International Caledonian Bank (ICB)
Coursework Requirements
You are a recently appointed graduate to ICB’s Management Accounting team and have been tasked with reviewing the effectiveness of the Performance Plus scheme. You are required to prepare a short report that evaluates the structure and underly-ing behavourial assumptions of the scheme, identify areas of strengths & weaknesses and offer (and justify) three suggestions that you believe would improve Perfor-mance Plus’s effectiveness.
ICB have a strict policy on the length and structure of their internal reports. Senior executives are very busy people and are not interested in reading long reports. How-ever, they are extremely pedantic on getting the reports delivered on the deadline day! This report will be discussed at a Board Meeting on 20th November and there-fore must be ready by by 22.00 on Wednesday the 19th of November 2014.
The maximum length of the report is 1,000 words (excluding references). Each report should contain
1. 150 word Executive summary containing details of the remit of the report & proposed solutions.
2. Problem Diagnosis section that outlines the strengths and weaknesses of the topic under investigation and the basis of your evaluation.
3. Solution section that proposes possible solutions and their justification.
4. Reference section, which contains up to five references that may be useful to help the readers explore the merits of the problem diagnosis and solution of-fered and uses the Harvard Referencing system.
Luckily you did not throw out all your managerial accounting notes and in addition to your copy of Horngren, you have kept some lecture notes (see page 7) and a very useful weblink to a talk by Dan Pink an expert on motivation.
http://www.thersa.org/events/rsaanimate/animate/rsa-animate-drive.
The coursework consists of a short 1,000 word report that is submitted by 22.00 on Saturday. The coursework is to be submitted ONLY via the course vision page followed by hard copy submissions at the ASO office along with the originality report. Reports will be checked for plagiarism using turnitin. Further details of the course work is provided on the course vision page. Students will be given the opportunity to discuss aspects of the coursework in the lecture scheduled in week 8. The School late submission policy will apply to all students in this course, which is
No extensions should be granted. 30% should be deducted from the mark of a student who has submitted late (up to 2 weeks). Students who have mitigating circumstances should be directed to their mentors who will advise them to apply, submitting evidence, to the Mitigating Circumstances Board for removal of the lateness penalty. Submissions later than 2 weeks from due date should not be marked.
Marks for this coursework will be returned to students by 22.00 hours on Thurs-day via the course Vision page.
ICB is now Scotland’s largest company and the fifth largest Bank in the world. In 2013, it made pre-tax profits of £4275m with a cost: income ratio of 15%%. Moreover, ICB was voted number one High Street Bank for customer satisfaction in an NOP survey. The Group now has 2287 branches in the UK, over 18 million customers across the globe and employs more than 105,000 staff.
ICB has recently reviewed all the Bank’s key processes, namely, Payments, Credit, Sales and Service and re-engineered, modernised and automated these processes to ensure that they were appropriate, efficient and capable of taking the Bank forward in the 21st century following the global financial crisis. A strategic vision of ICB is that they most stop thinking like a ‘bank’ and start being a ‘retailer’.
To ensure this focus on sales and service performance, the two major initiatives were launched:
• create a dedicated sales force and,
• implement a new employee incentive scheme called ‘Performance Plus’
The first initiative led to re-deploy 500 staff to ‘selling’, every branch to have a ‘Customer Adviser’ whose sole job was to meet with customers to ensure that they had products appropriate to their needs. Prior to the launch of Performance Plus, the Bank realised that its employees saw themselves as ‘bankers’ not ‘sellers’. Potentially it would be difficuIt to change how staff saw themselves and the purpose of their jobs. The Bank reckoned that it would require financial inducement to give this ‘Sales and Service’ revolution a kick start, so launched Performance Plus on 1 February 2013 with the fun-damental objective to motivate and reward staff for successful Sales and Service performance.
The ICB Culture
ICB actively promotes five core values:
• Individual Responsibility
Individual responsibility means employees must accept responsibility for their actions and behaviours and must strive to achieve what is expected of them in their role.
• Interdependence
Interdependence appreciates that internal relationships are critical to the organisation’s success and that in order to do their jobs effectively employees should be happy to work in flexible teams.
• Investment in People
Investment in People means that the ICB sees the importance of creating an environment that is posi-tive and motivating and where staff have the opportunity to undertake training and development in order to build their skills and improve their job performance.
• Customer Driven
Customer Driven recognises that customer satisfaction is the key to business success and therefore employees should focus on ascertaining the requirements of customers and be consistent, accurate and professional in fulfilling these customers’ requirements.
• Fit for purpose
Fit for purpose means employees should seek the most appropriate solutions to meet customer’s needs. In doing this, they must embrace change and be innovative in constantly improving products and levels of service to keep ahead of the competition.
ICB Performance Plus Incentive Scheme
Performance Plus is a team-based employee incentive scheme. This means that rewards are based on how the branch performs against its targets, rather on the performance of the individual member of staff. If a branch achieves all its Performance Plus targets, each individual member of staff can earn £550 per quarter or £2,200 per annum. For clerical staff earning c. £14,000 per annum, this repre-sents a substantial percentage of their overall reward package. This, therefore, means that Perform-ance Plus has the potential to be a powerful motivator for staff.
Performance Plus operates on a quarterly cycle in terms of, firstly, the scheme features are reviewed quarterly and secondly the staff rewards are paid quarterly. From the Bank’s perspective, the bene-fits of the quarterly cycle are that changes can be made quickly to the scheme to ensure that it aligns with and drives the corporate objectives. For example, if the Bank is performing poorly in a particular area, they can revise Performance Plus to place more emphasis on this area. From the employees’ perspective, the benefits of the quarterly cycle are that they receive quick reward for their efforts and there is therefore a very strong link between effort and reward.
In terms of communicating and promoting Performance Plus, each employee is given a worksheet that details their branch’s targets and the incentives they will gain if they achieve these targets. Per-formance Plus consists of four main elements, namely, Sales Points, Service and Mortgage Drawdowns / Balance Growth / Customer Retention. These elements focus on ICB key objectives, driving sales performance, delivering excellent service to customers and generating and conserving income by gaining new Mortgage business, by increasing deposit and lending balances and by retaining cus-tomers.
With the Sales Points element, each branch has a weekly sales points target and against this target earns a number of points for each sale made. Sales of the Bank’s most profitable products e.g. Mort-gages, earn more points than less profitable products e.g. Current Accounts. Cumulative performance is measured over the quarter and rewards paid to individual members of staff are based on the branch’s overall performance against its quarterly target according to table below.
Branch Performance Employee Reward per Quarter
Less than 100% of target achieved £0
100% of target achieved £50
Plus: for each 1% between 101% – 110% £4.00
Plus: for each 1% between 111% – 120% £5.00
Plus: for each 1% between 121% – 130% £6.00
130% and over of target achieved £200
The reward scale is that it is capped at £200 for 130% and over performance. The Bank’s reason for this is to guard against specific branches gaining large bonuses from ‘windfall’ sales such as branches in university locations earning huge amounts of sales points from accounts opened during Freshers Fayres
There are two sections to the Service element; Customer Service Index (CSI) section and, Key Attrib-utes section. Both are based on customer responses to centrally mailed questionnaires from which a score is generated for each branch. The CSI section covers customers’ views across a broad range of Service attributes while the Key Attributes section focuses on particular Service issues that the Bank regards as important.Rewards for the CSI section are calculated according to the following matrix, which takes account of the actual CSI achieved in the quarter and also the improvement in CSI since the previous quarter.
Current Quarter
Previous Quar-ter 0 –72 73 – 76 77 78 – 81 82 – 100
0 – 72 £0 £25 £55 £65 £105
73 – 76 £0 £0 £55 £65 £105
77 £0 £0 £55 £65 £105
78 – 81 £0 £0 £55 £65 £105
82 – 100 £0 £0 £55 £65 £160
To recognise improvement, the above rewards are increased by further amounts according to the level of CSI movement within the final performance band, which increases the maximum reward to £160.
Rewards for the Key Attribute section are similarly paid according to a matrix, which again takes ac-count of the both the score achieved in the current quarter and the improvement since the previous quarter. The maximum reward opportunity for this element is £40 taking the overall maximum incen-tive for Service to £200, the same as for the Sales element.
Current Quarter
Previous Quar-ter 0 –72 73 – 76 77 78 – 81 82 – 100
0 – 72 £0 £5 £10 £15 £25
73 – 76 £0 £0 £10 £15 £25
77 £0 £0 £10 £15 £25
78 – 81 £0 £0 £10 £15 £25
82 – 100 £0 £0 £10 £15 £40
For the Mortgage Drawdowns, Balance Growth and Customer Retention element, rewards are based on branch performance in respect of five key measures, that are regarded as strategically important areas of the Bank’s business. See Table below
Measure Meet normal target Meet Stretch Target
Mortgage Drawdowns £15 £30
Deposit Balances £15 £30
Lending Balances £15 £30
Customer Retention £15 £30
Packaged Account Retention £15 £30
The Six Steps to People Management
Performance Plus is just one component of BBSG’s management control system – ‘The Six Steps to People Management’.
Step 1 – Job Descriptions
These exist to ensure that employees understand exactly what is required of them to fully meet all aspects of their role and to enable a consistent approach to be achieved across the network. This control allows employees to work according to the ‘individual responsibility’ value because it lets em-ployees know exactly what is expected of them. Having job descriptions is also consistent with ICB’s culture of constant development because it allows employees to gain an understanding of the skills and expertise that they will need to develop in order to progress to other roles. All ICB job descriptions contain details of the skills and experience required to be ‘competent’ and ‘excellent’ in the role. This feature is in line with the culture ICB is trying to create of encouraging employees to improve performance.
Step 2 – Maximising Performance
Under the Maximising Performance programme, each role across the network has specific pre-defined objectives within a number of Key Result Areas (KRAs). These KRAs focus staff on the key tasks of their role and the required level of performance. In this way, employees know exactly what is expected of them and are consistently focused on the key activities required of their role. For all staff, KRAs are grouped under four main areas Sales, Service, Controls and People. The fact that all employees in the same role have the same KRAs/objectives ensures fairness of appraisal. Another benefit is that staff realise how their personal responsibilities fit in with the organisation’s overall goals. The objectives not only include hard numerical objectives but also softer, behavioural objectives such as ‘effective team working’. These behavioural objectives are again consistent with and supportive of the Bank’s cultural aims.
Step 3 – Targets
Hard numerical targets are set at team and individual level to ensure that individuals know exactly the level of performance that is required. By definition, these targets are ‘stretching’ and to achieve them, staff continually need to improve their performance. In key areas, targets are set at individual member of staff level with the aim that the sum of the individual targets will meet the overall team target in order that business goals are achieved. Constantly applying ‘stretch’ to previous levels of performance is consistent with the ‘raise the bar’ culture that exists in ICB.
Step 4 – Reward and Incentives
As detailed above in the description and review of Performance Plus, these aim to provide a link be-tween performance and reward in order to motivate employees to reach their individual and team goals. The concept of rewarding those individuals in teams who meet and exceed their objectives and targets whilst displaying the correct behaviours is very consistent with the performance culture of ICB.
Step 5 – Personal Development Plans
Personal Development Plans are designed to enable individuals in conjunction with their line managers to identify areas of performance where improvement is required. Having agreed areas of potential improvement, individuals agree a Personal Development Plan with their line manager to undertake training and self-learning activities that will improve their skills and expertise in the development areas. The key principle of the Personal Development Plan is that it is the responsibility of the individual, not the line manager, to ensure that appropriate training is undertaken. This is consistent with the ‘Individual Responsibility’ value that the Bank promotes.
Step 6 – Effective 1:1s and formal performance reviews
A fundamental feature of the ‘Six Steps to People Management’ is the undertaking of regular 1:1 meetings and performance reviews between individual employees and their managers. The purpose of these sessions is to review the individual employee’s performance, identify development needs and discuss solutions. Using these sessions to identify ways in which employees can develop their skills is consistent with the ‘Investment in People’ culture that ICB desires.
Staff Views
As part of the schemes operation, staff are regularly consulted via interviews and questionnaires and this section outlines some of the responses from an individual branch in Glasgow. When employees were asked what they liked most about their jobs they all talked about the culture and values of the organisation.
• 4 out of 8 branch staff mentioned that what they liked best about their job was serving cus-tomers.
• 3 out of 8 mentioned enjoying ‘working as part of a team’.
• 1 out of 8 liked ‘developing staff’.
All employees liked performing well and reaching targets, however the pressure of targets was the most popular answer for what the employees did not like about their jobs. All employees stated that when targets are not reached, it has an adverse effect on morale. One interviewee claimed that the pressure to achieve sales targets meant that employees have to try and sell products to people that do not actually need them. 6 of the 8 branch staff gave pressure to make sales as the thing they liked least about their job.
All employees interviewed regarded their Bank as a ‘good’ or ‘excellent’ company to work for. A common theme in the interviews was this was due to the ICB culture. Comments include
• “ICB’s vision and its values make it an excellent organisation to work for.”
• “the organisation is dynamic and strives for excellence”
• “it is an organisation that encourages employee development and progression in the organi-sation”.
• “it provided good service to customers”.
• “Performance Plus rewards the values that they are trying to drum into you”.
• “the Royal Bank is trying to be a retail organisation so providing incentives for sales and ser-vice reinforces this”.
• ‘Performance Plus makes employees go that extra mile”.
• ‘Performance Plus gets the best from staff by providing defined tangible rewards for achieving defined targets’ is the best way of doing this”.
• ‘Since we get out bonuses quarterly, we can see the link between performances and reward’
• ‘Because elements of the scheme can be easily changed in allows us to focus on new areas’
• ‘As rewards are based on the overall branch performance, it encourages teamwork.’
However, there were a number of negative comments.
• “As Performance Plus rewards all employees in the branch equally, it is not consistent with the culture of rewarding‘top achievers for top performance’.
• “the sales points system does not always focus staff on selling the most profitable products.”
• “Performance plus does not work because lots of the staff are not motivated by money”
• “I have seen staff sell products to customers they don’t need, but help the branch hit their bonus targets”
• “since different roles in the branch receive different reward multiples of Performance Plus, we are not all equally motivated to do our job”
• “I am bored with performance plus, it is just part of my salary now and I expect to get a bonus every quarter”
