HR blamed for global financial crisis

by 14 Apr 2009

The remuneration practices at large finan cial institutions played a large part in bringing about the global financial crisis, according to Colin Melbourne, director of change man agement consultants Astor Levin.

HR departments must change their bonus and remuneration systems, he said, so that they are no longer based purely on numeric targets and thus contribute to a focus on short-term incentives.

“It was squarely in their interest to take high risk/reward positions,” he said. “It was a scenario of win big or lose nothing.”

Although it has often been argued about how much influence HR groups actually have on re muneration and bonus schemes, Melbourne said that now, because the Government has stepped into the breach, companies will have to hold HR accountable for devising the systems.

“A possible solution will be a bonus sys tem based on five-year goals,” he said. “That way they won’t be incentivised to take a big short-term risk which, up until now, maximised bonuses at the risk of profit, ultimately to the detriment of customers and shareholders.”

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