The Compliance Index Model: Mitigating Compliance Risks by Applying PLS-SEM to Measure the Perceived Effectiveness of Compliance Programs

Abstract

The Compliance Index Model represents a new type of employee-based measurement system for evaluating—and enhancing—the effectiveness of compliance programs. The authors discuss the nature and purpose of the Compliance Index Model and explain the theory underlying the model, and the quantitative approach employed to estimate the model parameters. The authors also illustrate the use of importance-performance analysis to identify critical areas of managerial attention and action for improving compliance program effectiveness and, consequently, mitigating compliance risk. Highlights of the findings include that (1) misaligned incentives, role-model-behavior, and transparency are factors that determine overall compliance culture, (2) overall compliance culture determines whistleblower readiness and compliance risk, and (3) compliance culture provides the foundation for compliance program effectiveness. The authors conclude with a discussion of the implications of the Compliance Index Model for public policy makers, managers, customers, as well as finance and banking in general.