Framework for Employee-

Incentive Plan

Even the best

plan will fail if not
communicated &
implemented
properly
Branch-Network Staff

1 Mohammad Fheili
 Mohammad Fheili
“Over 30 years of Experience in Banking. Contact Details:
mifheili@gmail.com (961) 3 337175
 Mohammad has successfully delivered over 1,500
hours of training to professional bankers.
 He served as an Economist at ABL, and Senior
Manager at BankMed and Fransabank: and he
currently serves in the capacity of an Executive (AGM)
at JTB Bank in Lebanon.
 In addition, He worked as an Advisor to the Union of
Arab Banks.
 Mohammad also served as Basel II Project
Implementation Advisor to CAB and HBTF Banks in
Jordan.
 Mohammad received his college education
(undergraduate & graduate) at Louisiana State
University (LSU), and has been teaching Economics
and Finance for over 25 continuous years at reputable
universities in the USA (LSU) and Lebanon (LAU).
 Finally, Mohammad published over 25 articles, of
those many are in refereed Journals (e.g., Journal of
Money Laundering & Control; Journal of Operational
Risk; Journal of Law & Economics; etc.) and
Bulletins.”

2
 What Bonus Is, and Is Not!

 The payment of a Bonus for a given year must not be

considered a precedent whereby employees can expect
the 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 exceeds
expectations (. . . as formulated during the assignment of
objectives).
 Bonus payment is a function of the performance of the
respective branch and that of the individual staff.

3 Mohammad Fheili
 Performance is Multi-
Dimensional!
A number of factors are carefully taken into
consideration in evaluating the performance of a single
branch:
 The branch’s ability to manage (i.e., reduce) the cost of
fund.
 The branch’s ability to generate income from both
interest and fees, charges and commissions.
 The branch management’s ability to develop the
business of the branch, and help it grow sustainably.
 The branch management’s ability to utilize the resources
at its disposal efficiently and effectively.
 Each Staff’s ability to market Bank’s products and
services to existing and new clients.

4 Mohammad Fheili
 Bonus Calculation, Allocation
and Payment

• Calculation of Bonus for each branch must be based

on a “Business [Performance] Plan”.
Management must be able to build up reasonable expectations
about branch performance so ‘actual’ performance is measured
against ‘expected’ over the relevant time frame.
• Allocation of Bonus to each member of the branch
staff must be based on the function that each individual
occupies during the period under consideration, and how
such a function contributes to the bottom line.
• Payment of Bonus to each member of the branch staff
depends on the outcome of the Performance Appraisal
Review (PAR) system for the period under consideration.
Performance review is the sole property of the immediate
Supervising Officer.

5 Mohammad Fheili
 Bonus Calculation, Allocation
and Payment
PILLAR 1: Reflects the PILLAR 2: Reflects the PILLAR 3: Reflects the
Bank’s Strategy, and Key contribution of every function performance of every staff in the
Performance Areas to the branch’s Bottom Line Branch

CALCULATION of ALLOCATION of Bonus to All PAYMENT of Bonus to

Bonus for each Branch functions in the Branch Deserving staff

Based on each function’s

Based on Business Contribution to business Based on each staff’s
Generation Development in the Performance Appraisal
_Reduction in Cost Branch Review System
of Fund _Branch Manager _“A” Performers
_Volume in Interest- _Deputy BM _“B” Performers
based Products _Head of Commercial Unit _“C” Performers
_Volume in non- _CSR _”D” and “E” do not
interest Based _Teller receive any bonus
services _Head of Operation irrespective of how the
_Work Environment in _Clearing branch performs
the Branch _Office Boy
_Etc.

(From the Job Description

if any)
6 Mohammad Fheili
 Illustration: Cost of Fund – CoF /
Br=Branch

iBr CoF > iBank CoF The branch in this case receives a penalty that is
based on the product between the differential in the
cost of fund and the volume of newly acquired deposit
fund.

iBr CoF = iBank CoF The branch in this case does not earn bonus that is
based on this criteria.

iBr CoF < iBank CoF The branch in this case receives a reward that is based
on the product between the differential in the cost of
fund and the volume of newly acquired deposit fund.

7 Mohammad Fheili
 Calculation

. . . of Branch Bonus

8 Mohammad Fheili
 CALCULATION of Bonus for
each Branch
Very Important: The General Management must decide about a “PROFIT
THRESHOLD”
PERFORMANCE KEY
WEIGHT
ITEM INDICATORS
Reduction in Cost of The Branch’s cost of fund relative to that of
α1% Fund (or Profitability) the Bank.

Net New Deposit Funds

α2% Brought by branch staff
Current Account, Time Deposits, etc.

Interest-Income Based Loan Facilities (Corporate, Commercial,

α3% Products Consumer); Etc. (If deemed as an objective – or KPI)

Fees, Commissions, and

α4% Charges from services
Plastic Cards; Domiciliation, …; Etc.

Branch’s Work Work Service Quality; Complaints; turnover; etc. HRD

α5% Environment Is able to rate all branches using this KPI.

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

9 Mohammad Fheili
 CALCULATION of Bonus for
each Branch

PERFORMANCE KEY
WEIGHT
ITEM INDICATORS
Reduction in Cost of The Branch’s cost of fund to that of
α1% Fund (or Profitability) the Bank.

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 newly
Acquired fund for the period under consideration; and multiply by α1%. This amount
Is 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.

10 Mohammad Fheili
 CALCULATION of Bonus for
each Branch
PERFORMANCE KEY
WEIGHT
ITEM INDICATORS
Net New Deposit Funds
α2% Brought by Branch Staff
Current Account, Time Deposits, etc.

_ _% Current Accounts
_ _% Pass-Book Saving Accounts
Introduce more Details
into the calculation of _ _% Time Deposits
Branch Bonus
_ _% Other Liability Products
_ _% Deposit Renewal

__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 earns
No 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. Bonus

must be paid directly (every month until sales is stable), and it must be earmarked for
the sale/marketing of this specific “new” product/service.

11 Mohammad Fheili
 CALCULATION of Bonus for
each Branch

PERFORMANCE KEY
WEIGHT
ITEM INDICATORS
Interest-Income Based Loan Facilities (Corporate, Commercial,
α3% Products Consumer); Etc. If deemed as a Branch Objective
_ _% Corporate Loans
__The volume of newly generated loans
is as important to the overall business in _ _% Overdrafts
The Branch as the quality of these _ _% Car Loans
assets.
_ _% Housing Loans
__Only loans generated by Branch Staff _ _% Bridge Loan
are considered in the calculation of the
_ _%
Bonus.
_ _%
__Volume of New Loans generated by Quality of Assets (% Bad
Branch Staff multiplied by (α3% Less _ _%
Loan and/or Delinquent)
percent Default and Delinquent) for the
period under consideration.

12 Mohammad Fheili
 CALCULATION of Bonus for
each Branch
PERFORMANCE KEY
WEIGHT
ITEM INDICATORS
Fees, Commissions, and Bancassurance products; Plastic Cards; Call
α4% Charges from services Center; Etc.

_ _% Insurance Products

__The volume of newly generated fees, _ _% Domiciliation

commissions and charges is as important _ _% Safe Box
to overall business in the Branch as the
quality of these products (e.g., no repeat _ _% Car Inspection Fees
business, . . . ) _ _%
_ _%
__Volume of New products/services sold
by Branch Staff multiplied by (α4% Less _ _%
percent canceled) for the period under Quality of Product (% of
consideration. _ _%
Cancellation, etc.)

13 Mohammad Fheili
 CALCULATION of Bonus for
each Branch
PERFORMANCE KEY
WEIGHT
ITEM INDICATORS
Branch’s Work Look for employee complaints; turnover; etc.
α5% Environment The HR Is able to rate all branches using this KPI
βo% Service Quality
__To be able to carefully observe and
monitor this performance indicator, we β1% Work Environment
need to look at: β2% Employee Satisfaction
Number of customer complaints at the
branch
Number and intensity of reported
behavioral incidents (between branch staff)
attributed to the work environment in the
branch
Discipline, leadership, teamwork must be
assessed and the outcome used in judging
the HR Environment of the Branch.

14 Mohammad Fheili
 Allocation

. . . of bonus to each function in the branch

15 Mohammad Fheili
 ALLOCATION of Bonus to all
Functions in the Branch
Very Important: There is a number of distinct functions in each branch, but they
vary between one branch and the next.

KEY BRANCH Bonus is allocated to each staff member

WEIGHT
FUNCTION Based on the following.
λo% Branch Manager
λ1% Deputy Branch Manager
λ2% Head of Commercial Unit
λ3% Customer Service; Retail 1__The amount of Bonus calculated for the
λ4% Customer Service; Corp. branch is multiplied by the assigned weight
for each function.
λ5% Head of LC-LG; Bills 2__The amount is then divided by the
λ6% Head of Operations Unit number of staff occupying this function
For the period under consideration.
λ7% Teller
3__Other functions may be considered (e.g.,
λ8% SWIFT Operator secretary, Security, etc.)
λ9% Clearing
λ10% Back-Office Support
λ11% Office Boy

16 Mohammad Fheili
 Payment

. . . of bonus to each individual staff

17 Mohammad Fheili
 PAYMENT of Bonus to Each
Deserving Staff of the Branch

Very Important: Whether the individual employee gets a bonus or not depends
on the outcome of his/her performance appraisal (PAR) for the period under
consideration.
INDIVIDUAL Bonus is paid to each staff member
WEIGHT
P.A.R. Based on the following.
100% “A” Performers __We multiply the amount allocated for
Each function-holder by the weight
75% “B” Performers According to his/her PAR.
50% “C” Performers __The amount of Bonus earned by the
branch, but was not distributed will be
0% “D” and “E” Performers retained by the Bank.
P. A. R. = Performance Appraisal Review (or Rating)

18 Mohammad Fheili
 Summary

Employee-Incentive Plan

19 Mohammad Fheili
 BRANCH BONUS with suggested
weights
BONUS PER 1 Amount
Weight Allocated Weight Allocated
BRANCH STAFF = Calculated X To Function held
By the Staff 2 X
To Staff based on
His/her PAR 3
Amounts In Dollars Weights in % Weights in %
CALCULATION of 1 ALLOCATION of Bonus to All PAYMENT of Bonus to
Bonus for each Branch functions in the Branch 2 Deserving staff 3
PERFORMANCE KEY BRANCH INDIVIDUAL
WEIGHT WEIGHT WEIGHT
ITEM FUNCTION P. A. R.

Reduction in Cost of 20% Branch Manager 100% “A” Performers

15% Fund
(or Profitability) 15% Deputy Branch Manager 75% “B” Performers

Net New Deposit 10% Head of Commercial Unit 50% “C” Performers
25% Brought by branch
staff 12% Customer Service; Retail “D” and “E”
0%
Performers
Interest-Income 12% Customer Service; Corp.
25%
Based Products 5% Head of LC-LG; Bills

Fees, Commissions, 9% Head of Operations Unit

25%
Charges 7% Teller

Branch’s Work 3% SWIFT Operator

10%
Environment 3% Clearing

3% Back-Office Support

20 1% Office Boy
Mohammad Fheili
 Thank You

21 Mohammad Fheili