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Balanced scorecard remuneration not appropriate for industry

By Eliot Hastie
 — 1 minute read

A study into the remuneration models of the financial sector has found that the popular balanced scorecard system has serious flaws and may not be the most appropriate model for the industry. 

New research by Macquarie University’s department of applied finance found the balanced scorecard to be significantly less effective than fixed remuneration when it comes to compliance outcomes. 

The research’s findings come as round seven of the royal commission starts with Commonwealth Bank’s chief executive spending the whole of the first day discussing remuneration at the bank. 


Remuneration has been highlighted by the royal commission as a potential cause of misconduct in the finance sector due to many remuneration models being dependent on sales. 

Over the course of day one of round seven Matt Comyn defended the bank’s remuneration structure, in particular its flexible remuneration. 

“We believe it is important to have an element of remuneration which is not fixed. We believe it is a well-designed set of metrics or a way for them to earn their short-term variable remuneration,” he said. 

However the Macquarie University study found that fixed remuneration may, in fact, be the best way forward for financial institutions. 

The Macquarie University study looked at how various remuneration structures affected compliance with company policy, specifically looking at balanced scorecards, fixed remuneration and payment schedules with behaviour gateways. 

The study found the highest rates of compliance were achieved under a fixed remuneration structure (75 per cent) whereas compliance rates fell to 62 per cent under a balanced scorecard system and even lower to 51 per cent under a compliance gateway. 

Macquarie University associate professor Elizabeth Sheedy said that researched backed up what had been presented in other research and in the royal commission, that variable remuneration doesn’t work. 

“It is becoming increasingly difficult to justify the use of variable remuneration in financial services. I hope industry leaders and regulators will seriously consider this issue as we continue to do research in this crucial area of performance measurement and remuneration,” Dr Sheedy said. 

Interestingly, the study also found that no remuneration model lead to any significant uplift in productivity. 

“The balanced scorecard we tested did not lead to any significant uplift in productive relative to fixed remuneration. This may be because the decision to breach, or not breach policy slows participants down as they weigh up the chance of being caught and possible consequences. 

“Under fixed remuneration there is less need to consider such issues, as so the often-claimed loss in productivity is not observed,” Dr Sheedy said. 

However, even fixed remuneration did not equal perfect compliance said Dr Sheedy which showed that, even without bonuses, people felt pressured to sell. 

“People feel quite a lot of performance pressure, they feel pressure to generate sales and you could say this is part of the culture of the environment,” she said. 

Dr Sheedy said the research made some very telling observations about the culture in financial institutions as the research found that participants who believed others were more likely to be non-compliant were themselves non-compliant. 

“One of the most important influences on whether people complied or not was their perception of what everyone else was doing. This brings us back to culture and the idea that we have to work hard on changing people’s perceptions about what is the behavioural norm,” she said.  


Balanced scorecard remuneration not appropriate for industry

A study into the remuneration models of the financial sector has found that the popular balanced scorecard system has serious flaws and may not be the most appropriate model for the industry. 

Not appropriate, thumbs down
Not appropriate, thumbs down
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