But we do realise that there remain important pieces on which banks need to put in extra efforts. And I think it is fair to say that “Incentive System” is perhaps one of the most important outstanding pieces. 5. Talking about incentive system, let’s reiterate upfront that there is no single best incentive system in the world. Incentive systems have to be fit for purpose. But the reality is that it is very difficult for banks to even form a view on how effective their respective incentive systems is. Given the sensitive and proprietary nature of incentive frameworks, banks generally are unable to share and benchmark incentive practices, let alone assessing what practices are more effective in driving the right staff behaviour. Recognising this, the HKMA decided to step in and provide some benchmarking assistance to the industry. Last year, we launched a focused review on the incentive systems for front-office employees among 20 retail banks. The review was completed last month, and there are some interesting observations that I would like to share with the audience. 6. During the review, the consultant engaged by us conducted the first ever industry-wide employee survey in Hong Kong, and did a number of focus group discussions and individual interviews. The best way to describe the effort is that: it is an attempt to gauge the inner true voice of front-office staff who interact with bank customers on a daily basis.
BIS Review 161/2010  7  References Bean, C. (2009), “The Great Moderation, the Great Panic and the Great Contraction” Schumpeter Lecture at the Annual Congress of the European Economic Association in Barcelona on 25 August 2009, available at: http://www.bankofengland.co.uk/publications/speeches/2009/speech399.pdf Borio, C. (2010), “Implementing a macroprudential framework: blending boldness and realism” http://www.bis.org/repofficepubl/hkimr201007.12c.htm Dale, S. (2009), “Inflation Targeting: Learning the Lessons from the Financial Crisis”, Speech at the Society of Business Economists’ Annual Conference, London on 23 June 2009, available at: http://www.bankofengland.co.uk/publications/speeches/2009/speech395.pdf Haldane, A. (2009), “Rethinking the Financial Network”, Speech delivered at the Financial Student Association in Amsterdam on 28 April 2009, available at: http://www.bankofengland.co.uk/publications/speeches/2009/speech386.pdf IMF (2010), “G-20 Mutual Assessment Process – IMF Staff Assessment of G-20 Policies” http://www.imf.org/external/np/g20/pdf/111210.pdf King, M. (2010), “Banking: From Bagehot to Basel, and back again”, Speech given at the Second Bagehot Lecture Buttonwood Gathering, New York City on 25 October 2010, available at: http://www.bankofengland.co.uk/publications/speeches/2010/speech455.pdf Mishkin, F. (2008), “How Should We Respond to Asset Price Bubbles?” http://www.federalreserve.gov/newsevents/speech/mishkin20080515a.htm Tucker, P. (2009), “The Debate on Financial System Resilience: Macroprudential Instruments” At Barclays Annual Lecture in London on 22 October 2009, available at: http://www.bankofengland.co.uk/publications/speeches/2009/speech407.pdf  8  BIS Review 161/2010