The System of Long-Term Incentives Free Essay Example, 2500 words

The bailout money was last resort for banking industries with which they could try to resurrect; it would be a faulty decision if organizations utilize this money to serve the top executives. Scholars recommended that provision of bonuses as a percentage of bank s profit would enhance banking operations as it ensured financial flexibility of banks. Melissa Murray, a spokeswoman for Wells Fargo suggested that it was good to adopt pay-for-performance culture where executives are treated on the basis of their performance (Freifeld, 2009). As a response to all critics, long-term incentives system has been established. Under this system, the total compensation of employees includes base pay, short-term incentives, and long-term incentives. Base pay constitutes the fixed salary given to an employee for the specified job. Similarly, short-term incentives include all types of annual incentives and ordinary commissions those earned by an employee. Coleman and Fortier (2002) opine that unlik e the base pay and short-term incentives methods, the long-term incentives aim the improvement of overall performance of the organization by linking employees long-term rewards to the organization s long-term results . It mainly includes stock options, performance units, and restricted stock. We will write a custom essay sample on The System of Long-Term Incentives or any topic specifically for you Only $17.96 $11.86/page Such a feeling will drive the executives to take all possible efforts in order to lift their firm to the top of the corporate world. Similarly, long-term incentives policies motivate executives to take certain levels of risks which would contribute to the rapid growth of banks.