Relationship Between Executive Compensation and Fraud Prevention and Detection in Commercial Banks in Kenya

Abstract

The overriding purpose of this study was to investigate the relationship between executive compensation and Fraud prevention and detection in commercial banks in Kenya. A mixed research approach was utilized to achieve this aim, in which data was collected and analysed through both quantitative and qualitative approaches. The quantitative data was partially collected from secondary sources and partially from primary sources through a closed questionnaire featuring a Likert scale. The secondary collection of data for this study was limited to only 11 banks out of the 43 registered banking institutions in Kenya. Data for the 11 banks was considered to be easily available based on the fact that they are listed under the Nairobi Securities Exchange, and therefore under an obligation to disclose their financial reports and statements. The assessed executive compensation packages include basic salaries, allowances, bonuses, stock options, and annual cash incentives. The qualitative data was collected entirely from primary sources using both closed and open ended questionnaires in which 55 respondents from the banking sector, identified through both stratified and simple random sampling. Data was analysed through statistical tools of data analysis namely correlation analysis and regression analysis besides through content analysis. For the collective period, it was concluded that executive compensation does not have a relation with fraud prevention and detection. However, for the specific variables, both stock options and bonuses had a significant positive relationship with fraud prevention and detection (𝑡=3.345) and (𝑡=2.248), to mean that the two parameter directly influence the measures that executives take for curbing fraud in banking institutions. Responses from the survey depicted the relationship between the dependent and the independent variables of this researcher as a nebulous issue, which cannot be explicitly accepted or annulled. It is recommended for banks to set up autonomous units for the prevention and detection of fraudulent behaviours