Bonus metrics for top execs ‘discourage innovation’

Pay incentives for executives at top companies are damaging the country’s research base by pushing short-term gains over long-term innovation, according to an analysis from innovation experts at Nesta.

The report from the innovation charity says that of the FTSE 350 firms, more than 90 per cent use a metric in short-term incentive plans that could discourage innovation, such as prioritising profits and earnings per share. While the majority also use a metric that might encourage innovation, such as investment activity, these are outweighed by metrics that discourage it, say the report’s authors.

Long-term incentive plans are no better: the team found that these were typically three years long, not ‘long term’ in the context of R&D projects that can easily cover multiple years or even decades. Only 23 per cent of companies use any innovation metrics in their long-term incentive plans, with 84 per cent using a metric that could disincentivise innovation.