The shocking truth about Employee Reward and Recognition Systems

Reward and recognition is a proven way to reinforce desired behaviors that epitomize a company‘s culture. But what if the company’s values are distorted and abused by manipulation, pressure tactics, and an acceptance of concealment of information from customers? Many of us see this behavior happening in front of us, yet we refuse to speak up for fear of retribution from our superiors. Even if we don’t say anything, we buy into the bad behavior. There’s a pattern in many cases, a link between unethical behavior, abuse of incentive monetary reward/recognition systems, and organizational cultural norms.

Studies have shown that reward and recognition systems can be a great motivator and an effective way for companies to encourage employees by rewarding and recognizing their achievements. These systems can promote higher performance, engagement, and commitment in the organization. Employees who feel intrinsically valued increase the company’s productivity and retention and reinforce the company’s cultural norms. A survey of employees in four different professions (ground workers, librarian clerks, intake receptionists and medical record assistants) conducted by East Carolina University found a strong correlation between effective motivators – such as  good pay and recognition – and benefits to the workplace Mani (2002). So, reward and recognition works, and industry has put heavy emphasis on praising and recognizing employees’ achievements to promote desired behaviors and organizational norms.

However, the recklessness of a few can transform a perfectly legitimate incentive program into a widespread unethical behavior promoted by the upper management. For example, at the height of the mortgage-backed securities crisis in 2007 and 2008, many financial institutions lost billions of dollars in subprime loans. During the government’s initial investigation, UBS, the largest of these financial companies, acknowledged that part of their massive losses were a consequence of large bonuses for their upper management. The company had promised large bonuses to traders, encouraging them to create mortgages faster to satisfy the gluttony of investors. Many reputable lenders such as Wells Fargo, Morgan Stanley, and Bank of America, to name just a few, all loosened their standards to make loans available to everyone, even those who could not afford them. People with low credit scores and low incomes were sold prime mortgages. Of course, a new phrase was introduced: predatory lending. These financial institutions didn’t verify incomes, but offered adjustable mortgage rates to people who only paid the interest on the loan, but didn’t know the loans would require full payment a few years down the road. Predatory lending caused thousands of people who could not afford their mortgages to walk away for their homes. These companies lost billions, and the American people had to bail most of them out.

In 2011, the Department of Veterans Affairs’ top official began an investigation into why veterans had longer than normal wait times to see the doctor. Many veterans died while waiting to see their doctor for follow-up care or primary care. At the conclusion of this investigation, it was found that many VA employees had covered up faulty patient care procedures used by the VA and that a bonus plan had contributed to unethical behavior. The investigation found that the connected hospitals under investigation had found employee bonuses were connected to the scheduling of patient care; additionally, incentives were paid to doctors to reduce follow-up care to patients. As soon as he learned of this crisis, the Secretary canceled the performance bonus plan. Obviously, he saw the connection. After a large public outcry, Veteran Affairs Secretary General Shinseki handed his resignation to President Obama. In his resignation speech, the Secretary said, “I can’t explain the lack of integrity among some leaders of our health care facilities.” Lives were lost because of unethical practices.

What causes people to act unethically in the workplace? In a Harvard article, a psychologist points out three areas or factors that cause people to cross the unethical line:

Omnipotence – Employees may feel they are above the rules and are entitled to act in the way they want. Left unchecked, the trickle-down of wrongdoing will become a burst of unethical behavior, especially in the workplace. My mother used to say, “Birds of a feather flock together.”   

Cultural Numbness – Playing by another’s rulebook, even when it’s deviant in nature. No matter how high your moral and ethical compass, you keep hanging around, and you gradually begin to accept bad behavior as the norm.

Justified Neglect – Ignoring wrong behavior without speaking out because of fear of losing your sure footing with the powerful boss or manager.

Reward and recognition systems are excellent ways for organizations to promote desired cultural norms and maintain a competitive edge. But these systems can be abused. That’s why all employees must be trained in organizational norms, ethical conduct, and proper behavior. We know that so-called people of high morals may choose to neglect and or ignore improper behavior – and that a lack of ethics can destroy people’s lives.

In other words, unethical behavior can significantly increase the cost of doing business.

What are your thoughts?  


Mani, B.G. (2002), “Performance appraisal systems, productivity, and motivation: a case study”, Public Personnel Management, Vol. 31, pp. 141-59.