Currently (October 4, 2017), the median of annual CEOs’ salaries is $163,059/year. With bonus in the range from $1,031/year to $145,339/year. Well, that’s a lot of money and no doubt, a lot of work and effort. Now, the majority of you maybe still think that the bigger the incentive is, the more performance/contribution will be projected. But, it proved that we all wrong, or to be exact, we all half wrong.
Before getting into that concept, first, let me explain what incentive is. Because one of the major and crucial functions of salaries and bonuses is to give incentives. The function of incentives is to give motivations, reasons, ambitions so you will be willing to perform/do something. Incentives could be financial which is the most common one, but incentives could also be emotional. Such as award and recognition.
So now, let’s go to the concept, that disapproves our assumptions. The concept is called the Yerkes-Dodson law. This law explains the relationship between arousal and performance. Let’s see the graph below:
As you can see, at first, the more arousal or in this case the incentives, the more performance will be projected. But as the incentives increase, at some point, the level of performance will go down. But, this concept is only relevant when the task is difficult and need a lot of cognitive decision-making processes. Which makes this concept is applicable to CEO or other top-level management’s task.
When the level of incentives is low, motivation will be very low. Which means that you will not try your best effort at doing it. But when there are too many incentives and pressure, you will be too nervous that makes you don’t concentrate on the task.
So what is your opinion about this concept? Please tell us in the comment box below!
REFERENCES AND SUPPORTING ARTICLES
(n.d.). Retrieved from https://www.payscale.com/research/US/Job=Chief_Executive_Officer_(CEO)/Salary
Incentive. (2017, September 16). Retrieved from https://en.wikipedia.org/wiki/Incentive
Yerkes–Dodson law. (2017, August 20). Retrieved from https://en.wikipedia.org/wiki/Yerkes–Dodson_law