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Incentives and Culture in Risk Compliance

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.

Author - Elizabeth Sheedy, Le Zhang, Kenny Chi Ho Tam
Journal - Journal of Banking & Finance

Source - https://www.sciencedirect.com/science/article/pii/S0378426619301864?via%3Dihub