Bonuses for senior executives in the banking sector should only be Essay

Bonuses for senior executives in the banking sector should only be paid for genuine excellence - Essay ExampleFor example, a Sales Director will larn in bonuses if turnover targets are met and exceeded (Nkomo, Fottler and McAfee, 2010 85-93). Recent years have been characterized by an outcry against paying of bonuses to senior integrated executives. This is principal(prenominal)ly due to malpractices by top executives to ensure they earn high salaries with little regard to how the familiarity is fareing or stockholder value. These malpractices include accounting fraud.Bonuses remain popular with firms because in todays world of heightened competition and reduced profitability, bonuses represent a variable rather than fixed cost (Murphy, 2005 110-117). It is in like manner widely believed that bonuses create motivation, which leads to organizational performance. Bonuses help to attract and retain managerial talent and motivate executives to perform to the best of their abilitie s and prevent executive dissatisfaction.It has been argued that rather than incentivizing executives to raise shareholder returns, bonuses have been turned into rent-seeking avenues by self-interested executives. This defeats the main logic behind paying of bonuses, which is to tie executive pay closely to organizational performance (Kieff and Paredes, 2010 44-49). At the same time, it has been argued that executive bonuses affect firms negatively. Performance-based bonuses foster individualism, business aggression and uncertainty. Bonuses create competitiveness among the executives which hurts cooperation. Bonuses encourage executives to take unreasonably high risks and make short-sighted decisions that may not be good for the firms semipermanent prospects. It is also argued that senior executives spend a great deal of time and focus on their olden and expected bonuses than on the returns of shareholders. Bonuses also foster bad relations and resentment between the executive and t he turn away ranking staff (Marchica, 2004 8-15).Bonuses are rooted in two theories the Expectancy theory and Agency