By Adam Turteltaub
adam.turteltaub@corporatecompliance.org
Goals and incentives are two cornerstones of business. Few, if any, organizations operate without one or both. But, as two recent articles show, incentives and goals contain significant risks.
The Associated Press reported on September 8 that Well Fargo had reached a $185 million settlement with several regulators over illegally opened accounts.
The bank was reported to have set very aggressive sales goals for its employees. How did employees meet the goal? According to the Consumer Financial Protection Bureau, Wells Fargo sales staff inappropriately opened more than 2 million bank and credit card accounts that may have not been authorized by customers.
In addition to the large financial settlement the bank reportedly fired over 5,000 workers as a result of this behavior.
Clearly this was no rogue employee incident.
Recent research into human behavior suggests that improper behavior in achieving goals, especially hard to achieve goals, should be expected. That according to an article last week in the Harvard Business Review (HBR).
The authors reported on research they conducted which revealed that individuals given specific goals – hit this number – were more likely to cheat than those told to simply “do their best”, if they scored high on a test of their tendency toward moral justification.
The researchers assessed the tendency to moral justification by measuring “…agreement with statements such as, ‘It is all right to exaggerate the truth to keep your company out of trouble.’” The authors go on to explain “…only people prone to moral justification used the performance goal as an excuse to cheat. This suggests that while goal setting may indeed have negative consequences on ethical behavior in organizations, only people with particularly susceptible personality traits may be prone to the effect.”
A second experiment, they conducted, however, showed even greater risks. Here they found that “… participants who were given a specific performance goal for how much revenue they had to earn were almost twice as willing to use unethical methods to achieve it than those given a vague goal, irrespective of their moral justification.”
So, where does this all leave business? Goals and incentives are not going to go away.
For one, it’s a reminder that a compliance risk analysis should include a review of the risks inherent in the company’s own goals and incentives plans. For at least some of your employees, the incentive system is a road map for where to cut corners. And, as the Wells Fargo issue seems to indicate, not just a few employees but potentially a large segment of the population will break the rules to meet their goals.
Second, as the HBR authors recommend, it is critical to remind employees that achieving the goal is secondary to ethics. There can be no moral justification of cheating.
And, finally, we need to remind the business units that the more aggressive the goal, the more temptation to cheat, and the greater the risk of an expensive compliance failure.
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Bravo! Let’s add that, from recent reports, publicly rewarding the presiding executive with millions in compensation and a big CEO pat on the back while allowing such wide-scale misconduct to occur likely sets the wrong tone.
My experience is much the same you must watch the goal and keep an eye on what else might be happening that would cause an employee to move over the edge. I had an employee who needed the “bonus” to pay for some medical care for their child–stepped over the edge and as a consequence lost their job.
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