EUROCAP Bank: Bonuses Driving Performance or Driving Discontent Harvard Case Solution & Analysis

EUROCAP Bank:

Bonuses Driving Performance or Driving Discontent

Introduction:

EUROCAP bank is known to be a universal bank that is mainly focused on the international focus. The bank had exposure in international private banking along with correspondent banking, international consumer banking and investment banking. A strategy that has been followed by most of the equities division was to provide service to regional or multinational clients. The strategy was to offer services to large institutional clients only and not retail clients. The structure of the bank was based on the foundation to serve clients that are operating in the international market and the ones who wanted services that are out from the border.

Eurocap bank’s network spanned a number of financial centers all over the world like New York, Singapore, London and Hong Kong. The bank was known to be one of the largest securities house with respect to its geographical spreads, distribution volume, trading and research. The institution wanted to position itself strongly in its customer relationship management through increasing and enhancing long term bonding with their business partners and customers as well

Key Facts:

By 1997, the bank has begun a new initiative in order to set up the secondary market of Japanese equity operations in Japan. Even though the operations of the bank have been present in Japan were for more than 100 years, they played a dormant role until deciding it to make a stronger market commitment in 1997 by acquiring seats on the Tokyo and Osaka stock exchanges. The bank EUROCAP Equities Japan established a business plan, commanded by Linda McCauley, who was the director of the bank and engaged in recreation of a primary role in the business. The business plan estimated a US$25 million dollar investment from 1997- 2000 before a breakeven outcome could be attained, and the twelve-monthly predictable yield on capital would surpass the Bank’s hurdle rate in year five of maneuver. Head Office in Europe gave the positive sign and EUROCAP Equities Japan instigated its expansion and growth.

Issues identification:

The bank was facing various issues related to the employee compensation and motivation. At the beginning of March 2000, the financial performance of the institution has shown that the company has successfully achieved its target, and even the employees had accomplished further than anticipations. The main objective of the company in 2000 was to become the first choice broker institution for the customers that are interested in Japanese equities. Conversely, when the institution has handed out the performance of employees in 1999, the team was highly disheartened as their bonuses were far less than their expectation. In addition to this, their bonuses were even lower than the industry average as well.

As a result of this, two main research analysts were threatened to resign because of this. The overall management of the company in the equities division encountered with a crucial period after bonuses. As a consequence of this, the emotions of the employees ran high, most of the employees were disheartened and discontent. The manager of the division needs to manage and find ways to make the situation stabilize and continue to motivate employees so that they can not only perform well, but shine as well. Employee retention has become another major issue as employees become dissatisfied with their current job.

Analysis:

Compensation structure:

Investment banks’ management systems likely to be flat, flexible and organic to allow swift decision-making and empower employees to take rapid advantage of market opportunities. Top and second-tier banks practiced a grass-roots strategy of empowering employees to enable them to execute strategic decisions within embedded management controls. The majority top tier and second-tier global banks followed fairly analogous recruiting and retention exercises and more likely to use industry recompense standards to establishbonus and salary practices. European houses were culturally different from the American houses; the intrinsicdifferentiation was apparent in the compensation formation. US houses tended to pay lesser fixed salaries and high bonuses, while European investment banks compensatedsuperior fixed salaries and lesser bonuses.

American investment banking ways tended to be more towards bonus-oriented and less focused on fundamental salaries as the general belief was that employees were motivated to work harder if they were pleased for performance. The Europeansput a comparatively less weight on bonuses and tended to focus on providing long-term job security and an easier working environment. However, since US houses frequently paid bonuses in the initial part of the year, European investment banks would know what market rates were, as their banks paid bonuses by the end of a fiscal year.Consequently, in general bonus practices were profoundly influenced by industry principles. In US banks, the divide between pay and bonus was up to 1:10 for the best, and in Europe it was 1:4 for the best..................

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According to the first estimate the March quarter of the 2000s, it became clear that Japan is Eurocap Shares in excess of expectations. Its main purpose of the Year 2000 was to become a top-choice for the client broker for Japanese stocks. However, when the awards were presented in March 1999 performance, two key research analysts threatened to resign, and the general spirit of the team was, as bonuses were lower than expected and lower than the payments industry. Major issues facing Japan Stocks Eurocap management include: How the expectations of key employees of the year 2000? As Eurocap Stocks Japan is going to keep their employees in the bull run with the competitive pressure on small local pool resource? How would employees will be motivated by compensation packages, and that other methods will be used for staff to excel in their work and offers traction Eurocap performance of Japan in the spotlight? "Hide
by Gilbert Wong, Heather McGregor, Shamza Khan, Pauline Ng Source: University of Hong Kong, 15 pages. Publication Date: January 1, 2000. Prod. #: HKU113-PDF-ENG

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