Do Whistleblower Awards Lead to More Whistleblowing?

The ethics of whistleblowing is a tricky matter. Whistle-blowing brings two moral values, fairness and loyalty, into conflict. Doing what is fair or just (e.g., promoting an employee based on talent alone) often conflicts with showing loyalty (e.g., promoting a longstanding but unskilled employee). Taken to its extreme from a loyalty perspective, whistleblowing may involve agonizing conflicts when, for example, it involves violating the trust of co-workers who have engaged in wrongdoing or jeopardizing one’s ‘team player’ status by going against the prevailing winds in an organization that fosters unethical behavior.

From an ethical perspective, while loyalty is an ethical value it never should be placed above one’s ethical obligation to act responsibly and be accountable for one’s actions including reporting wrongdoing. Responsible people blow the whistle when they believe more harm than good will occur if the whistle-blower stays silent. A virtuous whistle-blower acts in an ethical manner when they believe a responsibility exists to protect the public interest. Such a person is willing to accept the consequences of their actions for the greater good.

An ethical person has the fortitude to be courageous because they have the integrity to do what is right even when pressure exists in an organization to do otherwise. The most important consideration in assessing whether a whistle-blower acts in an ethical manner is the intention behind one’s action. Is it designed to right a wrong as ethics requires? Alternatively, is it an action the best serves one’s personal interest thereby motivated by egoism—the pursuit of self-interests. Given the availability of whistleblower awards, a would-be-whistleblower may act to gain the award, not to serve the public interest.

Whistleblower Awards

Under the Federal False Claims Act, whistleblowers can be rewarded for confidentially disclosing fraud that results in a monetary loss to the federal government. Provided that their original information results in a successful prosecution, whistleblowers are awarded a mandatory reward of between 15% to 30% of the collected proceeds. These rewards are often substantial, since under the False Claims Act, the criminal is liable for a civil penalty as well as treble damages.

Among the most important whistleblower laws is the Dodd-Frank Act passed in 2010 following the financial crisis of 2008-09. The Act is a major Wall Street reform law covering commodities and securities actions worldwide that aims to promote financial stability by improving accountability and transparency. It created two whistleblower programs in the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), as well as enhanced whistleblower provisions under the Foreign Corrupt Practices Act.

To be eligible for a reward, whistleblowers must provide original information about a violation of securities law that leads to a successful enforcement action. This action must result in monetary penalties exceeding $1,000,000. SEC whistleblower awards range between 10 and 30 percent when the monetary sanctions collected exceed one million.

Is Whistleblowing More Common When CEOs Are Overpaid?

A read an article in the Harvard Business Review that takes the position whistleblowing will occur when CEOs executive compensation dwarfs that of employees. The authors state that in 2021, the average CEO at one of the top 350 firms in the U.S. was paid $27.8 million—a rate that skyrocketed by an astonishing 1,460% since 1978. During this same period, the average worker’s pay grew by just a meager 18.1%. When employees witness disproportionate pay for C-suite executives or unfair treatment compared to other stakeholders, they often perceive a lack of fairness within the organization. This perception can be toxic for morale, leading to disloyalty and resentment. But could it lead to increased whistleblowing?

In their research, published recently in Strategic Management Journal, the authors set out to look at why employees blow the whistle on organizational wrongdoing. They found that two factors—outsized disparities in executive compensation and treatment of external stakeholders—could make employees likelier to blow the whistle on their companies. They also identified strategies to help companies to avoid this long-term damage to their people, reputations, and financial health.

The first factor seems to imply that such employees seek a kind of ‘revenge,’ believing they are treated unfairly because their compensation is low compared to CEOs. In the second case, their motivation seems more altruistic, that is, to protect shareholders, investors, and so on.

Organizational Considerations

From an organizational perspective, it is important that even if hotlines are in place, the organization should not be complacent when it comes to its usage and communication. If a company doesn’t receive many whistle-blowing reports, it shouldn’t assume that no news is good news.

In addition, if companies don’t use the data collected from their reports in a progressive manner (analyzing trends, investigation and resolution, etc.) it negates the benefits of the service considerably. Businesses have a responsibility to the public to act on whistle-blowing intelligence or risk adverse consequences. They are additionally accountable to the governing bodies of their sector, such as the SEC, OSHA, EEOC, EPA, and other regulatory agencies.

It might seem obvious to my readers whistleblowing is an ethical practice. After all, I blog about it all the time. I am also aware that ethics is easier said than done so it is safe to say that individual ethics are born of a culture of ethics. In an organization, this means to establish an ethical tone at the top that filters throughout and sets a standard that is enforced. The worst thing that can happen in an organization is for top management to say they believe in a code of ethics and then violate that very same code when it comes to their individual behavior. And in a culture of ethics, whistle-blowers can come out of the cold.

Posted by Steven Mintz, aka Ethics Sage, on March 25, 2025. You can sign up for his newsletter and learn more about his activities at: https://www.stevenmintzethics.com/.