Airmic
Log in Join now News & media

Reward and recognition: how to design a framework that encourages a positive risk culture

Data reveals that organisations are struggling to use financial incentives to promote a positive risk culture. Risk professionals are well-placed to turn this round, argues Deborah O'Riordan of QBE Risk Solutions, who offers practical advice on how to implement change.

Since QBE launched its Risk Culture Profiling Tool in 2015, QBE customers and Airmic members have benefitted hugely from the insight gained on risk culture in their organisations. The tool is designed to help businesses assess and benchmark its existing culture; understand best practice; and create an action plan to develop a positive corporate culture.

Since its launch, the tool has been collecting data on how companies perform on key areas of risk culture. One area that has consistently stood out as the lowest performing in our evaluation ratings is that of Reward and Recognition. This is the section of the tool that looks at how employees are incentivised to adopt and demonstrate behaviours that support a positive risk culture.

Having discussed this finding with our customers, it appears that whilst there is a general acceptance of the need to instigate change, reward and recognition is not seen as enough of a priority compared to the many other pressing risk management needs. Another barrier is that many organisations are unclear how to instil change at a practical level.

Risk culture, best and worst performing areas:

Reward is a key driver of behaviour

Having the right link between rewards and risk culture is essential but seems to be lacking in some organisations. Risk professionals should take the initiative to open discussions with their management colleagues in analysing rewards and incentives and devising and launching effective incentives that really will reduce risk.

This is a critical area to address in order to build a robust risk culture, as reward is such a key driver and impacts on every individual in the organisation. It is important that risk professionals ensure expectations for behaviours are clearly defined, achievable, have a clear and transparent link to reward.

Knowing which practical steps to implement can be a challenge. The following checklist offers some key principles and considerations for developing a strong incentive framework to encourage behaviours that reflect core values and support a robust risk culture. Any or all can be adopted but it is recommended that at least one in each of the 10 sections is addressed.

Top 10 Checklist for an Incentive Framework

Key Principles   Practical Considerations
   
1.    Senior Management Commitment 
  • Set organisational values and interpret with clear behaviour expectations
  • Establish policies which reflect those behaviours in the language used
  • Include behaviour outcomes in Risk or Objective Registers 
  • Promote a clear policy of incentives that support all the above
  • Educate Managers on reward structure and monitor activity and results 
  • Ensure finances allow for reward objectives.
   
2.   Clear Reward & Recognition Policies
  • Review existing incentive structures. Do they encourage the behaviours you want to see or inadvertently undermine core values and culture?
  • Build ad-hoc reward systems that are not linked to pay: e.g. Company awards special project involvement, social and/or award events, voucher schemes, time off, travel, public recognition etc.
  • Recognise (privately) those who speak up about poor behaviour. 
   
3.   Link process controls to Risk Culture 
  • Identify cross-functional objectives and rewards to reduce silo conflicts
  • Explain the objectives of documented policies and procedures and ensure these reflect desired behaviours and the intrinsic value in these. 
   
4.   Recruitment for Model Behaviours
  • Promote desired behaviours through job advertisements 
  • Extract relevant behaviours from the Performance Review Framework and interview for evidence against these
  • Explain choices when hiring and promoting, citing key behaviours as a basis
  • Ensure job descriptions or role objectives include the desired behaviours. 
   
5.   Embedded thinking 
  • Publicise stories of model behaviours through a range of communication channels (intranet, newsletters, annual reviews, meeting agendas etc.) including benefits and rewards 
  • Communicate regularly on topical issues explaining why they resonate with your organisation's values and incentives 
  • Provide training on expected risk behaviours and supporting incentives - at induction, during refreshers and for ad-hoc sessions.
   

6.   Realistic Targets 

  • Ensure targets do not encourage illegal, unethical or negligent behaviour 
  • Avoid pay and bonus structures linked purely to output
  • Set objectives that address the means as well as the ends.
   

7.   Clear Disincentives

  • Don't reward or promote individuals if core values are breached - even if the targets for output or are met or exceeded 
  • Make clear the disincentives and disciplinary policies of the organisation and explain actions taken accordingly.
   

8.   Aligned Performance Review Process

  • Ensure the performance review criteria reflect desired behaviours (see the checklist in our separate Performance Review Framework)
  • Include reference to the way in which outcomes are achieved rather than purely the outcome. 
   
9.   Supportive Oversight 
  • Ensure that where they exist, separate oversight teams such as Compliance, HR, Health & Safety, Finance etc., watch out for signs that staff may feel incentivised to contravene model behaviours
  • Capture breaches of behaviour and address the need to change incentives.
   
10.  Audit Behaviours 
  • Ensure that audit criteria, processes and reporting show clear consideration of desired RC behaviours and report clearly on these
  • Publicise and/or reward teams demonstrating good behaviours.
   

The final and continuous stage is to review the effectiveness of the measures taken. QBE has developed an example performance review framework - available to QBE clients and Airmic members via this link) - which considers behaviours in six core areas to assess how well everyone is following the organisation's benchmark risk culture behaviours. The whole framework can be adopted as is or extracts taken and built into an existing performance assessment.

Deborah O'Riordan is practice leader, financial lines, at QBE Risk Solutions.

The Risk Culture Profiling tool was developed in association with Airmic, and is available to members free of charge on request by clicking here.