Whether There Should Be Enforcement Lim
Whether there should be enforcement limits placed on the bonuses that can be earned by employees of financial institutions
Introduction
With the gradual recovery of economy, people began to realized that the improper system of bonuses payment for the financial institutions employees may be one of the main reasons that caused this global financial crisis. So whether the bonuses should be capped have became a very controversial question.
Bonuses limit can help
The culture of high bonuses has some bad effects for the financial institutions and the market. “The high bonus means that anything between 30% and 70% of yearly revenues are diverted to employees rather than being paid out to investors or reinvested in the business. And the lure of big payout may encourage the employees to take risks with banks' and clients' money.” (Guerrera and Francesco,2013)
Withe the limitation of the bonuses,the negative effects of the high bonuses present above can be significantly reduced. And the limitation on bonus can makes the leading function of salary become more obvious and effective. This helps the financial institutions do better in company management and risk control.
On the other hand, the limit of bonus can also help in solving the time-lag problem between risk disclosing and bonus acquiring. There is a time-lag in risk between happening and being exposed. While the employees always get paid on the current period. So there is no such time lag on the salary acquisition process. Such condition may cause some employees ignore the potential risk of the institution once the get the payment. Previously,the bank trader can get high bonus just rely on the good performance on short-terms while the risk and losses from long-term investment are undertaken by shareholders and taxpayers , So set a limitation on bonus helped to keep the balance and reduce the risk between the salary payment period and the risk disclosure period.
Some irregular operation of credit banks were seen
Introduction
With the gradual recovery of economy, people began to realized that the improper system of bonuses payment for the financial institutions employees may be one of the main reasons that caused this global financial crisis. So whether the bonuses should be capped have became a very controversial question.
Bonuses limit can help
The culture of high bonuses has some bad effects for the financial institutions and the market. “The high bonus means that anything between 30% and 70% of yearly revenues are diverted to employees rather than being paid out to investors or reinvested in the business. And the lure of big payout may encourage the employees to take risks with banks' and clients' money.” (Guerrera and Francesco,2013)
Withe the limitation of the bonuses,the negative effects of the high bonuses present above can be significantly reduced. And the limitation on bonus can makes the leading function of salary become more obvious and effective. This helps the financial institutions do better in company management and risk control.
On the other hand, the limit of bonus can also help in solving the time-lag problem between risk disclosing and bonus acquiring. There is a time-lag in risk between happening and being exposed. While the employees always get paid on the current period. So there is no such time lag on the salary acquisition process. Such condition may cause some employees ignore the potential risk of the institution once the get the payment. Previously,the bank trader can get high bonus just rely on the good performance on short-terms while the risk and losses from long-term investment are undertaken by shareholders and taxpayers , So set a limitation on bonus helped to keep the balance and reduce the risk between the salary payment period and the risk disclosure period.
Some irregular operation of credit banks were seen