Performance Management System in Banks

2007

Performance Management System

Banking Sector

­ April 2007 ­

Declaration

We declare that the project entitled, “Performance Management System in Banking

Sector”, has been composed by us and it has not previously formed the basis for the award

of any degree, diploma or similar titles.

Date: 23 April 2007

Amey Kantak

Acknowledgement

We wish to thank a few people without whose co­operation and help our project would not

have been possible.

We would like to thank and express our deepest gratitude to our professor of Human

Resource Management, Mr. Kishore shah whose excellent guidance and invaluable advice

has facilitated the successful completion of the project. We also thank Mr. Pradeep

Sheldenkar, HR Head (HDFC, Panaji – Goa), Ms. Nalini Prabhugaunkar, Branch manager

(Women’s Co­operative Bank, Panaji – Goa), Mr. P N Shanbagh, Assistant manager

(Canara Bank, Fatorda – Goa), Mrs. Nita Salelkar, Officer (Canara bank, Fatorda – Goa),

Mr. Chari, Manager (Bank of India, Aquem ­ Goa), Mr. Kadwalkar, Officer (Bank of India,

Aquem – Goa),Mr. Pedalkar (SBI ) for their immense help and constant encouragement .

Last but not the least we would like to express our deep gratitude to Dr. Dilip Kare, Mr.

Rammohan Menon and Mr. Leonard Fernandes for their help and cooperation extended

during our study.

Methodology

Primary Data: Collected through personal visits to the banks and by interviewingManagers and Officers.The following banks were visited:

HDFC Bank, Margao Bank of India, Aquem State Bank of India, Loutilim Canara Bank, Fatorda Yes Bank, Margao Women’s Cooperative Bank, Panjim

The Manager and Officer scale I, II and III level employees were interviewed in the

following two methods

Face to face meetings(refer appendix 1) A survey form with open ended questions(refer appendix 2) Secondary Data: Collected from the internet.

Introduction

The Indian banking industry is undergoing a sea of change. Gone are the days where over

staffed public sector banks did not believe in performance. Privatization of the banking

sector has today lead to an increasing thrust on superior performance of employees on

one hand and slimming of the banks employee structure on the other.

Performance is a measure of results achieved. Performance efficiency is the ratio between

effort expended and results achieved. The history of performance appraisal is quite brief.

Its roots in the early 20th century can be traced to Taylor's pioneering Time and Motion

studies. “There is,” says Dulewicz (1989), "... a basic human tendency to make judgments

about those one is working with, as well as about oneself." Appraisal, it seems, is both

inevitable and universal.

Profile of the banks covered

Name Sector/Type

Establishment year

Number of Branches*

No. of Employees*

HDFC Bank Ltd. Private August 1994 583 14878

Bank of India Public 7th September 1906

2678(93 specialized branches)

41808

SBI Public 2nd June 1906 9241 198774

Canara Bank Public 1906 2513 46893

Yes Bank Private 2005 6 627

WomensCooperative Bank

Corporative

1972 2 22

*All values are as of 2005­06 (Source RBI)

Performance management system

Performance management eliminates the performance appraisal or annual review as the

focus and concentrates on the entire spectrum of performance management and

development issues. Employee performance development, training, cross training, the

provision of challenging assignments and regular performance feedback are included in an

effective performance management system.

What Is Performance Management Supposed To Accomplish?

The literature regarding MBO and performance management suggests a plethora of

benefits and purposes that are designed to make organizations more effective. We can

summarize them as follows:

Provides a system where feedback can be given to employees on a more objectivebasis, and not on management's subjective criterion.

Identify employee training needs. Document criteria used to allocate organizational rewards. Form a basis for personnel decisions­salary (merit) increases, measure pay scale,

promotions, disciplinary actions, etc. Motivates employees by allowing them input into and ownership of their objectives

and standards of performance. Provide the opportunity for organizational diagnosis and development and Increases

management ability to identify or "red­flag" problems early. Increases management control over work and results. Enhances communication by ensuring there is clear understanding of management

expectations about results. Provides a centralized record of performance for eachemployee, usually kept in the personnel office.

Links employee objectives and functions to overall organization objectives, therebycreating a sense of contribution for the employee.

Validate selection techniques and human resource policies to meet federal EqualEmployment Opportunity requirements.

Supports remedial action or disciplinary action because a breach of standards canbe defined objectively and in a measurable way.

PERFORMANCE CYCLE

Management by Objectives (MBO)

The Five – Step MBO Process

SECTION 1 ­ PLANNING & GOAL SETTING

In an effective organization, work is planned. This includes setting performance

expectations and goals for individuals in order to channel efforts toward achieving

organizational objectives. Involving employees in the planning process is essential to their

understanding of the goals of the organization, what needs to be done, why it needs to be

done, and expectations for accomplishing goals.

Defining Organizational and employee objectives

One of the first steps in developing an effective performance management system is Goal

setting. In the banks, surveyed goals are normally set based on targets specified by higher

authorities, generally the head office. These goals are then translated into departmental

and then individual position objectives via filtration through the control hierarchy1 of the

respective bank.

Self­goal setting is being done in HDFC bank where each officer sets his/her own goals,

which are then reviewed by their immediate superiors (Higher scale officer). This enables

alignment of the officers own goals to that of the organization.

Bank ­­> SBI HDFC BOI Canara Women'scoop bank

YesBank

Goalsetting

Whodecides the level of performancerequired for each

branch Topmanagement

Regionalmanager

Zonalmanager

Centralnegotiation team at circle level

Branchmanager

Headoffice

officer branchmanager

branchmanager

branchmanager

branchmanager

branchmanager

branchmanager

SECTION 2 – MONITORING

Effective and timely feedback during the performance appraisal period, addressing

employee performance on elements and standards, is an essential component of a

successful performance management program. Employees need to know in a timely

manner how well they are performing. They need to be told what they are doing well and if

there are areas needing improvement. Feedback can come from many different sources:

observation by managers and rating officials, measurement systems, feedback from

peers, and input from customers, just to name a few.

SECTION 3 –DEVELOPING EMPLOYEES

The process of performance management provides an excellent opportunity to identify

developmental needs. During planning and monitoring of work, deficiencies in

performance become evident and can be addressed. Areas for improving good

performance also stand out, and action can be taken to help successful employees

improve even further.

Bank ­­> SBI HDFC BOI Canara Women'scoop bank

YesBank

Performance

Best age group Experienced

Averageexperienced

Experienced staff

Experienced staff

Nodifference

Threshold levelwhere employeeis given aadverse rating

< = 40% < = 40% < = 40% < = 40% NA

Mainperformanceparameter

targetbased

targetbased

targetbased

targetbased

targetbased

targetbased

SECTION 4 – RATING

Within the context of formal performance appraisal requirements, rating means evaluating

employee performance against the elements and standards in an employee's performance

appraisal plan and assigning a rating of record.

In most of the banks, graphic rating scale is used for performance evaluation of the

employees. Graphic rating is a scale that lists a number of traits and a range of

performance for each that is used to identify the score that best describes an employee’s

level of performance for each trait.

For women’s cooperative bank there are no ratings done. Only the adverse performance of

officers is discussed only the manager to the Board of Directors.

For YES Bank, performance of each employee is based on the output.

PERFORMANCE APPRAISAL SYSTEM

Bank ­­> SBI HDFC BOI CanaraBank

Women'scoopbank

YesBank

PMS FORM

changes in form No change Minorchangesdone

minorchangesdone

Formatchangedto OPAS

NA NA

When form was last updated

2000 1995 1999 2004 NA NA

Is the same form given to all officers( Scale 1,scale 2,scale 3)

Yes No separate forms for senior and junior officers

Yes Yes NA NA

Is same form being given to allemployees(clerks, officers ,etc)

No No No No NA NA

Who revises the form

Topmanagement

HR manager of each circle

Headoffice HR

HRmangerof circle

NA NA

Levels of Appraisal

3 tier system

single level face to face

3 tier 3 tier NA singlelevel

Frequency of appraisal

annual Biannual annual annual NA annual

highest level to which form reaches and is stored

Regional Head office Zonaloffice

Circle NA NA

Does rating Yes Yes Yes Yes NA NA

given in PMS form affect promotion

Developing an appraisal system that accurately reflects employee performance is a difficult

task. Performance appraisal systems are not generic or easily passed from one company

to another; their design and administration must be tailor­made to match employee and

organizational characteristics and qualities

So what is the point of performance appraisals? The most important purpose or goal of the

appraisal is to improve performance in the future, and not just for the employee. Managers

can get valuable information from employees to help them make employee's jobs more

productive. Work units and organizations can identify problems that interfere with

everyone's work.

Measurement system:

The following aspects need to be defined in an effective Performance Management

System

What to measure? Work output (quality and quantity) Personal competencies Goal (objective) achievement

How to measure? Graphic rating scales: A scale that lists a number of traits and a range of

performance for each that is used to identify the score that best describes anemployee’s level of performance for each trait.

MBO: Management by Objectives (MBO) is a process of agreeing uponobjectives within an organization so that management and employees agree tothe objectives and understand what they are.

MBO is often achieved using set targets. It involves setting specific measurable

goals with each employee and then periodically reviewing the progress made.

Set the organization’s goals. Set departmental goals. Discuss departmental goals. Define expected results (set individual goals). Performance reviews.

Provide feedbackMBO introduced the SMART criteria

SMART goals are:

Specific, and clearly state the desired results. Measurable in answering “how much.” Attainable, and not too tough or too easy. Relevant to what has to be achieved. Timely in reflecting deadlines and milestones.

Frequency of appraisal

Employee reviews should be performed on a frequent and ongoing basis. The actual time

period may vary in different organizations and with different aims but a typical frequency

would be bi­monthly or quarterly. By conducting reviews frequently, two situations are

eliminated:

(1) Selective memory by the supervisor or the employee; and

(2) Surprises at an annual review.

People generally tend to remember what happened within the last month or high pro­ file

situations (good or bad). Frequent reviews help eliminate the effects of this, generally

unconscious, selective memory. Eliminating surprises in the appraisal process is also

important. Both the supervisor and employee need to know that there is a performance

problem prior to any major annual review. The longer a problem is allowed to continue, the

more difficult it is to take corrective action. Frequent performance appraisals should

eliminate the surprise element and help to modify performance prior to any annual review.

Maintaining records

Another key to ensuring the effective use of a performance appraisal scheme is keeping

and maintaining accurate records of employee’s performance. Carefully maintained, they

establish patterns in an employee’s behavior that may be difficult to spot by typical

incident­ by­incident supervision. Careful review of the records helps avoid the selective

memory mentioned earlier and helps plot appropriate actions. Of course, well­maintained

records are essential if the need arises to discipline, demote or dismiss an employee. It is

particularly helpful if employees are themselves responsible for part of the process of

record­keeping: this helps reinforce the fact that a major part of the process is devoted to

employee development – and that employees have a responsibility for their own

development. Such an approach to dual documentation also helps in the elimination of

surprises.

Measurement system

The actual measurement or grading system used to rate employee’s performance needs to

be designed carefully. A performance appraisal system, which ranks employees according

to a numerical rating, tends to lead to a great deal of average performers. For example, if a

1­5 scale is used, five being best, a majority of employees will be rated a three. While this

may be reflective of their actual performance, few people take gratification in being called

average. Another problem arises.

Bank ­­> SBI

HDFC

BOI

Canara

Women'scoop bank

Yes Bank

Ranking

Is paired comparison been done

No

No No

No No No

Is forced comparison being done

No

No No

No No No

Is alternation ranking occurring No

yes No

No No No

Why performance appraisals are universally disliked and don't work,

Managers cite performance appraisals or annual reviews as one of their mostdisliked tasks.

Halo Effect

The halo effect is the tendency to rate someone high or low in all categories because he or

she is high or low in one or two areas. Results in appraisals that do not help develop

employees, because they are two general or inaccurate as to specifics. Evaluating

someone lower is sometimes also called the "devil effect".

Standards of Evaluation

If you are using categories such as fair, good, excellent, etc, be aware that the meanings of

these words will differ from person to person. In any event, the use of these categories is

not recommended because they do not provide sufficient information to help employees

develop.

Forgetting appraisal is about improvement, not blame.

We do appraisal to improve performance, not find a donkey to pin a tail on or blame.

Managers who forget this end up developing staff that do not trust them, or even cannot

stand them. That is because the blaming process if pointless, and does not help anyone. If

there is to be a point to performance appraisal it should be getting manager and employee

working together to have everyone get better.

Section 5 – feedback

One of the most essential steps in a performance appraisal is providing positive/ negative

feedbacks to employees about their performance. Feedback is essential to facilitate

performance improvement. Feedback allows people to utilize their strengths to their

advantage. It informs employees which actions create problems for others and to know

what changes may be needed.

As Public Sector Banks are trying to compete with Private Sector Banks in India today,

there is an exponential increase in the need to become more customers centric. However,

this is not seen yet. Even during our visit to these banks, we saw that customers had to wait

in long queues for service. This is an example of how naïve these Public Banks are on how

to improve their strategies to attain successful outputs. For the same there is a need for

360­degree feedback.

Bank ­­> SBI

HDFC BOI Canara Women'scoopbank

YesBank

Feedback

Isfeedbackoccurring

No Yes (Open feedback) Only adverse feedback

No feedback No Yes(Openfeedback)

Conflictresolution

No Handled at branch level

Zonal No committee resolution

No Headofficelevel

Strengths and weakness

Strengths and Weaknesses of the Performance Management System in Banks:

Bank Strengths Weaknesses

StateBank of India

1. reflects the achievement ofbusiness parameters ofcustomer service, quality ofadvances/recovery, for theannum

2. self appraisal allows theindividual to compare theirperformance to his priorperformance

3. biasness can be eliminated dueto multiple levels of appraisal

1. In PMS system the report is submitted tohigher authorities .sometime the higherauthority may or may not agree with theperformance and he may not give 100%marks .

2. no commitment towards the form3. no feedback

HDFC 1. Increase in motivation is seen2. Instant feedback is given3. Positive impact on performance4. self appraisal allows the

individual to compare theirperformance to his priorperformance

5. biasness can be eliminated dueto multiple levels of appraisal

1. the PMS is a very complex2. Biasness is seen

Bank of India

1. multiple levels of evaluation givesa platform for verification

2. self appraisal allows theindividual to compare theirperformance to his priorperformance

3. biasness can be eliminated dueto multiple levels of appraisal

1. depends on appraisee to provide properdetails which then needs to be verified bythe appraiser

2. biasness3. there is no feedback, hence lack of

motivation4. no relationship between promotions and

appraisal/performance system is seen5. no incentive to improve since the pay

scale rise from officer lever 1 to 2 doesn’tbring a proportionate increase in thesalary

6. no commitment towards the form7. no feedback

CanaraBank

1. Rewards are present where intop performers are given chancesto go abroad

2. Employees are asked to providedetails about his/her activitiesthroughout the year

1. bad design2. feedback process has been stopped after

20043. self boasting4. employees are hesitant to fill the form

however they do so because they must5. writing the form is cumbersome

Women’sCooperative Bank

1. feedback is given which caninculcate motivation

1. negative feedback results into conflicts2. there are no forms

Yes Bank 1. appraisal is done face to face2. since appraisal is done

departmental wise, it may turnout to be a better method ofconducting it

3. self appraisal allows theindividual to compare theirperformance to his priorperformance

1. biasness may be seen2. not formalized since it is a new bank

Suggestions and conclusion

In order to keep each individual employee motivated and committed to performing athis/her best, some objectives need to be customized to allow for continued growth.

Feedback needs to be done on a continuous base rather than at the ned of the year Self goal setting practiced in HDFC must be implemented across all banks so that

employees can be better motivated Goals are being set upfront as of now but the parameters on which officers are being

evaluated and graded vary from branch to branch depending on the assessor. 360­Degree feedback needs to be implemented : Unlike, the traditional

top­to­down appraisal where a supervisor appraises the performance of theirsubordinate, 360­Degree feedback incorporates multiple perspectives by usingfeedback from a variety of sources. These sources include peers, subordinates,customers, self, and supervisor. It is also called multi­source feedback, multi­raterfeedback, multi­level feedback, upward appraisal, peer review.

Developing an effective performance appraisal system requires strong commitment from

top management: if the system does not provide the linkage between employee

performance and organizational goals, it is bound to be less than completely effective.

To build linkages employees must have individualized objectives and performance criteria,

which allow them to relate directly to the organization. Objectives should be developed

jointly between the supervisor and the employee. Once the objectives are determined,

appraisals should be performed frequently to help build the direct communication link. Both

the employee and supervisor in order for the appraisal process to be conducted in a

productive manner should maintain support documentation for performance.

Organizations operating in this time of continual change and global competition cannot

afford unmotivated and uncommitted employees. An effective system of performance

appraisal is a major component of an organization that allows every employee to feel that

his/her contribution has contributed to the success of the organization and a desire to add

to that success.

Appendix 1

Sample Questionnaire form

Appendix 2

Feedback form

Appendix 3

State Bank Of India PMS form

Appendix 4

Canara Bank PMS formCANARA BANK

Ongoing Performance Appraisal System for Officers

Name Scale Year of joining

Reporting Authority

Appraiser

ReviewingAuthority

Part 1: Bio – Data Personal data Previous assignments Training & Development in the post Specify areas where officers needs to undergo training.

Part 2:

Position at end of previousyears

Position at end of

Part 3: KRA Settings

Part 4: Additional information/ Accomplishments.

Part 5: Managerial dimensions.Trait:1. Leadership abilityTeam orientationInfluencing skillsDecisivenessExample, vision & result orientation

2. Effective time managementPunctuality & Discipline,

3. Interpersonal Relationship:Empathy; Endearing quality; Fira but fair; Sharing information; openness & receptivity.4. Development of SubordinatesCounselling grooming, mentoring & coaching; spotting & harnessing talents.

5. Communication ability/ SkillsA good listener; clarity of thoughts & expression; command over written & spoken words.

6. InitiativeProactiveness; positive & vibrant; convincing ability.

7. Innovativeness/ CreativityLateral thinking; idea generation; harnessing creativity in others.

8. Social skillsRapport, mixing, people orientation.

9. Cost consciousnessProfit orientation, Calculative/ analytical, Cost benefit outlook

10. Emotional strengthAdaptability, Withstanding stress, Balance in appraisal, self control.

Part 6: A. Potential review by appraiser & reviewing authority.

Views of appraiser Views of reviewing authority

KRAs

B. Final Assessment

Marks awarded

Key responsibility areas including accomplishments/ outstandingachievements

70

Managerial dimensions 30

Total 100

Marks awarded shall not exceed 90% of the total marks under each part.

1. Outstanding – over 81 upto 902. Good – over 66 upto 813. Average – over 46 upto 664. Below average – 46 & below

Appendix 5

Bank Of India PMS form

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1 Board to regional manager to branch manger to officer