What is the ethical issue?

Companies can experience a gap between having a business ethics programme in place and its absorption by employees. In considering ways of closing this gap, a number of organisations are no longer relying on negative deterrents but are developing positive incentives to encourage high ethical standards throughout their business.

Some organisations consider the only reward necessary to incentivise ethical behaviour in an organisation is to assure employees they ‘are doing the right thing; seeing this as a sufficient reward in itself. Yet many companies recognise that this still allows ethical lapses to continue, and find a more active approach is an effective way to sustain high ethical standards, through more tangible incentives. 

The nature of incentives can vary from business to business. They boil down to two principal methods: sanctions and rewards. The first, sanctions, is the threat of disciplinary action when any part of the code of ethics (or equivalent) is breached. This action can often manifest itself in termination of employment. Contrastingly, rewards are the provision of some form of inducement to behave ethically, be it monetary or non-financial, that can positively influence continued ethical behaviour. Rewards may be linked to annual appraisals. Employers need to consider which of these two approaches benefits the employees and the organisation the most.

The issue that arises for employers through incentivising, is ensuring that the process is fair and open. Organisations need to demonstrate to employees that taking into account ethical values in both their decision-making and their relations with principal stakeholders can reap rewards. Yet these rewards need to be measured and clearly justified, so as not to face backlash from other employees, stakeholders or even the public. Incentives can create divides between employees, so outlining why they have been distributed can encourage wider ethical behaviour.

IBE Guidance

A summary of good practice

• Incentivising allows organisations to demonstrate to employees how an ethics policy applies to their day-to-day business life, thus embedding ethical behaviour further into daily practices. A survey by Deloitte indicated that senior management and immediate supervisors taking a positive approach to encouraging ethical standards was an important factor in the promotion of ethical practice in the workplace. Positive reinforcement of ethical behaviour through some kind of reward is seen by many companies as worthwhile.
• There are also key indicators and attributes of an effective incentive scheme. Incentives need to be seen as fair by recipients and others in the organisation, and directly related to the company's core values. Incentives also need to be easily understood by employees, and incentives should be proportionate in size to the achievements being recognised.

Further resources