By:  Jaqueline M. Hummel
Managing Director, Hardin Compliance Consulting LLC

July 17, 2014

I recently listened to a podcast from Freakonomics radio, called Why You should Bribe Your Kids. In this podcast, two economists (John List from University of Chicago and Anya Samek from University of Wisconsin-Madison) did field studies that confirmed what we’ve probably always suspected: the right incentive is more effective in changing behavior than education. In the studies, they discovered that kids would almost always choose the less healthy dessert (cookies) over fruit, even after being told that, in the long run, fruit was better for them.  However, if they offered the kids a little reward to eat the fruit, the kids would almost always make the healthier choice. This was true even without any education on healthy choices.

I’ve found this to be true with adults in the compliance arena, as a result of my own completely unscientific field studies when I was working as Chief Compliance Officer for an investment adviser. I started small, offering cookies for anyone who showed up in person for compliance training. Next, I gave candy to anyone who correctly answered questions posed during the session. My staff and I also offered Starbucks gift cards to the first five people who turned in their quarterly transaction reports. These incentives were especially effective with sales staff.

Hands down the most effective incentive I experienced came from a Chief Investment Officer for a registered investment adviser many years ago. He was not happy with the number of  employees turning in their required personal transaction reports late. At a training session, he told all employees that if they failed to turn in their reports on time, they could lose up to 13% of their year-end bonus. As you might guess, all reports were in on time that next quarter.

It is not often that firm management is willing to take such a tough stance on compliance issues. But in addition to the economic incentive, I believe another reason the Chief Investment Officer’s message was so effective was because he delivered it in person, and made it clear that compliance was a priority for management. Including compliance in each employee’s goals and having management actively participate in training are other effective means of getting this message across and providing accountability. I don’t have any field studies to back up this claim, but I know that if something is important to my boss, it is generally important to me too.