Earlier this year, I did a blog entry looking at how Sarbanes-Oxley was close to useless in protecting whistleblowers.

So how do solve the problem? One school of thought is to provide financial incentives for SOX whistleblowers.

Geoffrey Rapp, assistant professor of University of Toledo College of Law expands on that idea in his paper, Beyond protection: invigorating incentives for Sarbanes-Oxley corporate and securities fraud whistleblowers.

Rapp argues that the anti-retaliation provisions under Sarbanes-Oxley, and its stipulation that companies establish disclosure channels for whistleblowers are inadequate.

''Part of the problem may have been the policy aspiration
underlying SOX's whistleblower provision,'' Rapp writes. ''Merely protecting whistleblowers should not be the only goal. Rather, the goal should be to optimize the quantity and quality of information that whistleblowers bring to light about ongoing corporate malfeasance, and to do so in a way that makes early intervention by public and private enforcement authorities feasible and effective."

Rapp suggest developing a bounty system to reward whistleblowers.

Rapp's basic assumption is that whistleblowers need financial incentives. "Assuming rational decision making, an employee will blow the whistle when the marginal private benefits exceed the marginal private costs. For a potential whistleblower, both benefits and costs include pecuniary and nonpecuniary
elements. For example, a whistleblower might hope for a book deal, like Enron whistleblower Sherron Watkins, or a movie deal, like Big Tobacco whistleblower Jeff Wigand ("The Insider"). Either would be a positive "benefit" on the 'blow-the-whistle' side of the column. A whistleblower might also feel better about herself for 'doing the right thing' - again, a factor that would encourage blowing the whistle....Presumably, a large enough financial benefit in favor of blowing the whistle could outweigh any social or psychological factors favoring silence. However, because potential whistleblowers will discount their expected recovery from whistleblowing by the chance that they will not receive such a recovery, and to account for the time value of money, a potential financial benefit may need to be quite large in order to stimulate a risk-averse employee to blow the whistle."

And therein lies the problem with bribing whistleblowers. The financial incentives would need to be massive to compensate whistleblowers not only for job loss, but also psychological strain, blacklisting and fear of social ostracism.

There is also the potential for an increase in companies and regulators getting tied up in frivolous claims.

In any case, the whistleblowers I have interviewed around the world share one thing in common: making the decision to speak up was not easy, but they were all very motivated. Money had nothing to do with it.

A better approach would be for companies to develop best practice guidelines for whistleblowing, something I have looked at here.