Incentives and culture in risk compliance

Elizabeth Sheedy; Le Zhang; Kenny Chi Ho Tam

doi:10.1016/j.jbankfin.2019.105611

Incentives and culture in risk compliance

Elizabeth Sheedy^*, Le Zhang, Kenny Chi Ho Tam

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

8 Citations (Scopus)

109 Downloads (Pure)

Abstract

In the finance industry, risk compliance has become an important issue after numerous policy violations resulting in significant costs for financial institutions and society as a whole. We run a lab-in-the-field experiment with 269 finance professionals, to investigate the effects of financial incentives and workplace culture on risk compliance. Relative to variable remuneration (linked to expected profits), fixed remuneration increases the proportion of people complying by as much as 25.1 percentage points. This is achieved with no diminution in productivity. Relative to a profit-focused workplace culture, a risk-focused workplace culture increases the proportion of people complying by 16.3 percentage points.

Original language	English
Article number	105611
Pages (from-to)	1-13
Number of pages	13
Journal	Journal of Banking and Finance
Volume	107
Early online date	1 Oct 2019
DOIs	https://doi.org/10.1016/j.jbankfin.2019.105611
Publication status	Published - Oct 2019

Bibliographical note

Copyright 2019 The Author(s). Published by Elsevier B.V. Version archived for private and non-commercial use with the permission of the author/s and according to publisher conditions. For further rights please contact the publisher.

Keywords

Risk management
Banking
Compliance
Culture
Incentives

Access to Document

10.1016/j.jbankfin.2019.105611Licence: CC BY-NC-ND

Publisher version (open access)Final published version, 0.99 MBLicence: CC BY-NC-ND

Cite this

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title = "Incentives and culture in risk compliance",

abstract = "In the finance industry, risk compliance has become an important issue after numerous policy violations resulting in significant costs for financial institutions and society as a whole. We run a lab-in-the-field experiment with 269 finance professionals, to investigate the effects of financial incentives and workplace culture on risk compliance. Relative to variable remuneration (linked to expected profits), fixed remuneration increases the proportion of people complying by as much as 25.1 percentage points. This is achieved with no diminution in productivity. Relative to a profit-focused workplace culture, a risk-focused workplace culture increases the proportion of people complying by 16.3 percentage points.",

keywords = "Risk management, Banking, Compliance, Culture, Incentives",

author = "Elizabeth Sheedy and Le Zhang and Tam, {Kenny Chi Ho}",

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AU - Tam, Kenny Chi Ho

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N2 - In the finance industry, risk compliance has become an important issue after numerous policy violations resulting in significant costs for financial institutions and society as a whole. We run a lab-in-the-field experiment with 269 finance professionals, to investigate the effects of financial incentives and workplace culture on risk compliance. Relative to variable remuneration (linked to expected profits), fixed remuneration increases the proportion of people complying by as much as 25.1 percentage points. This is achieved with no diminution in productivity. Relative to a profit-focused workplace culture, a risk-focused workplace culture increases the proportion of people complying by 16.3 percentage points.

AB - In the finance industry, risk compliance has become an important issue after numerous policy violations resulting in significant costs for financial institutions and society as a whole. We run a lab-in-the-field experiment with 269 finance professionals, to investigate the effects of financial incentives and workplace culture on risk compliance. Relative to variable remuneration (linked to expected profits), fixed remuneration increases the proportion of people complying by as much as 25.1 percentage points. This is achieved with no diminution in productivity. Relative to a profit-focused workplace culture, a risk-focused workplace culture increases the proportion of people complying by 16.3 percentage points.

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ER -

Incentives and culture in risk compliance

Abstract

Bibliographical note

Keywords

Access to Document

Other files and links

Fingerprint

Submission to APRA's Consultation: CPS511 Remuneration Revised Draft

Auditing Risk Culture

Cite this

Incentives and culture in risk compliance

Abstract

Bibliographical note

Keywords

Access to Document

Other files and links

Fingerprint

Activities

Submission to APRA's Consultation: CPS511 Remuneration Revised Draft

Auditing Risk Culture

Cite this