2007

PerformanceManagementSystem BankingSector

April2007

Declaration

Wedeclarethattheprojectentitled,PerformanceManagementSysteminBanking Sector,hasbeencomposedbyusandithasnotpreviouslyformedthebasisfortheaward ofanydegree,diplomaorsimilartitles.

Date:23April2007 AmeyKantak

Acknowledgement

We wish to thank a few people without whose cooperation andhelp ourprojectwouldnot havebeenpossible.

We would like to thank and express our deepest gratitude to our professor of Human Resource Management, Mr. Kishoreshahwhoseexcellentguidanceandinvaluableadvice has facilitated the successful completion of the project. We also thank Mr. Pradeep Sheldenkar, HR Head(HDFC, Panaji Goa),Ms.NaliniPrabhugaunkar,Branchmanager (Womens Cooperative Bank, Panaji Goa), Mr. P N Shanbagh, Assistant manager (CanaraBank,FatordaGoa),Mrs.Nita Salelkar,Officer(Canara bank,FatordaGoa), Mr. Chari, Manager (Bank of India, Aquem Goa), Mr. Kadwalkar, Officer(Bank ofIndia, AquemGoa),Mr.Pedalkar(SBI)fortheirimmensehelpandconstantencouragement.

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 duringourstudy.

Methodology

PrimaryData:Collectedthroughpersonalvisitstothebanksandbyinterviewing ManagersandOfficers. Thefollowingbankswerevisited:

HDFCBank,Margao BankofIndia,Aquem StateBankofIndia,Loutilim CanaraBank,Fatorda YesBank,Margao WomensCooperativeBank,Panjim

The Manager and Officer scale I, II and IIIlevelemployees wereinterviewedin the followingtwomethods

Facetofacemeetings(referappendix1) Asurveyformwithopenendedquestions(referappendix2) SecondaryData:Collectedfromtheinternet.

Introduction

TheIndian banking industry isundergoingaseaofchange.Gonearethedayswhereover 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 onehandandslimmingofthebanksemployeestructureontheother.

Performanceisameasureofresultsachieved.Performanceefficiencyistheratiobetween effort expended and results achieved. Thehistoryof performanceappraisalis 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 tomakejudgments about those one is working with, as well as about oneself." Appraisal, it seems, is both inevitableanduniversal.

Profileofthebankscovered

Name

Sector/ Type

Establishme ntyear

Number Branches*

of

No. of Employe es* 14878 41808

HDFCBankLtd. BankofIndia

Private Public

August1994 7thSeptember 1906 2ndJune1906 1906 2005

583 2678(93 specialized branches) 9241 2513 6

SBI CanaraBank YesBank

Public Public Private

198774 46893 627

Womens CooperativeBank

Corporati ve

1972

22

*Allvaluesareasof200506(SourceRBI)

Performancemanagementsystem 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 ofchallengingassignmentsandregularperformancefeedbackareincludedinan effectiveperformancemanagementsystem.

WhatIsPerformanceManagementSupposedToAccomplish? The literature regarding MBO and performance management suggests a plethora of benefits and purposes that are designed to make organizations more effective. We can summarizethemasfollows:

Providesasystemwherefeedbackcanbegiventoemployeesonamoreobjective basis,andnotonmanagement'ssubjectivecriterion. Identifyemployeetrainingneeds. Documentcriteriausedtoallocateorganizationalrewards. Formabasisforpersonneldecisionssalary(merit)increases,measurepayscale, promotions,disciplinaryactions,etc. Motivatesemployeesbyallowingtheminputintoandownershipoftheirobjectives andstandardsofperformance. ProvidetheopportunityfororganizationaldiagnosisanddevelopmentandIncreases managementabilitytoidentifyor"redflag"problemsearly. Increasesmanagementcontroloverworkandresults. Enhancescommunicationbyensuringthereisclearunderstandingofmanagement expectationsaboutresults.Providesacentralizedrecordofperformanceforeach employee,usuallykeptinthepersonneloffice. Linksemployeeobjectivesandfunctionstooverallorganizationobjectives,thereby creatingasenseofcontributionfortheemployee. ValidateselectiontechniquesandhumanresourcepoliciestomeetfederalEqual EmploymentOpportunityrequirements. Supportsremedialactionordisciplinaryactionbecauseabreachofstandardscan bedefinedobjectivelyandinameasurableway.

PERFORMANCECYCLE

ManagementbyObjectives(MBO) TheFiveStepMBOProcess

SECTION1PLANNING&GOALSETTING

In an effective organization, work is planned. This includes setting performance expectations and goals for individuals in order to channel efforts toward achieving organizationalobjectives. Involving employeesin the planning process is essentialto their understanding ofthe goals oftheorganization, what needsto be done, why it needstobe done,andexpectationsforaccomplishinggoals.

DefiningOrganizationalandemployeeobjectives

One ofthefirststepsin developingan effective performancemanagementsystemis Goal setting.In the banks, surveyed goals arenormallysetbasedontargetsspecifiedbyhigher 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 respectivebank.

Selfgoal setting is being done in HDFC bank whereeach officer sets his/her owngoals, which are then reviewed by their immediate superiors(Higher scaleofficer). This enables alignmentoftheofficersowngoalstothatoftheorganization.

Bank>

SBI

HDFC

BOI

Canara

Women's coopbank

Yes Bank

Goal setting Who decides the level of performance required for each branch Top management Region al manag er Zonal manager Central negotiati on team at circle level branch manager Branch manager Head office

officer

branch manager

branch manag er

branch manager

branch manager

branch manag er

SECTION2MONITORING

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 howwell they areperforming. They needto betoldwhat theyaredoingwellandif there are areas needingimprovement. Feedbackcancomefrommanydifferentsources: observation by managers and rating officials, measurement systems, feedback from peers,andinputfromcustomers,justtonameafew.

SECTION3DEVELOPINGEMPLOYEES 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 improveevenfurther.

Bank>

SBI

HDFC

BOI

Canara

Women's coopbank

Yes Bank

Performance Bestagegroup Experienc ed Average experienc ed <=40% Experienc edstaff Experienc edstaff No differen ce NA

Thresholdlevel whereemployee isgivena adverserating Main performance parameter

<=40%

<=40%

<=40%

target based

target based

target based

target based

target based

target based

SECTION4RATING

Within thecontext offormal performanceappraisalrequirements,ratingmeansevaluating employee performance againsttheelementsandstandardsinanemployee'sperformance appraisalplanandassigningaratingofrecord.

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 performancefor each thatis used to identify the scorethat best describes anemployees levelofperformanceforeachtrait.

For womenscooperativebanktherearenoratingsdone.Onlytheadverseperformanceof

officersisdiscussedonlythemanagertotheBoardofDirectors. ForYESBank,performanceofeachemployeeisbasedontheoutput.

PERFORMANCEAPPRAISALSYSTEM
Bank> SBI HDFC BOI Canara Bank Wome n's coop bank Yes Ba nk

PMSFORM changesinform Nochange Minor changes done 1995 minor changes done 1999 Format changed toOPAS 2004 NA NA

When form was lastupdated Is the same form given to all officers( Scale 1,scale 2,scale 3) Is same form being given to all employees(cler ks,officers,etc) Whorevisesthe form

2000

NA

NA

Yes

No separate forms for senior and juniorofficers

Yes

Yes

NA

NA

No

No

No

No

NA

NA

Top managem ent 3 tier system

HR manager of each circle single level facetoface

Head officeHR

HR manger ofcircle 3tier

NA

NA

Levels Appraisal

of

3tier

NA

sin gle leve l ann ual NA

Frequency appraisal

of

annual

Biannual

annual

annual

NA

highest level to which form reaches and is stored Does rating

Regional

Headoffice

Zonal office

Circle

NA

Yes

Yes

Yes

Yes

NA

NA

given in PMS form affect promotion

Developinganappraisalsystemthataccuratelyreflectsemployeeperformanceisadifficult task.Performance appraisal systems are not genericor easily passedfromonecompany to another their design and administration must be tailormade to match employee and organizationalcharacteristicsandqualities

Sowhat isthepointofperformanceappraisals?Themostimportantpurposeorgoalofthe appraisal is toimproveperformancein the future,andnotjustfortheemployee.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'swork.

Measurementsystem: The following aspects need to be defined in an effective Performance Management System Whattomeasure? Workoutput(qualityandquantity) Personalcompetencies Goal(objective)achievement Howtomeasure? Graphicratingscales:Ascalethatlistsanumberoftraitsandarangeof performanceforeachthatisusedtoidentifythescorethatbestdescribesan employeeslevelofperformanceforeachtrait. MBO:ManagementbyObjectives(MBO)isaprocessofagreeingupon objectiveswithinanorganizationsothatmanagementandemployeesagreeto theobjectivesandunderstandwhattheyare. MBO is often achieved using set targets. It involves setting specific measurable

goalswitheachemployeeandthenperiodicallyreviewingtheprogressmade.

Settheorganizationsgoals. Setdepartmentalgoals. Discussdepartmentalgoals. Defineexpectedresults(setindividualgoals). Performancereviews.

Providefeedback MBOintroducedtheSMARTcriteria

SMARTgoalsare:

Specific,andclearlystatethedesiredresults. Measurableinansweringhowmuch. Attainable,andnottootoughortooeasy. Relevanttowhathastobeachieved. Timelyinreflectingdeadlinesandmilestones.

Frequencyofappraisal

Employee reviews shouldbe performed on a frequentand ongoing basis. Theactualtime period may vary in different organizations and with different aims but a typicalfrequency would be bimonthly or quarterly. By conducting reviews frequently, two situations are eliminated: (1)Selectivememorybythesupervisorortheemployeeand (2)Surprisesatanannualreview.

People generally tend to remember what happened within the last monthorhigh profile 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 problempriorto any major annual review.The longeraproblemisallowedtocontinue,the more difficult it is to take corrective action. Frequent performance appraisals should eliminatethesurpriseelementandhelptomodifyperformancepriortoanyannualreview.

Maintainingrecords Another key to ensuring the effective use ofaperformance appraisal scheme iskeeping and maintaining accurate records of employees performance.Carefullymaintained,they establish patterns in an employees behavior that may be difficult to spot by typical incident byincident supervision. Careful review of the records helps avoid the selective memory mentioned earlier andhelpsplotappropriateactions.Ofcourse, wellmaintained records are essentialiftheneed arises todiscipline,demoteordismissanemployee.Itis particularly helpful if employees are themselves responsible for part of the process of recordkeeping: this helps reinforcethefactthat a major partof the process is devotedto 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.

Measurementsystem Theactualmeasurementorgradingsystemusedtorateemployeesperformanceneedsto bedesignedcarefully.Aperformanceappraisalsystem,whichranksemployeesaccording to anumericalrating,tendstoleadtoagreat dealofaverageperformers.Forexample,ifa 15 scale is used, five being best,amajorityof employeeswillberatedathree.Whilethis may be reflective of their actual performance, few people takegratification in beingcalled average.Anotherproblemarises.

Bank>

S B I

HD FC

B OI

Can ara

Women's coopbank

YesBank

Ranking Is paired comparison been done Is forced comparison being done Isalternationrankingoccurring N o N o N o No N o N o N o No No No

No

No

No

No

yes

No

No

No

Whyperformanceappraisalsareuniversallydislikedanddon'twork, Managersciteperformanceappraisalsorannualreviewsasoneoftheirmost dislikedtasks. HaloEffect

Thehaloeffect is thetendencytoratesomeonehighorlowinallcategoriesbecauseheor 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 someonelowerissometimesalsocalledthe"devileffect".

StandardsofEvaluation

Ifyouareusingcategoriessuchasfair,good,excellent,etc,beawarethatthemeaningsof these words will differ from persontoperson. Inany event, the use of these categories is not recommended because they do not provide sufficient information to help employees develop.

Forgettingappraisalisaboutimprovement,notblame.

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 isbecause the blaming process if pointless,anddoes nothelpanyone.If there is to beapointtoperformanceappraisalitshouldbegettingmanagerandemployee

workingtogethertohaveeveryonegetbetter.

Section5feedback One ofthemost essentialstepsin a performanceappraisalisprovidingpositive/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 whatchangesmaybeneeded.

As Public Sector Banks are trying to compete with Private Sector Banks in India today, there is anexponentialincrease intheneed tobecomemorecustomerscentric. However, thisisnotseenyet.Evenduringourvisittothesebanks,wesawthatcustomershad towait in longqueues forservice. ThisisanexampleofhownavethesePublicBanksareonhow to improve their strategies to attain successful outputs. For the same thereis a needfor 360degreefeedback.

Bank>

S BI

HDFC

BOI

Canara

Wome n's coop bank

Yes Bank

Feedbac k Is feedback occurring No Yes(Openfeedback) Only adverse feedback Nofeedback No Yes (Open feedba ck) Head office level

Conflict resolutio n

No

Handled level

at branch

Zonal

No committee resolution

No

Strengthsandweakness

StrengthsandWeaknessesofthePerformanceManagementSysteminBanks:
Bank State Bank India Strengths Weaknesses

1. reflectstheachievementof
of businessparametersof customerservice,qualityof advances/recovery,forthe annum 2. selfappraisalallowsthe individualtocomparetheir performancetohisprior performance 3. biasnesscanbeeliminateddue tomultiplelevelsofappraisal

1. InPMSsystemthereportissubmittedto
higherauthorities.sometimethehigher authoritymayormaynotagreewiththe performanceandhemaynotgive100% marks. 2. nocommitmenttowardstheform 3. nofeedback

HDFC

1. 2. 3. 4.

Increaseinmotivationisseen Instantfeedbackisgiven Positiveimpactonperformance selfappraisalallowsthe individualtocomparetheir performancetohisprior performance 5. biasnesscanbeeliminateddue tomultiplelevelsofappraisal

1. thePMSisaverycomplex 2. Biasnessisseen

Bank India

of

1. multiplelevelsofevaluationgives
aplatformforverification 2. selfappraisalallowsthe individualtocomparetheir performancetohisprior performance 3. biasnesscanbeeliminateddue tomultiplelevelsofappraisal

1. dependsonappraiseetoprovideproper 2. 3. 4. 5.
detailswhichthenneedstobeverifiedby theappraiser biasness thereisnofeedback,hencelackof motivation norelationshipbetweenpromotionsand appraisal/performancesystemisseen noincentivetoimprovesincethepay scalerisefromofficerlever1to2doesnt bringaproportionateincreaseinthe salary nocommitmenttowardstheform nofeedback

6. 7.
Canara Bank

1. Rewardsarepresentwherein
topperformersaregivenchances togoabroad 2. Employeesareaskedtoprovide detailsabouthis/heractivities throughouttheyear

1. baddesign 2. feedbackprocesshasbeenstoppedafter
2004

3. selfboasting 4. employeesarehesitanttofilltheform
howevertheydosobecausetheymust 5. writingtheformiscumbersome

Womens Cooperativ eBank YesBank

1. feedbackisgivenwhichcan
inculcatemotivation

1. negativefeedbackresultsintoconflicts 2. therearenoforms 1. biasnessmaybeseen 2. notformalizedsinceitisanewbank

1. appraisalisdonefacetoface 2. sinceappraisalisdone
departmentalwise,itmayturn outtobeabettermethodof conductingit 3. selfappraisalallowsthe individualtocomparetheir performancetohisprior performance

Suggestionsandconclusion

Inordertokeepeachindividualemployeemotivatedandcommittedtoperformingat his/herbest,someobjectivesneedtobecustomizedtoallowforcontinuedgrowth. Feedbackneedstobedoneonacontinuousbaseratherthanatthenedoftheyear SelfgoalsettingpracticedinHDFCmustbeimplementedacrossallbankssothat employeescanbebettermotivated Goalsarebeingsetupfrontasofnowbuttheparametersonwhichofficersarebeing evaluatedandgradedvaryfrombranchtobranchdependingontheassessor. 360Degreefeedbackneedstobeimplemented:Unlike,thetraditional toptodownappraisalwhereasupervisorappraisestheperformanceoftheir subordinate,360Degreefeedbackincorporatesmultipleperspectivesbyusing feedbackfromavarietyofsources.Thesesourcesincludepeers,subordinates, customers,self,andsupervisor.Itisalsocalledmultisourcefeedback,multirater feedback,multilevelfeedback,upwardappraisal,peerreview.

Developing an effective performance appraisal system requires strong commitment from top management: if the system does not provide the linkage between employee performanceandorganizationalgoals,itisboundtobelessthancompletelyeffective.

Tobuild linkages employeesmusthaveindividualizedobjectivesandperformancecriteria, 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 beperformedfrequentlytohelpbuildthedirectcommunicationlink.Both the employee and supervisor in order for the appraisal process to be conducted in a

productivemannershouldmaintainsupportdocumentationforperformance.

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 componentofanorganizationthatallows every employee tofeelthat his/her contributionhascontributedto the success of theorganizationandadesiretoadd tothatsuccess.

Appendix1

SampleQuestionnaireform Appendix2

Feedbackform Appendix3

StateBankOfIndiaPMSform

Appendix4

CanaraBankPMSform
CANARABANK OngoingPerformanceAppraisalSystemforOfficers Name ReportingAuthority Appraiser Reviewing Authority Scale Yearofjoining

Part1:BioData Personaldata Previousassignments Training&Developmentinthepost Specifyareaswhereofficersneedstoundergotraining. Part2: Positionatendofprevious years Positionatendof

Part3:KRASettings Part4:Additionalinformation/Accomplishments. Part5:Managerialdimensions. Trait: 1. Leadershipability Teamorientation Influencingskills Decisiveness Example,vision&resultorientation

2. Effectivetimemanagement

Punctuality&Discipline,
3. InterpersonalRelationship:

EmpathyEndearingqualityFirabutfairSharinginformationopenness&receptivity. 4. DevelopmentofSubordinates Counsellinggrooming,mentoring&coachingspotting&harnessingtalents.

5. Communicationability/Skills

Agoodlistenerclarityofthoughts&expressioncommandoverwritten&spokenwords.
6. Initiative

Proactivenesspositive&vibrantconvincingability.
7. Innovativeness/Creativity

Lateralthinkingideagenerationharnessingcreativityinothers.
8. Socialskills

Rapport,mixing,peopleorientation.
9. Costconsciousness

Profitorientation,Calculative/analytical,Costbenefitoutlook
10. Emotionalstrength

Adaptability,Withstandingstress,Balanceinappraisal,selfcontrol.

Part6:A.Potentialreviewbyappraiser&reviewingauthority. Viewsofappraiser Viewsofreviewingauthority

KRAs

B.FinalAssessment Marksawarded Keyresponsibilityareasincludingaccomplishments/outstanding achievements Managerialdimensions Total Marksawardedshallnotexceed90%ofthetotalmarksundereachpart.

1. 2. 3. 4.

70 30 100

Outstandingover81upto90 Goodover66upto81 Averageover46upto66 Belowaverage46&below

Appendix5

BankOfIndiaPMSform Bibliography

DeborahF.BoiceandBrianH.Kleiner,Designingeffectiveperformanceappraisal systems,Volume46Number61997pp.197201,MCBUniversityPressISSN 00438022 www.tvrls.com/performace_management_system.html http://www.adb.org/Documents/SES/REG/sstoth200329/sesppms.pdf www.blueshift.com/products/performance_contents.htm https://www.vedamsbooks.com/no35573.htm www.zigonperf.com www.ciionline.org/Common/282/Images/RanbaxyPMS.pdf

humanresources.about.com/c/ec/14.htm www.adb.org/Documents/Slideshows/PPMS/default.asp?p=evaltool www.performanceappraisal.com/intro.htm www.businessballs.com/performanceappraisals.htm www.doi.gov/hrm/guidance/370dm430hndbk.pdf web.cba.neu.edu/~ewertheim/hrm/perfapp.htm www.cnr.berkeley.edu/ucce50/aglabor/7labor/06.htm www.work911.com/performance/ www.hrguide.com/data/209.htm wwwhr.ucsd.edu/~staffeducation/guide/eval. www.scu.edu/ethics/dialogue/candc/cases/performance.html Performance_Management_Evaluation_Review_Improvement.htm www.managerassistant.com

1Boardtoregionalmanagertobranchmangertoofficer