Fall 2015 Issue of Horizons

Another mechanism to emphasize the importance of ethics is to provide employees with a means to submit real examples of excellence in ethical decision-making or behavior that they have observed in the organization. Management can publicly acknowledge and praise the examples received, as well as consider providing other rewards to the ethical employee if the situation merits. This form of reverse hotline, in which management seeks to collect reports of positive behavior, rather than just ethical breaches, highlights the importance the company places on detecting misconduct and fostering ethical conduct. Whatever reward mechanisms management enacts, a large part of successfully incentivizing employees to act ethically is to define specifically what type of behavior company leadership considers ethical. A clear and helpful way to do this is to tie these expectations to the company’s value statements. As with any other performance measurement, the examples must be observable behaviors to facilitate witnessing, monitoring and rewarding—or correcting, reprimanding and punishing—specific incidents based on the clear criteria provided.

However, simply appointing a chief ethics officer to the executive team does not ensure that the organization’s ethics program will be effective; the individual must also be provided sufficient authority to carry out these responsibilities. 8. (a) Most organizations have performance management programs in place to address and discipline ethical breaches. But far fewer entities have implemented measures to formally incentivize desired behavior. In other words, for many companies, the stick is present, but the carrot is missing. To be fully effective, a comprehensive ethics program should include mechanisms to address both angles of encouraging ethical behavior. Perhaps the most common method of incentivizing ethical behavior is to incorporate ethical considerations into employee performance evaluations. Requiring an assessment of employees’ ethics ensures that management evaluates employees not only on which performance objectives they met, but on how those goals were achieved. To reinforce the importance of these factors, the results should be considered in determining the employees’ bonuses and salary increases. The results should also be a key factor in all promotion decisions. Additionally, this type of assessment should carry as much weight—or even more—in executives’ performance evaluations as they do in staff-level employees’ performance evaluations. Providing managers with the authority to reward employees who exhibit a high level of ethics, such as with a small gift or bonus, a one-on-one lunch or some other incentive, is another effective way to incentivize ethical behavior.

Scoring If you answered all eight questions correctly, congratulations. Your thorough knowledge of effective ethics program design will help you effectively in the fight against fraud and misconduct. Keep up the good work. If you answered six or seven questions correctly, you’re on the right track. Continue to build on your knowledge of ethics and fraud prevention programs. If you answered fewer than six questions correctly, you may want to brush up on your knowledge. Enhancing your understanding of effective ethics program components will help ensure that you have what it takes to keep your organization protected from fraud.

This article originally appeared in Journal of Accountancy. © 2015, American Institute of CPAs. Used by permission.

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