Compliance Incentives: Winning the Game

/

“Why should we incentivize good behavior? It’s required to work here.”

Nearly every compliance officer that has brought up the idea of incentives has heard that response. It can be demoralizing, especially since we know that the Federal Sentencing Guidelines specifically call out incentives as a part of the evaluation of an effective compliance program. And that the DOJ’s guidance tells prosecutors to consider the use of incentives in program review.

Put Your Money Where Your Mouth Is

Humans respond to incentives. Incentives focus behavior because they offer the chance to obtain something of value in exchange.

Just look at sales incentives and bonuses.

No CEO ever questions why salespeople get bonuses for hitting their goals, and yet, when we apply the same logic to compliance and ethics, many get uncomfortable. 

Because humans prioritize that from which they benefit, incentives make for good business.  When companies implement compliance incentives, they put their money where their mouth is, showing that compliant and ethical behavior matter. 

Giving people an incentive shows that the company is committed to doing the right thing in tangible ways. It also provides a countermeasure to the more prominent disciplinary consequences of doing the wrong thing, allowing the compliance and ethics program to be seen in a more positive light.

But, compliance incentives can be tricky. Even if we get buy-in to use them, how do we create them effectively? How do we systematize them so that they do what they’re meant to do?

Here’s where you should start.

The 2 Different Kinds of Incentives

There are two different kinds of incentives – quantitative and qualitative.

Quantitative incentives are measurable. A requirement such as “lead two ethical moment discussions at team meetings this year” is quantitative. Either the presentations happened or they didn’t.

A qualitative incentive is given for using subjective criteria. For instance, words like “excellence” or “above and beyond” cannot be qualified mathematically, but they are valuable because they reward intangible but important behavior.

People sometimes object to qualitative compliance and ethics incentives because they feel that “shows integrity” is too hard to define.  However, companies use qualitative evaluations all the time. For example, identifying whether an employee has high leadership potential or manages their team well is inherently subjective, but they are consistently used in employee evaluation.  

In an ideal world, you will be able to use a mix of qualitative and quantitative incentives.

4 Parts of an Effective Incentive

Incentives all have four parts:

1.     An incentive must define the behavior that will be rewarded.

2.     An incentive must define the reward.

3.     An incentive must have a defined threshold for attainment.

4.     An execution plan must be created.

Let’s look at each in detail. 

Part 1: Behavior

For an incentive to be effective, the desired behavior or activity must be identified. This may include:  

  • Completing training on time (quantitative)

  • Ensuring the entire team completes training on time (quantitative)

  • Showing exceptional ethical leadership (qualitative)

  • Showing courage in the face of ethical difficulties (qualitative)

  • Exemplifying company values (qualitative)

  • Leading “ethical moments” or having ethics discussions at team meetings (quantitative)

  • Successfully cascading communications from the compliance team to all direct reports (quantitative)

  • Using pieces of the manager communications toolkit with teams (quantitative)

  • Inviting compliance to give a training session at team meetings (quantitative)

  • Commenting on internal social media about compliance (quantitative)

Choosing the behavior you want to reward is part one. 

Part 2: Reward

The next part of an incentive is the reward. Rewards come in two types – tangible and intangible. 

A tangible reward is one that can be touched or used. This may include:

  • Cash

  • Gift cards

  • Vacation days/time off

  • Free company products

  • Material gifts

Intangible rewards are those that are a thing of value without monetary use. This typically involves recognition. This may include:

  • Winning an award

  • Being featured in company newsletters/intranet

  • Spending time with the CEO or other high-level leader

  • Attending a party or major meeting

  • Being celebrated in other ways

Be aware that in some states or countries, rewards of monetary value may bring tax implications for the employee. Be sure to speak to your finance or tax department before launching an incentive program with potential tax consequences for employees.

Part 3: Threshold

The next part of the incentive is determining the threshold for accomplishment. This helps employees to know what is required to obtain the incentive. This may include:

  • Performance of a certain number of activities

    • e.g., Leading two “ethical moments” sessions in front of the team

  • Obtaining a numerical threshold

    • e.g., Achieving at least a 90% score  on the Ethical Culture survey in response to the question, “My manager acts ethically”

  • Being nominated for and winning an award

  • Meeting a goal

    • e.g., The team all completes their training within two weeks of its deployment

The threshold piece is critical as it defines when the behavior that is incentivized will be rewarded.

Part 4: Execution

Execution is often the hardest piece of the puzzle. Tough questions must be answered here like, “Who determines whether someone has upheld the ethical values of the company?” 

Quantitative incentives are often the easiest to implement because the answer is black and white.  Either the manager performed two ethical moments sessions at their team meeting over the year or they didn’t. This is a reason you may want to begin with qualitative incentives and move into qualitative ones once the company is used to the idea.

The easiest way to implement a qualitative incentive is to start with a recognition program.  Allow managers or others to nominate people on their team for excellence in ethics or commitment to compliance, then celebrate the winners with some sort of award and company-wide recognition via a profile on the intranet, blog, newsletter, or via email. Moving into using qualitative incentives as part of company-wide reviews can evolve out of the recognition program. 

Other Resources

Information on incentives can be hard to come by. Joe Murphy wrote a terrific piece on incentives that highlights the mindset issues. It can be found HERE. Tom Fox also wrote an excellent blog on this topic that can be found HERE. 

The Bottom Line

The bottom line is that incentives are a hallmark of a mature compliance program and one that is sure to bring a smile to a regulator’s face. Their use should be something to aspire to and to bring up year on year.

It may take some time for leaders to get used to the idea of compliance and ethics incentives. But, as humans will always respond to rewarded behavior, the sooner you can incentivize good behavior, the better.