Corporate governance, incentive schemes, and safety performance in the construction industry

Addressing workplace health and safety has been identified as a dimension of Corporate Social Responsibility (CSR). A socially responsible business is characterised by good corporate governance that provides a healthy and safe work environment. Under the umbrella of CSR, this study examined a specific element of corporate governance, i.e. senior executive incentive schemes, which are the key mechanism used by Boards of Directors to align senior management's interests with organizational interests. The specific focus here is long-term incentive plans (LTIPs). This study investigated what senior management have been incentivized to achieve by LTIPs, and whether, or how, the incentives are aligned with the organizational strategic objective of safety performance. Annual Reports of publicly listed construction companies in Australia were collected and subjected to content analysis. The research found that LTIPs were exclusively related to financial measures with safety indicators not included in any LTIPs. This suggests that the structure of LTIPs may only incentivize senior executives to focus on financial performance thus overlooking safety performance. The design of LTIPs may not contribute to corporate governance capable of producing good safety outcomes. Future research is needed to explore ways to align incentives, senior management motivations and safety performance in the construction industry.