Magazine article Journal of Banking and Financial Services

Pay for Performance

Magazine article Journal of Banking and Financial Services

Pay for Performance

Article excerpt

You get what you pay for, and results are no exception. A well-designed performance-based pay scheme will give branch staff the motivation and accountability to achieve their objectives.

Performance pay, commission, bonus or profit share are some of the terms used to describe the variety of schemes used to compensate bank staff as an alternative form of remuneration. In most New Zealand banks, the concept has trickled down from senior management and is now used in branches to encourage, as well as emphasise, the sales-based culture.

Now, performance pay schemes are enjoying unprecedented popularity in New Zealand banks as the most successful way to motivate branch staff.

Most performance-related remuneration (PRR) systems have the primary goal of increasing staff motivation. A carefully designed system also should help move the organisation in the right direction by driving a culture aimed at continuous improvement and adding real value.

This article will explore different types of performance pay schemes used in branches of New Zealand banks, the reasons why banks should be using PRR, and the key elements of a successful PRR system.

The New Zealand story

I conducted a written survey of the five sponsor banks of the Bankers' Institute.(1) All replied, and in some cases Human Resources Managers agreed to be interviewed. (A summary of responses is contained in Table 1.)

Table 1 - High Level Comparison of New Zealand Banks' Performance Pay Systems

New Zealand Banks            BANK A                BANK B

Job roles contained in     * Manager             * Manager
branch                     * Personal Bankers    * Consultant
                           * Tellers             * Tellers

How are excellent          * Appraisal system    * Appraisal system
performers recognised      * Eligible for        * Eligible for
and rewarded?                financial and         financial
                             non-financial         and
                             rewards               non-financial

Rewarded in addition             Yes                   Yes
to base salary?

Do staff receive a           Yes, if               Yes, if skills
merit based                  performance           targets are
salary increase as           targets are           reached
well?                        reached

Financial/Non financial          Both                  Both

Commission payments?             No                    No

Share Ownership                  No                    No

Rewarded on                      Both                  Both
Individual or
Team Performance?

Profit share?                    Yes                   Yes

Branch Key                 * Sales               * Sales
Performance                * Customer service    * Customer service
Indicators                 * Risk management     * Compliance
                           * Teamwork

Has PRR been                 Yes, very             New system,
effective?                   effective           too early to

New Zealand Banks             BANK C                BANK D

Job roles contained in     * Manager             * Manager
branch                     * Sales               * Consultant
                           * Tellers             * CSO's/Tellers

How are excellent          * Assessed against    * Appraisal system
performers                   program             * Eligible for
recognised and             * Eligible for          finacial and
rewarded?                    financial and         non-financial
                             non-financial         rewards

Rewarded in addition to          Yes                   Yes
base salary?

Do staff receive a               No                Yes, if
merit based                                        performance
salary increase as well? … 
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