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. ” (Guarder and Francesco,2013) With 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 as a big cause of the global financial crisis. But the bank executives still collecting huge bonus, it draws strong dissatisfaction of the public.
Setting the limitation can calm down the dissatisfaction and also have some positive effect on preventing the banks taking excessive risks. Side effect of bonuses limit If the measure do not operate well, It will not only do no help In the recover of the economy, but make the financial environment become even worse. “Unless there is a statutory basis for the possible restriction on bonus payments, how bonuses at the moment, is the government simply bowing to anticipated public pressure? (Brooke, Assail and Liana,2008) If simply set a limitation on the bonus, the relevant parties may think out other ways to make up the losing part of the bonus. They may use method like raise the basic salary again to compensate their loss bonus,and this may have negative influence on the common sense that people get paid according to the performance. So apply efferent payment constructions on different employees may be a better choice.
Drafting a new law to bolster bank capital that include new pay rules, as well as stricter curbs on risk taking(Rooney Trading Limited,2012)may reduce the side effect of the bonus limit. Conclusion To sum up, enforceable limits places on the bonuses can surely do help in the recovering of economy and in some degrees prevent the next financial crisis. But the negative effects can not be ignored. The measures is very complicated and needs a high-leveled supervision system to ensure the measures can run as it is expected to.