Can Performance Management Help Leaders Create an Ethical Culture?

by Andrew Leigh, Featured Contributor

Checking up on employees to see they’re doing their job well is in disarray.

Most managers hate doing annual performance reviews. Many completely fail to do it properly or at all. Those on the receiving end of appraisals–to give performance management yet another jargon title—generally distrust, dislike and often deride the entire experience.  Almost one in three employees think it’s unfair how their company makes sense of what they do. [1]

ethics businessA similar study just released by the CIPD also found that consistency and transparency of the appraisal process depends almost entirely on how the manager actual behaves during the review. Managers themselves are more positive about the time they spend with employees discussing for example,training and development opportunities than employees.  [2]

Millenials in particular need to be managed differently.  For example they place greater value on informal feedback from their manages 50% more often than older peers. [3]

Consequently some organisations, such as Netflix now take a radical approach to ensure those on the receiving end have a more creative and engaging experience.
Others struggle on, using ever more sophisticated refinements to the appraisal process. They hope the annual event will somehow freshen up engagement and justify often dubious promotional or pay decisions.

Performance management based on an annual event is patently pointless and often counter productive. To work at all, it must be continuous—with a focus on constant improvement and done regularly.  Appraisals continue to matter because they exercise a major influence on how people regard their company and on how they behave.

Yet six out of ten FTSE companies that still rely on formal performance appraisals also fail to include ethics in their employee appraisals. While many of the largest make sure people are hitting their targets fewer focus on how results are achieved. For example, there is seldom any effort to review whether an employee reached goals with integrity, and lived up to the company values.

Unethical behaviour is widespread in the UK workforce. According to a recent study of 1600 managers, nearly three out four (72%) had witnessed staff lying to cover up mistakes and over half (57%) had seen people take credit for other’s work.
Institute of Leadership and Management, 3 November 2014

Even so, increasingly sophisticated ethics and compliance programs are:

“…creating new norms in worker conduct. By almost every measure companies are working harder to build strong cultures and further develop their ethics and compliance programs.”
National  Business Ethics Survey 2013

new 63-page report from the Institute of Business Ethics examines performance management in depth. It asks what supports an ethical culture, how the assessment process can deal with ethics, and explores the use of compensation awards. It concludes with a useful performance management check list.

Building an ethical culture

Business success is increasingly strongly associated with an ethical corporate culture. See for example Ethics Pays–The corporate no brainer. Companies therefore ignore ethics at their peril and to the detriment of their long-term survival prospects. [4]

How then can the performance management, or appraisal  process support an ethical culture?

First, as this report makes clear, the pay and incentives for employees affect whether a company has a sustainable ethical culture. There are countless examples of misalignment of compensation with core values. For example, the mis-selling of payment protection insurance (PPI), and of course the distorted rewards to traders that led to the criminal fixing of Libor and Forex rates.

It is usually easy to know what gets rewarded financially.  Less so how people got there. The banking industry for example, is mired in this issue as regulators and corporate leaders struggle to incorporate a “how” into the more easily measured “what.”

There are measurable and qualitative benefits from building ethical behaviours into whatever performance management  process a company adopts. Not only does this show employees the company is serious about how business is done. It ensures those promoted and retained are good role models. It also encourages trust and engagement about what the company stands for. The IBE report provides a detailed list of the benefits from this kind of action.

There are enablers and obstacles for an ethical culture the IBE report suggests

Making sense of ethical performance

Next the IBE report explores what will help an organisation align performance management with the commitment to high ethical standards.

The first step is to ensure people “know what success looks like.”  They must understand how an assessment of performance will be made and the weight the company attaches to the what and the how.

Events have rather overtaken the authors of the IBE report in using Serco as an example of good practice. It is offered as having a broad competency framework including ethical standards. However, the company has demonstrated far from ethical behaviour in the last year or so. Recently  its CEO told a parliamentary committee he was was “deeply sorry” about flawed ethical actions and “I need to make sure that they don’t happen again.”[5]

In contrast, IBE highlights Cross Rail’s explicit list of ethical competencies and behaviours. For example, “be yourself stand up for what you feel is right and important”.

Another set of examples from the report shows how different companies interpret the value of respect. There is also an interesting section on evaluating behaviours, showing how tricky it can be to make these objective or rigorous. One way forward may be to separate action from outcome–this can be “particularly important when appraising managers.”

Compensation, rewards and incentives

The history of compensation is the story of failure to walk the talk. Distorted incentives schemes have literally caused damage at the expense of fellow human beings. For example in the Siemens bribery case incentives were found to encourage corruption.

The IBE study found it was common for ethical values to be seen as generally incorporated into the overall behavioural assessment, rather than being separated out as a separate source for reward.

Rewarding for good ethical behaviour tends to be rare. This is partly because it’s hard to nail down and instead companies often use non-financial incentives, such as public recognition like “Best Colleague”, nominations for Customer excellence” or an “Integrity in Action award.”

This section of the report shows how tricky it can be to first define what the organisation will reward in the way of ethical behaviour, and secondly how it will make the reward seem worthwhile. Thirdly, it argues for any reward to really promote ethical behaviour and not the opposite.

Checklist:Performance management for an ethical culture

The IBE report concludes somewhat abruptly with a basic check list to promote an ethical culture. This is done through four elements of performance management: Preparation; Introducing values to the system;  Appraisal; and Reviewing the success of the system in supporting values.

This is a useful resource but over long, and often unduly abstract; there are some revealing case examples in the appendices.

Performance Management for an ethical culture, IBE


  1. CIPD Employee Outlook Survey 2014
  2. Employee Outlook, CIPD December 2014
  3. Workforce 2012, The Looming Talent Crisis, Success Factors
  4. Ethics Pays: the Corporate No Brainer
  5. A.Osbourne, “We got it wrong” admit tagging firms G4S and Serco, 20th November 2014

Andrew Leigh
Andrew Leigh
ANDREW is author of Ethical Leadership, (Kogan Page 2013) and writes regularly at He believes business needs to re-discover the importance of ethics and integrity. As an expert on leadership Andrew writes regularly on ways to help managers be more effective as ethical leaders. His blog stays close to the zeitgeist with a unique perspective on many aspects of leading organisations ethically, including compliance, and engagement. Andrew is a joint founder in 1989 of Maynard Leigh Associates ( pioneers of using ideas from theatre in business. He was a hands-on practising manager for many years in the public sector, ending his time on the front line running a division with over 1000 staff. Andrew also spent several years as a business and financial journalist, including time at The Observer newspaper. He has written over 20 books on management, leadership teams and so on. Originally trained as an economist, he is a Chartered Fellow of the Chartered Institute of Personnel and Development. He is available for speaking engagements, interviews, feature articles and consultancy.
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