Compensation Plan of Bank of America - Case Study Example

Compensation Plan Outline Bank of America The Bank of America was originally called Bank of Italy, which was formed to help foreigners in America with financial services since the Native American banks discriminated against these people. It has existed since 1930 when it was started as a private enterprise. For several years, the bank offered services in California only due to banking laws which did not allow a bank to operate in more than one state. As the banking laws were reviewed, the bank took advantage of that and has expanded nationally (Anthony, 1994). Compensation Plan In the Bank of America, performance is very much as is the basis for both pay and compensation rewards. The programs on compensation are based on three compensation principles set by the bank management. Foremost, the bank upholds the interests of associates and shareholders in the way they structure their rewards in incentives and benefits and in their remuneration to the bank employees. Equity awards are more preferred in the bank and are given after several years of deferring compensation. In determining appropriate levels of compensation, the bank management considers several factors including the performance of an individual, the business unit in which they work, and the bank as a whole in a given period; and short term and long term financial and non financial related factors. Before any compensation can be given, the company contracts evaluators who present reports to the management. These evaluation reports help the company to assess the performance at individual levels especially on issues of compliance to banking standards and in making decisions which do not put the company into avoidable risks. Those employees and shareholder who make critical decisions that save the company from taking unnecessary risks and ensure that the bank does not face penalties due to non compliance to laws, are highly compensated. This therefore encourages bank associates and shareholders to be well informed on appropriate legal banking procedures at bank level and nationally. The bank has put in place various measures to ensure that all compensation is fair and just based on its banking principles. The bank’s management has a separate unit of compensation and benefits committee, and there are also various control points at business level like risk, audit, and compliance checks to ensure any decision made on behalf of the bank is well noted and reported in the context of its compliance to risk and performance standards accepted nationally and locally at the bank. The presence of these various units in the bank management ensures that there is independence in the functions of each section or committee. This is especially important in determining which compensation consultant is engaged to carry out auditing and evaluation exercises on bank functions and performance. The corporate nature of the bank as it is in major corporations nationally and globally makes evaluation of compensation more diverse in order to incorporate interests of all stakeholders including legislators. In as much as compensation in the bank of America should be in line with what the financial industry has agreed upon, the bank has its own internal measures with which any compensation amount must be adjusted in order to reflect the value the company attaches to performance standards. The bank conducts audit and evaluations at most yearly so as to give stakeholders an opportunity to give ideas on how they expect the bank to compensate its associates, workers and shareholders. These audit and evaluations are based on general set standards at national level by authorities who regulate the financial industry. The bank’s pay for performance philosophy is indeed appropriate and it is in good spirit so that workers who deserve compensation are motivated as their efforts are recognized. This makes the bank employees to be disciplined and work under their own supervision taking measures which are appropriate and can earn rewards for themselves and profits for the bank they work for. There are several other factors which should be considered when evaluation compensation programs for any business enterprise are being made. A compensation program should be easy to understand so that the employees, associates and shareholders in any given firm know what is expected of them at any given time when they are engaged in business with the firm. The compensation plan in the Bank of America is clear and precise. The compensation principles are equally brief and to the point. All employers can understand it and adjust their practices in such a manner that the bank will find them worthy of compensation. Since it was implemented, the performance of the bank and particular business units has been recommendable. This proven excellent results form an essential component of proven track record criteria in compensation plan evaluation. All bank transactions are very transparent making each stakeholder to appreciate their performance in terms of the losses or profits they contributed directly or indirectly to the bank. Since the compensation plan is based on performance, and each action is evaluated against national and bank standards well known to each person and corporate organization doing business with the bank, every action receives an equivalent weight such that those who do best receive more, and there is no person who is not appreciated. There is so much evidence beyond doubt that the compensation policies practiced at the Bank of America are very appropriate in a performance and compliance driven industry. The bank management believes that in tying rewards to the meeting of targets, there will be increased performance and motivation among associates (Ruiz, 2005). Internal and external equity controls are present and well considered within the compensation program in the Bank of America. Internal job evaluation is conducted from time to time to reflect any changes and inconsistencies so that every employer is fairly paid according to the work done. The bank employs various methods in its evaluation of jobs to ensure that the benefits of each method help to undo the errors in the other method. Externally the bank adopts results of multi-national surveys in the financial industry so as to align its basic cash compensation to employees with accepted standards internationally and nationally. There are several legal factors which are considered in decision making in ensuring there is internal and external consistence in all bank operations and decisions. Current Pay Structure The bank pays on hourly rates for tellers and annual salaries for other staff. It has low starting salaries for all its employees except those who serve at management level. This is not a good reflection for a bank that is viewed at as a very stable financial corporation in America. This unfair compensation has affected the fraud department most as many of those newly employed help do find satisfaction with pay and they leave the bank for other avenues which pay better. Pay rise is so limited and comes only after 2 – 3 years and in a very negligible percentage. It appears the junior staffs who work so hard in making the company earn so much profit are not recognized. Instead, the executives and management associates are the ones who receive the highest pay. The bank chief executive officer for example received a bonus of USD 9.05 million in 2010 when the bank hit the performance contract targets. Amounts of almost one million dollars were also given to other top employees of the bank (Nelson, 2011). The salary range with a minimum of USD 24, 660 and a maximum pay of USD 390,000 is a reflection of underpayment among junior staff that do bulk work. There is need for a review of the salaries and remuneration offered to employees in the bank so that people are rewarded as per the work they do. It appears evaluation of salaries for non executive and non administrative positions are not reviewed regularly and employee suggestions are never taken into consideration. This can be true based on the high turnover in some of the departments with no action being done to address employee queries. Although the company provides opportunities for self development of workers, this alone is no enough without proper compensation where every employee is rewarded for overall performance of the bank. In such a large corporation it is easy to overlook some sectors or consider them as liability for the bank as their roles. There is need for adopting evaluation systems which can bring out employee satisfaction reports as per department so that issues which are raised are addressed for each department. There is need for open communication and commitment to act on such recommendation as soon as they are raised. This will help management to ensure bank operations are not stalled and the good name of the bank is not damaged. Sometimes the complaints would not cost the bank too much to implement compared to the loss of business and demoralization which comes from a blanket satisfaction assessment. Some of the requests made by staff may be solved through dialogue. The Bank of America allows its employees to contribute on a regular basis premiums for their retirement pension plans. As the Bank takes smaller corporations it takes up the responsibilities of paying employees of these companies active retirement benefits which had accumulated. The bank takes care of health care needs of their employees and their immediate families (Emily, 2006). Recommendation Management need to devise a compensation program that considers all employees of the bank not only the top executives. There is also need for open communication between management and bank employees. Due to the enormous size of the bank, evaluations should be at departmental level in order to obtain key issues which are affecting employees internally as a department instead of generalizing the results obtained from bank executives to be a true picture of what other employees feel at lower positions. References Anthony, S., & Ingo, W. (1994). Universal Banking in the United States: What could we gain? What could we lose? New York: Oxford University Press. Emily, S. A. (2006). Pension Reform and the Development of Pension Systems: An Evaluation of World Bank Assistance. Washington: World Bank Publication. Nelson, D. S. (2011). $10 million in pay for Bank of America Chief. Investment Banking News in DealB%k. Retrieved from http://dealbook.nytimes.com/2011/01/31/bank-of-america- c-e-o-gets-9-05-million-stock-bonus Ruiz, G. (2005). Bank of America Ties Bonuses to Overall Success. Workforce Management, 84 (10). Read More