Performance-based management incentives at the Fiat Group: a field study

Abstract

This paper describes the findings of a field study of the performance-based management incentives used at the Fiat Group, the large Italian company primarily engaged in the manufacture and sale of vehicles. The purpose of the study was exploratory because knowledge of how Italian firms use management incentives is almost non-existent. The findings show that Fiat's incentive programme is quite similar to those used in most divisionalized U.S. corporations in that, for example, rewards are based heavily on short-term accounting measures of performance; highly achievable budget targets are one of the most important standards to which actual performance is compared; and few adjustments are made for the effects of uncontrollable factors. The paper suggests several questions worthy of further study, including why Fiat's system is so similar to those used in U.S. firms, whether incentive systems can be implemented successfully only when the firm's prospects are bright, what makes for a successful corporate restructuring, when it is desirable to limit managers’ bonus potentials, and whether concern about longer-term perspectives is a sign of a maturing incentive system in growing businesses.