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Bank compensation policies include salaries and bonuses, which vary between banks and are tied to financial performance. Bonuses can be cash or stock-based, and may be paid regardless of market performance. Conservative policies reduce or end bonuses during weak market performance, and some banks disclose their policies in annual reports.
Bank compensation refers to a financial institution’s policy on employee compensation, including salaries and bonuses. Compensation policies can vary between banks and typically center around cash and stock bonuses paid to high-level executives. Employee incentives are generally tied to the financial performance of the entire institution or its specific departments and divisions. Bank remuneration policy may reflect the amount of risk an institution is willing to take with its own profits and liquid assets.
Employee bonuses are the main component of bank remuneration policies. They may be structured in a way that rewards certain managers for the annual performance of their department or region. Bonus incentives can also be paid as a fixed payment, regardless of a financial institution’s market performance. While bonuses are usually paid in cash, some are awarded in the form of company shares or stock options.
Cash bonuses are the most common type of bank remuneration. Incentives can be paid annually, quarterly, or monthly. Banking company executives or higher-level management decide which employees receive a bonus and how much the bonus will be. For example, a sales manager may be eligible for a cash bonus equal to 15 percent of her salary at the end of each quarter if her department meets her quota.
Another popular type of employee benefit that makes up bank compensation policy is stock payments. Instead of giving executives a lump sum cash payment, the bank provides employees with a certain number of shares, or the right to sell a number of shares at a certain price. Stocks and stock options give executives and managers future claims against the bank’s financial assets and can hurt the bank’s market performance if the shares are sold in large numbers at the same time.
Bonuses and incentives add to an employee’s overall compensation and rewards package. A policy that assumes greater financial risk will generally pay bonuses to executives, regardless of the bank’s market performance. This type of policy can lead to future financial problems, particularly if a bank continues to underperform. Common shareholders may worry about the bank’s fiscal policy and sell their shares if they anticipate a collapse.
Some banks disclose their compensation policy in an annual report or financial statement. This report details the amount of bonuses awarded to employees and attempts to explain why they were awarded. Policies that are more fiscally conservative will generally reduce, cap, or temporarily end employee bonuses when market performance is weak. Depending on the country in which the bank operates, open disclosure of its remuneration policy may be required or encouraged.
Smart Asset.
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