ENGLISH VERSION:
Bonuses: does compliance have a role to play?
More than eight years ago, I already advocated for ‘congruence’: if an employer genuinely values integrity and responsible business conduct, employees should not only be rewarded with bonuses based on hard facts (such as revenue) but also on their behaviour (CLICK HERE for my earlier blog on this topic).
The saying “put your money where your mouth is” seems particularly relevant here. When awarding bonuses and promotions, employees should be assessed not only on what they have achieved but also on how they have conducted themselves.
A strong (risk) culture is crucial for a company’s long-term success. A healthy work culture that values sustainable long-term value creation rather than short-term revenue is essential for preventing bankruptcies and crises. Bonuses play a significant role in this. Does compliance have a role to play? I believe so. In my view each Chief Ethics and Compliance Officer (CECO) should analyse whether bonus targets could create perverse behaviour and risk taking, and if so, address these internally.
A bonus sends a clear cultural signal to employees about which goals matter: short-term, long-term, or both? What kind of behaviour is valued and encouraged? Bonuses help shape the work culture: what does this Board of Directors consider important this year? Bonuses are part of their communication, their “tone at the top.”
If only short-term revenue is rewarded, this too often leads to irresponsible risk-taking, shortcuts, cutting corners, and potential integrity violations. This is why bonuses should also incentivise responsibly managing financial and non-financial risks, ethical behaviour, and commitment to core values.
Well-structured bonus schemes promote responsible risk-taking as well as accountability for one’s decisions and choices. Some organisations have taken this further by holding managers partially accountable for major integrity violations within their teams (at least in the context of bonus allocations). This reinforces the critical role of managers in promoting responsible business conduct (CLICK HERE to read my previous blog on that subject).
Bonuses could have highly perverse effects. This is why it is crucial for the CECO to initiate discussions on this topic with their executive board and supervisory board. Recently, the international Financial Stability Board (FSB) also called for increased attention to bonus structures (CLICK HERE to read that report).
The FSB examined both effective and problematic bonus practices. A clear example of a flawed, short-term-focused culture was seen at Silicon Valley Bank Financial Group, which collapsed in 2023. Similarly, the misery at Credit Suisse, Signature Bank of New York, and First Republic Bank was partially due to a failure to take responsibility, poor governance, and misguided bonus structures.
Congruence is about ensuring that the leadership’s rhetoric on integrity is genuinely encouraged and rewarded, rather than undermined by contradictory signals and decisions. If the latter is the case, then -in my view- your compliance programme has little chance of success. In that scenario, it might be time for a voluntary ‘position elsewhere’.
