Are Your Performance Standards Undermining Your Corporate Ethics?

How to set targets that incentivize employees to do the right thing

I think any executive who wants to promote integrity in their workplace should think long and hard about the performance target numbers you post on the wall because they can have unintended and damaging consequences. Obviously, there can be tension between profits and the larger ideals of your brand. If you reward your sales or marketing teams on the basis of certain raw numbers—I’ll use eBay as an example and say the number of listings posted, or the dollar volume of transactions in a category—you may unconsciously be incentivizing employees to overlook unethical behavior.

At eBay, I became frustrated at times with our marketing category managers who defended sellers we would internally rate a C-or D, whom I thought we should kick off the platform. The pushback was that they still were driving business to us. An eBay employee who was evaluated on the basis of growing the number of listings or the dollars made by eBay actually had no incentive to crack down on C-sellers. The manager personally achieved the same benefit from the C-transaction as from an A+++ transaction. The trade-off I would pose was: How much are we losing when a buyer has a bad experience and goes away and doesn’t come back?
 

Still, I angered some colleagues whose compensation was based in part on transaction traffic. Since these managers never suffered performance deductions based on the quality of the transactions, they became an internal obstacle in protecting the brand reputation. Eventually, our team collected hard data that buyers who had a bad experience curtailed future purchases. Over time, we added more factors to our performance incentives, some of which addressed the quality of sellers as judged by complaints and other feedback about how smoothly their transactions resolved, not just total number of items listed in a category.

Being a leader around integrity means constantly evaluating processes and strategies for impact and making changes when necessary. Compensation incentives can be an integrity trap, distorting a company’s ethical calculus. When employees are evaluated and rewarded on throughput but not quality, quality slips.

As long as shareholder return is high, some leaders may ignore corner-cutting that escalates to fraud, bribery, and general dishonesty. When compensation plans and bonuses are based on meeting narrow financial and stock price targets, even employees well below the C-suite may ignore serious harm to certain stakeholders if the behavior offers them immediate benefits.

At eBay, when we realized our customer feedback system by itself wasn’t enough to police behavior on the platform, Meg Whitman made sure that we pivoted. Satisfying buyers became a larger factor in computing compensation metrics. As a result, our folks changed their attitudes toward sellers who failed to deliver a high-quality buyer experience. 

The point: you will not get everything right on the first try, but if you find that actions aren’t living up to your values and standards, you must assess, adjust, fix, and move forward.  To get you started, here are some tried and true steps to take to integrate ethics more fully into your performance process: 
 

Now, realize that the more an organization emphasizes ethics and values in front of its employees, the more likely employees are to hold up a mirror to the company’s broad array of business practices. The scope of those questions may be unpredictable. Is the company fundamentally an ethical one if it profits by secretly polluting the skies or seas or if it turns a blind eye to other companies using its platforms for unethical purposes?

This might feel a little scary. You think, why would we start down this path and encourage our employees to prioritize ethics when that could backfire and empower them to question our behavior and motives and demand our response to every imaginable issue? Is this unleashing a genie that could be tough to stuff back in the bottle?

The bottle is broken. The increased transparency created by the Internet, the increasing power of social media platforms, and the increased power of the individual employee and globalization in general have all combined to change the world. The risk of being exposed for unethical behavior or practices is higher than it has ever been. 

This might sound grim. But I’m an optimist by nature, and I’m more convinced than ever that all businesses have a great opportunity right now to step into the leadership void and chart a proactive, ethical course that is good for their full slate of stakeholders, and in particular for their employees. 

Rob Chesnut was most recently the Chief Ethics Officer and General Counsel of Airbnb, Inc. He is the author of Intentional Integrity: How Smart Companies Can Lead an Ethical Revolution (St Martin’s Press, 2020). Connect Rob Chesnut

CREDIT: Adapted from Intentional Integrity: How Smart Companies Can Lead an Ethical Revolution by Rob Chesnut (St. Martin’s Press, July 28, 2020)