ANALYSIS: Performance Management for an Ethical Culture

With additional comments by compliance expert Richard Bistrong

Checking up on employees to see they’re doing their job well is in disarray.

Most managers hate doing annual performance reviews. Many completely fail to do it properly or at all. Those on the receiving end of appraisals–to give performance management yet another jargon title—generally distrust, dislike and often deride the entire experience.  Almost one in three employees think it’s unfair how their company makes sense of what they do. [1]

A similar study just released by the CIPD also found that consistency and transparency of the appraisal process depends almost entirely on how the manager actual behaves during the review. Managers themselves are more positive about the time they spend with employees discussing for example,training and development opportunities than employees.  [2]

Millenials in particular need to be managed differently.  For example they place greater value on informal feedback from their manages 50% more often than older peers. [3]

Consequently some organisations, such as Netflix now take a radical approach to ensure those on the receiving end have a more creative and engaging experience.
Performance Management 2Others struggle on, using ever more sophisticated refinements to the appraisal process. They hope the annual event will somehow freshen up engagement and justify often dubious promotional or pay decisions.

Performance management based on an annual event is patently pointless and often counter productive. To work at all, it must be continuous—with a focus on constant improvement and done regularly.  Appraisals continue to matter because they exercise a major influence on how people regard their company and on how they behave.

Yet six out of ten FTSE companies that still rely on formal performance appraisals also fail to include ethics in their employee appraisals. While many of the largest make sure people are hitting their targets fewer focus on how results are achieved. For example, there is seldom any effort to review whether an employee reached goals with integrity, and lived up to the company values.

Unethical behaviour is widespread in the UK workforce. According to a recent study of 1600 managers, nearly three out four (72%) had witnessed staff lying to cover up mistakes and over half (57%) had seen people take credit for other’s work.
Institute of Leadership and Management, 3 November 2014

Even so, increasingly sophisticated ethics and compliance programs are:

“…creating new norms in worker conduct. By almost every measure companies are working harder to build strong cultures and further develop their ethics and compliance programs.”
National  Business Ethics Survey 2013

A new 63-page report from the Institute of Business Ethics examines performance management in depth. It asks what supports an ethical culture, how the assessment process can deal with ethics, and explores the use of compensation awards. It concludes with a useful performance management check list.

no brainer2Building an ethical culture

Business success is increasingly strongly associated with an ethical corporate culture. See for example Ethics Pays–The corporate no brainer. Companies therefore ignore ethics at their peril and to the detriment of their long-term survival prospects. [4]

How then can the performance management, or appraisal  process support an ethical culture?

First, as this report makes clear, the pay and incentives for employees affect whether a company has a sustainable ethical culture. There are countless examples of misalignment of compensation with core values. For example, the mis-selling of payment protection insurance (PPI), and of course the distorted rewards to traders that led to the criminal fixing of Libor and Forex rates.

Shock horror

It is usually easy to know what gets rewarded financially.  Less so how people got there. The banking industry for example, is mired in this issue as regulators and corporate leaders struggle to incorporate a “how” into the more easily measured “what.”

There are measurable and qualitative benefits from building ethical behaviours into whatever performance management  process a company adopts. Not only does this show employees the company is serious about how business is done. It ensures those promoted and retained are good role models. It also encourages trust and engagement about what the company stands for. The IBE report provides a detailed list of the benefits from this kind of action.

There are enablers and obstacles for an ethical culture the IBE report suggests


Making sense of ethical performance

Next the IBE report explores what will help an organisation align performance management with the commitment to high ethical standards.

The first step is to ensure people “know what success looks like.”  They must understand how an assessment of performance will be made and the weight the company attaches to the what and the how.

Events have rather overtaken the authors of the IBE report in using Serco as an example of good practice. It is offered as having a broad competency framework including ethical standards. However, the company has demonstrated far from ethical behaviour in the last year or so. Recently  its CEO told a parliamentary committee he was was “deeply sorry” about flawed ethical actions and “I need to make sure that they don’t happen again.”[5]

In contrast, IBE highlights Cross Rail’s explicit list of ethical competencies and behaviours. For cross railexample, “be yourself stand up for what you feel is right and important”.

Another set of examples from the report shows how different companies interpret the value of respect. There is also an interesting section on evaluating behaviours, showing how tricky it can be to make these objective or rigorous. One way forward may be to separate action from outcome–this can be “particularly important when appraising managers.”

Compensation, rewards and incentives

The history of compensation is the story of failure to walk the talk. Distorted incentives schemes have literally caused damage at the expense of fellow human beings. For example in the Siemens bribery case incentives were found to encourage corruption.

customer excellenceThe IBE study found it was common for ethical values to be seen as generally incorporated into the overall behavioural assessment, rather than being separated out as a separate source for reward.

Rewarding for good ethical behaviour tends to be rare. This is partly because it’s hard to nail down and instead companies often use non-financial incentives, such as public recognition like “Best Colleague”, nominations for Customer excellence” or an “Integrity in Action award.”

This section of the report shows how tricky it can be to first define what the organisation will reward in the way of ethical behaviour, and secondly how it will make the reward seem worthwhile. Thirdly, it argues for any reward to really promote ethical behaviour and not the opposite.

Checklist:Performance management for an ethical culture

The IBE report concludes somewhat abruptly with a basic check list to promote an ethical culture. This is done through four elements of performance management: Preparation; Introducing values to the system;  Appraisal; and Reviewing the success of the system in supporting values.

conclusion (1)

This is a useful resource but over long, and often unduly abstract; there are some revealing case examples in the appendices.
Performance Management for an ethical culture, IBE
[symple_toggle title=”Additional sources” state=”closed”]
  1. CIPD Employee Outlook Survey 2014
  2. Employee Outlook, CIPD December 2014
  3. Workforce 2012, The Looming Talent Crisis, Success Factors
  4. Ethics Pays: the Corporate No Brainer,
  5. A.Osbourne, “We got it wrong” admit tagging firms G4S and Serco, 20th November 2014


BistrongCompliance expert Richard Bistrong comments on Performance Management for an Ethical Culture, IBE

Does the IBE paper help organizations address business practices to show business success and ethical behaviors can actually be complementary goals?

Yes, as the paper states: “The way that people are assessed, compensated and rewarded has ramifications for what an organization achieves and how it achieves it.”

Compensation and performance appraisals need to address the how of business success as well as the results. For example, how much longer can we accept the “high-fives” which occur in Board Rooms and C-Suites when aggressive business targets are celebrated in high-risk areas but with poor integrity reputations? Is anyone asking “how  did we get there?”

“A strong performance management process will convey how we do things around here and identify weak spots in the ethical culture.”

Too often formal compliance programs, including anti-bribery compliance, get ignored at the field level. This is where bonus plans promote a “win above all else” mentality. The unspoken rules of behavior trump the formal “bolt-on” compliance policies and procedures.

“The CEO is an Enabler”

This new report states “the CEO must act as a role model, being evaluated on and evaluating his or her direct reports on how they have achieved as well as what they have achieved.”

This maybe true but as a recent E&Y Survey showed [6]  there remains a surprising percentage of C-Suite executives who, when financial times are tough, are willing to “bend the rules” to make the financial plan.

When those down the organizational chart see such behaviour occur at the top, the message is loud and clear: rules can be broken, if you really need to “make your numbers.”

balanced score cardThis is where I get cynical having seen the misuse of balanced scorecards, MBTIs, 360s, strategic wheels, among other widely used strategic concepts.  For example such programs are sometimes called “kidney stone” concepts among attendees. That is, they’re painful while they are being implemented, but if you wait long enough the pain subsides, and things return back to normal.

One particular program from the IBE paper though that did get my attention was Airbus. There,  “management level employees are expected to have one ethics and compliance objective as part of their annual objectives.”

That surely makes sense, both academically and practically. An articulated, measurable objective that is part of how business is conducted. From everything I have read about Airbus, they mean it!

Unethical“Companies may have financial targets that can only be met by resorting to unethical practices.”

The report speaks to a question I continue to ask, but have seldom seen properly addressed: Are companies willing to move aggressive sales forecasts and businesses practices back so as to move ethical programs and compliant behaviors forward?

No matter how many balanced scorecards, 360s or other “kidney stone” programs are implemented, the actual strategy needs to  be looked at with a “clear eyed” view of what risks will be encountered. If this does not happen the rest is window dressing.

Before drilling down into assessment models and performance management practices, managers and leaders should take a look at those issues. If those “clear eyed” decisions are addressed, along with the promotion of ethical business standards and practices, then the IBE Guide has some excellent suggestions of best practices and recommendations.

There are also some excellent and appropriate human resource and appraisal “best practices” worth exploring.


“Overcoming Compliance Fatigue: Reinforcing the Commitment to Ethical Growth: 13th Global Fraud Survey “

Richard Bistrong, Anti-Bribery blogger, speaker & former FBI/UK Cooperator blogs on compliance Issues at and on twitter at @richardbistrong




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