Bank remuneration refers to a financial institution's policy on employee compensation, including wages and bonuses. Compensation policies may vary between banks and typically focus on cash and stock bonuses paid to high-level executives. Employee incentives are usually tied to the financial performance of the entire institution or its specific departments and divisions. Bank remuneration policy can reflect the amount of risk an institution is willing to take with its own profits and liquid assets.
Employee bonuses are the major 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 flat payment regardless of a financial institution's market performance. While bonuses are usually paid in cash, some are given in the form of company stock or stock options.
Cash bonuses are the most common type of bank remuneration. Incentives may be paid on an annual, quarterly or monthly basis. A banking firm's executives or upper level management decides which employees receive a bonus and how much the bonus will be. For example, a sales manager may be eligible for a cash bonus worth 15 percent of his salary at the end of each quarter if his department meets its quota.
Another popular type of employee benefit that makes up bank remuneration policy is stock payments. Rather than giving executives a lump 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. Stock shares and options give executives and managers future claim against the bank's financial assets and may hurt the bank's market performance if the shares are sold in large quantities at the same time.
Bonuses and incentives increase an employee's overall compensation and rewards package. A policy that assumes greater financial risk will usually pay bonuses to executives regardless of the bank's market performance. This type of policy can lead to future financial trouble, particularly if a bank continues to perform poorly. Common stockholders may become concerned over the bank's fiscal policy and sell their shares if they anticipate a collapse.
Some banks disclose their remuneration policy in an annual report or financial statement. This report details the amount of bonuses given to employees and attempts to explain why they were given. Policies that are more fiscally conservative in nature will typically reduce, limit or temporarily terminate bonuses for employees when market performance is weak. Depending upon the country in which the bank operates, open disclosure of its remuneration policy may be required or encouraged.