A research Proposal on whether or not Bankers’ bonuses are effective
Abstract
Finance management in organizations forms an integral part of the success that an organization enjoys and allocating it to viable projects is always a priority. Bankers’ bonuses form part of how finances in most organizations is spent and the need to award it to employees and the results it is likely to achieve for the organization and the employees. The viability of paying out bankers’ bonuses has had positive and negative effects on the financial position of firms and management is tasked with a duty to improve the financial strength of the organization. This leaves management with a dilemma of how much bonuses to pay and the effect it will have on the books of accounts for a given year. The methodology of pay always matter and how much each employee deserves as a reward for services rendered throughout the year. This research proposal seeks to find out the effectiveness of paying out bankers’ bonuses to employees and their effect on the financial position of the organization.
Introduction
Bankers’ bonuses may be described as financial rewards awarded to employees on top of their salary at the end of the year for a good work through the year. Employees are motivated by financial rewards and how their role have led to increase in profits for the organization they work in. sometime the payment of such bonuses may be deferred as the mode of pay is being contemplated or in the event of losses occurring in the organization. The reward is usually monetary and it depends on the profitability of the firm and the willingness of management to reward their employees. The term originated form the investment bankers who used to award financial payment at year ends to employees who had done exemplary well during the year and showed considerable behavior when performing their duties (Kilby et al 2006, P. 35). The banker’s bonus is contemplated by management on whether to pay t out or hold the money back and use them in other development sectors. Employees form an important part of the organization and they deliver their services for financial rewards which are either in monetary or non-monetary form. Employees in organization require motivation which is sometime awarded in monetary form to help them render their services tot eh organization over the years as they play an in integral role in the profitability and management of such organizations. The management of an organization is sometime torn between awarding bankers’ bonuses to its employees and using the fund for expansion and growth in the organization. Employees are motivated by financial rewards that may be awarded to them for an excellent job done throughout eh year and how their responsibilities have translated to profits for the firm (Gibbons 2010, p. 69).
Objective of the study
This research proposal have formulated as an investigation into the effectiveness of bankers’ bonuses in an organization and the criteria for consideration for the benefit award to employees. Employees form an asset to a firm and their wellbeing should be encouraged as they translate their effectiveness into helping the organization meet its goals in a given financial year. The Management of organization needs to consider why issuing bankers’ bonuses to employees will translate to the financial wellbeing of the organization. The following are some of the objectives of carrying out this study:
Research questions
Bankers’ bonuses in many organizations tend to be facilitated by the management view of employees and the behavior they have shown through-out the year. In most cases it raises a question on the modernity that should be used to award employees bonuses and how they will translate to future performance. Motivation is a critical factor in running business organizations as it sets the precedent on how employees are viewed and appreciated in the firm. Throughout the study there have been questions the researcher has used in investigating the effectiveness of bankers’ bonuses. The following are the guiding questions of this research proposal that the researcher is trying to solve;
- What are the impacts of rewarding bankers’ bonuses in organizations?
- What are the consideration factors for awarding bankers’ bonuses to employees?
- What are the other ways for effecting employees’ motivation package in organizations?
Limitation of the study
The issue of awarding bankers’ bonuses to employees has been a practice in many sectors of the economy especially in the banking and retail industry. Employees in most organizations are motivated by different factors that are prevalent in their area of operations and thus there is need to encourage most of this programs and the role they play in enhancing profitability.
The following are some of the limitations of this study;
The researcher while conducting this research study was faced with a number of limitations that included lack of access to crucial company financial statements and records that would have helped him to analyze the companies in depth. Another limitation was lack of enough time to conduct an in-depth research on more companies around the world.
Literature review
Bankers’ bonuses in the finance sector of the economy have been a major concern for managers and the different stakeholders in this sector. The issue arises on whether to award the bonuses or hold the funds back and strengthen the organization books of accounts. Different financial analyst have raised important questions on the viability of paying out the bankers’ bonuses have led to some failure in management decision on who to award them to and the criteria for such considerations (Blinder & Solow 2012, p. 103). Bankers’ bonuses can range from a few dollars to millions of dollars and in most cases, organizations wishes to hold back their profits to be used for future development as they strengthen the financial muscles of such organizations. The bonuses may constraint the financial strength of organization when they are paid in large amounts and leave the organization prone to slow growth rate and even depression. It’s thus important to try and find ways through which an organization can balance the wellbeing of its employees and at the same time safeguard its future. It becomes a balancing act of management of financial resources and improving the effectiveness of the organization workforce over a given period of time. The governments through tax agencies always follow up on the profitability of finance organizations as they are required by law to pay corporation tax for a given year and these payout constraints the profitability index of the organization. The issue of paying bonuses more so in the banking sector has caused a lot of debate on the best way to offer the payout to employees and the result ant effect on the financial wellbeing of the firm. Employees are motivated by different factors that are present at the workplace and these factors may be in monetary or non-monetary form. Due to high competition in the banking sector around the world and the resurging global financial crisis over the years it has come under scrutiny on ways to effect bankers’ bonuses on employees (International Monetary Fund, World Bank Group & World Bank 2010, P. 10-98).
Bankers’ bonuses around the world have always created a lot of friction between political players and organizations management on the effectiveness and the need to offer employees financial rewards at the end of the year. In most European countries there have been a surge by political leaders to issue a cap on bankers’ bonuses for the banking and financial sector across the European Union. This move has rubbed shoulders with most of the bank shareholders as it seems like a move to reduce the bonuses awarded to other stakeholders. The organization financial power is being constrained if the bill proposed by different countries in Europe will come into effect. The rule is geared towards improving the effectiveness of employees and awards them for the responsibility they have in the running of organization (International Monetary Fund, World Bank Group & World Bank 2010, P. 10-98).
The financial institutions in most European countries are likely to be affected by this move as it includes other banks and financial institution from other continents like America and Asia that operate in Europe. The effect of the financial cap has not received any support from Britain as it’s seen as a move to derive the required funds that financial organizations needs to expand and grow their network. The country deems the financial cap move to be facilitated by those organizations that wish to offer bankers’ bonuses willingly to their employees without a statutory regulation on the matter. The move in Britain and more so in London seeks to improve the investment forum for the country as its gives the financial institutions a chance to set up and expand their network (Thomas & Hill 2012, P. 77).
There have been recent debates on whether financial institutions have an obligation to facilitate bankers’ bonuses in their year-end analysis. The question that financial analyst across the world ask themselves is on the effectiveness of such bonuses and the role it plays on the performance of employees. Does it guarantee that one’s banker’s bonuses are awarded the performance of the employee will improve likewise and how this translates to better results for the institution. What amount should be paid to employees also depend on the duty awarded to the employee and how he or she carries out the responsibility given. Management of finances in organization falls under the willingness to utilize available resources and how well to reward employees for the good work they continue to do for the organizations. Most people are always on the opinion that motivating employees need to take up a monetary perspective as well as a non-monetary one (Caprio 2012, P. 12).
Employee motivation and retention can be improved by awarding bonuses at the end of the year as this serves as a way to encourage them to continue working hard and offering their services to the organizations. The criteria for awarding bonuses need to be a management decision that follows a majority ruling in effecting this move. Employees who are awarded bonuses at the end of the year feel much appreciated for their effort in the organization and are willing to work even harder to continue reaping more rewards in future. In recent years there have been declining in business due to the global financial crisis that have crippled many financial institutions around the world. The effects of the crisis have resulted in many sectors of the economy motive to hold back their profits to retain them for any un-eventuality that may arise as the global financial crisis continues to creep in. most financial institution have reduced the amount of funds allocated to employees as bonuses to try and revive their declining businesses (Boeri, Lucifora & Murphy 2013, P. 56-57).
Methodology
Research methodology refers to the process that a researcher uses to collect data which is processed to help in making decision for a particular problem either in business or the environment. It may also refer to the kind of reliable information that may be accessed to help in making decisions. The information may include both present and past information that is relevant to the area of study.
Research Methods
In order to develop the research, the researcher adopted varying data collection and interpretation methods. All the chosen methods aimed at answering the research questions of the paper. The methods included are both primary and secondary methods; using the two methods, the researcher aims at attaining high quality report and recommendations. Primary sources of data include surveys conducted and interviews undertaken in most financial institution in Europe and America. The surveys form part of these data collection message as well as give a lot of information of how effective is bankers’ bonuses on the operations of financial institution. Secondary sources of data collection for example books and business journal have been used in this study. The books give a clear distinction between different economy players and their view on bankers’ bonuses in past and recent years. The data collected was processed to come up with information that will help in decision making process. The information analyzed will be used to answer some of the research questions that were raised during the initial stages of this study.
The global financial market has suffered over the past few years mainly due to the emergence of the Euro crisis in 2008 that have left many firms and governments in dire need of financial help to revive their operations. Surveys conducted in financial institutions around the world reveal a trending behavior that has seen a more interactive solution to the global crisis. The question many ask themselves is the relevance of paying out huge amounts of bonuses to employees and more so top management in a given year while the financial institution is struggling to keep afloat in business. The view by some European policy makers to issue a cap for awarding bankers’ bonuses to employs may be a good workable idea which may at other times leave some of these institution in dire need of financial help (DESAI 2011, P.45).
The sample population for this research project involved many financial institutions around the world in a view to find out the effectiveness of bankers’ bonuses on their operations and the performance of its employees. A case study of the Royal Bank of Scotland was used and the effect the issue of bankers’ bonuses had on its financial foundation. The chairman of the bank has been under pressure from the banks employees on the availability of large bonuses forth year end 2012. The board has also been advocating for more financial constraints to help the bank lay a strong foundation and set a clear growth plan.
Reference list
Blinder, A. S., Lo, A. W., & Solow, R. M. (2012). Rethinking the financial crisis.
Boeri, T., Lucifora, C., & Murphy, K. J. (2013). Executive remuneration and employee performance-related pay: a transatlantic perspective. Oxford, Oxford University Press.
Caprio, G. (2012). Handbook of Safeguarding Global Financial Stability Political, Social, Cultural, and Economic Theories and Models. Burlington, Elsevier Science.
Desai, P. (2011). From financial crisis to global recovery. New York, Columbia University Press.
Gibbons, R. (2010). Handbook of organizational economics. Princeton, Princeton Univ. Pr.
International Monetary Fund, World Bank Group, & World Bank. (2010). Finance & development . Volume 47, Number 1, Volume 47, Number 1. Washington, D.C., International Monetary Fund.
Kilby, J., Fox, J., & Lucas, A. F. (2006). Casino Operations Management. Hoboken, John Wiley & Sons.
Thomas, R. S., & Hill, J. G. (2012). Research handbook on executive pay. Cheltenham, Edward Elgar Publishing.
