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

41 Pages Posted: 17 Jan 2019 Last revised: 23 Jul 2019

See all articles by Elizabeth A. Sheedy

Elizabeth A. Sheedy

Macquarie University Department of Applied Finance; Financial Research Network (FIRN); Macquarie University, Macquarie Business School

Le Zhang

Macquarie University - Macquarie Graduate School of Management; Macquarie University, Macquarie Business School

Dominik Steffan

Technical University of Munich

Date Written: May 15, 2019

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

Suggested Citation

Sheedy, Elizabeth A. and Zhang, Le and Steffan, Dominik, Scorecards, Rankings and Gateways: Remuneration and Conduct in Financial Services (May 15, 2019). 2019 Financial Markets & Corporate Governance Conference. Available at SSRN: https://ssrn.com/abstract=3317344 or http://dx.doi.org/10.2139/ssrn.3317344

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, Macquarie Business School ( email )

New South Wales 2109
Australia

Le Zhang

Macquarie University - Macquarie Graduate School of Management ( email )

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Dominik Steffan

Technical University of Munich ( email )

Parkring 11
Garching-Hochbrueck, 85748
Germany

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