US banking giant American Express has revealed that annual bonuses across all its businesses depend on positive reports from internal audit and compliance departments.
The move is a radical departure from the standard banking practice of basing bonuses on profit performances of individuals, departments and the overall bank. Amex said the radical overhaul of its performance measurement systems was spurred by the tightening of money-laundering laws in the US.
Severio Mirarchi, the bank’s head of compliance, said the Amex board agreed they ‘must tie compliance to compensation’, leading to the introduction of a departmental bonus system governed by three goals:
– performance against profit projections
– performance and maturity of compliance controls (following a positive report by the compliance department)
– adherence to audit controls (following a positive report by internal auditors).
Mirarchi argued that it was important to integrate compliance and audit controls into the process because a fraud scandal could jeopardise the reputation of the bank.
Institutional investors in the UK welcomed the idea that UK companies would follow suit. Peter Butler, corporate focus director at Hermes, which handles the BT and Post Office pension funds, said: ‘If you are in an environment where compliance is an objective, it is part of the natural evolution of things to include them in bonuses.’
UK banks have shied away from formal compliance structures, preferring to build systems capable of detecting fraud at an early stage.
George Selim, professor of internal audit at the City University Business School, said Amex was sending a positive message of how seriously it took compliance issues. He did warn, however, of a possible clash between business managers and auditors.
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