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