The Carrot And/Or the Stick: Strategies for Regulatory Compliance

Two separate strories came my way this week, both very much about the challenges for government agencies tasked with seeking regulatory compliance.  Both stories concern agencies whose missions are explicitly aimed at protecting the statutory rights of employees.  Yet both stories involve the complex dynamics of multiple independent stakeholders, who often have competing interests. 

The first case comes from a long-time friend and colleague, who is a manager in a Federal regulatory compliance agency.  Over the years, we have often talked about ways his agency could better leverage scarce resources, and achieve better results.  Here’s a bit about their business environment:

  • enforce laws affecting most businesses in America
  • field staff of perhaps 1,000 investigators
  • enforcement activity divided between response to complaints, and targeted enforcement efforts in specific industries with known compliance problems

Given the typical time it takes to conduct a single investigation, and the capacity of field staff, the average covered business could expect a random audit every 20-30 years.  Not what I’d call a “burden.”  Nevertheless, given a complex combination of ignorance, economic pressures, and perhaps fear, there are stubbornly high rates of employer violation in many industries and areas.  Worse yet, employers who have been audited and found in violation, have stubbornly high rates of recidivism. 

The second story concerns OSHA- the Department of Labor’s Occupational Safety and Health Administration.  A story in the news reported criticism of the agency’s widely-touted Voluntary Protection Program.  Firms may enter into agreements with OSHA, under which OSHA foregoes direct inspections, if the firms assure compliance on their own, and submit certain documentation to back their compliance claims.  On the surface, this sounds like a win-win.  The employees in the workplace are assured safe and healthy working conditions, and the agency maximizes its use of scarce compliance resources.  But the news story reported that there are now some challenges to the VPP, which claim that it is not working as well as intended, and that it is not cost-effective.  This matter is being further investigated by DOL and others.

Historically, the work of regulatory compliance has been mainly designed to achieve results through what I’d call an enforcement/punishment model.  That is, field investigators find violators of the law.  If there are monies owed back to employees, or conditions that need to be put right, the employer is asked to take those corrective actions.  If the employer refuses or fails to do so, they may face costly litigation, and the risk of steep civil money penalties.  In cases where the employer has been investigated before and still has the same violations, ignorance is no longer a defense, and the penalties for repeat or willful violators go up considerably.

Given the low general odds of being investigated at random, and the increasing fear of employees about their job security, it is no wonder that some employers – also feeling the pinch of the down economy – would cut back on things like workplace safety, overtime pay, the use of illegal immigrant workers, and so on.

What then, should the regulatory agencies do?  If they vigorously enforce the law, they may please the employees whose rights are protected, but further alienate the employers whose businesses provide jobs in the first place. 

Back in the mid 1990s, when I was working for just such a regulatory compliance agency, the Department of Labor’s Wage and Hour Division, I was faced with this same dilemma.  We were tasked to seek greater compliance in the healthcare industry.  We had data that indicated chronic violations of nurse overtime pay, for example.  A shortage of skilled nurses meant that the industry couldn’t simply hire more nurses.  We had dozens of hospitals and hundreds of nursing home and related healthcare businesses in my local office’s jurisdiction.  How could I achieve more and better results with the limited resources at my disposal?

My answer came from the mix of competing priorities and constraints that I faced.  What if. . . ?  What if, instead of the usual “bad cop, here’s your ticket, see you in court if you don’t like it” model of enforcement, we truly worked to achieve what the law already intends – universal voluntary compliance? 

I’ll disclose right now that I was aware then of the OSHA Voluntary Protection program, and it certainly influenced my thinking.  I knew I couldn’t get Wage and Hour to create compliance agreements at that time.  But I also knew that OSHA used a vigorous program of education and outreach as an adjunct to its VPP activity.  This became the basis of our new approach.

This work began with one contact – a friend at the New Jersey Hospital Association.  He connected me to another senior person there, who connected me to leaders at the State’s biggest nursing home associations.  Another friend connected me to the State AFL-CIO, and they in turn, to the healthcare worker unions.  The resulting coalition met once, to hear my pitch about a true win-win-win option.  Happier employees (and i had the data to show happier employees are more productive), happier employers, and a happier enforcement agency.  Though initially skeptical, the participants at the table had nothing to lose, and a lot to gain.  In retrospect,  this was a key component of our success.

Within one week, this team had produced a colorful informational brochure, that Wage and Hour printed and distributed to thousands of recipients statewide.  We later designed a personal visit campaign that was strictly limited to education and outreach – no investigative activity.  This was a first for the agency, at that time.  Within three years, we achieved great success.  Compliance rates were up, recidivism down.

So the carrot seemed to prevail over the stick.  But- not for long.  Less than five years later, rates of recidivism had climbed back to their pre-initiative levels.  What had happened? 

In the study of complex human systems, we learn about “attractors of meaning.”  Ideas have the power to pull or push us and our behaviors in certain ways.  When the pressure to curtail labor costs overtakes the concern about regulatory enforcers, there will be a change in employer behaviors. 

This week, as I noted at the top of this post, my friend told me about the current enforcement strategies of his Federal agency.  The agency leader has decided to use a “strong big stick,” as a means to improve compliance outcomes.  More targeted investigations, harsher civil penalties, more negative wording in press releases to cast violative employers in a bad light.  I couldn’t help but ask if the agency also planned on having a carrot as big, or bigger, than the “stick” they were ready to wield.

Until agencies begin to see employer behaviors as the truly complex patterns that they are, compliance efforts are likely to fall below targets.  To paraphrase the old saying about how we humans behave, “how long do you stay in a bad situation? Until the pain of staying is greater than the fear of going – and not a moment sooner.”  The “big stick” can inflict pain, but the bigger carrot can can make the pain lessen by comparison.  Perhaps both are needed in a winning compliance strategy.  

This entry was posted in Change, Complexity, Government Improvement. Bookmark the permalink.

1 Response to The Carrot And/Or the Stick: Strategies for Regulatory Compliance

  1. Bruce – Another agency that has used voluntary compliance is the Federal Aviation Administration. In a report for the IBM Center, author Russell Mills concludes that although the programs can be improved, they are making a worthwhile contribution to airline safety. Mills argues that collaborative voluntary partnerships should be viewed as a complement to agency regulatory activities rather than as a replacement for the traditional command-and-control approach to regulation. His report, “The Promise of Collaborative Voluntary Partnership Programs: Lessons from the FAA” covers 3 different FAA initiatives spanning a 30-year period, so there has been some sustainability, unlike OSHA’s efforts.

    Here’s a link:

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