Incentivizing Ethics: What Does the Future Hold for Paying for Ethical Behavior?

Originally published in NAVEX Global's Top 10 Ethics & Compliance Trends for 2019 eBook.

Over the years, organizations have tried many different approaches to incentivize ethics with decidedly mixed results. In 2018, at least one company received considerable attention for its program to grade employees on their ethical behavior, which linked to bonus eligibility. In the coming year, we expect other organizations to follow this lead and create their own ethics incentive systems.

Even though this topic is currently getting a lot of exposure, it is not new. But few ethics and compliance topics have been the subject of more heated debate. To understand more about the price of paying for ethical behavior, let’s review some pros and cons.

Pros of Incentivizing Ethical Behavior

  • Incentivizing ethics seems like common sense. As Joe Murphy argued, incentives are used throughout our business operations to drive behavior. Ignoring incentives when it comes to ethics is ignoring reality, and it neglects an opportunity to make the most of an effective management tool.
  • Incentives can be an excellent way to send a strong signal that ethics and compliance are important to an employee’s success.
  • If it accomplishes nothing else, the creation of an ethics performance system is bound to stimulate discussion about ethics, values and compliance and increase awareness among employees and others.

Cons of Incentivizing Ethical Behavior

  • As a member of Trust Across America’s Trust Council noted: “There’s something prima facie anti-ethical about paying people money to behave ethically. If you have to be paid to be ethical, you’re not.”
  • It may send the wrong message: Acting ethically is an “extra,” and it’s OK to act unethically, you just won’t receive a bonus.
  • It rewards people for doing what should be a basic condition of employment.
  • From a more legal point of view, there are concerns that a negative evaluation can be discovered and later used against the company in litigation. For instance, if a person with “substantial authority” receives a poor ethics performance review and is subsequently involved in additional wrongdoing, the company may need to prove that it properly addressed the initial negative evaluation. Without sufficient documentation, it could indicate that the company’s compliance program is ineffective.
  • Perhaps most importantly, ethics performance and bonus plans can create a disincentive to raise problems. We’ve seen this occur in safety programs. Employees may be unwilling to raise concerns if doing so may tarnish the team’s or the manager’s record. Any ethics incentive program needs to be structured carefully to avoid this.

Measure Value, not Tasks

As you consider if/how you will incentivize ethics, there is a key question to answer: Which standard will you use to assess ethics?

Values-based assessments often result in inconsistencies, and over time can lead to “grade inflation."

Most managers dread having to grade employees on subjective values-based criteria such as “living the standards” or “acting in accordance with our core values.” While this approach may work well for identifying behavior at the extremes, it is very difficult to apply to the vast majority of employees in any meaningful and actionable way. In addition, values-based assessments often result in inconsistencies, and over time can lead to “grade inflation.” It’s far easier for managers to hand out “above-average scores” rather than explaining why an employee “needs improvement” or was only average on “living the value of respect.”

If a values-based approach is taken, managers should be given guidance and training on how to make evaluations. Findings should be documented, and the company should have an established process in place for consistently addressing negative assessments.

For these reasons, most organizations instead opt for systems that use objective and data-driven criteria. As Tom Fox noted, “the simplest way to incentivize employees is to create metrics that they readily understand and are achievable in the context of the compliance program,” such as completing training. Other similar goals include code certifications, engagement survey results and cooperation with specific compliance office requirements.

While this has been the preferred approach, it is not without its problems.

Understanding the Fine Line Between Incentivizing Ethics & Gaming the System

  • Objective-based approaches can contribute to the sense that ethics is all about completing compliance tasks. While compliance tasks are certainly important, an overemphasis on check-the-box tasks runs counter to efforts to position ethics in terms of values and culture.
  • Instead of encouraging employees to always act in a way that is consistent with the company’s values, it creates a subset of tasks that “count” and devalues other actions that don’t.
  • Performance targets of any type – including ethics targets – can create pressures to cut corners and aggressively pursue goals.

The last point above creates the ironic situation where ethics goals can promote unethical behavior. Whenever a performance target is quantified, there is an incentive to manipulate the process to attain the desired number. Engagement surveys are especially prone to management manipulation and efforts to steer employees to the desired answers. Employees themselves, even without coaching, can skew survey results to avoid further attention from the compliance office or to ensure that their boss receives his or her bonus in the hopes that it will improve their work environment. These actions not only undermine the effectiveness of the survey but also artificially inflate the apparent ethics performance of the manager or employee group.

Key Steps for Organizations to Take

Review Existing Corporate Incentive Plans

Before creating new ethics-based incentive programs, an immediate impact can be made by reviewing existing incentive plans. Ethics officers should make it a priority to critically examine the role incentives are currently playing in driving unethical conduct throughout their organization. This may include incentives tied to sales and revenue targets. For example, are they structured to promote excessively risky and aggressive sales methods? Do managers exert excessive performance pressure?

Consider Alternatives to Monetary Incentives

There are many ways to incentivize performance, and they should be considered in addition to (or instead of) monetary performance awards. Recognition can be based on courageous or exceptional behavior that aligns with the goals of the company’s ethics and compliance program or it can identify consistent behavior over time. Non-monetary recognition can take a variety of forms, including:

  • Featuring employees or teams on the company website or newsletter
  • Acknowledgement from the CEO or other leaders
  • A company donation to a charity of the employee’s choosing in the employee’s name
  • Perks such as time off or a preferred parking space

Understand the Power of Promotions

Whether or not you consider building an ethics incentive plan in 2019, remember that by far the most important and effective ethics incentives are promotions. Decisions about promotions truly drive the culture. Employees take note of who gets promoted. If your organization promotes top performers who are known to act contrary to the company’s values, or otherwise undermine ethics and compliance, that message trumps all others. And on the flip side, if it is clear that ethics and values are a key component of who advances, that too sends a clear message.

Chat with a solutions expert to learn how you can take your compliance program to the next level of maturity.

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