The Effect of Financial Incentive Framing and Descriptive Norms on Internal Whistleblowing

Abstract

Recent regulations promoting external whistleblowing heighten the need for internal whistleblowing programs to encourage whistleblowing within firms. However, it remains controversial how firms should provide financial incentives for internal whistleblowing. Drawing on social psychology research, we argue that framing financial incentives for internal whistleblowing as a penalty is more effective at communicating injunctive norms than framing them as a reward, and that consistency between injunctive norms and descriptive norms leads to greater injunctive norm salience, which, in turn, results in greater internal whistleblowing. We test our hypotheses experimentally using a 2x2 between-subjects design that manipulates the framing of financial incentives promoting whistleblowing (Reward vs. Penalty) and social norms supporting or opposing whistleblowing (Norms For vs. Norms Against). As predicted, we find an ordinal interaction effect between financial incentive framing and descriptive norms such that descriptive norms for whistleblowing will increase internal whistleblowing to a greater extent when financial incentives for whistleblowing are framed as penalties than when these incentives are framed as rewards.

Keywords: incentives, peer reporting, internal whistleblowing, norms, rewards, penalties

JEL Classification: M40, M41, M52