Evidence of incentive risk culture in South African bank compensation reports

Abstract

Using a qualitative content analysis method, this paper explored a unique area of risk culture by focusing on a specific risk type, incentive risk. The purpose of the study was to utilise publicly available compensation reports published by six South African banks in order to answer the research question: What evidence of incentive risk culture is provided in the compensation reports of South African banks? As this is a new research area, it is expected that this question would appeal to the stakeholders of the banks, and particularly their shareholders. To answer the research question, supervisory and regulatory documents were first analysed to develop key themes and sub-themes for incentive risk culture and compensation reporting. Second, the selected bank compensation reports were evaluated against these themes and sub-themes to determine whether they provide evidence of incentive risk culture. This study concludes that the compensation reports provide partial evidence of the incentive risk culture of the banks as I was able to directly link most but not all of the disclosures against the key themes and sub-themes identified. As such, I would recommend that the banks use the findings of this research project to evaluate and enhance their disclosures in order to improve on how they report on compensation risk. Furthermore, while this study has its own limitations, it provides insights into a specific risk culture topic that has not been researched previously and thus contributes to the current risk culture body of knowledge.