Regulations result in rebellious financial managers

PwC have released a report in collaboration with the London Business School which revealed that banking rules and regulations can actually induce the kind of behaviour that financial institutions are looking to avoid.

The study examined the responses of over 2000 UK managers that represented a range of industries within the financial services sector. The report called “Why you can’t scare bankers into doing the right thing” provides an explanation of how lack of employee performance and the inability to reach targets can increase unethical conduct within the financial industry.

Results revealed that when poor performance was punished, only 15% of managers were anxious rather than excited, which explains their misbehaviour. On the other hand, when more positive outcomes were on the horizon, managers were more likely to be more innovative.

Behavioural science specialist at PwC, Duncan Wardley, believes that rules in the workplace should be implemented, but they are encouraging well-meaning people to hide their mistakes to avoid being punished. “We are not suggesting that rules and penalties for bad behaviour should be abandoned as it’s essential that people know what is acceptable and what isn’t, and criminal behaviour should be punished. This is about the sorts of pressures that push ordinary, well-meaning people into behaving less ethically that they would want to by cutting corners and hiding mistakes,” Wardley says.

Wardley suggests that regulators should change their approach by focusing more on praising employees for their success. “Regulators and financial services leaders can change behaviour within companies by increasing emphasis on the positive outcomes of good performance, instead of solely focusing on the negative outcomes of the bad behaviour they want to stamp out,” Wardley continues.

Managers were also questioned about bonuses and those who said that they felt anxious about their company’s reward scheme, said they were motivated by money. Alongside this, those who said that their reward scheme excited them believed that their colleagues and clients’ approval was their incentive to work harder.

Tom Gosling, head of pay, performance and reward at PwC, explains how their research showed that pay based on performance would also induce unethical behaviour. “Pay regulation based purely on pay structures and penalties can unintentionally create the very conditions that make unethical behaviour more likely. Our research shows that an approach to pay regulation that focusses too much on pay instruments, deferral, and clawback can create the emotional states in which creativity is crowded out, focus on financial rewards is maximised and unethical behaviour is more likely,” Gosling says.


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