Scorecards, Rankings and Gateways: Remuneration and Conduct in Financial Services

Abstract

The financial services industry typically provides performance pay to staff – a practice that has been linked to misconduct. This lab-in-the-field, real-effort experiment with 318 finance professionals investigates the impact of performance pay on behaviour, in an environment where compliance with policy is imperfectly monitored. For the first time we examine the remuneration structures which have been proposed by the industry and its regulators to mitigate misconduct: the balanced scorecard and the compliance gateway. Relative to fixed remuneration, both these remuneration structures produce significantly worse compliance outcomes.

The study also examines the role of relative performance information which is found to boost productivity. Peer feedback has no significant impact on the proportion of participants choosing to comply with policy, but for those who sometimes violate policy, peer feedback reduces the compliance rate. Membership of a professional association has no significant impact on the proportion choosing to comply throughout, but for those who sometimes violate policy, members have higher compliance rates than non-members. Perceptions of peer compliance predict actual compliance behaviour in all treatments, highlighting the importance of social norms or culture for behavioural outcomes.

Keywords: performance pay, balanced scorecard, rankings, experiment