Assignment2 Essay Example | Topics and Well Written Essays - 2500 words

Assignment2 - Essay Example Similarly, bonus banking is introduced as the latest and most powerful weapon of long-term incentives. The first part of this paper will critically scrutinise the merits and demerits of the long-term incentives system in building long-lasting relationships with customers in banking industry. The second part will deal with different issues that a sales manager would face when managing and incentivising an effective team of sales people. I Why a new Incentive system? The weakness and deficiencies of old executive compensation system led to the origin of long-term incentive system. In the old scheme, the executives were compensated regardless their performance even after banks received bailout money. Retaining them in the organization was important as they were the skippers who would lead the day to day activities. The AP review reported that banks’ top executives earned an average of $2.6 million in ‘salary, bonuses and benefits’ (The Washington Times). Majority ban ks feared about the resignation of their top executives if they were paid in accordance with business fluctuations. It is suggested that banks must give more priority to their survival than to their top executives’ retention. ... Scholars have recommended that provision of bonuses as a percentage of bank’s profit would enhance banking operations as it ensured financial flexibility of banks. Melissa Murray, a spokeswoman for Wells Fargo suggested that it was good to adopt â€Å"pay-for-performance† culture where executives are treated on the basis of their performance (Freifeld, 2009). As a response to all critics, long-term incentives system has been established. Long-term incentives Under this system, the total compensation of employees includes base pay, short-term incentives, and long-term incentives. Base pay constitutes the fixed salary given to an employee for the specified job. Similarly, short-term incentives include all types of annual incentives and ordinary commissions those earned by an employee. Coleman and Fortier (2002) opine that unlike the base pay and short-term incentives methods, the long-term incentives aim the â€Å"improvement of overall performance of the organization by linking employees’ long-term rewards to the organization’s long-term results†. It mainly includes stock options, performance units, and restricted stock. Advantages of long-term incentives The appropriate selection of long-term incentive programs assists organisation to meet its long-term objectives. In addition, the introduction of suitable long-term incentives system in banking industries will add value to the shareholders as well as banks’ customers. The major advantages of long-term incentives are described below. 1. Employee participation Berger and Berger (324) suggest that this programme facilitates the banks to share the success with its executives; and it would