The newly appointed CEO of Novartis, Vas Narasimhan, announced last month that he would be linking employee bonuses to ethics as part of a strategy to rebuild the company’s reputation.
Specifics of the scoring system weren’t divulged.
Novartis’ plan raises some interesting questions in the trust, ethics and compliance community. Among them, is it ethical to pay people to act ethically or is it a form of bribery? Will these bonuses elevate ethical behavior? What is the minimum “acceptable” behavioral standard to receive a bonus?
We asked Trust Across America’s 12-member Trust Council to weigh in.
Here are some of their answers:
Art Barter wouldn’t pay ethics bonuses . . .
I personally would not take the approach Novartis has taken just because paying money for a required behavior is too much like a bribe and I believe it sends the wrong message to the organization. It also says that it is ok to act unethically we just won’t provide you a bonus if you do. I think requiring behavior in accordance with the company values is a better long-term solution.
I believe that a focus on culture, understanding why it is important for the organization to conduct itself in accordance with its core values and spending training dollars to ensure this each and every day is a better investment than providing an annual bonus award.
Bob Vanourek likes the Novartis plan . . .
This approach is a good idea for Novartis. We can’t change human nature—there will always be some unethical people. But we can influence human behavior. We influence human behavior through many means: education and training, personal examples and role models, good leadership, shared norms and values, rewards and punishments, and more. Good companies reward (or punish) employees with scoring systems for both achieving goals (results) and “how” those goals are achieved. Scoring a 1 on values and behavior at Novartis (1 = below expectations) makes an employee ineligible to receive a bonus and likely signals they may face demotion or termination. It is a realistic way to grab people’s attention that unethical behavior will no longer be tolerated at this firm.
Randy Conley is on board with ethics bonuses . . .
I applaud Novartis’ efforts to encourage and systematize ethical behavior. Behaving ethically should be the “ticket of admission” for even having a job, but many organizations don’t view it that way. Novartis is taking proactive steps to enforce consequences for salespeople who don’t meet expectations.
Deb Krizmanich likes the innovative approach . . .
Novartis is trying. We don’t know the context or risk appetite they are working from so it is hard to objectively review their strategy. To innovate well we have to accept failure and partial successes, learn, pivot and go at it again. The fact that organizations are trying is, in my mind, the thing of value. They will engage in many critical conversations around this project and that dialogue with their employees, partners and board is priceless in the fight for ethics.
Barton Alexander thinks Novartis is on the right track. . . .
When discussions about ethics are taboo, and individuals are rewarded for unethically achieved results, the culture quickly adapts to this reality without regard to official policy. In this respect, Novartis is on the right track by explicitly withholding rewards for employees who behave unethically. Even more telling will be whether discussion of ethics is normalized and unethical behaviors consistently derail careers at the company.
Charles H. Green said, Hmm — this doesn’t sound right. . . .
There is something prima facie anti-ethical about paying people money to behave ethically. If you have to be paid to be ethical, you’re not. And by reducing ethics to behavioral inducements, the system devalues the ethicality of all actions, regardless of their objective desirability. This reduces ethics to the category of compliance and sales quotas.
Bob Whipple has doubts too. . . .
Whether the Novartis plan is a good idea to resolve the ethical dry rot is debatable. The devil is in the details, but I would raise a caution flag. Essentially they are saying that meeting expectations or being a role model for ethical behavior will earn employees extra pay, while not meeting expectations means you get no extra pay, and it could lead to termination.
So the Trust Council jury is split about whether ethics bonuses are ethical.
But it’s clear that to be meaningful, ethics and trust must remain a top-down strategy built from the inside out. Only then will they have a long-term impact on organizational reputation.
Barbara Brooks Kimmel is the CEO and Cofounder of Trust Across America-Trust Around the World whose mission is to help organizations build trust. She also runs the world’s largest global Trust Alliance and is the editor of the award-winning TRUST INC. book series. In 2017 she was named a Fellow of the Governance & Accountability Institute, and in 2012 she was recognized as one of “25 Women who are Changing the World” by Good Business International.
Interesting topic and many possible approaches on this. I wrote a white paper for SCCE on the issue of using incentives to promote compliance and ethics, Murphy, “Using Incentives in Your Compliance and Ethics Program” (SCCE; 2012), http://www.corporatecompliance.org/Resources/View/tabid/531/ArticleId/814/Using-Incentives-in-Your-Compliance-and-Ethics-Program.aspx . One reason I wrote it was because there was so much knee-jerk resistance to examining and dealing with incentives. People just hate having to actually think about the topic, and often fall back on complaining that it is difficult. They also rely on bromides like “we should not reward people for doing that they are supposed to do” (although in the real world we do that every day – its called “pay”.) The key point is that incentives are used to drive behavior, and to ignore incentives is to ignore reality.
On the other hand, it makes no sense to me to reward people simply for getting through a day without being indicted. I have trouble with giving cash to people for “being” ethical; how do we know what goes on in someone’s mind. But it does make sense to reward management leadership that promotes compliance and ethics.
When we reward management leadership we are asking if the managers and leaders show a commitment to promoting an ethical culture and commitment to following the law. Do they promote a speak-up culture, do they recognize commitment to the code of conduct, do they recognize the need for diligence? Do they make sure their people have the right training? Do they check to make sure people are following the code of conduct? Do they actually look at the code? We are measuring behavior, not an individual’s intrinsic worth.
We should also examine critically the role incentives can play in driving unethical conduct. When incentives are being considered, is the chief ethics and compliance officer in the room to raise questions and challenge assumptions?
The approach to incentives should also not be simplistic. Money is not the only incentive that matters. Who is recognized in the organization? Who gets the best parking space? Who does the top boss invite to lunch? Who does the CEO mention as an outstanding player in the company?
Especially important is who gets promoted. If commitment to doing the right thing is not a factor in determining who gets promoted, then you are kidding yourself if you think you have a strong, ethical culture. Do you promote the ones who take short cuts and break the rules, or do you promote people who speak up about ethical concerns and challenge questionable conduct? Decisions about promotions truly drive the culture.
Do I support bonuses for being ethical? Really I would need to know more about the details. Cash for being “good” is at least odd. Do I support the use of incentives as part of a compliance and ethics program? Yes. If you are not making incentives part of your program, then you probably don’t really have a program.
Thanks for your thoughtful comments, Joseph. I would be interested in your reaction to an article I wrote on the differences between bribes, incentives, rewards, and reinforcement. https://thetrustambassador.com/2018/04/14/successful-supervisor-73-incentives/
Excellent insights Joseph. Your comments reflect the depth and breadth of ethical behavior and the strategies to promote it (or to discourage unethical behavior). At the very least, it is encouraging to see a major company put a stake in the ground to move in the right direction.
Trust Practice Leader
The Ken Blanchard Companies
Thank you, Barbara, for stimulating a debate on this this fascinating topic.
Before considering “ethics incentives”, organizations should carefully consider how their sales incentives are designed. Are they structured in such a way as to promote excessively risky and aggressive sales methods? To managers exert excessive performance pressure? Think Wells Fargo. Richard Bistrong and Marc Hodak have co-authored very insightful pieces on this subject here on the FCPA blog. https://fcpablog.com/blog/2017/3/1/how-perverse-incentives-distort-individual-and-corporate-per.html To paraphrase Einstein: If we layer “ethics incentives” on top of overly aggressive sales incentives, then we are attempting to solve a problem with the same mind-set that created the problem in the first place. It is like pushing the accelerator and the brakes at the same time.
I put “ethics incentive” in brackets because the term is an oxymoron. When people refrain from harmful behavior to receive a benefit or avoid punishment, then this is not “ethical” behavior. We can avoid this semantic problem simply by using the term “compliance incentives.”
There is a vast body of research about incentives and their influence on performance. Here are some key findings that are useful to consider in this context:
1. Incentives perform best when applied to relatively simple, repetitive, routine tasks. They are much less effective when it comes to complex tasks involving creative problem solving or collaborative work. – Is ethical decision making a routine task or a complex task, requiring problem-solving skills?
2. Incentives often diminish intrinsic motivation. When people are intrinsically motivated to do something (e.g., read a book) and then are offered extrinsic incentives (e.g. money) to perform that activity, their intrinsic motivation is diminished. Intrinsic motivation that has been crowded out by incentives is hard to restore. This effect is known by various names, i.e. over-justification effect, corruption effect and crowding-out effect. (see here https://en.wikipedia.org/wiki/Motivation_crowding_theory ). – When we pay bonuses to comply, could it be that we are diminishing people’s intrinsic motivation for ethical behavior?
3. Internalized norms regulate our behavior independent of external supervision. Extrinsic incentives by contrast only work when we are monitored. When no one can monitor our behavior, extrinsic incentives exert much less influence. – If we rely on compliance bonuses to influence behavior, do we also need a watertight surveillance system? Are there even technologies for reliably monitoring the behavior of salespeople?
4. People who have a strong preference to regulate their own behavior (i.e., the most entrepreneurial or creative types) can experience incentives as controlling or disrespectful. They may respond to incentives by doing the opposite of what is required of them, simply to restore their sense of being self-determined. This effect is referred to as reactance or oppositional defiance. https://en.wikipedia.org/wiki/Reactance_(psychology)
5. By incentivizing norm-conforming behavior, we may convert intrinsically motivated behavior into a commodity. Whether or not to conform with the norm is now subject to an economic calculus. Should I take a bribe and lose my bonus, or keep my bonus and refuse the bribe? From a purely economic point of view, then, the compliance incentive will work only if it is larger than the gains resulting from violating the norm (e.g. a bribe offered). – Are the compliance bonuses we are providing generous enough to offset the payouts people stand to gain from breaking the rules?
My hope is that Novartis will do randomized controlled trials (pharmaceutical companies are good at this) to evaluate the effects of this bonus program and then share what they have learned with the E&C field. This could hugely advance our understanding of the issue.
In my view, a basic understanding of motivational research is really helpful when designing effective ethics and compliance solutions. For practitioners who want a highly readable introduction to this topic, I recommend these two books.
Feel free to contact me if you have questions on this subject.
A problem with incentives for a "clean" record is the disincentive to raise problems, for fear of losing the reward for self or others. This is something that happens with some safety reward systems–nobody wants to prevent the workforce from receiving its annual injury-free incentive bonus by reporting an injury on December 27th, so the incident is not reported. Any ethics incentive program needs to be structured carefully to avoid this.
I think it’s a little misleading to say that they are paying people for being ethical. I agree that paying people to do what they should be doing is not a goodd idea. But a bonus system that rewards people for quantifiable results needs a counterbalance against getting those results at all costs. By withholding a bonus someone has earned if their behaviors are inconsistent with the companies values, there is a built in measure to discourage getting results just to earn a bonus without following the rules.
Judy, you nailed it. Novartis is not paying people for being ethical, they are refusing to pay those who get results by violating ethical values. As I mentioned in the article, that's a good start, with the proof in the corporate culture.
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