Reward only employees meeting their targets: FinMin to govt banks

The government seems to have learnt a lesson or two from private sector banks. In a bid to bring in more efficiency in the functioning of public sector bank employees, the finance ministry is planning a uniform performance-linked incentive scheme in all state-run banks.

In the proposed mechanism, banks will have to give 100 per cent incentive to all those meeting targets, against the current practice of incentivising, of the top 25 per cent performers even if they miss the target. This means an employee gets rewarded not for his good work, but for performing better than his peers.

“Why should someone achieving only 60 per cent of the target be eligible for incentives? We are saying it (award of incentives) should be independent of your colleague’s performance,” said a finance ministry official, who did not wish to be identified.

 

The ministry is also proposing to revisit the age-old norm of giving incentives for a posting in rural and remote areas. It will tell banks to offer incentives to officers posted in such areas only if they deliver.

“Incentivise people who work in difficult conditions but the reward should be for their performance and not for the posting. The same level of work in rural areas calls for higher incentives only when targets are met,” the official said, adding incentives in rural areas can be three times higher than urban areas.

Many banks are unable to distribute profits because it is unable to differentiate top performers from the rest. As part of the scheme, banks may be allowed to carry forward the corpus, which remains unutilised in a particular year if the majority of the employees don’t meet their targets.

Likewise, if there is an increase in the number of people achieving the target during a year, the banks will have the flexibility to increase the size of the corpus by taking board approval. The ministry is open to increasing the funding under the state sponsored incentive scheme.

A report on human resource issues in public sector banks by the A K Khandelwal committee had suggested that the incentive scheme should aim at performance differentiation and reward the pivotal employees with a view to retain employees in critical areas and build future leadership pipeline. It also said a minimum level of performance should be set below which no incentive is paid.

“Under the existing framework, the incentive is not a prize that an employee can achieve by working harder towards a defined, measurable target. Rather, it is a prize for winning a race against one’s peers… Banks with better overall performance need to be allowed higher levels of incentive distribution. Over time, the extent of incentive distribution needs to be a purely board decision,” said a report on Indian Banking in 2020 by The Boston Consulting Group.

It said movement towards variable performance linked salaries had to be expedited and to begin with, the government-sponsored incentive scheme should be modified such that emphasis from the ‘Top 25 per cent Performers’ is removed and predictability of rewards established.

Different practices for giving incentives are prevailing in different banks at present. While in some banks, incentive is given to the staff working at the head office, in some others it is given to a select few. Many performing employees, including branch managers and regional managers, don’t get the benefit.