Wednesday, 26 November 2014
The sale of PPI is an example of how target setting can create perverse incentives so that staff focus only on achieving results and don’t stop to think whether what they are doing is right. According to the Financial Conduct Authority, sales staff at Lloyds Banking Group were put under pressure to hit targets in order to get bonuses or avoid being demoted. This led to PPI policies being sold inappropriately. ‘Financial incentive schemes are an important indicator of what management values and a key influence on the culture of the organisation’, the FCA commented. The ‘ends’ did not justify the ‘means’. So far, banks have earmarked over £22bn to compensate the people wrongly sold PPI. Many companies suffer from cultures that put so much emphasis on profit that employees feel obligated to put short-term gain ahead of other considerations, such as ethical behaviour. The result can be catastrophic, both in terms of reputation and financial risk.
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