The Cost of Misaligned Incentives
This is a ONE THING article, which is featured in Future Directors’ monthly newsletter. Sign up to receive this in your inbox or join the Future Directors Hub to receive this and more.
Future Directors Founder, Paul Smith
ONE THING is for the busy (speak of the devil) Future Director, in which we pick just one thing Future Directors oughta know or do or stew on for the next month. We hope you get something (at least one thing) out of it.
For those of us dedicated to creating meaningful change, one of the most persistent issues in corporate (or organisational) governance today is the misalignment of incentives. We know that incentives are powerful drivers of action, guiding priorities and outcomes. But often, they nudge companies in ways that feel at odds with the impact we are here to achieve, especially when short-term performance becomes the sole focus.
In a board setting, these short-term pressures often find their way into performance evaluations, shaping what board members and executives are rewarded for. In both the corporate and non-profit sectors, the metrics we use to evaluate “success” can unintentionally prioritise the present over the future. For charities or schools, the incentive may be to cut costs to please philanthropic or government funders, while in the corporate world, it’s frequently about maximising short-term profits for shareholders.
Yet, for those of us committed to creating a sustainable legacy, this approach can feel limiting—possibly even counterproductive.
The Role of Boards in Aligning Incentives
As stewards of the future, board members have an opportunity and responsibility to realign these incentives, shaping them to reflect the organisation’s mission, purpose, and values. This alignment process includes board performance reviews (often called evaluations or health checks), where the criteria used to assess the board’s impact can become a powerful tool for refocusing on long-term outcomes and sustainable success.
Reviews like this can, and should, measure how well board members foster sustainable practices, ethical leadership, and resilience rather than just financial performance. By ensuring that incentives align with the long-term health of the organisation, we move closer to fulfilling our mission and purpose.
But, this isn’t a call for abandoning fiscal responsibility or performance metrics—it’s about enhancing these tools to reflect the impact we truly want to make.
You can read the rest of this article with a Future Directors Hub account.
Not a Member yet? Sign up for Future Directors Hub Starter Pass.
JOIN THE FUTURE DIRECTORS HUB
For a community full of governance insights, courses, resources & more
Create a free account on the Future Directors Hub for articles like this, regular events and explore other resources.