Abstract
Bankers’ bonuses have created a lot of controversy in the financial institutions over the recent past. Issuance of bonuses to bankers can have a significant effect on the financial institution. As a result, most financial institutions have adopted the method of issuing bonuses to their staff members in the aim of adding profit and improving employees’ performance. Different ideas have been presented determining the efficiency of bonuses to bankers, and if they, effectively, work in the financial institutions. Financial institutions are, usually, sensitive in making profits and losses. It is based on this logic that the top management cadre encourages employees into making profits rather than losses. According to the financial institution’s objectives, taking risks in order to make great profits is, highly, encouraged in financial institutions. By contrast, employees taking risks and making great loss are not tolerated in the institution since they reduce the profitability of the financial institution thus lose reputation. This research paper will analyze the various reasons for employing such a strategy and its impact on the financial institution’s performance and production capacity. The efficiency of bankers' bonuses in financial institutions will form the main focus of this research study.
Chapter 1
Introduction
Financial institutions form a core role in the economic condition of a country. It is important for the management team, therefore, to undertake various strategies in order to improve their performance and productivity both in the short-run and in the long-run. Financial institutions make financial decisions that put the whole system to a risk. There have been some strategies and practices employed in the financial institutions in order to improve employees’ productivity and gain profits for the institution. Motivation of employees can take various forms including corporate discounts, bonuses, and employees’ promotions. The aforementioned incentives and motivational practices carried out by financial institutions helps to foster employee engagement and performance. Bonuses issued to employees form an important aspect of an organization. On this front, bonuses determine the success and achievement of an institution’s goals and objectives.
The top management cadre decides on bonus issuance after their expectations are met and feel the need to improve performance among employees. Financial institutions are faced with a lot of competition from other rival institutions; therefore, their profits are, greatly, affected by employee performance. This research study has focused on how employees’ bonuses, effectively, work with financial institutions. It is important to understand the significance and to what extent bankers' bonuses are efficient in order to appreciate the strategy in improving performance.
Research question
- Why do organizations employ bonus issuance strategy to bankers?
- Does the issuance of bonuses by banks to their employees has any impact on performance?
- Does the level of motivation changes on introduction of bonuses?
- Are bonuses effective in the short or long term in the operations of an organization?
Research objectives
Specific objective
Establish whether bonuses have a direct impact on performance of bankers.
General objectives
- Establish why banks employ bonuses in rewarding their employees
- Determine whether the level of motivation of bankers changes on issuance of bonuses.
- Establish whether bonus issuance is a short or long term method adopted by banking institutions.
Significance of the research
The study research is important for financial institutions and other relevant organizations in determining whether to employ a bonus method as motivation to employees. It is important for financial institutions understand and acknowledge various methods used to motivate workers in order to initiate an appropriate strategy in the organization. The study also helps understand the merits and demerits of bonus to bankers.
Limitation of the research
- Constraints in acquiring detailed information about the study
- Financial constraint in organizing research methodology, design, and collection of information
Chapter 2
Literature review
Over the years, bank bonuses have been a major point of discussion between financial institutions in the United States and in Europe. At the beginning of banking bonus strategy, financial institutions offered year-end bonuses in the form of cash and equity to their employees. This was based on firm, group, and individual performance. According to a case study by Murphy, the implementation of the Banking Act in the United States in 1933 had a significant effect on bankers’ remuneration and bonuses. Investment banking and commercial banks offered high salaries to their employees amid fierce competition in the industry. Financial institutions offered rewards and incentives to top performers in order to encourage them to join in their organization. There have been myriad opinions about how bankers and other financial institution workers should be awarded bonuses. In the recent past, the European Union arrived at a consensus to restrict the amount of bankers' bonuses. Financial institutions, on the other hand, were drastically affected by the financial crisis of 2008-2009, recession. There have been divided views on bonus issuance to bankers as they significantly affect the financial (Murphy 8).
According to case studies, the financial crisis of 2008-2009 has been attributed to the issue of bankers’ bonus culture among financial institutions. Bankers’ bonuses triggered employees to take a great risk in aiming for high profits. Big bonuses have been attributed to high employees’ performance. Bankers are known to take huge risks in the aim of making great profits for the financial institution. In their mission to achieve organizational goals and objectives, the bankers take risks that result in huge financial loss leading to draw back (Murphy 10).
Chapter 3
Methodology
This chapter evaluates all the methodologies adopted in the development of this research. The areas covered include research design, data collection, data analysis and presentation.
Research Design
This study adopted a case study research design, which was based on a contextual analysis on some of the considered conditions and their relationships. It has been essential in the analysis of quantitative research by social scientists. Case study design provides an imperative tool in the investigation of contemporary real life situations providing the basis for ideas application.
Data Collection and Target Population
The target population for the collection of data for this research are bankers from different banks across the UK. The research will also utilize information and data that will be provided by the management of the different banks on the impact of adding bonuses to the employees. This research was based on primary data and various methods of collecting primary data were employed. For example, the researchers adopted the use of questionnaires, observation among other major methods of collecting primary data to collect the data. Random sample will be selected in the collection of data used in the study.
Data Analysis and Presentation
The data collected will be analyzed using descriptive statistics, frequencies and proportions. The findings of the study will be presented in tables and graphs.
Chapter 4
Data Analysis
The sample considered for this study involved 30 respondents of bankers working in different branches and departments. The questionnaire was administered randomly using the random sampling to ensure that bankers working in different departments within the banking sector are incorporated. The analysis of the data collected will be based on descriptive statistics and will be presented in graphs and other descriptive statistics methods.
The impact of bonuses on performance
This sought to evaluate the effectiveness of bonuses on the performance of the employees during the work duties. The question inquired was an open question inquiring whether it has a positive or negative impact on performance. 18 of the respondents agreed that bonuses have a positive impact on performance while 7 were indifferent and 5 had a negative response towards the question.
Why do banks provide rewards to employees
This study also sought to determine why banks offer bonuses to their employees. However, only three factors were considered for this case study which are an improvement in the performance of the employees, improving motivation and as a result of increased profitability.
The majority of the bankers agreed that most of the banks offered bonuses to employees who achieved their targets hence the objective was basically to improve performance. Some agreed that banks also adopted bonuses to improve motivation while others expressed that some of the banks offered bonuses after the increased profitability of the organization.
Impact of Bonuses on employee Motivation
The research study also wanted to inquire whether bonuses have any effect on the motivation of the employees. The following graph presents the outcome of the research. It adopted an open question of a direct yes or no to avoid complication in the analysis of data.
Discussion
The second objective sought to determine why banking organizations offer bonuses to employees. The study focused on three factors which were improving the performance, improving motivation or as a result of increased profitability. The study found that there has been numerous cases when banks offer bonuses to improve performance. However, they also offer bonuses when the performance of the bank is exemplary and targets have been met.
Conclusion
The bonus culture has taken a toll in different sectors of the economy. Banks have been part of the economic institutions that have been affected by this culture. Therefore, there has been numerous questions in regard to whether bonuses are in line with improving the effectiveness of these institutions. This case sought to determine whether the bonuses offered to bankers in the banking institutions have a positive effect on their effectiveness. In this case, there were various factors that were considering whether bonuses have a positive or negative impact. The factors considered in this case were the performance of these institutions, motivation, and profitability. The determination of these factors will facilitate the establishment of whether bonuses have a positive or negative effect on the effectiveness of these institutions.
Based on our first objective whether bonuses have an effect on performance. The study has found a positive effect between performance and bonuses offered. However, the effectiveness of the bonuses in the organization has been found in the short term. This has been due to other negative impacts bonuses such as increased risk taking. For example, during the recent financial crisis increased risk taking by financial institution had been found as a major factor in increasing debt. Therefore, one can conclude that the bonuses have a positive impact on performance in the short term while minimal impacts are felt in the long term.
The second objective seeks to determine the reason why banking institutions offer bonuses to their employees. In this case, three factors were considered which include, improved performance, motivation and as a result of increased profitability. These factors have been among the top in determining the bonuses offered to employees. There has been numerous cases where banks offer incentives to their employees in terms of bonuses to improve their performances. Bonuses have also been issued to improve their motivation and as a result of increased profitability and achievement of organization targets.
In the third objective the study sought to determine the impact of bonuses on motivation. It was noted that there is a direct relationship between bonuses and motivation of the employees especially in the short term. When employees are offered bonuses after achievement of certain objectives the morale increased and this was noted from their response in the questionnaire. In conclusion, there has been a direct relationship between bonuses and the effectiveness of the organization as institutions adopt a more goal oriented approach towards the achievement of their objectives.
Works Cited
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Appendices
An investigation into whether Bankers Bonuses are effective in Organizations
Questionnaire
- Do bonuses have a positive impact or a negative impact on your performance?
- Positive
- Negative
- Indifferent
- Why do banks employ bonuses in rewarding their employees?
- Do bonus rewards on bankers improve their work motivation?
- Yes
- No
- Do bonuses have a short or long term impact on the performance of the bank?
- Short term
- Long term
- How are bonuses related to risk in the banking organizations?
- They increase risks
- They reduce risks
- Are bonuses offered in the banking institutions positively related to short term or long term objectives of the organization?
- Long term
- Short term
- Does banking organization use huge bonuses to their employees to retain talents within the organization?
- Yes
- No
- Is issuance of bonuses the most effective incentive compensation design?
- Yes
- No
- Are the bonuses offered in your organization based on individual, team or organizational performance?
- Individual
- Team
- Organizational
- Which group of employees is offered more incentives?
- Senior executives
- Senior management
- Normal employees
