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

Large numbers of workplace injuries and fatalities are reported annually in the construction industry, which not only incur substantial economic cost (e.g. compensations), but also have considerable social impact (e.g. bring pain and sufferings to individuals and their families). Improving safety performance has been a strategic priority for many construction companies. Addressing work health and safety (WHS) has also been identified as a dimension of Corporate Social Responsibility (CSR), which is concerned with integrating environmental, social and economic considerations into business strategies and practices. Research in the Australian construction industry has identified major characteristics for a socially responsible business, including good corporate governance that provides a healthy and safe work environment for workers. Under the broad umbrella of CSR, this study examined a specific element of corporate governance, i.e. incentive schemes for senior executives. Incentive schemes are the key mechanism used by Boards of Directors to align senior management’s interests with organisational interests. The specific focus here is on the long-term incentive plans (LITPs), which form the largest component of senior executive remunerations. 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 companies in the Australian construction sector 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 raises concerns that the structure of LTIPs may only incentivize senior executives to focus on organizational financial performance thus overlooking safety performance. Consequently, the existing 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.