Some of the industries are compliance challenged, specially if an organisation is present and operating across the length and breadth of India and working in a labour intensive industry.
For example how to ensure that you are treating all employees at a level equally, when the leaves, minimum wages are different from one state to another. You can decide to give the maximum benefits to your employees, however that is a recipe for disaster from commercial perspective.
In one company which was working in an industry which is highly fragmented, compliance was one of the selling point to its customer. However its pan India operations used to make to vulnerable to gaps in compliance. The compliance was a manual process. The compliance department was always lacking in tracking of compliance.
With a change of management, management wanted a firm grip on where they are on compliance with regard to minimum wages. Following steps were introduced to nudge the employees towards ingraining compliance behavior :
- Internal Audit team had devised a tracking sheet for minimum wages changes.
- All the contracts were mapped against the respective areas and where applicable in various zones.
- All the employees were mapped with respective states notification in terms of skills, designations, etc.
- Every month compliance department calculates the shortfall in numbers where minimum wages compliance was missing.
- Operations of the company was divided into various regions. compliance started publishing this report every month region wise.
- Some of the regional head opened the dialogues with their customers and were able to convince the majority of them to pay the required wages.
- Where they were not able to convince, they started bringing the cases to the notice of management.
- Management had started giving given notice of termination of contract to such customers. Some of the customers agreed to revisions, some had decided to find alternatives.
- Within a year, the compliance rate had increased to over 90% from below 50%.
- By bringing competition, organisation was able to nudge employees towards better behavior.
All such steps can be mapped with components of COSO 2013 Internal control framework
- Control Environment: Organisation had decided to monitor the company wide operations together instead of piece meal. This has given the management better grip on state of compliance.
- Risk Assessment: Company had assessed the risk at very high level which had the potential to impact the business severely.
- Control Activities: Regular monitoring, communication, issuing of notices of termination were part of control activities.
- Information and communication: With a single reporting structure in place, various regions were able to compare their state vis a vis other states and it has created a competition where no one wanted to be the last one.
- Monitoring: Here monitoring was one of the essential controls. Organisation had started with excel based tool, which had been later on incorporated in the organisation payroll system.
Some of the examples of nudging could be:
- While booking air ticket, tickets to be always sorted in “low to high prices order”.
- While showing prices of air tickets to consumer, to always sort the display in “least time travel”.
- While asking for donation, instead of keeping the amount blank, it is populated with an amount.
- Registering for organ donation, savings, insurance are some of the areas where nudges have been practices extensively.
Nudge theory works on inherent laziness of humans and defaulting to default options.
References:
https://en.wikipedia.org/wiki/Nudge_(book)
https://en.wikipedia.org/wiki/Nudge_theory
Call for action:
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