Behaviour of Finance Professionals Under the Balanced Scorecard

20 Pages Posted: 26 Nov 2018

See all articles by Elizabeth A. Sheedy

Elizabeth A. Sheedy

Macquarie University Department of Applied Finance; Financial Research Network (FIRN); Macquarie University, Faculty of Business and Economics

Le Zhang

Macquarie University - Macquarie Graduate School of Management; Macquarie University, Faculty of Business and Economics

Date Written: November 13, 2018

Abstract

The Royal Commission into Misconduct in Banking, Insurance and Financial Services has refocused attention on how remuneration practices influence behaviour. In particular the ‘Balanced Scorecard’, seen by some as a cure for misconduct, has come under scrutiny. In 2018 experimental researchers based at Macquarie University have investigated how various remuneration structures affect compliance with company policy.

The study concluded that the highest rates of compliance were achieved under a fixed remuneration structure; 75% of participants were completely compliant with policy across all transactions. Under a simplified Balanced Scorecard, compliance rates fell significantly to 62%. Under the compliance gateway, compliance rates fell further to 51% of participants. This suggests that the Balanced Scorecard is significantly less effective than fixed remuneration with regard to compliance outcomes.

Interestingly, the Balanced Scorecard we tested did not lead to any significant uplift in productivity relative to fixed remuneration. This may be because the decision to breach, or not breach policy slows participants down as they weigh up the chance of being caught and possible consequences. They must also consider issues such as moral identity and social standing, further slowing down the speed of mental processing. Under fixed remuneration, there is less need to consider such issues and so the often-claimed loss in productivity is not observed.

With these findings, it seems appropriate for the financial services industry to reconsider the use of the Balanced Scorecard for remuneration purposes.

Suggested Citation

Sheedy, Elizabeth A. and Zhang, Le, Behaviour of Finance Professionals Under the Balanced Scorecard (November 13, 2018). Macquarie University Faculty of Business & Economics Research Paper. Available at SSRN: https://ssrn.com/abstract=3283367 or http://dx.doi.org/10.2139/ssrn.3283367

Elizabeth A. Sheedy (Contact Author)

Macquarie University Department of Applied Finance ( email )

Room 739, 4 Eastern Road
Macquarie University
North Ryde, NSW 2109
Australia
61-2-9850 7755 (Phone)
61-2-9850 7281 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Macquarie University, Faculty of Business and Economics ( email )

Australia

Le Zhang

Macquarie University - Macquarie Graduate School of Management ( email )

Macquarie University, Faculty of Business and Economics ( email )

Australia

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