loyalty, his sense of obligation, or a preoccupying interest in his work.

But in business, as elsewhere, it is important for us to induce as many of our younger men as possible to set their sights on the job ahead and to broaden their shoulders for responsibilities to come. If we are to do so, the game must be worth the candle. And some of my associates have already noted that there are signs among the younger men that promotion is a little less attractive than it used to be. How this trend may be expected to show up, in specific terms, is hard to say—my own guess is that it will take the form of slow attrition, beginning with borderline cases. Where we now have ten who want to try for the jobs of major importance, we may have nine tomorrow—one candidate deciding that since it is worth considerably less after taxes, it isn’t worth the extra, effort. So we have nine, and the next year we may have eight, and manage-ment will be the poorer for the loss.

If the caliber of management available to American business declines, the results will be reflected inevitably upon everyone, in business or not. The economy we have created in this country is closely intertwined; the effect of one activity upon another is intimate and continuous.

Management ineptitude would assess its penalties in terms of higher costs, diminished opportunity, and a slowing down of the kind of bold venture that is necessary to growth. It would be demonstrated, I think, in declining stability, for often the failure of one firm engulfs others. In so highly integrated an economy as ours, shock waves are transmitted with great speed and ruinous force. We cannot sustain many such shocks without impairing our strength and security as a nation.

And so every citizen has a stake. He wants lower prices, expanded employment, a degree of job security. He wants better schools, better medical facilities, better care for the aged, more cultural facilities. He can have them in an era of rapidly expanding population only if industry grows more dynamic rather than less, better managed rather than worse.

ASSOCIATED ISSUE

March 1956

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