Why do public companies use short-term incentives? : A qualitative study of Boliden, Nordea, Johnson & Johnson, Q-Med and Siemens

Sammanfattning: Despite of the financial crisis managers are receiving large financial short-term incentives in form of bonuses. This has been criticized in the media and by governments, shareholders and numerous of studies have been made about financial incentives and whether they work or not and the results vary. What do the companies themselves say about this? Why do they use short-term incentives? The purpose of this thesis was to find out why companies choose to have short-term incentive plans which usually consist of an annual bonus. Moreover how the incentive plans are designed and what companies expects from them. A qualitative method is used in this thesis; five interviews were made in order to collect empirical material. The companies that participated in the study were Q-Med, Boliden, Johnson & Johnson, Nordea, and Siemens. The personnel who were interviewed were Human Resources (HR) directors or Financial Directors or had compensations and benefits as their main responsibility. All companies who participated in the interviews are public companies, although not all of them are listed at the Swedish Stock Exchange, Siemens and Johnson & Johnson are listed at the New York and Frankfurt Stock Exchange. The conclusion of this study is that companies use short-term incentives as a motivator for the management and to structure goals and set a common aim for the companies’ divisions. They also consider themselves to need them in order to attract and keep good managers. The incentive programme is structured with the aim to increase the company’s profit by motivating employees but also to rate and evaluate the manager. When the incentive programme is well designed and fulfils its purpose it will benefit the shareholders, who owns the company, as profits will increase.