1 / 16

International Experience with MFI Staff Incentive Systems

International Experience with MFI Staff Incentive Systems. Mindanao Roundtable Conference Davao City August 26, 2004. Outline. Basic Empirical Findings (MFIs worldwide) Effects on Institutional Performance Common Reasons for Introducing Staff Incentive Systems

taylor-berger
Download Presentation

International Experience with MFI Staff Incentive Systems

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. International Experience with MFI Staff Incentive Systems Mindanao Roundtable Conference Davao City August 26, 2004

  2. Outline • Basic Empirical Findings (MFIs worldwide) • Effects on Institutional Performance • Common Reasons for Introducing Staff Incentive Systems • Summary of International Experience / Major Issues of Debate

  3. Many Leading MFIs Use Staff Incentive Systems • Latin America: Banco Ademi (Dominican Republic) and other MFIs (Bolivia) • MFIs in Asia appear to favor monetary incentives

  4. There Is a Wide Variety of Incentive Systems in Use • Banco Ademi has three incentives: • Performance-based monthly bonus for loan officers (staged scheme) • Profit sharing: 10% of annual profits distributed to all employees • ESOP: Staff hold 20% of share capital and have seat on Board of Directors

  5. Staff Incentive Systems in Bolivia • BancoSol: Monetary incentives for loan officers, plans for an ESOP • Caja Los Andes: Individual incentive program for loan officers and branch managers, profit sharing program for top management and regional managers • FIE: Individual incentive program for loan officers (was recently changed from quarterly to monthly payout) • Prodem: Reject short-term monetary incentives (bad experiences), opted for long-term incentives instead

  6. Dramatic Effects on Institutional Performance • Examples: • WWB Cali, Colombia

  7. WWB Cali, Colombia • After introducing a performance-based bonus system for the loan officers, productivity improved significantly and now stands at the top of the industry (644 outstanding clients per loan officer, individual lending) • Simultaneously, other important changes were introduced (individual lending technology, regional zones for loan officers, new MIS) • Effect of new staff incentive scheme is therefore impossible to isolate, but most likely very positive (based on interviews at the time of implementation of the scheme)

  8. Common Reasons for Introducing Staff Incentives • Reducing loan delinquency • Enhancing productivity and efficiency • Improving outreach and ability to cover costs (profitability) • Attracting and retaining excellent staff • Defining management expectations in quantifiable terms • Staff evaluating tools

  9. Summary of International Experience • Worldwide, many (but not all) of the leading and most productive MFIs use some form of staff incentives • In Asia, a much smaller percentage of MFIs employ some form of monetary incentive program • The majority of systems in place were designed to enhance asset quality and staff productivity • Leading MFIs generally have excellent and highly motivated staff; well-designed staff incentive systems can be useful and powerful motivators • While highly productive MFIs seem to be homogeneous in that they use staff incentives, the incentive systems themselves are extremely heterogeneous

  10. Major Issues of Debate • Short Term Versus Long Term Monetary Incentives • Individual vs. Group-based Incentives • Importance of Bonus Component in Total Pay Package • Functional Level of Incentive Schemes

  11. How Does the Incentive System Operate in Practice? • Why comprehensive coverage? • What is the basis of bonus determination? • The evaluation – who conducts it and what does it cover? • What are the evaluation criteria? • How are payments made?

  12. Other Incentives • Merits Awards • Employees of the quarter/year • Best performing and most improved branches (semi-annual) • Unit achievement awards • Long service awards • Prizes range from trophies, commendations, and cash payouts • Feasibility study of ESOP in process

  13. Strengths of the System • Comprehensive coverage • Simplicity and transparency • Incentives of different functional and hierarchical levels are broadly aligned • Does not discriminate in favor of any particular group of employees • (Positive) integral part of culture

  14. Weaknesses of the System • Stagnant loan officer productivity implies need to revise targets • Limitations on maximum loan officer total compensation compared to other positions needs to be reviewed • Evaluation-based incentive system contains some subjective elements – could supplement this with objective criteria

  15. Additional Lessons Learned • Initial focus on loan officers only • Initial incorporation of a penalty for high levels of arrears • Shift to short and long-term incentives

  16. Salamat Po! For more information on int’l experiences and and a “how to” manual, please see: “Developing Staff Incentive Systems” by Martin Holtmann et al. at: http://www.microsave-africa.com

More Related