Bank of America Ties Bonuses to Overall Success, Not Individual Achievement

October 12, 2005
Bank of America’s new bonus program, Rewarding Success, is raising eyebrows in the compensation industry because it departs from the tried-and-true convention of tying bonus awards to individual performance. Instead, the bank will distribute annual bonuses of $500 to $3,000 to approximately 150,000 associates based on whether the company reaches target income of $16.1 billion and a stock price appreciation of at least 8 percent in 2005.

“Associates will be inspired to work harder and be more productive because if the bank does well, then they will do well,” says Tara Burke, a spokeswoman for Bank of America in New York.

Some compensation specialists, however, wonder whether the program’s lack of personal accountability will allow it to muster the level of enthusiasm that workers often need to bolster productivity. “Generally speaking, it is desirable to design bonus plans that enable workers to draw a direct line of sight between their personal performance and the company’s success,” says Robert Fulton, managing director at Pathfinder’s Group.

The Rewarding Success program clearly breaks with tradition because its beneficiaries, who do not have to adhere to any individual productivity goals, are not the usual high-level executives whose bonuses are linked to company performance. Instead they are less highly compensated employees, earning $100,000 a year or less.

Considering that high-ranking executives, including Bank of America CEO Kenneth Lewis, were among the architects of the program, this deviation from the norm is not a haphazard one. The program’s structure could be indicative of goals that are perhaps more pressing than productivity, compensation experts say. One such goal might be creating a unified environment in the wake of its high-profile merger with FleetBoston in 2004.

“Companies create bonus programs for a variety of reasons. Driving performance and creating a team environment are among the considerations that may come into play,” notes Russell Miller, partner at Mercer Human Resource Consulting in New York.

The program was created in response to recent company satisfaction surveys in which associates expressed a desire to share in the bank’s financial success. “Rewarding Success demonstrates our ability to listen to our associates,” Burke says. Associates will have the option of receiving cash awards or direct contributions to their 401(k) programs through Rewarding Success, further illustrating Bank of America’s willingness to promote worker satisfaction.

The Rewarding Success program complements Bank of America’s compensation package, which includes a base salary and a series of bonus and incentive programs. The bank will continue to deploy significant resources to systematically track, benchmark and analyze the performance of each worker.

“We already work in a pay-for-performance environment. The Rewarding Success (program) is icing on the cake,” Burke says. If the bank meets its corporate targets in 2005, the first payments will be made during the first quarter of 2006.

Burke declines to specify whether there are metrics in place that could shed light on the role, if any, that the program may play in helping Bank of America attain its corporate goals. She did, however, stress that the company is Six Sigma-oriented and that measuring a program’s effectiveness would not be out of the ordinary.

It is too early to know whether Bank of America will be able to meet its corporate goals. At the end of the second quarter the company had amassed $9 billion in earnings, more than 50 percent of its intended target. Meanwhile, Bank of America’s stock hit a 52-week low of 41.13 last month.

Gina Ruiz