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

Publication type: Survey

Attitudes of the British Public to Business Ethics: 2019

The 2019 results of the IBE's annual survey of the attitudes of the British public to business ethics.

17 December 2019

Publication type: Other

A Year In Review: Ethical Concerns and Lapses 2018

Read the IBE's annual analysis of business ethics news stories from the last year - which were the sectors and issues most in the news in 2018?

30 January 2019

Publication type: Survey

Attitudes of the British Public to Business Ethics: 2018

The 2018 results of the IBE's annual survey of the attitudes of the British public to business ethics

13 December 2018

Publication type: Survey

Attitudes of the British Public to Business Ethics: 2017

The 2017 results of the IBE's annual survey of the attitudes of the British public to business ethics

12 December 2017

Publication type: Board briefing

Fair or Unfair: getting to grips with executive pay

This Board Briefing offers both practical advice on how remuneration committees can address the challenge and some pointers to possible reform centered around the need to be clear about the value of what is being awarded and the pace at which remuneration is earned. Fairness and simplicity are the two themes which run through this publication.

10 February 2016

Publication type: Research report

Fairness in the workplace: Staffing and employment contracts

This IBE Briefing considers ethical issues related to staffing arrangements and employment contracts. Specifically, it looks at the potential ethical implications of the ‘casualisation’ of the workplace, including zero hours, agency contracts, part-time workers and transfers under TUPE.

30 April 2015

Publication type: Research report

Fairness in the Workplace: Pay

This Briefing looks at how fairness can be achieved in the specific areas of executive remuneration and paying a living wage. It also briefly addresses some additional pay issues, and provides examples of ways in which some companies are addressing the issue of fairness in pay.

02 July 2014

Publication type: Business ethics briefing

Supply Chain and Payment Practices

This briefing explores the three issues involving supplier payments. It then looks at governmental attempts to curb the problems and how companies are addressing the issue.

06 November 2013

Publication type: Research report

Incentivising Ethical Behaviour in Staff

This Briefing analyses the different ways of incentivising ethical behaviour, using ‘carrots’ or ‘sticks’. It outlines 6 attributes of an effective incentives scheme.

11 September 2009