Abstract
We conduct a lab-in-the-field experiment with 318 finance professionals to investigate the effects of incentives on misconduct in the finance industry. We examine the inclusion of compliance, as well as transaction volumes, for determining performance pay. This is proposed by regulators to reduce misconduct, despite the inherent difficulty of measuring compliance. Relative to fixed remuneration, the performance pay structures that incorporate compliance measures produce significantly worse compliance outcomes with mixed results in terms of productivity gains. Anticipating relative peer information on both criteria leads to increased productivity; the number of participants choosing to consistently comply remains unchanged, but those who sometimes violate policy are less compliant.
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