Incentives lead to corporate failure: research

Ambitious business incentive schemes are to blame for spurring a culture of fraud among employees, with global organisations suffering significant financial losses as a result, a professor from The University of Sydney has said.

In a statement yesterday, professor of accounting at The University of Sydney Business School Wai Fong Chua referenced her research on “affecting technologies” and pointed to examples of global corporations who are suffering because of aggressive incentive schemes and performance goals that drive fear and anxiety in employees.

“There is considerable fear and anxiety in today’s corporations, especially those experiencing financial challenges.  When corporate distress is not well handled it can have quite adverse consequences,” Professor Chua said.

“Nokia [has] suffered financially because of the fear that it generated amongst middle and senior managers.

“Shared fear was so strong amongst Nokia’s middle managers that they withheld important information about the viability of its technology from senior managers.

“The company suffered significant losses as a result and was forced to exit the smartphone market.”

Meanwhile, investigations are currently underway into the incentive schemes at the Wells Fargo bank in the United States, where some 5000 employees are thought to have created fictitious customers in order to meet or exceed their performance goals, the statement said.

“Stretch goals can motivate staff. But, when tied to incentive schemes that operate in unsupportive corporate cultures, this can prompt fraud,” Professor Chua said.

“Organisations are emotional arenas, not just economic entities."

Professor Chua added that companies “need to be aware of levels of anxiety and fear and enable folks to discuss processes and goals without being so afraid that they fabricate an answer”.  

promoted stories

SUBSCRIBE TO THE IFA DAILY BULLETIN

News

Business Strategy