Let’s start with one of your key areas of expertise: employee remuneration. When do financial incentives enhance performance, and when do they actually undermine intrinsic motivation?

‘The precise remuneration structure is very important. Remuneration can have a strongly positive effect, but it can also have a negative one. Furthermore, the effects of remuneration are often underestimated. For example, we tend to think that employees in social professions, such as healthcare or education, are primarily intrinsically motivated. Yet it turns out that many of them are indeed responsive to financial incentives.

This is evident, for example, from recent research among mental health care staff. A tiered remuneration system – where extra treatment hours resulted in extra income – ultimately led to more treatment hours and higher claims, whilst the treatments did not become significantly more effective. The ‘tiered’ system was well-intentioned, but backfired.

There are also examples where rewards do work well. It is therefore crucial to find the right mix of financial incentives. People tend to focus on financial incentives. On average, the softer incentives are less important, but in the right combination they can certainly add value.

More generally, the overall package should not be too meagre – this is often perceived as an insult – but nor should it be too generous. That attracts certain types of staff, for example people who are driven primarily by money and less by the nature of the work.’

Isn’t it also important to use the right assessment criteria? For example, there is a great deal of public criticism of top executives’ remuneration being awarded on the basis of vague KPIs.

‘There is indeed a great deal of criticism – which, in my view, is justified – of the vague KPIs used by many directors and supervisory boards of large companies. Moreover, too little use is made of benchmarking.

It stands to reason, both empirically and theoretically, to reward on the basis of relative performance. What matters is not so much whether a company is making more profit than in the previous period, but how a company performs compared to its peers in the sector. You want to avoid a situation where Shell’s directors end up earning much more simply because the price of oil has happened to rise sharply.

Unfortunately, we see far too few truly clear performance-related remuneration schemes for senior executives. It is sometimes claimed that a vague remuneration package is needed to attract top talent. But if I were a supervisory board member, I would raise an eyebrow if someone did not want to be assessed on the basis of strict criteria.

What doesn’t help either is that supervisory boards are often heavily influenced by consultants. These consultants, in turn, are guided by the brief they are given: look at the remuneration packages of comparable companies and go a little above and beyond. Consultants all too often simply tell senior executives what they want to hear. It all ends up feeling a bit too much like a game of ‘pass the parcel’. It is precisely with more creative and transparent remuneration packages that you ultimately attract better senior talent.’

Isn’t the 20 per cent maximum bonus for Dutch financial firms too restrictive?

‘For the answer to that question, we are awaiting new groundbreaking research by Jordy Meekes and colleagues at Leiden University, which is due to be published shortly. In general terms, concerns about mobility – the idea that top financial executives would leave en masse for abroad without high bonuses – are exaggerated.

We saw this before with the introduction of the Senior Executives’ Remuneration Act (WNT). Despite the introduction of the Balkenende standard, relatively few senior officials left the public sector for the private sector. And as I mentioned earlier: it’s about the total remuneration package. That must be commensurate with the duties involved.

The discussion often centres on the absolute level of remuneration as well. In the United States in particular, there are top executives who earn tens of millions. Some welcome such remuneration because it is said to contribute to profit maximisation. Others speak of ‘rent extraction’, or in other words: ‘lining their pockets’.

Academic research has compared these views side by side, and the perception of ‘rent extraction’ still prevails. This argues in favour of regulation to protect consumers and shareholders. And for greater competition. We often see extreme remuneration in powerful oligopolies and monopolies. With greater competition, there are fewer excess profits – or ‘rent’ – and therefore fewer opportunities to pay out extremely high remuneration.’

In your view, what are the biggest fallacies or misunderstandings amongst directors when designing organisational structures and performance systems?

‘The biggest fallacy is probably the assumption that the existing system is automatically the right one. There is too little willingness to acknowledge uncertainty, and as a result, their own system is not sufficiently scrutinised or criticised.

About ten years ago, whilst researching a book on remuneration systems, I interviewed HR managers at large companies in the Netherlands. I wanted to encourage them to take part in experiments to improve their systems. However, I encountered a great deal of resistance.

The most senior HR managers seemed almost trained to defend their system with great vigour. One manager even said that he viewed the system as a religion that he did not wish to question. In fact, the company had appointed him precisely because of that conviction. Under such circumstances, you are indeed unlikely to carry out experiments that might undermine that ‘religion’.

Even for small-scale experiments – for example, on improving performance reviews – I received little support. As a result, the book never saw the light of day. It’s a shame, because I’m firmly convinced that Dutch businesses are missing out on productivity as a result.’

Doesn’t rewarding intergenerational differences make things difficult? We often hear that Gen Z values flexibility, shorter working hours and personal development above all else.

‘We’ve recently conducted research into this. The findings show that there are far more similarities between generations than we realise. The hype surrounding a fundamentally different mindset among Gen Z – which I also hear from some well-known HR managers – is hugely exaggerated. Our data shows that young people are also focused on the hard cash, even more so than older generations who often already have their financial foundations in order.