Merrill Lynch
Table of Contents
Question 1
The bidding war for top brokers by Merrill Lynch following a decision to increase the number of financial advisors will have adverse effects not only on the company, but also on the industry at large. For the top brokers, there will be an increase in both a regular pay and bonuses. Since Merrill Lynch and other firms are looking for such, they will demand high compensation as compared to the current pay. The total amount of salaries offered by the business will increase. It is highly likely that most firms will not benefit from the bidding war. In fact, they will have to spend more on compensation than before. For instance, Merrill Lynch has to offer more than 150% in bonuses for compensation to financial institutions (Milkovich, Newman, & Gerhart, 2013)..
Moreover, firms will face a decline in their profits as a greater proportion of the latter are to be spent on compensation for top brokers. Therefore, organizations will not benefit from the bidding war. The top brokers are likely to be winners in it since companies lose both them and the revenue. They will be the greatest beneficiaries in the bidding war due to their ability to demand a higher pay from such companies as Merrill Lynch seeking to hire highly qualified brokers to assist it in their service provision and maintain good industry performance. However, Merrill Lynch has had challenges related to huge compensation for its executives, and this issue is likely to arise in the bidding war.
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Question 4
Executive compensation is an important issue in most corporate organizations. Different companies employ various incentive strategies based on business needs and performance (Faulkender, Kadyrzhanova, Prabhala, & Senbe, 2010). However, the main requirement that should be met is to address the interests of company owners and shareholders. The most common pay strategies are fixed-pay and pay-for-performance compensation. Under the first system, a fixed incentive is offered to company employees irrespective of the level of individual and organizational performance. The sorting effect of pay strategies includes changes in employee motivation and company’s operations. In line with this, it is evident that Merrill Lynch adopted a fixed-pay compensation system, whereby its executives were paid a fixed amount irrespective of the level of performance. However, the incentive effect was that employees had high compensation despite their low productivity in the company. Since organizational performance declined over the period, executives continued to receive huge incentives that further contributed to the collapse. The current pay strategy adopted by the company has adverse effects on its sustainability. Despite the poor financial performance enhanced by the economic crisis in the country, executives still earn huge incentives in the form of bonuses, and it increases the cost of business and lowers gains. Therefore, the strategy has a negative impact on company’s performance (Miller, Hickson, & Wilson, 2008).
Compensation based on the performance of the staff also has certain sorting effects on the organization. Through performance-for-pay, the company sorts out employees that have a higher productivity level within the organization for retention and fire the ones that have low performance. Therefore, the sorting effect of the pay strategy is that it will enable the company to improve its overall productivity by hiring only productive workers. It also aligns the compensation expense with company’s performance in such a way that with high revenue, it pays employees high salaries and bonuses.
Changes in the incentive strategy used by Merrill Lynch are likely to affect company’s performance in the future and as a result its sustainability. Changing the incentive approach from the current fixed-pay one to pay-for-performance or sorting method will ensure that the business compensation system is sustainable. Under it, executives will be paid based on the level of performance, and high-performing employees have high compensation packages. Further, the level of company’s performance will also influence the incentive system. When there is a huge revenue and profits, executives will receive high bonuses and allowances. Therefore, the change will lead to an improvement in company’s sustainability.
