Paying Bonuses for Safety: Pitfalls and Proposals

Recent events including the Global Financial Crisis and the BP Texas City refinery disaster have triggered a renewed interest in the use and impact of financial incentive structures. Analyses of the BP Texas City refinery disaster have highlighted that incentive structures for senior executives worked against process safety. Equally, the Global Financial Crisis was found to be precipitated by people whose behaviour was a direct consequence of their financial incentive regime.

Financial incentives have long been used to influence professional values and practices, and at their core are assumptions about the nature of human motivation. Neo-classical economic theory starts from an assumption that people are rational, self-interested calculators and therefore respond in predictable ways to financial incentives. By contrast, work from within sociology has emphasised a breadth of human motivation beyond self-interest.

This paper engages with this debate both empirically and theoretically in the context of the present and potential role of incentives to manage major accident risk in hazardous industries. Incentive schemes are one way that organisations are seeking to manage complex technologies safely. We examine the extent to which people respond to financial incentives in this environment, the potential for perverse consequences, and approaches that most appropriately focus attention on major hazard risk. This analysis is based on qualitative interviews and document analysis on the incentive schemes in oil, gas, chemical, and mining companies.

We argue that despite discomfort with the concept that safety decisions might be influenced by money, financial incentives do influence priorities and behaviours. We conclude that financial incentives matter in corporate environments because they do not rely for their effect on economic self-interest alone. Instead they tap a number of human motives, among them the need for approval, the need to belong and the need to be recognised as making a valuable contribution.