How to Link Workforce Metrics With Business Outcomes, Part Four
To some, workplace culture is about as real as corporate pixie dust.
But it’s “more than all those carefully drafted corporate values statements and ethics codes—it’s the way things really work,” writes Dori Meinert in this HR Magazine article.
Indeed, the shift towards a new culture of ethics is a tangible workplace trend, particularly for trading firms and banks operating in a post-global financial crisis environment.
With tough regulations like the Dodd-Frank Wall Street Reform and Consumer Protection Act in place and a roster of high-profile SEC fines, many firms have started building more risk-averse cultures that emphasize client care and ethical behaviour. Goldman Sachs, for example, put senior managers on compulsory courses to make them think about ethics. It also created a new policy whereby a committee including HR and risk functions vets deals of more than US $850 million.
This firm is not alone in making an ethical culture a priority: (91%) of financial services executives responding to an Economist Intelligence Unit survey sponsored by the CFA Institute said that ethical conduct is just as important as financial success at their firm. This likely explains why, according to Bersin by Deloitte, 81% of financial business leaders rate culture and engagement to be important.
A Culture of Ethical Behavior: Is It Measurable?
Culture is a real priority for the upper echelons in financial services and, yes, it is definable.
But with Big Data, culture can also be measurable, and boiled down into actionable insights so that it permeates everything from hiring and training to compensation practices.
And it all starts with asking strategic questions about managers. These are the people who translate a company’s vision into day-to-day actions. A number of the ethical danger zones — such as avoidance (“hear no evil, see no evil”) and rationalization (“everybody’s doing it”) — are more prevalent when the manager is breaking the rules. In fact, managers are responsible for 60 percent of workplace misconduct, while senior managers are more likely than lower-level managers to behave unethically, according to a 2014 National Business Ethics Survey.
Four Questions to Ask: What Your Workforce Data Can Tell You
While it’s important to focus on the behavior of groups and individuals, when decisions are not based on fact it can lead to finger pointing or wasted investment in HR programs that don’t contribute to real cultural change. After all, the human brain is wired to misjudge people and situations.
Here are four questions that will yield fact-based insights about manager misconduct, so that you don’t have to rely on guesswork when building a new culture:
Question #1: What are employees saying about their manager’s conduct?
Manager misconduct can be hard to identify. But the people to whom it is most obvious are those who get direction from the managers on a regular basis: their direct reports.
To find out whether a particular manager is behaving unethically and if it is a widespread problem, make sure your employee engagement survey questions really drill into the nature of the employee / supervisor relationship. According to the Ethics & Compliance Initiative, there are two factors that often accompany observed misconduct: fear of retaliation and pressure to violate rules. On the flip side, misconduct is less likely to occur when an employee clearly understands what needs to be done when faced with an ethical grey zone.
Including the following kinds of statements in the survey will help you capture employee sentiment related to the above areas:
- “I know what is expected of me when faced with an ethical decision.”
- “I would be unlikely to report misconduct for fear of what might happen to me afterwards.”
- “My manager wants me to achieve performance goals at all costs.”
Also, the more often the employee population has been surveyed, the more timely and relevant the insight will be, so consider moving away from once-a-year engagement surveys to more frequent pulse surveys. And emphasize security and anonymity to reduce the fear of retaliation and encourage honest reporting.
If a particular manager is receiving low ethical conduct scores from two or more employees, it’s a sign they may need coaching. If two or more managers are getting low ethical scores from their reports, then you need to dig deeper into the data to find the underlying issue: Is it lack of training? Are we promoting the wrong kind of people? From there, you can develop a laser-focused HR program to address the problem.
Question #2: What is our “manager instability rate”?
Asking this question will yield a metric that reveals how many employees had more than one direct supervisor in the previous year, as a percentage of headcount. If people are moved too often either due to resignations or restructuring, managers tend not to know people well enough to understand their behavior and what is going on. Also, one of the factors (cited in the CFA Institute-sponsored Economist report) of the global crisis was that managers signed off on complex investment products they did not understand. This type of negative outcome can happen as a result of too much manager movement.
To calculate this metric, follow these steps:
- Identify all the current employees that had more than one supervisor during the last 12 months
- Sum the headcount at the end of the period being measured*
- Divide the number of employees with more than one manager by the end of period headcount
*Note: This metric is based only on employees who are still with the organization and therefore it uses the end of period headcount – not the average.
Red flags to watch out for: In general, a rate above 20 percent indicates the potential for harmful impacts to the organization. There is always a slowdown in productivity as teams relearn their focus and learn how to work effectively with a new supervisor. If more than 1 in 5 of your population is learning to work with a new manager twice a year, then the organization is losing productivity.
Also, if there are areas where supervisor engagement scores are lower than average, it is worth identifying how much change has taken place. This will help you determine whether the low scores are due to frustration at the lack of consistent direction due to constant changes in supervisor.
Question #3: Are we rewarding bad manager behavior?
Your organization could be rewarding bad behavior without knowing it. According to PwC/London Business School research, financial services managers “are over twice as likely to behave unethically when they feel anxious when competing with colleagues.” And when their company’s approach to rewards made them feel anxious, “they tended to say money was one of their key motivators. They also tended to take more risks and make unethical choices.”
To understand whether rewards are driving people to take more risks, you need to triangulate engagement scores and the data relating to variable pay awards such as cash bonuses.
Follow these steps:
Step 1: Look at the engagement survey data for managers who want to achieve performance goals at any cost.
Step 2: Determine where that person and their team sits on the variable pay scale.
If employees indicate that a manager has a “win at all costs” approach, and that person is also awarding above average variable pay to staff, you need to investigate the situation further. There have been many cases where an emphasis on financial returns — with the implication that how they are achieved is not important — has led to unethical and even illegal behavior.
As with everything related to human behavior, the combination of these two factors is not a guarantee of wrongdoing. The financial results could have been fairly won. However, it is a way in which data can indicate where verification or additional research is required to ensure that rules are being followed and that the results are not due to playing outside the rules.
Question #4. Are we losing valuable people?
A culture of unethical behavior can lead to a decline in engagement, productivity, and ultimately, retention. Financial services professionals would prefer to work for a firm that has a good reputation for ethical conduct than for a more profitable firm with questionable ethics, according to the Economist Intelligence Unit survey.
To determine if this is a problem within your organization, calculate the high performer resignation rate. Follow these steps:
Step 1: Count all of the people who have resigned that had a top level performance rating.
Step 2: Calculate the average headcount of high performers for the same period.
Step 3: Calculate the high performer resignation rate by dividing those who left by the average headcount.
Whenever the high performer resignation rate is greater than the overall resignation rate, it signals a problem that needs to be addressed. If the rates for certain managers are substantially higher than for other managers, this is an indication that all is not well in that work group. This information, combined with the other indicators from Questions 1 and 3, builds a clear picture of where you need to dig deeper and understand in detail the behavior of your management population.
Driving a New Ethical Culture Starts With Fact-Based Decision Making
Fostering an ethical culture is not about culling the “bad” apples. There are few people who intentionally set out to commit fraud. Intense pressures — combined with the right opportunities — make intelligent and normally rational people behave unethically. This means it can be difficult to spot misconduct with the naked eye.
Although it would be too simplistic to assume that a particular manager is causing unethical behavior, it is an indicator that further investigation and insight is needed. When decisions about individuals and programs are based on evidence, it is easier to make the case for needed changes with the executive team. This puts HR — the people experts — in the driver’s seat when it comes to real, quantifiable culture change.