Introduction
According to multiple reports on global corporate management, more than 50% of employees often notice unethical business practices in their organizations (Palesciuc, 2016). Often, these employees do not report such cases because they believe it is difficult to eliminate unethical business practices, or top-level managers would not do anything to address them (Palesciuc, 2016). This is an interesting choice of action from employees because research has shown that the prevalence of unethical business practices comes with stupendous costs for organizations (Carvalho, 2011).
In fact, it is not surprising that, in 2011, Palesciuc (2016) reported that most businesses often incur more than $1.22 trillion, annually, in costs arising from unethical business practices. Palesciuc (2016) also adds that the prevalence of unethical business practices has caused more than ten cases of history’s most notable corporate bankruptcies. The bankruptcies of Enron Corporation and Lehman Brothers are testament to this fact (Palesciuc, 2016). Most of these scandals arise from the failure of companies to measure or benchmark their ethical performance.
A 2011 survey revealed that while 90% of companies globally have some form of ethical standard to guide their corporate activities, only less than 8% of them have a mechanism to measure their ethical performance (Minty, 2012). A 2012 report developed after surveying European banks and insurance companies also supported the same findings because they showed that 60% of companies in these sectors lacked the key performance indicators (KPI) for measuring their ethical performance (Minty, 2012). The report also showed that the few companies that had these KPIs used them only for internal purposes (Minty, 2012).
The United Arab Emirates (UAE) has its fair share of poor ethical management practices arising from the lack of reliable criteria for measuring ethical performance. According to Carvalho (2011), many UAE organizations do not have the proper institutional support to measure their ethical performance and those of their workers. In line with this concern, he says, “While there is an even chance that the companies may have written codes of ethics, few offer formal training programs. Most respondents indicated the absence of institutional support resources such as advisory centers or telephone hotlines in the management of ethical conduct” (Carvalho, 2011, p. 11).
Relative to the above statement, researchers have also shown that many organizations, which have high standards of ethical performance, benefit from high standards of employee morale (BCS, 2015). Such assertions have forced many managers to believe that high standards of ethical practice in an organization could create several benefits for an organization (BCS, 2015).
In this regard, the UAE organizations that maintain high ethical standards do not only stand to benefit from an improved company reputation, but also improved employee performance because of high employee morale. Nonetheless, many organizations in the UAE do not enjoy these benefits because they have failed in measuring their ethical performance. In this regard, there is confusion regarding their ethical performance. This paper demonstrates how such organizations could improve their ethical performance through the adoption of KPIs. Although, this paper affirms this fact through the application of KPIs in the UAE public sector, it first defines the term
Definition of KPIs
KPIs represent the factors of financial and non-financial characters used by organisations and their managers to track progress and evaluate business performance (Velimirović, Velimirović, & Stanković, 2011). As a result, KPIs are a unique and powerful tool for employers who are willing to maximise their workers’ enthusiasm through motivation. Wisely formulated, KPIs provide guidance for employees and direct businesses towards their most important goals and achievements. In order for the employers to be successful at the establishment of their company’s KPIs, they should familiarize themselves with the factors that energise employee performance.
Theories of motivation provide a series of interesting views on this issue that is now a global concern of large and small organisations. The contemporary financial instability in the world encourages businesses to take care of their own stability and respond to rising challenges in a flexible manner. For instance, such contemporary global issues as skills shortage, the integration of the Millennials in the labour force, democratisation of labour, and occasional financial crises stimulate the companies to focus on the attraction of the best human capital and the retention of the existing specialists.
KPIs as Motivators
Today, many people view human capital as one of the most valuable competitive advantages for a business (Gabčanová, 2012). In a world where employees are aware of their rights and freedoms, and where the best professionals know their value and have high demands as to their workplaces, the employers are responsible for the creation of good working conditions to attract and retain human resources. While the old-fashioned views of employee motivation stemmed from the perception that the strongest moving forces were fear and monetary rewards, modern employers have learned new lessons from the theories of motivation.
For instance, needs theories by Maslow, McClelland, and Alderfer agree that affiliation, relatedness, and personal growth are some of the most powerful motivators for the human beings (Van Tiem, Moseley, &Dessinger, 2012). In other words, negative emotions based on the satisfaction of the basic needs are not as successful as the strategies aimed at satisfaction of higher needs, such as self-actualisation or affiliation. For example, using the fear of getting fired and becoming financially insecure as a performance booster, an employer will get positive results as a short-term outcome, whereas the later consequences will be job dissatisfaction, desire for justice, possible protest, and, eventually, high rates of turnover and instability in the company.
The main objectives of KPIs are to sort the performance data for benchmarking, provide basis for the comparison of the current performances and those of the past, allow building forecasts for the future results, plan actions in organizational improvement processes, and define the targets for the performers (Bris, Soares, & Martorell, 2009). In other words, the motivational role of the key performance indicators is to outline the set of clear goals for the employees, directing them towards particular results and organising their efforts efficiently. However, to serve as motivators, KPIs need to combine with a system of incentives and rewards for employees who meet the standards. This paper presents ethical reviews as the link between KPIs and employee motivation.
Contributions of KPI to Ethical Review
Goal Measurement
Research has revealed that part of the reason for the prevalence of unethical business practices in the UAE governance sector is the lack of knowledge regarding why government agencies should measure ethics (Carvalho, 2011). This is a worrying trend within the public sector because it shows that the government is not taking ethical issues seriously. Such practices also make it difficult to understand how government employees regulate certain aspects of their regulatory compliance programs (Ingram, 2016).
KPIs could potentially solve this problem through goal measurement because they would provide government agencies with a framework for measuring their ethical performance (Ingram, 2016). For example, if a government agency wants to reduce the tax default rate from 5% to 1%, it would establish a KPI called the “default rate.” Government officials would then use this measure to investigate the number of tax defaults before and after the introduction of a process improvement strategy. Without such a KPI, the relevant government agency would not understand if it has achieved its goal, or not (Ingram, 2016).
Different organizations have used KPIs to get vital information about their ethical performance. For example, Sloan, Legrand, and Hindley (2015) say many companies have used the Global Reporting Initiative (GRI) to measure ethical performance because it contains KPI goals. The reporting criteria adopted by most of these organizations strive to reflect the latest organizational challenges that exist in the environment.
To demonstrate the use of KPIs in improving organizational performance, Sloan et al. (2015) outlined three KPI used to promote ethical practices in labor ministries. They include the documentation of employee information to promote inclusivity, the recording of employee benefits for both full-time and part-time employees to realize parity in employment, and the documentation of employee diversity indicators, such as race and ethnicity, because ethical labor policies should demonstrate diversity (Sloan et al., 2015). Starbucks is an example of a company that has used KPI to improve its ethical practices in human resource management.
The company has even won awards to this effect (Sloan et al., 2015). This is why Ethisphere’s ranking of the world’s most ethical companies have never failed to include the company in its list of top performers, since 2013 (Sloan et al., 2015). In line with its ethical employment policies, Starbucks considers its employees partners and uses the principles of respect, trust and dignity to interact with them. To support this assertion, Sloan et al. (2015) say, “they promote diversity, exceed accepted safety norms for the industry, have clear wage and hour rules, empower their partners and provide a comprehensive benefit package” (p. 154).
According to Sloan et al. (2015), the company’s safeguard and continued application of these policies is testament to its commitment to improve its strategic objective. Through the same commitment, the company hopes to ensure the long-term success of its business. This example shows how companies could use KPIs to improve their strategic performance. The same is true for most UAE government agencies because, through goal measurement, KPIs could help them to improve their ethical performance.
Vital Information
Part of the problem for the failure of many government agencies to measure their ethical performance is the failure to attach an ethical label to some of their performance measures (Ingram, 2016). This view means that most government agencies in the UAE use organizational objectives to monitor certain aspects of their performance, but fail to attach an ethical label to them. Although the use of KPI in some agencies is somewhat reassuring (at least some government agencies appreciate the use of KPIs to measure certain aspects of their performance), the failure to attach an ethical label deprives them of vital information that they could use to have an accurate understanding of their ethical performance.
The failure to attach an ethical label to their performance measures could also mean that they do not understand the importance of ethics to their organizational roles. By adding an ethical label to organizational objectives, they could have an immediate snapshot of the overall ethical performance of the department (Ingram, 2016).
This way, managers and administrators would have access to real-time data that would allow them to develop strategies for improving their ethical performance. In this regard, the KPI would provide vital information for decision-making processes. However, Kerzner (2013) cautions managers to refrain from having too many KPIs that would provide them with too much information to confuse them. Therefore, although there is a need to define KPIs before undertaking the process of ethical management, managers should change these KPIs with the evolving nature of ethical management (Kerzner, 2013). This evolution is important in instances where there are few methods or processes available to capture information.
In such instances, the probability of experiencing a measurement inversion impact is high. This inversion impact would imply two factors. The first one would mean that most managers would avoid KPIs with the highest information value because of the difficulty of quantifying ethical data (Kerzner, 2013). The second implication is that they will prefer KPIs, which are the easiest to measure. However, they are bound to have the least impact on the decision-making processes involved in ethical management. Nonetheless, this review shows that KPIs would attach an ethical label to organizational performance measures and improve the quality of information needed by managers to make ethical decisions, based on their role in helping them understand ethical management.
Education
Part of the reason cited for the failure to use KPIs in measuring the ethical performance of government agencies in the UAE is the failure of some of them to understand how to monitor, or measure, the performance of ethical conduct (Ingram, 2016). There are two reasons why most government agencies may fail to do so. First, they possibly see ethical performance as a qualitative measure, which is difficult to quantify (Ingram, 2016).
Secondly, the compliance managers may not understand ethics well enough to measure it (Ingram, 2016). This is why some government agencies have non-reporting numbers in their annual reports (Carvalho, 2011). The context of this paper also demonstrates the difficulty of quantifying ethical issues in an organization because most human resource issues are qualitative. Therefore, although HR may not get the glory that other government departments do, it is as important as other agencies, such as the finance ministry.
The use of KPIs may solve some of the problems associated with the failure of government officials to quantify ethical performance by promoting a learning atmosphere in an organization. According to Ingram (2016), the data collected from measuring ethical performance through KPI would foster critical thinking and promote conversations that would create substantial change in ethical management of government agencies. This analysis reveals that the use of KPI would not only provide an accurate assessment of ethical performance, but also improve organizational performance in terms of ethical practice. This view makes it easier to understand the next section of this paper, which focuses on continuity.
Continuity
KPIs are often long-term in nature. In this regard, they promote the use of consistent standards of measurement, which lead to actionable steps to achieve performance measurement goals. This consistency is true even when companies change goals because such a change should not yield a similar change in measurement standards (Ingram, 2016). In this regard, KPIs promote consistency in the maintenance of the ethical practices of an organization by playing a crucial role to an organization’s plan and vision.
The concept of continuity, which supports the use of KPI, could be of crucial benefit to the UAE public sector in the event of a change of management because organizations need not lose their understanding of ethical review standards through an employee’s exit. The inclusion of the KPI standard helps to avoid such an outcome because it provides a guideline to evaluate ethical performance (Minty, 2012). Everybody in the organization should know the guideline. Therefore, regardless of who is in charge, the KPI guideline should provide a framework for ethical review. Different organizations have used different structure/approaches for continuous improvement. A common framework is the six-sigma framework, which measures ethical performance, depending on its closeness to the ideal ethical behavior (BCS, 2015).
This framework uses statistical tools and data for measurement because, as this paper shows, it is important to translate qualitative data to qualitative measurements for easy analysis (BCS, 2015). Experts agree that the six-sigma framework could be useful in improving existing ethical review frameworks or in developing new ones (BCS, 2015).
An efficient framework would identify defects and deficiencies when evaluating ethical practices. The goal is to eliminate them. Some of these inconsistencies would refer to standards that are outside consumer expectations. Through its disciplined and logical approach, such an evaluative tool would help decision-makers to understand what an ideal (or the recommended) evaluative framework should entail. Such progresses could generate significant cost-savings and help managers and administrators to develop best practices. Leyland (a British automotive company) used the six-sigma framework to improve its organizational performance by creating a vision for staff to work towards (BCS, 2015).
Through this framework, it provided a clear picture to its employees regarding what they could achieve by setting a visionary target for quality. By benchmarking its projects, the company achieved most of its goals. Leyland’s success shows that through the inclusion of KPIs, organizations could improve their performance by guaranteeing continuity in their ethical management practices.
Possible Negative Effects of KPIs
Even though KPIs are a useful tool and designed to generate positive effects and benefit the work process, if formulated and administered incorrectly, they can undermine organisational performance. Hastings (2009) notes that key performance indicators are to be designed carefully so that they do not impact the behaviour of the employees in any other way apart from “motivating genuine performance improvements” (p. 320).
Depending on the effect they make on particular persons, the KPIs may serve as both motivators and de-motivators. For example, if two departments with different functions cooperate, KPIs may affect both of them and cause clashes. Hastings (2009) uses an example of operations and maintenance departments, where the costs for car tires are taken from the budget of maintenance, the operations are found to be less likely to be careful with the equipment. That way, the KPIs focus on efficiency, but fail to provide specific goals and tasks to employees (they may cause the increase of efficiency that is enhanced at the cost of quality). In other words, if a company only rewards the number of employees who have accomplished their tasks, the employees would be motivated to work faster and disregard their integrity to the quality requirements.
Discussion
In the contemporary world, business environments have become more people-centred. The authoritarian leadership that used to dominate corporate relationships in the past has moved in place of the collaborative and transformational relationships orientated to the empowerment of the employees. The motivation of the workers is now the key factor contributing to performance improvement. Psychology differentiates between many theories of motivation, among them there are Maslow’s hierarchy of needs, ERG by Alderfer, and McClelland’s theory of needs, to name a few. That way, there are many approaches to motivation and performance improvement within organisations.
This paper shows that there is little doubt that KPIs are important to organizations. However, their importance stems from their potential to create actionable steps in an organization. For example, it is difficult to use KPIs to increase employee retention without actionable steps to do so (Hamlett, 2015). The lack of a measurable component is the greatest barrier to the use of KPIs in this regard. However, if a company chooses to use KPIs to increase employee retention rates by 10%, the KPIs become useful because of the presence of a measurable (quantifiable) goal. Therefore, there should be a measurable or quantifiable element to an analysis for KPIs to work.
This analysis shows the potential role played by KPIs in improving efforts by UAE organizations to review their ethical performance because they could provide measurable goals to government agencies. In other words, they could provide actionable steps for organizations to review the ethical practices of their employees. So far, many government agencies in the UAE have not adopted such a framework for promoting or reviewing the conduct of their ethical practices, despite the existence of ethical codes of conduct (Carvalho, 2011). The use of KPIs for this purpose would be the first step in improving their performance in this regard and, by extension, improving employee output through improved morale.
Conclusion
People-centred business environments of the modern world facilitate the interest in KPIs as the guiding framework for performance boosts and job satisfaction because human capital is one of the most valuable resources of a business. In this paper, we find that most government organizations in the UAE struggle to assess the ethical performance of their employees. At best, many of them do not understand how to do so, and at worst, they allow unethical practices to go on unabated. When employees see such unethical practices going on unabated, they either perpetrate it, or are neutral about it.
Those who do not support them become demoralized and choose to quit, or do nothing at all. It is important for UAE government agencies to seek better ways of measuring ethical performance to avoid some of these negative outcomes. According to the evidences provided in this report, KPIs emerge as an important part of a corporation’s ethical management strategy when used correctly. Measuring the right KPIs for an organization could improve its ethical performance and create actionable steps through which employees and their managers could use to know how an organization is performing, in terms of its ethical goals and objectives.
In this regard, using KPI is the first step to transform qualitative ethical factors to quantitative assessments for proper measurement. However, such transformations do not mean that all KPI should be quantitative because qualitative data would also be useful in understanding subjective factors that would explain the ethical performance of businesses.
To sum up, KPIs play a significant role in the performance improvement through the employee motivation. However, only carefully weighed performance indicators generate benefits. The findings of this paper could improve the ethical climate in the UAE and make it a more favorite business location for investors. It is also important to understand that there is no ideal use of KPI. Most of the organizations that have “gotten it right” have used trial and error to do so. In this regard, it is important to develop KPIs that fit the contextual circumstances of an organization, or sector. Although the findings of this paper are contextual to the UAE public sector, they could also apply to the private sector. The success of its implementation depends on the success of organizations to understand how KPIs would fit in their operational plans.
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