Let's say, as a hypothetical, that a U.S. Internal Revenue Service (IRS) employee blows the whistle on a fraud scheme, which allows the agency to recover $3.4 million in revenue that would have otherwise been lost. Under the agency's Whistleblower Informant Award program, that employee may be entitled to receive a cool $1 million reward.
Other U.S. federal agencies, as well as some private sector companies, offer similar financial rewards in their whistleblowing programs, although the amounts and eligibility conditions differ. Some of them have a minimum threshold. For example, the Whistleblower Informant Award program at the IRS requires that the amount in dispute must be at least $2 million before a reward is paid.
The goal of these financial incentives is to encourage the reporting of unethical and illegal activity, and the financial rewards may seem like an attractive incentive. But a group of academics wondered if the incentives could lead to unintended consequences, in accordance with the behavioral theory of motivational crowding.
Motivational crowding describes how, in certain contexts, extrinsic motivators can also act as disincentives by hijacking one's intrinsic motivation. Under this theory, a sizable financial reward can shift a whistleblower's motivation—instead of reporting on fraud because it's the right thing to do morally, the whistleblower becomes motivated primarily by the financial gain of the reward. Although there may be nothing wrong with that type of motivation per se, in situations when reporting wrongdoing will not result in a financial reward, a potential whistleblower motived by money might be less likely to report.
And so, in Hijacking the Moral Imperative: How Financial Incentives Can Discourage Whistleblower Reporting, researchers Leslie Berger, Stephen Perreault, and James Wainberg conducted a study of 166 graduate accounting students, presenting them with various scenarios and vignettes. The responses were measured and studied.
The results were consistent with the researchers' predictions. Study participants assessed a higher likelihood that fraud would be reported in situations where the whistleblower would receive a financial reward. This result suggested that financial rewards can be an effective mechanism to encourage whistleblowing in certain contexts.
But the study also found that when the size of the fraud was less than the prescribed minimum threshold in the whistleblower program, participants assessed a lower likelihood that the fraud would be reported in a timely manner. "As such, we demonstrate that including a minimum threshold feature in whistleblower reporting programs can unwittingly inhibit the timely reporting of smaller frauds," the authors write.
This is not good news, the authors conclude. "This finding is especially problematic since the early detection of fraud is a critical factor in minimizing potential damages and securing access to evidence," the authors write.