Scaring bankers likely to result in unethical behaviour

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Tough approaches to poor employee performance regarding behaviour and reaching targets can result in the likelihood of more unethical conduct within financial services, according to a joint PwC and London Business School report; Why you can’t scare bankers into doing the right thing.

The report, based on 2,431 managers from UK financial services organisations representing banking, insurance and wealth management, reveals that when presented with situations with negative consequences or punishment for poor performance, managers were 15 percent more anxious than excited, resulting in them being twice as likely to behave unethically.

Managers who were presented with the same situations but with positive outcomes of success, were correspondingly more excited, which would lead them to be twice as likely to demonstrate innovative behaviour.

Duncan Wardley, people and change director and behavioural science specialist at PwC, comments:

“We are not suggesting that rules and penalties for bad behaviour should be abandoned as it’s essential that people know what is acceptable and what isn’t, and criminal behaviour should be punished.  This is about the sorts of pressures that push ordinary, well-meaning people into behaving less ethically that they would want to by cutting corners and hiding mistakes.

“Regulators and financial services leaders can change behaviour within companies by increasing emphasis on the positive outcomes of good performance, instead of solely focusing on the negative outcomes of the bad behaviour they want to stamp out.”

The research also looked into bonuses as a motivating factor and found that size isn’t everything.
Managers were asked how the companies approach to rewards made them feel. When they felt anxious they tended to say money was one of their key motivators, they also tended to take more risks and make unethical choices.

On the other hand, people who said their company’s approach made them feel excited were less driven by money and were more likely to be motivated by approval from their bosses, colleagues and clients for doing another job.

Commenting on remuneration and reward implications, Tom Gosling, head of pay, performance and reward at PwC, says:

“Tough medicine prescribed by regulators to curb conduct issues meets the public appetite for retribution. But pay regulation based purely on pay structures and penalties can unintentionally create the very conditions that make unethical behaviour more likely. Our research shows that an approach to pay regulation that focusses too much on pay instruments, deferral, and clawback can create the emotional states in which creativity is crowded out, focus on financial rewards is maximised and unethical behaviour is more likely.

“Deferral and clawback are necessary pieces in the puzzle. But pay regulation has become too focused on how people are paid and not enough on what people are paid for in the first place. Regulators need to focus on creating a positive culture in which ethical behaviour is a result of employees’ intrinsic motivation as opposed to fear of negative consequences.”

 

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  1. twice as likely to demonstrate innovative behaviour Will that innovative behaviour be the same as their miss selling (fraud) of PPI?

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