Business Insight: Incentives can’t be at expense of industry ethics

Published 1 October 2018
Industry ethics column Incentives need to be carefully designed to meet all the corporate responsibilities

Article by Southern Cross University Business lecturer and researcher David Noble

The subject of ethical money management has again come into focus in recent months thanks to damning headline after headline coming out of the Royal Commission into the banking and financial sector.

The fact that so many senior financial executives have been grilled so deeply about their practices, and have provided so few acceptable responses, suggests an endemic problem across the entire sector. Too often their pat response along the lines of “We didn’t realise it breached the law” or “We have changed our procedures” provides little comfort to the thousands of customers who have been exploited by a powerful and protected sector of our business community.

Most modern companies, and particularly regulated companies in such sectors as financial services, have operating protocols that are intended to guide their interactions with clients, regulatory authorities, and other businesses. What has become evident at the Royal Commission is that not only operating protocols but the very principles upon which we expect one another to behave have been abandoned.

One of the recurring themes from the Royal Commission seems to be related to the payment of commissions to incentivise behaviour. In too many cases, it seems that ethical standards have been jettisoned in the pursuit of the mighty dollar.

Now, I’m not against financial incentives to motivate employees; but too often too little thought goes into accounting for the downstream consequences of such a system. Incentive systems themselves aren’t the problem in the financial sector, but they are part of the problem. Incentives need to be carefully designed to meet all the corporate responsibilities under which the organisation operates; be fair to the employee (in other words, doesn’t place them under undue pressure); and treat the customer with respect and dignity.

I encourage employers to ask a few important questions as they design an incentives system, such as: how could this system be ’gamed‘ by the employee; if the employee doesn’t achieve a commission in any one month, is the wage they receive liveable; if the wage isn’t liveable, what pressures might that place on the employee to engage in corrupt practices; and is this the best way of operating for my business, the employee, and the customer? If these important questions are addressed, then you are well on the way to operating an ethical incentive system.

This article originally appeared in the Business Insight section of the Gold Coast Bulletin newspaper on 29/09/2018 and is for general information purposes only.

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