Arsalan Safari

MIT-SSRC, February 19, 2014

Enterprise Best Practices

Enhanced Performance Management (EPM) General Presentation

For Academic Purposes Only (Please Do Not Distribute)

Agenda

No. Topic

1 Overview

2 EPM Principle

Approach

EPM Design Framework

Data Elements

3 Quality Assurance and Risk

4 Leadership Effectiveness Framework

5 Questions & Answers

1

EPM binds employee performance & productivity and rewards in an integrated approach

Banking Operations leverage the EPM framework but customize it to unique attributes of an operational environment

1. Direct-drive with alignment to value created for the organization

2. Transparency - Employees will know how their STI is determined and how much they will earn based on the results they deliver

3. Controllability of outcome - STI will be linked to performance measures which are more controllable by employees

Foundational assessment has identified a significant opportunity to improve productivity in banking operations

This is a staged roll-out plan, with initial pilots in low-risk areas to develop comfort, derive learnings, and ensure employee engagement

Performance

management

framework

Reward

and recognition

Role management Measurement

and reporting

Capacity

Optimization

& active

management

1

2

3

4

Performance Management Framework EPM Implications

2

Approach- EPM Framework and Banking Operations Implications

3

Dealer Services - Adjudication Officers

2011 Annualized STI vs. daily productivity

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

0 100 200 300 400 500

Average service credits / day

An

nu

ali

ze

d 2

011

ST

I

~$1,000 (or 33%)

difference in STI

for same level

of productivity

Same STI across

wide range of

productivity

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

0 100 200 300 400 500

Average service credits / day

An

nu

ali

ze

d 2

011

ST

I

Dealer Services - Adjudication Officers

2011 EPM Theoretical STI vs. daily productivity

Hurdle = 230

EPM design improves link between performance and pay: service credits and STI aligned in new model

Approach- EPM and STI Alignment

EPM Design Framework- Design Elements

4

Binding employee performance & productivity with rewards & recognition

Determining incentive payouts for every value added credit

Determining targets based on productivity of the group

Determining parameters that are linked to effectiveness and efficiency driving performance

Design Elements

Metric

Approach

Target

Reward

Design Element Main Tasks

Decide what to pay for

– What is important?

– What can be tracked?

Determine how much to pay

– What are the economically correct trade-offs?

– What strategic overlays are required?

Decide what key performance indicators (if any) to include

Decide how to align quality with EPM

Convert existing top-level targets into new currency

Develop appropriate allocation methodology based on potential to perform

Determine appropriate conversion from target to minimum

– In conjunction with reward function

– Based on desired participation rate and overall budget

Determine “pivot-point” (budget at a given level of performance)

Fix bonus rate

– In conjunction with targeting

– Based on trade-off between slope, participation and budget

Test

– Back-test on past performance (winners and losers)

– Stress-test under different aggregate performance assumptions

Metric

Target

Reward

Holistic reward and recognition approach

Productivity-based approach

Individual versus team mix by role

EPM Design Framework- Measuring, Targeting and Rewarding

5

Role - reward & recognition

approach

The Performance Target is the number of credits that an employee must exceed in a month to accrue STI

The payout rate is calculated through a calibration process of historical data

6

EPM Design Framework- Target and Reward

Funding – 2nd touch

Total Credits

Per Month Monthly

Performance

Hurdle

(Target)

Credits Over Target

Activities Credits Performance

Credits set to ensure correct relative values across

multiple activities

Hurdle

Funding – 1st touch

Phone calls

Maintenance – Heavy

PPSA

Maintenance – Light

Incentive Payout

X Rate

EPM Design Framework- Individual, Team Leader, and SME Plans

Value-add

(credits above

hurdle per unit

capacity)

Employee

Engagement

SLA

80%

20%

Team Leader Plan Individual Plan

Individual

credits above

hurdle

Value-add credit

(per unit capacity)

80%

20%

Team performance

• Majority (80%) of STI derived from team

performance (aligned with individuals’

team plan)

• Team leaders not intended to earn

credits but rather to coach their team to

earn (in line with key responsibility of the

team leader role)

Higher level goal

• Remaining 20% of team leader

compensation meant to reward team

leaders for overall unit productivity and

non-productivity based elements of role

Individual performance

• Majority (80%) of STI derived from

individual performance

• Aligns with EPM goal of linking individual

reward to individual productivity and

allowing breakthrough compensation for

breakthrough performance

Team performance

• Team component (20%) derived from the

weighted average performance of all team

members

• Included to incentivize teamwork and

sharing of best practices (which are not

incentivized in individual productivity

incentive)

Individual

performance

Team

performance

Team

performance

Leadership

Effectiveness

7

Value-add

(credits above

hurdle per unit

capacity)

SME

effectiveness

KPIs

Group

performance

Subject Matter

Expert Goal

SME Plan

80%

20%

Team performance

• Majority (80%) of STI derived from team

leader compensation meant to reward

team leaders for overall unit productivity

and non-productivity based elements of

role

Higher level goal

• Remaining 20% of compensation meant

to SME effectiveness rewards

contributions to team which are not

otherwise reflected in productivity

Legend:

SME Goal

Individual performance

Group Performance Team performance

Problem resolution – Service Commitments: assume the

client is right, take ownership, demonstrate concern, …

Measurements include dealer survey results and partner

feedback, call monitoring, Interface data, PLR Overall ratings

Call quality benchmarked to team average for

inbound/outbound (<65% NP, 65-75% DC, 75-95% HP,

>95% OS)

EPM Design Framework- Analyzing Current Roles/Metrics for Individuals

Metrics

Mix of quantitative metrics and qualitative

assessments

Double counting of certain metrics in two

evaluation categories, inflating their weight

(e.g. Overall Agree rating)

Targets

Differentiated targets for productivity and

quality metrics across 5 STI rating buckets

but generally only 3 used in practice

Goal of maintaining approve/decline/

conditional decisions at average levels

does not encourage value creation and

may incent wrong behaviour

Reward

Targets are relative to national / team

averages rather than absolute, making it

more difficult for employees to know

where they stand and what reward they

should expect to earn at any point in time

Large number of criteria used in

composite evaluation framework obscures

link between productivity and pay, making

it harder for employees to control their STI

Comments

Source: Adjudication Associate 2011 PEAD

8

Example: Adjudication associate

Building ownership and accountability through client focused

behaviours

Daily productivity relative to national average (<80% NP, 80-

89% DC, 90-125% HP, 126-149% OS, >149% EX)

YTD Post Loan Review Agree risk rating (<69% agree NP, 70-

84% DC, 85%-94% HP, >95% OS)

Overall Agree rating compared to national averages

Approve/decline/conditional decisions to be maintained at

National / team average

Innovation in

everything we

do 10%

Performance

Accountability

45%

Safety and

Soundness

10%

Drive Client

Value

35%

Identifying solutions to recurring errors and servicing

gaps

Effective routines in place and practiced such as regularly

reviewing documents and quarterly compliance with policies

Measurements include satisfactory results of ICR & Audits

and successful completion of Q1/Q3 BCP simulation

Evaluation metrics

Team plan designed to optimize team performance and maintain team leader alignment with the established

business goals

9

Pilot team leader plan

Design element:

Team leader plan metric: credits above hurdle per unit capacity

Average

credits per

unit capacity

Hurdle for

one unit of

capacity

Value-add

(credits

above

hurdle per

unit

capacity)

Innovation: Incentivizing

team leaders on group

efficiency will drive new

solutions

Prior team leader STI framework

Safety &

soundness

15%

Performance

accountability

30%

Innovation

20%

Mitigate ops risk, address & resolve risks

Effective control /compliance regime in place

Promote and encourage employees

Enhance operational efficiency

Lead product & service continuous improvement

Provide consistent services and reduce errors

committed by team members

Coaching team and provide feedbacks

Champions revenue growth

Develop people and ensure they are aware of

business strategy and key behaviours

Put clients first, collaborate with partners

Meet budget commitment

Manage talent and reward high performers

Drive client

value

35%

Client value: Team

stats and error rates

reflected in team plan;

attendance driven

through individual and

team plans

Safety &

soundness:

Can be

managed

outside of STI,

e.g. mandate,

salary review

Performance

accountability: Team

leaders held to account

for full team

productivity; plans

incentivize innovation

and enable rewarding

high performers

EPM Design Framework- Analyzing Current Roles/Metrics for Team Leaders

Error weighting

Error weighting should be considered in relation to sample size

Recommend that the minimum error is within the 10-20 negative credit range (with 5-

10 credits increase in each error type) for the following reasons:

Materiality of the less than -10 or >-50 has either no impact, or to great an

impact to the model

Impact to calibration model is approximately 1 credit for -10 errors

Signalling to the employees an ‘increase’ in error treatment drives the right

messaging

New error checking will increase the total number of errors found

Qualitative feedback should also factor in relative to the credits (e.g., Is the error so

bad that the employee should lose all the credits earned, or not?)

Sample Size

Recommend a consistent approach 1% minimum

Frequency

Recommend a monthly roll-up of error to align with the observational period

Need to consider operationalizing and turn around times to feed back to the staff

Independence

Recommend outside of the incentive structure for transactional processing

Quality Assurance and Risk

Sample size

Error types

Reporting

frequency

Independence

Providing a standard error tracking/quality assurance method is key to ensure that quality is not compromised.

Key considerations for error treatment:

10

EPM Model by Type of Function

11

TRANSACTIONAL

PROCESSES RISK-BASED

OPERATIONS CALL-BASED

OPERATIONS EXPERT

SERVICES

Mix of efficiency

and effectiveness

Efficiency

focused

Effectiveness

focused

LEADERSHIP EFFECTIVENESS – 20%

Leadership Effectiveness Framework outlines how the 20% team leader portion is broken into two elements.

EMPLOYEE ENGAGEMENT

Service Level Agreement (SLA)

Leadership Effectiveness – 20%

Level 1 Level 2 Level 3 Level 4 Level 5

SLA Rating Met <6

months

Met 6-7

months

Met 8-9

months

Met 10-11

months

SLA met in

all 12

months

Non-SLA

Rating _ _ _ _ _

SLA – 10% (Consideration Options available noted below if SLA is not suitable)

Employee Engagement – 10%

Level 1 Level 2 Level 3 Level 4 Level 5

Employee

Engagement

Rating

Capability

proficiency

does not

meet

expectations

Capable and

shows

progression

towards high

performance

capabilities

Sometimes

exceeds

expectations

Consistently

exceeds job

expectations

with respect

to

capabilities

High level of

achievement

clearly

stands out.

Leaders

hip

Effe

ctiv

eness R

atin

g &

Payout

L5

L4

L3

L2

L1

Leadership Effectiveness Framework

12

Questions & Answers