As part of my series on “Rationalizing Bribery,” I now turn to the issue of personal incentive compensation. As tweeted by Ben DiPietro, @BenDiPietro1, Wall Street Journal Reporter, during my interview at the Dow Jones Global Compliance Symposium (DJGCS) on April 23, 2014 “I knew (what) I was doing was wrong but rationalized the risk.”
I call attention to his tweet to make clear that in sharing my “rationalization process,” I am by no means attempting to justify or deflect responsibility from my own behaviors. Rather, I hope that by revealing my thinking as I confronted corruption in the sales field, that I might provide value to today’s compliance professionals, as they look to assist those who work in challenging markets where there is a high level of corruption risk.
Joel Schectman, Wall Street Journal Reporter, @joel_schectman, tweet from the DJGCS: “You’ve already lost when it’s a zero sum game between compliance and profit. Richard Bistrong…”
Lets start with the premise that behaviors in any organization are driven to some degree by compensation. As Andrew Leigh states in Ethical Leadership (2013) “you increase the chances of desired behavior happening by rewarding it.”
The relationship between compensation and compliance becomes even more critical when an international salesperson is working in a “low integrity” territory. Simply stated, if a salesperson has a high percentage of total compensation based on individual sales performance in a “low integrity” territory, the message of compliance becomes distorted by economics. That salesperson is being paid in a way that encourages him to view compliance and compensation as a zero sum game. Such a person is being asked by his paycheck to ask himself “Does my sales manager want compliance or sales?” Corporate compliance and ethics are now compromised, as a sales person tallies his “deliverables” if he is ever confronted with risk or actual corruption in the field.
Ben DiPietro, @BenDiPietro1 tweet during DJGCS “Bistrong: how you compensate a sales person will impact how they view compliance.”
Again, by putting someone in a “low integrity” territory with a high percentage of compensation based on individual sales performance, a company is sending out mixed messages. Personal sales incentives ask an employee to focus on the ends, or “wins” while compliance focuses the employee on the means. When the two messages speak to conflicting priorities, a salesperson will be left to wonder what management really wants.
Integrating this type of compensation into an environment of procurement instability (as discussed in my previous post), certainly creates the potential for a “perfect storm,” of risk rationalization.
There will be no shortage of sales, marketing and business development employees, with lucrative incentive compensation packages, who are going to want to push the envelope on finding a way to deliver sales success over compliance to a sales manager. In an unstable procurement environment, where purchases are sporadic, unpredictable, yet financially significant, a sales person knows that if he or she misses a major procurement, it may or may not come back in the sales and bonus cycle.
Thus, when confronted with a corrupt transaction, the sales person may think, “I have a lot on the line here personally, this purchase won’t happen again for another year, at least, so what does my sales manager want, compliance or sales?” As in my prior post on Cisco In Russia, when the Cisco employee heard the talk among his agents turn to bribes, he was reported to have left the room, and when invited to stay, he said “I don’t want to.” He did not walk out to call his compliance officer, he walked out as to not witness anymore what he was already hearing. What drove that decision, compliance or performance?
According to Mr. Leigh, “badly chosen incentives can undermine ethical behavior and even encourage unethical practices.”Accordingly, when compliance and compensation are not aligned and the message of anti-bribery gets distorted through personal incentive pay packages, then the result could, in fact, be a decrease in desired “compliance” behaviors.
In a recent conversation I had with a Eurpoean compliance professional, I shared my concerns about the impact of individual incentive compensation in sales organizations, specifically regarding anti-bribery compliance. He said in many companies, the C-Suite message is compliance and anti-corruption, but the pay schedule only tells employees “to win.” These companies leave it to the salesperson to figure out the priorities. When company executives engage in such “double-speak,” saying one thing, but paying for another, there could be serious consequences for all involved.
In this type of environment, it is extremely risky to allow your international sales, marketing and business development personnel to decide corporate, group and individual goals.
More to come, as the Perfect Storm grows.