Type: Business
Pages: 10 | Words: 2826
Reading Time: 12 Minutes

The purpose of this paper is to illustrate the reason why banks provide high amounts of bonuses to their employees. The article identifies the major economic as well as organizational factors that have led to the misconception of the payment structure for bonuses such as the organizational structure of remuneration, labor conditions, and the level of education. The article illustrates that the amount of bonuses paid to bank employees is usually higher than the amount of effort they put in their areas of operation and needs to be reviewed (Levine 2004). It compares the amounts of bonuses paid to bank employees and those paid to employees in similar positions in other sectors of the economy, such as general industries, cyclic services, and general utilities. After the comparison, the article also reviews some of the theories of motivation to determine how managers of banks can develop these theories in motivating their employees. It tries to determine if there is any relationship between the amount of bonuses paid to the employees and their mastery of the theories of motivation (Cadbury 1992). The paper involves a research that is conducted in number of organizations and banking institutions to determine the amounts of bonuses paid to their employees and the reasons why these bonuses are paid (Hampel 1998). A comparison is made based on the types of employment, and a conclusion is arrived at regarding the most highly compensated sector of the economy. The study also involves the assessment of the knowledge of the theories of motivation that are being applied in those organizations. A correlation between the application of the theories of motivation and the amount of bonuses paid is made. Finally, the paper tries to propose some of the recommendations that need to be implemented in the banking industry so that employees are motivated even without the award of bonuses.

People who are employed in the financial industry are among the most highly compensated according to the statistics of the recent surveys. For instance, every employee in Wall Street earned a total of $200,000 per year in 2007. There has been a report of reduction in the amount of bonuses paid in the year 2008, but the amounts are still high based on the low performance of the industry. It has resulted into the concern that bankers are highly overpaid compared to employees in other sectors of employment (Beltratti & Stulz 2010). The methods of payments and reward for U.S employees in the financial sector are quite intriguing. There are ranges of hypotheses that are relevant to explain the nature of the compensation structure in the U.S financial sector (Kreitner & Kinicki 2007). This article tries to explain these hypotheses.

This paper involves the study of the effectiveness of the bonuses provision to employees in the financial sector and their relationship with the motivation theories. It investigates the consequences of getting too much pay such as lack of the commitment to work harder, the involvement of high risks, and the existence of inequality. It also explains that the right bonus structure can be applied to by incorporating the application of theories of motivation to encourgae employees to be commited to their work instead of relying relying on bonuses as means of payment (Levine 2004). It also explains that theories of motivation need to align their goals towards the benefit of the majority who are unable to benefit from the large amounts of rewards that are available to the few lucky people. It also illustrates that there is a need to show fairness in its effort to achieve the objective of motivating employees.

It is reported that the payment of large amounts of bonuses is one of the conditions that contributed to the economic downturn of the year 2008, yet it remains one of the most unresolved issues (Glyn & Darren 2012). This paper explains the theories of motivation and the consequence of their application at the motivation level of employees.

There are also a number of motivation theories that have been put across to support the provision of high amounts of bonuses. This is because a number of arguments that have been put forward to support the provision of bonuses with the belief that such provisions can lead to motivation of employees.

Motivation can be referred to as a condition that guides and ensures that the behaviors of a person are directed towards a certain goal and objective (Weber & Sven 2011). It is the initiating factor for people to make certain decisions such as whether to take some food to reduce the level of hunger or register from a course in college (Taylor 2006). The factors that result in motivation can be caused by natural as well as social conditions or cognitive behaviors. There are a number of theories that have been put across to explain the issue of motivation. There are some limitations associated with each theory based on the scope of their use (Thannasoulis 2011). Besides, the careful study of these factorsshow their relationship with the use of bonuses as a means of motivating employees in the financial industry. This paper explains some of them and how they are related with the provision of bonuses as a means of motivation in the financial industry.

The use of economic incentives and disincentives to motivate the energies of persons and behaviors is not uncommon in many organizations of which banking sector is not an exception (Cadbury 1992). The use of money as a bonus may not be extremely significant according to the literary understanding of requirements of human needs. However, it is considered essential in satisfying the needs of each and everyone in such cases as hunger and self-satisfaction.

The allocation of large amounts of bonuses has resulted into a lot of concern regarding their suitability for employees in the financial industry (Beltratti & Stulz 2010). Some of the reasons for the criticism have been the short-termism of the employees, the involvement in high risks by investors in the banking industry, and the greed of both the corporate and public sectors. There have been cases of criticisms of high salaries during the financial crisis in 2008 but low criticism of the huge bonuses due to a low intellectual capacity to criticize high bonus allocations (Matos & Murphy 2010). The options of using stocks have also been so complicated that they are not usually observed by anyone except those who are involved in setting them (European Commission 2009). The understanding of bonuses is quite intelligible; their simplicity makes them easy to comprehend that their purpose should be focused on ensuring a high performance or as a reward for a high performance.

This simplicity in understanding bonuses has contributed to a number of problems for financial institutions, and these institutions have regarded the awarding of powerful bonuses as unavoidable factor in compensation of their employees. There have been two principal vulnerabilities associated with substantial bonuses (Greenbury 1995). One of the vulnerabilities is that it should not be awarded to the people involved in decision making in a financial institution or an organization that is under receipt of bailouts from the government, mainly, because they were managed ineffectively (Weber & Sven 2011).

The other vulnerability concerns the manner in which the recovery in the banking industry is related to the policy concerning quantitative accomplishment. It is the process where the government develops liquidity in the form of purchases of stocks, such as bonds, from financial institutions. According to the analysts, it has resulted into an artificial form of revenue which has not been contributed by revenues from the bonuses provided by banks. It is an indication that public resources are being used to generate private profits and the spread of concern has moved from the financial industry to the public sector. It has also come to the realization that employees in the banking sector are the ones that obtain the highest amounts of bonuses in their areas of employment (Hampel 1998). It is contrary to the fact that most banking institutions are the least contributors to the improvement of economies. The concern has resulted in the need to determine the effects of such high amounts of bonuses on the economy and the reason behind their provision (Matos & Murphy 2010). This paper tries to explain some of the effects of the high bonus allocation to employees in the banking sector and their relationship with the motivation theories.

There have been concerns over the reasons for the decline in the economic recoveries. The greatest causes have been traced, and one of these causes has been found to be allocation of financial resources in areas that do not bring any benefit to the institution (Weber & Sven 2011). An instance of such a case is the bonuses paid by banks to their employees. The major aim of administrators of these financial institutions has been to ensure that their employees are motivated (Thannasoulis 2011). However, in the process of trying to motivate their employees, banks have not realized that they are contributing to the economic deterioration. This article tries to explain some of the consequences of awarding employees a large amounts of bonuses based on theories of motivation.

Furthermore, there is evidence of public dissatisfaction at the moment and going by the amounts of debts that a country may have; there is less likelihood that changes will take place in conditions of debts to ensure the anger is reduced (French & et al.2010). It is likely that the people who will have the capacity to act to ensure that the matter concerning the financial sector bonuses will become more popular in the public opinions. It is actually taking place in a number of places, irrespective of the disagreements; it is believed that changes will occur. In the western countries, the argument that the state has no authority in the manner in which financial institutions provide bonuses to their employees have still remained unchallenged (Turner 2009).

There have also been a concern regarding the application of motivation theories in motivating employees to work harder by other means apart from the use of bonuses. One of the ways in which it can be achieved is the use of motvation theories and other techniques that can be used to motivate them (Walker 2009). It has been found necessary to know how these theories have been applied to since their discovery of the application in the financial institutions.

The study is an example of a search for the allocation practices that result into a financial disaster in the current economies. It has been found that financial institutions are likely to be among the candidates. Economists believe that the reason for criticizing the use of bonuses is to avoid risk-taking with the aim of achieving short-term objectives. This article explains that the explanation for the emergence of the myopia is not the bonus payments but the manner in which the entire compensation structure is designed. It explains that it is possible to use bonuses to accomplish some of the compensation packages; hence, the idea of wholly eliminating bonuses is disastrous in the long run (Greenbury 1995).

This article also explains that banks are also making efforts to ensure that the internal incentive schemes are corrected to ensure that incentives are adjusted according to the long-term goals. It also explains that the main factor that contributes to a crisis is the short-sightedness of the management system towards the consequences of large amounts of bonus payments (Hampel 1998). The paper also explains that the right channel for the allocation of bonuses can only be reached by sharing rewards to the most profitable performance methods, such as the level of growth and the amounts of growth in the long period of sampling. The article also explains that it is not a right decision to eliminate the allocation of bonuses in totality (Greenbury 1995).

This study, regarding the effects of bonuses on financial sector and how they influence motivation, is essential for learning a number of lessons. For instance, it allows the knowledge of the results of immense bonuses allocation on the level of improvement of the economy; it also allows banks involved in paying their employees vast amounts of bonuses know the consequences of their actions (Higgs 2003). It makes them sensitive so that they can allocate the right amounts of bonuses to their employees to ensure their actions do not result into negative economic consequences. The study also explains that bonuses can act as a guide to the behavior of a manager or as essential components of compensation allocations that enable awarding of those who have performed well with respect to the objectives of an organization (Biais & Casamatta 1999). In adittion, it explains that the payment of large amounts of bonuses is valuable only when there is a clear illustration of the underlying objectives. The paper also explains that bonuses are only significant when those certain goals have been specified. The likely incentives towards the accomplishment of short-term goals are mainly the problem statements of the foremost aims and compensation allocations but not bonus payments. In addition, the paper gives an illustration that compensation allocations and objectives of a company are usually determined by the administrators of the company, such as shareholders (Walker 2009). From this paper, it is also possible to understand that the analysis of bonuses involves the manner in which they are performed and goals which they are allocated to (Higgs 2003). Finally, it illustrates that the bonus payments should only be suspended if there is a need to achieve temporary management goals that banks and other organizations face during the time of insolvency. It explains that, after insolvency, the measures of suspending bonus payments should be revoked when these institutions regain their profitability (Turner 2009).

In order to attain the goals of the study, the following question will guide this research:

  • What are the chances of large amounts of bonuses in the financial sector and what are the effects of this on the level of compensation?
  • Are there other methods that can be used to motivate employees rather than the use of bonuses and theories of motivation ?
  • What bebefits are likely to emerge in termes of financial savings of other motivation techniques that are used instead of bonuses ?

For ease in the achievement of the objectives of this research, a number of hypotheses were formulated regarding the level of compensation and bonuses as a method of providing motivation to employees. Some of the hypotheses include the following:

  1. Working in the  finance industry is accompanied by high skills and high pay for the employees.
  2. The people who work in the financial industry are more educated and highly paid compared with the average employee, and it has an effect on the manner in which the human resources are allocated.
  3. The amount of wages that a person receives in the financial industry is not related to the amount of contributions he / she brings to the economy.
  4. There are other methods, which can be used successfully to motivate employees apart from the use of bonuses.

Despite the relevance of the results of this study, a number of limitations are associated with it. One limitation is that it did not explain whether the employees actually had demanded the bonuses that they were awarded. It results into lack of a supporting   statement to show that the employees in the banking sector actually wanted to get high bonuses as a way of satisfying their needs. The study also does not explain whether employees in other sectors of the economy, such as Cyclic Service industries, were willing to accept bonuses as a way of getting motivation to meet their needs. Thus, there is a speculation that if these employees are given bonuses as a way of motivating them, then they may accept. The study also explains that companies in other sectors of employment did not use bonuses as a means of motivating employees (Walker 2009). It may be speculated that they may not have enough financial resources to satisfy the needs of employees. Therefore, they applied theories of motivation as a means of satisfying the needs of their employees. Therefore, the use of bonuses as a method of motivating employees can be said to be a matter that results from the circumstances that a person or a company finds himself / herself in. However, the paper argues that it is not rational to use bonuses as a method of motivating employees when there are better ways that can ensure employees are motivated (Garicano & Lastra 2010). It recommends that the future research should be based on the situations under which it is important to use bonuses as a method of motivating employees so that companies, such as banks ,can follow these criteria. It recommends the reinforcement of the theories of motivation as a means of motivationg employees rather than the use of bonuses (Hampel 1998). It also recommends some of the conditions at a work place that make workers motivated, despite not being awarded with bonuses.

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