HRM - 370

Case Study - Assignment

Submitted To:
Dr. Ikramul Hasan
Assistant Professor
School of Business and Entrepreneurship

Submitted By:

Name: Sujana ahmed

ID: 2021246
AUGUST 22, 2023

Questions:
1. What will be the result of the bidding war for top brokers? Will most firms benefit? Who will be the
winners and losers? What about the brokers?................................................................................................2
2. Explain why there is such a strong relationship between pay and performance for brokers. Why isn't
this true of many other jobs?..........................................................................................................................3
3. Should Bank of America change its compensation strategy to include more subjective assessments of
performance and a greater emphasis on cross-selling? What effect might this have on its success in the
bidding war for top brokers?..........................................................................................................................4
4. In Chapter 1, we talked about incentive and sorting effects of pay strategies. Describe the incentive and
sorting effects at Merrill Lynch and how changes to the compensation strategy might affect them............5

1. What will be the result of the bidding war for top brokers? Will most firms
benefit? Who will be the winners and losers? What about the brokers?
Answer: The result of the bidding war for top brokers will vary depending on the particular
firms and brokers involved. However, in general, the following are some of the possible
outcomes:
The most successful firms will benefit the most. These firms will be able to attract and retain the
top brokers, which will give them a competitive advantage. They will also be able to generate
more revenue and profits.
Smaller firms or those with less financial resources may lose out. They may not be able to afford
to outbid their larger competitors, and they may lose their top brokers to these firms. This could
lead to a decline in their business.
Brokers may benefit in the short term. They may be able to negotiate higher salaries and better
benefits. However, in the long term, they may find themselves stuck in a situation where they are
unable to advance or move to a better firm.
Winners:
 The most successful firms
 Brokers who are able to negotiate higher salaries and better benefits
Losers:
 Smaller firms or those with less financial resources
 Brokers who are not able to negotiate favorable terms
Ultimately, the impact of a bidding war for top brokers will depend on a variety of factors,
including the strength of the economy, the level of competition in the industry, and the individual
circumstances of the firms and brokers involved.
Some additional factors that could affect the outcome of a bidding war for top brokers:
The type of brokerage firm. Full-service brokerage firms typically have more resources to
compete for top brokers than discount brokerage firms.
The location of the brokerage firm. Brokers may be more willing to move to a firm in a desirable
location, such as a major city.
The culture of the brokerage firm. Brokers may be more attracted to a firm with a strong culture
and a good reputation.

2. Explain why there is such a strong relationship between pay and performance
for brokers. Why isn't this true of many other jobs?
Answer: There are a few reasons why there is such a strong relationship between pay and
performance for brokers.
 Brokers are paid on commission. This means that their earnings are directly tied to their
ability to generate revenue for their firm. The more clients they bring in and the more
products they sell, the more money they make.
 The financial services industry is very competitive. Brokers are constantly competing
with each other for clients, so they have a strong incentive to perform well.
 The skills and knowledge required to be a successful broker are relatively rare. Not
everyone has the ability to build relationships with clients, understand complex financial
products, and navigate the regulatory environment.
These factors make it difficult for brokers to simply coast and still earn a high income. They
need to be constantly working and producing results in order to be successful.
In many other jobs, the relationship between pay and performance is not as strong. This is
because there are other factors that can affect earnings, such as seniority, education, and
experience.
Some jobs are not as directly related to generating revenue for the company. For example, a
marketing manager may be responsible for developing and executing marketing campaigns, but
their success is not always easy to measure in terms of financial results. As a result, the
relationship between pay and performance is often weaker in these types of jobs.
Some other reasons why the relationship between pay and performance may not be as strong in
other jobs:
 The job is not as measurable. It is difficult to quantify the performance of some jobs, such
as teaching or social work.
 The job is not as competitive. There may be a limited number of qualified candidates for
some jobs, so employers may be less willing to pay a premium for top performers.
 The job is not as important to the company's bottom line. Some jobs, such as customer
service, may not have a direct impact on the company's revenue.
Ultimately, the strength of the relationship between pay and performance depends on a variety of
factors, including the specific job, the industry, and the company's culture.
3. Should Bank of America change its compensation strategy to include more
subjective assessments of performance and a greater emphasis on cross-selling?
What effect might this have on its success in the bidding war for top brokers?

Answer:
Whether or not Bank of America should change its compensation strategy is a complex question
with no easy answer. There are a number of factors to consider, including the current
compensation strategy, the company's goals, and the competitive landscape.
Some of the pros and cons of changing the compensation strategy:
Pros:
 It could help to attract and retain top brokers. Brokers are often looking for more than just
financial incentives, and they may be more attracted to a firm that values their
contributions and provides them with opportunities for growth and development.
 It could improve the quality of service to clients. Brokers who are rewarded for cross-
selling may be more likely to focus on meeting the needs of their clients and providing
them with a comprehensive range of products and services.
 It could improve the company's bottom line. By cross-selling, brokers can help to
increase the company's revenue and profits.
Cons:
 It could be difficult to measure performance objectively. Some aspects of performance,
such as client satisfaction, are difficult to quantify.
 It could lead to conflicts of interest. Brokers may be tempted to sell products that are not
in the best interests of their clients in order to earn higher commissions.
 It could be expensive to implement. A new compensation system would need to be
designed and implemented, and this could be a costly process.
Ultimately, the decision of whether or not to change the compensation strategy is a decision that
Bank of America will need to make based on its own specific circumstances.
4. In Chapter 1, we talked about incentive and sorting effects of pay strategies.
Describe the incentive and sorting effects at Merrill Lynch and how changes to the
compensation strategy might affect them.

Answer: Incentive effects refer to the degree to which pay influences individual and aggregate
motivation among the employees we have at any point in time. The incentive effect can be seen
at Merrill Lynch, where the company offers bonuses based on individual, unit and corporate
success. The company makes a difference in terms of bonuses and shares. In years when profits
are high, the best bonuses are significantly larger. In less-profitable years, top performers'
bonuses decrease much less than poorer performers.
Sorting effects refer to the degree to which pay strategies cause different types of people to apply
to and stay with an organization. Under the sorting effect, different types of pay strategies may
cause different types of people to apply to and stay with a firm. For example, a firm that pays its
employees high salaries may attract people who are more interested in financial security than in
challenging work.
At Merrill Lynch, the incentive effect is strong. Brokers are motivated to perform well because
their earnings are directly tied to their ability to generate revenue for the firm. The sorting effect
is also strong. Brokers who are confident in their abilities and who are motivated by financial
rewards are more likely to be attracted to Merrill Lynch.
Changes to the compensation strategy could affect the incentive and sorting effects at Merrill
Lynch. For example, if the firm were to reduce the emphasis on commissions and increase the
emphasis on base salary, it could reduce the incentive effect. This is because brokers would be
less likely to be motivated to work hard if their earnings were not directly tied to their
performance.
Changes to the compensation strategy could also affect the sorting effect. For example, if the
firm were to reduce the overall level of compensation, it could attract a different type of broker,
one who is less motivated by financial rewards.
Some additional thoughts on the incentive and sorting effects at Merrill Lynch:
 The incentive effect is likely to be strongest for brokers who are new to the industry and
who are trying to build their book of business. These brokers are more likely to be
motivated by the potential for high earnings.
 The sorting effect is likely to be strongest for brokers who are confident in their abilities
and who are motivated by financial rewards. These brokers are more likely to be attracted
to a firm that offers a high level of compensation.
 The incentive and sorting effects can be influenced by other factors, such as the culture of
the firm and the level of competition in the industry.