Mohammad Fheili

Framework for Employee-Incentive Plan

Branch-Network Staff

Even the best plan will fail if not communicated &

implemented properly

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Mohammad Fheili “Over 30 years of Experience in Banking. Contact Details: mifheili@gmail.com (961) 3 337175

Mohammad has successfully delivered over 1,500hours of training to professional bankers.

He served as an Economist at ABL, and SeniorManager at BankMed and Fransabank: and hecurrently serves in the capacity of an Executive (AGM)at JTB Bank in Lebanon.

In addition, He worked as an Advisor to the Union ofArab Banks.

Mohammad also served as Basel II ProjectImplementation Advisor to CAB and HBTF Banks inJordan.

Mohammad received his college education(undergraduate & graduate) at Louisiana StateUniversity (LSU), and has been teaching Economicsand Finance for over 25 continuous years at reputableuniversities in the USA (LSU) and Lebanon (LAU).

Finally, Mohammad published over 25 articles, ofthose many are in refereed Journals (e.g., Journal ofMoney Laundering & Control; Journal of OperationalRisk; Journal of Law & Economics; etc.) andBulletins.”

What Bonus Is, and Is Not!

The payment of a Bonus for a given year must not beconsidered a precedent whereby employees can expectthe same every year.

Bonus payment must be strictly performance-based. Bonus is paid at the discretion of the management of

JTB, and if and only if the performance of a staff exceedsexpectations (. . . as formulated during the assignment ofobjectives).

Bonus payment is a function of the performance of therespective branch and that of the individual staff.

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Performance is Multi-Dimensional!

A number of factors are carefully taken intoconsideration in evaluating the performance of a singlebranch:

The branch’s ability to manage (i.e., reduce) the cost offund.

The branch’s ability to generate income from bothinterest and fees, charges and commissions.

The branch management’s ability to develop thebusiness of the branch, and help it grow sustainably.

The branch management’s ability to utilize the resourcesat its disposal efficiently and effectively.

Each Staff’s ability to market Bank’s products andservices to existing and new clients.

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Bonus Calculation, Allocationand Payment

• Calculation of Bonus for each branch must be basedon a “Business [Performance] Plan”.Management must be able to build up reasonable expectationsabout branch performance so ‘actual’ performance is measuredagainst ‘expected’ over the relevant time frame.

• Allocation of Bonus to each member of the branchstaff must be based on the function that each individualoccupies during the period under consideration, and howsuch a function contributes to the bottom line.

• Payment of Bonus to each member of the branch staffdepends on the outcome of the Performance AppraisalReview (PAR) system for the period under consideration.Performance review is the sole property of the immediateSupervising Officer.

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Bonus Calculation, Allocationand Payment

CALCULATION of Bonus for each Branch

ALLOCATION of Bonus to All functions in the Branch

PAYMENT of Bonus toDeserving staff

Based on BusinessGeneration_Reduction in Costof Fund_Volume in Interest-based Products_Volume in non-interest Basedservices_Work Environment inthe Branch

Based on each function’sContribution to businessDevelopment in theBranch_Branch Manager_Deputy BM_Head of Commercial Unit_CSR_Teller_Head of Operation_Clearing_Office Boy_Etc.

Based on each staff’sPerformance Appraisal Review System_“A” Performers_“B” Performers_“C” Performers_”D” and “E” do notreceive any bonus irrespective of how thebranch performs

PILLAR 1: Reflects theBank’s Strategy, and KeyPerformance Areas

PILLAR 2: Reflects thecontribution of every functionto the branch’s Bottom Line

PILLAR 3: Reflects theperformance of every staff in theBranch

(From the Job Description if any)

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iBr CoF iBank CoF=

iBr CoF iBank CoF<

iBr CoF iBank CoF> The branch in this case receives a penalty that isbased on the product between the differential in thecost of fund and the volume of newly acquired depositfund.

The branch in this case receives a reward that is basedon the product between the differential in the cost offund and the volume of newly acquired deposit fund.

The branch in this case does not earn bonus that isbased on this criteria.

Illustration: Cost of Fund – CoF / Br=Branch

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Calculation

. . . of Branch Bonus

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CALCULATION of Bonus foreach Branch

Very Important: The General Management must decide about a “PROFITTHRESHOLD”

PERFORMANCE ITEM

KEYINDICATORSWEIGHT

Reduction in Cost of Fund (or Profitability)

The Branch’s cost of fund relative to that ofthe Bank. α1%

Fees, Commissions, andCharges from services Plastic Cards; Domiciliation, …; Etc.α4%

Interest-Income BasedProducts

Loan Facilities (Corporate, Commercial, Consumer); Etc. (If deemed as an objective – or KPI)α3%

Net New Deposit FundsBrought by branch staff Current Account, Time Deposits, etc.α2%

Branch’s Work Work Environment

Service Quality; Complaints; turnover; etc. HRD Is able to rate all branches using this KPI.α5%

The actual weights assigned to each Key Performance Indicator “The Alpha”parameters must reflect the strategic emphasis of the Bank: if Retail Bankingis stressed, α4 will carry relatively the highest weight.

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CALCULATION of Bonus foreach Branch

PERFORMANCE ITEM

KEYINDICATORSWEIGHT

Reduction in Cost of Fund (or Profitability)

The Branch’s cost of fund to that ofthe Bank. α1%

We Compare the branch’s cost of fund for deposits (New and Renewed during the Period under consideration), and compare it to that of The Bank.

__If the branch’s cost of fund is lower, multiply the “Spread” by the volume of newlyAcquired fund for the period under consideration; and multiply by α1%. This amountIs added to the calculation of the Branch’s Bonus for the period under consideration.

__If the Branch’s cost of fund is higher, we multiply the Un-favorable spread by the volume of newly acquired deposits; and multiply by α1%. This amount will be a “Penalty” in the calculation of The Branch Bonus amount.

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CALCULATION of Bonus foreach Branch

PERFORMANCE ITEM

KEYINDICATORSWEIGHT

__The End-of-Period volume of newly acquired deposits LESS Average balance of These deposits for the period under consideration is multiplied by α2% to calculate this component of the Branch Bonus. If the difference is negative, the branch earnsNo Bonus from this parameter (To capture “bad” intentions)

__The weights assigned to Deposit Funds (and to its sub-components) is a function of the “need for liquidity” for the Bank (Strategic Decision)

__Newly offered liability products must be handled on an exceptional basis. Bonusmust be paid directly (every month until sales is stable), and it must be earmarked forthe sale/marketing of this specific “new” product/service.

Net New Deposit FundsBrought by Branch Staff Current Account, Time Deposits, etc.α2%

Current Accounts_ _%Pass-Book Saving Accounts_ _%Time Deposits_ _%Other Liability Products_ _%Deposit Renewal_ _%

Introduce more Details into the calculation ofBranch Bonus

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CALCULATION of Bonus foreach Branch

PERFORMANCE ITEM

KEY INDICATORSWEIGHT

__The volume of newly generated loansis as important to the overall business inThe Branch as the quality of these assets.

__Only loans generated by Branch Staffare considered in the calculation of theBonus.

__Volume of New Loans generated byBranch Staff multiplied by (α3% Lesspercent Default and Delinquent) for theperiod under consideration.

Interest-Income BasedProducts

Loan Facilities (Corporate, Commercial, Consumer); Etc. If deemed as a Branch Objectiveα3%

Corporate Loans_ _%Overdrafts_ _%Car Loans_ _%Housing Loans_ _%Bridge Loan_ _%

_ _%_ _%

Quality of Assets (% Bad Loan and/or Delinquent)_ _%

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CALCULATION of Bonus foreach Branch

PERFORMANCE ITEM

KEY INDICATORSWEIGHT

Fees, Commissions, andCharges from services

Bancassurance products; Plastic Cards; Call Center; Etc.α4%

Insurance Products _ _%Domiciliation_ _%Safe Box_ _%Car Inspection Fees_ _%

_ _%_ _%_ _%

Quality of Product (% of Cancellation, etc.)_ _%

__The volume of newly generated fees,commissions and charges is as important to overall business in the Branch as the quality of these products (e.g., no repeat business, . . . )

__Volume of New products/services sold by Branch Staff multiplied by (α4% Lesspercent canceled) for the period under consideration.

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CALCULATION of Bonus foreach Branch

PERFORMANCE ITEM

KEYINDICATORSWEIGHT

Branch’s Work Environment

Look for employee complaints; turnover; etc. The HR Is able to rate all branches using this KPIα5%

__To be able to carefully observe andmonitor this performance indicator, weneed to look at:Number of customer complaints at thebranchNumber and intensity of reportedbehavioral incidents (between branch staff)attributed to the work environment in thebranchDiscipline, leadership, teamwork must beassessed and the outcome used in judgingthe HR Environment of the Branch.

Service Qualityβo%Work Environmentβ1%Employee Satisfactionβ2%

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Allocation

. . . of bonus to each function in the branch

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ALLOCATION of Bonus to allFunctions in the Branch

Very Important: There is a number of distinct functions in each branch, but theyvary between one branch and the next.

KEY BRANCH FUNCTION

Bonus is allocated to each staff memberBased on the following.WEIGHT

Branch Manager

1__The amount of Bonus calculated for thebranch is multiplied by the assigned weightfor each function.2__The amount is then divided by thenumber of staff occupying this functionFor the period under consideration.3__Other functions may be considered (e.g.,secretary, Security, etc.)

λo%

Head of LC-LG; Billsλ5%

Head of Commercial Unitλ2%Customer Service; Retailλ3%Customer Service; Corp.λ4%

Head of Operations Unitλ6%

SWIFT Operatorλ8%Clearingλ9%Back-Office Support λ10%Office Boyλ11%

Deputy Branch Managerλ1%

Tellerλ7%

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Payment

. . . of bonus to each individual staff

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PAYMENT of Bonus to EachDeserving Staff of the Branch

Very Important: Whether the individual employee gets a bonus or not dependson the outcome of his/her performance appraisal (PAR) for the period underconsideration.

INDIVIDUAL P.A.R.

Bonus is paid to each staff memberBased on the following.WEIGHT

“A” Performers __We multiply the amount allocated for Each function-holder by the weight According to his/her PAR.__The amount of Bonus earned by the branch, but was not distributed will be retained by the Bank.

100%

“C” Performers50%

“D” and “E” Performers0%

“B” Performers75%

P. A. R. = Performance Appraisal Review (or Rating)

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Summary

Employee-Incentive Plan

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BRANCH BONUS with suggested weights

CALCULATION of Bonus for each Branch

ALLOCATION of Bonus to All functions in the Branch

PAYMENT of Bonus toDeserving staff

PERFORMANCE ITEMWEIGHT

Reduction in Cost of Fund (or Profitability)

15%

Fees, Commissions, Charges 25%

Interest-Income Based Products25%

Net New Deposit Brought by branch staff

25%

Branch’s Work Environment10%

KEY BRANCH FUNCTIONWEIGHT

Branch Manager20%

Head of LC-LG; Bills5%

Head of Commercial Unit10%

Customer Service; Retail12%

Customer Service; Corp.12%

Head of Operations Unit9%

SWIFT Operator3%

Clearing3%

Back-Office Support 3%

Office Boy1%

Deputy Branch Manager15%

Teller7%

INDIVIDUAL P. A. R.WEIGHT

“A” Performers100%

“C” Performers50%

“D” and “E” Performers0%

“B” Performers75%

Amounts In Dollars Weights in % Weights in %

BONUS PERBRANCH STAFF =

AmountCalculated X

Weight AllocatedTo Function held

By the Staff

Weight AllocatedTo Staff based on

His/her PARX

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Thank You

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