The impact of incentives to employees on Brazilian Banks Profits

Abstract

This work investigates the relationship between financial incentives paid to employees and profitability of banks in Brazil. The research model adopts Return On Assets (ROA) as the dependent variable, and size, banking liquidity, immobilization, risk, capitalization, leverage, growth of credit portfolio and type of bank as control variables. The variable of interest is given by the ratio between the profit sharing and total employee's salaries for each bank-year, which aims to measure the intensity perceived by the employees of the financial incentive provided for sharing profits by banks. The sample come from data provided by the Central Bank of Brazil and comprises all banks in operation between 2001 and 2011 that reported payment of profit sharings. The results confirm the hypothesis of the positive and significant relationship between such financial incentives and ROA of the banks. In addition, banks that reward more incentives have, on average, less banking agencies, higher ROA, lower portfolio risk, higher liquidity, lower immobilization and greater growth of the portfolio. Another important aspect is to contrast the Özutku's (2012) findings, which does not support the claim that incentive programs are inefficient in large companies.