26 | Performance Management Systems and Strategies CASE STUDY Performance-based Incentive Systems of Modern Bank of India The CEO of @ netional-level private sector bank, Modern Bank of India, which is growing very fast, alvays nurtures the view that HR people themselves are poor in managing tiahaviout of peopl in his organization, He feels that over the years his HR i inetrumonta In demotivating paople, ao they failed 10 retain tho resutorionted employees, causing huye manpower-replacernen! cost tothe organization Besides, employees feol that the performance management system ie too complicated, and focuses oniy on achievsiont of quanitatve targets, rather thar on the other postive aspacis of emplayess, whe largely fee that shey are insirurnsntat in taking thir organization to @ now height, wth focus of customer salsfaction and developing orsanizational loyally Businéss targot achlovemnt, fixing a stetch goa! and forcing empleyees te a:cupt the KAS, without listening to them, may have’ helped in achioving the short-tenm goals, but suc? acnipvements far outweighed the losses when goed performers It the ‘ganization In less than two years. As per policy, immediately after rocrullmont the organization is to train the new recruits throug a menthang induction programme, and alow them to understand he jobe forthe next two months, woot sejting for them any spectc taigats for achievement. All these add to the costs fr the company. ‘ie C=Q laments that every employee replacement costs them directly two times the enue. salary pald to a dmployeo, and inirecly costs even moro, ao value addliion diflers between existing individuet amployges and replacement employees. Average value-addlion potentiality ‘of marketing executives (at curentjdiscounted values), assessed by the org nization, using the lear" {ng curve theory, taking the empieyynent span to be of 40 years, five years t afore indicated a igure of Rs. 25 lakhs, Five years down the in, the figure is Rs. 15 lakhs. Tho CEO jvstifably argues that what HR Is doing is to recruit or a piece-meal basis, rather than considering the iong-term effect. Inone ofthe co:porate level medtings, wih al functional heads presen, tne CEO was blunt in accus- ing the HR department, teling lots éccept thet our HR depariment is an uttarfalure, Our Ht depertment stil considers employees just anoinor input into the process. There ls no efor’ to make our employees & Bartner in the organization.’ The CED then asked the HR people to put up a deleted performance driven compensation plan, which wit help [he organization to optimize the compens:on cost and atthe sare time wil recive the alition rate, thbreby increasing the motivation love! of employeos, ‘The HR manager accontingly eppared the plan whichis as follows, Variable pay component in exeaxtive compensation In India has now been increased to aimost 0 por Gent frm 20 to 30 2er cont, only afew years back. Without linking itt company performance alone, a ‘iropstored structure has now emerged, thats, the variable pay is linkes to company perlermancn tears performance and individual performance Our company’s {oday is Rs. 1000 crore, We have 800 marketing executives with the urrontrate of stat tanover at 1 pet cent. The number of marketing axcculives wth s leoure ofevere ting fve years wil the company is 118. Fhe number of marketing execlives over 40 years of age & ony 60, The benchmarked annual salary data in comparable private soctor banks ln Une county for meets ing executives is Rs. 6 lakhs (considering the cost othe company), while ow organieaton today pays Rs. 6.25 lakhs. Cur organization believes in ay equity and follows broad banding while designing base ay. The calculated wage cost to annual sales ie 20 per cont ‘An empioyso-mmotivation en arried out by the HR department of the crganization indicated that 08 foal that they are underpaid, 60 per cent fee! hat they are gelling } while the rest 20 per cent feel that they are getting more than the Guest onnaire item, requiring executives to point out what should be their 20 per cent of the marketing execu the competitive benchmarked salary, ‘market rate. In casponse to ament period. Question for Discussion Imagine you are the CEO of the bank. Critically review the proposal of the HR manager and com ment whether this proposed incentive plan would really ensure motivation and increased retention of marketing executives of the company. Give jus- tifications in suppoit of your answer perceived percentage of salary rise, which they foot will motivate them, the replies suggested that an Ineontive plan needs to be designed, which corroborates with the Scanton Plan explained below. “Tis plan relates compensation cost ratio to the tolal sales value to measure effectiveness of Per formance. As per this pian, an incentive bonus wil be payable to marketing execulives, based on the percentage reduction i the marketing executive to sales rtio, comparing the base period and assess- ‘The HR manager belioves that following this plan will nt only ensure optimization of compensation cost of marketing executives (whose Variable component of compensation Is now inked with individual performance achievement) but also foster teamwor have enduring effect on marketing executives’ motivation and retenton and develop a culture of togetherness, which will Introduction to Performance Me, The New Incentive Plan ‘The new incentive plan has the following features: © Introduction of variable pay component in executive compensation. © Throe-tier structure for variable—company per formance, team indi ee