THE SYNOPSIS - Mesmerizers



Challenges in developing an incentive for back office and support

Need for incentive scheme for Back office

In Indian conditions generally in all Industrial sectors, Back office were generally paid a Fixed Pay which was predictable & less challenging this in turn affected the performance of back office support staff. Moreover the role of back office staff is being recognized as an essential part of the operational success of the organization. This makes it important to design an incentive scheme for back office staff so as to evaluate and reward the performers which includes monetary rewards as well as non monetary rewards like promotions etc.

Bank’s back office is the backbone of its operations. Mainly in the Retail segment like Vehicle Loan, Savings/Current Accounts, Consumer durable Loan, back office operations are much more relevant. Now inquiries for Vehicle loans are increasing because of the fact that more and more automobile companies are entering the various segments of the vehicle market. Easy finance made the market bigger and finance companies/banks running for the customers. This has lead to banks competing with each other to get the market share with ICICI Bank and HDFC Bank leading the list. New enquiry generation, fast disbursement of loan and Client maintenance are of utmost importance. Post loan disbursement documents are processed by bank’s back office department. It is very much important for banks to disburse loan documents at the earliest otherwise customer may switch over to other banks. So it is very much necessary that along with the sale field force, back office team should equally be motivated with good performance incentive scheme.

Challenges in developing Incentive for Back office & Support

Defining SMART (Specific, Measurable, Attainable, Realistic, & Timely) goals and linking the same with the company’s goals is the challenge.

Back office operation of consumer loans is mainly involved in receiving the documents from sales office and after scrutinizing the documents sends for disbursement. In this division, productivity measurement is a tough task as there are no proper standard of measurement. Hence, incentives are allocated based on Team performance.

The work itself is a major determinant of whether to pay for time or output. The work characteristics to consider include

(1) Measurability of output;

(2) The relationship between effort and output;

(3) The degree of standardization;

(4) Requirements for quality as well as quantity;

(5) Competitive conditions;

Rationale of Incentive Scheme

Motivation: Incentive schemes which are fully transparent provide not only financial incentive but also rewards people according to their level of performance.

Corporate Objectives: It acts as a tool to achieve the organizational objectives

Individual Objectives: Helps in fulfillment of individual needs for growth in their careers.

Six Sigma Concept in calculating TAT and Error

• Six Sigma is a measurement tool to evaluate the performance of the departments in terms of quality standard, Turn around Time.

• For Six Sigma Compliance, errors allowed are 3.4 out of 1 million cases processed which is equivalent to ZERO

• Whenever Number of errors is found, the same numbers are extrapolated to the tune of 1 million cases processed and accordingly sigma scores are derived.

Productivity

• Actual productivity of the departments is compared with the standard productivity.

• Productivity has been calculated based on the productive hours and number of documents processed

• Based on the above, excess or short manpower has also been derived.

Balance Score Card

• Balance Score Card is a measurement tool which is based on the scores derived out of Productivity Calculator, TAT and Error Sigma Score

• Learning of the departments in terms of points against the benchmark given by management

• Audit Scores given by Internal Auditors based on their analysis against the bench mark set.

Tools

Tools are available to calculate Six sigma, TAT & Error, Balance score card (enclosed)

Reservations about Incentive Scheme

Incentives for Back office staff are generally determined on the performance of the department and not on individual performances. This may lead to non performer getting equal compensation as compared to that of a performer within the same department. This will lead to dissatisfaction among the employees.

Case Study - Sav Z Bank

Sav Z Bank has been doing exceedingly well in all the departments and has a Vision of soon becoming one of the best Private banks in India. Sav Z bank deals in all the sections of retail banking including the Vehicle Loan. The bank operations have been started in India 3 years back and the processes are getting set all across the departments.

After the incentives for the year 2006 were paid in Jan 2007 based on fixed predictable incentive being 8.33% of the basic pay, the employees of the bank were not very happy with the present

incentive structure. The underperformers and excellent performers got the same rate of incentive. HR Head of the bank found that because of this the attrition rate was also high. So he thought about availing the services of a consultant for evaluating and rewarding the performance of the employees. Genex Consultants who are pioneers in designing incentive structures were appointed as consultants for setting processes to evaluate the performance of employees. They were asked to draw an incentive scheme that is challenging and rewarding.

The bank was strong in retail operations which includes

1) Vehicle Loan

2) Consumer goods loan

3) Savings Account

4) Current Account

Each operation is headed by Associate Vice Presidents. Each operation has got various departments like Vehicle loan has got

|Post Disbursal Document (PDD) Updation |

|Minimal Data Entry |

|Customer Service |

|Rebooking |

|Detailed Data Entry (DDE) |

|File Boarding |

|Post Dated Cheque (PDC)Processing |

|Non post Dated Cheque (NPDC) Processing |

|File Retrieval |

|Foreclosure Processing |

|Refund Processing |

Recommendations of Genex

Genex consultants studied the organizational structure and present incentive scheme. They recommended complete scrapping of the present incentive scheme and recommended four parameters for evaluating the performance of the employees as well the team/department.

The five parameters are

1) Productivity

2) Turnaround time (TAT)

3) Quality

4) Audit Score

5) Learning

The said parameters will be used to evaluate the performance of the entire work force of the bank.

Industry standards have been recommended which will be used as a tool for comparing the actual. The standard are given below for the vehicle loan operations:

|Productive Hours 450 minutes per day |

|Team |Processing Time per Doc/Request (Minutes) |

|PDD Updation |4 |

|Minimal Data Entry |12 |

|Customer Service |45 |

|Rebooking |6 |

|Detailed Data Entry |15 |

|File Boarding |2 |

|PDC Processing |5 |

|NPDC Processing |6 |

|File Retrieval |10 |

|Foreclosure Processing |25 |

|Refund Processing |15 |

Genex has recommended introducing “Balance Score Card” in the bank for evaluation of performance. Productivity should not be less than 100% as per the consultant’s recommendations to the management. For that they created two tools

1) Productivity Measurement

2) TAT (Turn Around Time) and quality in terms of SIGMA value

HR department should receive the actual performance of individual employees from the department head as well as the report of the internal auditor who has carried out audit in the department at the end of the year.

The actual will be then compared with the standard by using the above tools and performances are measured.

|Ratings |Employees Rating criteria|Calculations of Ratings |Incentives and promotions |

|Rating 3 |Score between 80% to 90% |40% of the employees (Good |65% of basic yearly salary as Bonus and 12% hike in the |

| | |Performers) |basic salary (No Promotions) |

|Rating 4 |Score between 70% to 80% |30% of the employees (OK Performers) |35% of basic yearly salary as Bonus and 10% hike in the |

| | | |basic salary (No Promotions) |

|Rating 5 |Score below 70% |5 % of the employees (Poor |No Bonus and No Hike in the company (Will have to leave the|

| | |Performers) |company within a pre specified period. |

Rating Concept

Maximum number of employees eligible for each rating are calculated as below:

|Total Strength |% to be applied |Ratings |Maximum Employees eligible |

|11 |5.00 |1 |1 |

| |20.00 |2 |2 |

| |40.00 |3 |4 |

| |30.00 |4 |3 |

| |5.00 |5 |1 |

For example – Sometimes it may happen that there may not be anyone who will be rated 5 but based on performance levels, he may move from rating 4 to rating 5 ( because 5% should move to Rating 5).

Data for the calendar year 2007 is mentioned below; HR DEPT. was provided the same by the department head for productivity

|Department wise actuals for the calendar year 2007 |

|Team |Monthly Volume |**Average Number of employees |Achieved |

|PDD Updation |125000 |50 |1140000 |

|Minimal Data Entry |85000 |91 |1008000 |

|Customer Service |8000 |25 |81000 |

|Rebooking |4500 |2 |54000 |

|Detailed Data Entry |85000 |115 |984000 |

|File Boarding |85000 |15 |1020000 |

|PDC Processing |45000 |20 |468000 |

|NPDC Processing |30000 |16 |360000 |

|File Retrieval |15000 |15 |180000 |

|Foreclosure Processing |25800 |56 |309600 |

|Refund Processing |12000 |17 |144000 |

** Leave and other absenteeism has been taken care in the average number of employee calculation

Following are the data for the learning scores earned by respective departments/auditors

|Department |Benchmark |Learning Score |Audit Score against 100 |

|PDD |1000 |1200 |85 |

|Minimal Data Entry |1000 |900 |98 |

|Customer Service |1000 |617 |82 |

|Rebooking |1000 |1800 |97 |

|Detailed Data Entry |1000 |1200 |98 |

|File Boarding |1000 |700 |96 |

|PDC Processing |1000 |900 |92 |

|NPDC Processing |1000 |300 |89 |

|File Retrieval |1000 |450 |83 |

|Foreclosure Processing |1000 |1000 |95 |

|Refund Processing |1000 |1050 |99 |

The below data was provided showing number of cases processed out of TAT and quality report for the sample audits done. Any document processed out of TAT to be considered as an error possibility in performance measurement of Processing. And Error possibilities per document are 2 in case of PDD and for rest departments it is 1 for the purpose of Quality check. Genex recommended that TAT and Error measurement for any activity is equally important so this has to be taken in to consideration while determining the rating for the department.

|Measure of Performance |Total Population |Out of TAT |Total Population |Error Population |

|PDD Updation |  |  |  |  |

|PDD Updated with in TAT |1140000 |1500 |  |  |

|Quality check on PDD |- |- |138000 |264 |

|Minimal Data Entry |  |  |  |  |

|Files Processed with in TAT |1008000 |216 |  |  |

|Quality Check on files Processed |  |  |98400 |192 |

|Customer Service |  |  |  |  |

|No of requests Processed with in TAT |81000 |780 |  |  |

|Quality of Closure of requests |  |  |7200 |48 |

|Rebooking |  |  |  |  |

|Rebooking of Cases with in TAT |648000 |12 |  |  |

|Quality of the rebooking cases |  |  |5520 |12 |

|Detailed Data Entry |  |  |  |  |

|Cases done with in TAT |984000 |216 |  |  |

|Quality check of DDET done cases |  |  |97584 |12 |

|File Boarding |  |  |  |  |

|Files Processed with in TAT |1020000 |1020 |  |  |

|Quality check in Files batching and Processing |  |  |98820 |48 |

|PDC Processing |  |  |  |  |

|PDC sent for Banking with in TAT |468000 |300 |  |  |

|Quality check on PDCs Processed |  |  |45900 |12 |

|NPDC Processing |  |  |  |  |

|NPDC Processing with in TAT |360000 |84 |  |  |

|Quality check on NPDCs processed |  |  |37440 |24 |

|File Retrieval |  |  |  |  |

|Files retrieved with in TAT |180000 |9216 |  |  |

|No of wrong files retrieved |  |  |18240 |12 |

|Foreclosure Processing |  |  |  |  |

|No of requests processed with in tat |309600 |72 |  |  |

|Quality for closure of requests |  |  |31020 |12 |

|Refund Processing |  |  |  |  |

|No of requests processed with in tat |144000 |24 |  |  |

|Quality for closure of requests |  |  |14400 |12 |

Sigma scores will be evaluated in a following manner:

|Sigma Score |Achievement in %age |

|5.00-6.00 |100% |

|4.50-4.99 |80% |

|4.00-4.49 |60% |

|3.00-3.99 |40% |

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