Report on

Performance related pay of BRAC Bank Ltd

Course Code: BUS-499 Course Title: Internship Report

Prepared For:
Dr. Nargis Akhter
Associate Professor Department of Business Administration East West University

Prepared By:
S.M.Kamruzzaman ID# 2005-3-10-001
Department of Business Administration East West University

Submission Date: 12

th

April, 2010

Letter of Transmittal

April 12, 2010

To: Dr. Nargis Akhter, Associate Professor, Department of Business Administration East West University, Dhaka. From: S.M.Kamruzzaman, ID# 2005-3-10-001, Department of Business Administration , East West University, Dhaka.

Subject: Submission of Internship Report Dear Madam: I like to inform you with respect and pleasure that I have successfully completed my Internship (BBA 499) and the report is also prepared to submit you for the partial requirement of the bachelor degree. The report is a relational study as per proposal submitted to you. The title of the report is Performance related pay of BRAC Bank. While completing the project paper and preparing the report, I came to know about many things regarding the current world of banking industry. While preparing the report, I have tried all my bests to contain sufficient materials to have your approval. If you need any clarification, change, or correction of the report or any queries I am always ready to get your kind advice. Sincerely,
S.M.Kamruzzaman

Letter of Authorization

12th April, 2010

Department of Business Administration East West University Dhaka, Bangladesh.

Dear Student

This is authorized to S.M.Kamruzzaman, ID#2005-3-10-001, student of Business Administration department is preparing report on to Performance related pay of BRAC Bank Ltd. Hope you will extend your kind cooperation and all sorts of help regarding this issue. All of your kind cooperation in this regard is highly appreciable. If any type of help, advice or guiding needed, please contact. Ill be happy to help you out.

Thank you.

Dr. Nargis Akhter Associate Professor Department of Business Administration East West University

Executive Summary

. I have worked in two major departments of this bank. Bangladesh Bank Reporting Department and Retail Department of head office. This report mainly emphasis on issues of performance pay of employee, type of pay, why this type of pay, effectiveness of pay and some findings and compare it with present time. Performance pay schemes link pay to a measure of individual, group or organizational performance. There is a wide variety of methods used, but all schemes assume that the promise of increased pay will provide an incentive to greater performance. Many employers are now seeking to sustain their competitiveness through pay increases which are more related to performance measures as a way of absorbing increased labour costs, while at the same time rewarding and motivating employees. To create favourable environment for better motivation of employees and support achievement of organisational goals. Through performance based pay schemes employees are transmitted the message what results and effort is especially expected from them.

TABLE OF CONTENT

Subject: Executive Summery Introduction Background of the Report Scope of the Report Objective of the Report Methodology of the Report Limitations of the Report Company profile Corporate Vision, Mission & Values Strategic Statement Functions & Activity of BRAC Bank Limited Performance of BRAC Bank Limited Organogram of BBL Performance Related Pay Types of performance based pay Objective of Performance Related Pay Benefit of Performance Related Pay Review of Literature

Findings Conclusion Recommendation Bibliography

Introduction
BRAC BANK LIMITED is incorporated as a public limited company on 4th of July 2001 under the company acts 1994 with able leadership of Mr. Fazle Hassan Abed who is the chairman of the bank. BRAC Bank limited a full service commercial bank with local and international institutional shareholding (Shor Cap Intl Ltd., IFC). BRAC bank has been striving to provide best-in-the-class services to its diverse range of customers spread across the country under an on-line banking platform. A fully operational Commercial Bank, BRAC Bank focuses on pursuing unexplored market niches in the Small and Medium Enterprise Business, which hitherto has remained largely untapped within the country. In the last six years of operation, the Bank has disbursed over BDT 7500 core in loans to nearly 200,000 small and medium entrepreneurs. The management of the Bank believes that this sector of the economy can contribute the most to the rapid generation of employment in Bangladesh. Since inception in July 2001, the Bank's footprint has grown to 56 branches, 30 SME Service Centers, 427 SME unit offices and 112 ATM sites across the country, and the customer base has expanded to 465,000 deposit and 187,000 advance accounts till December 2008. In the years ahead BRAC Bank expects to introduce many more services and products as well as add a wider network of SME unit, Retail offices Branches and ATMs across the country.

Background of the Study

The internship program is a requirement to get BBA degree from the department of Business Administration, East West University. As part of my internship program I was assigned to complete my organizational attachment at BRAC Bank Ltd. I started the internship there from January 1, 2010 and after 3 months of practical exposure, under the supervision of Mr. Nahid Kawser Shovo, Md. Akram Hossain of BBL and faculty supervisor Associate Professor, Dr. Nargis Akhter my attachment will be complete on April 10, 2010.

Scope of study:
The scope of the study is limited within Head office of BRAC Bank Limited only and its cover mainly BB reporting and retail related information. But in this report its goes with performance related pay which is related with retail department.

Objectives:

The prime objective of the internship program is to gain practical experience by working in a head office of Bank and thus relate theoretical knowledge with reality. Some other objectives are as follows, To fulfill the requirement of ending activities of BBA program. To have practical exposure that will be helpful in the near future. To gather knowledge about functions and transactions of different departments of bank and comparison of practice based on theory. To loan desk-wise activities in the bank. Gather knowledge and observe activities of various departments.

Methodology of Report:
In order to make the report more meaningful and presentable, two sources of data and information have been used. The present data is being compared with the previous data and

the result being compared with different theories articles and formulas of finance and macroeconomics. Primary Sources are as follows: Personal observation Discussion with banks officers Desk work in different section/division

Secondary Sources are as follows: Different statements of bank Annual report of BRAC Bank Limited Consultation of related books and publications Vouchers, leaflets, loan files, PPG of the bank Files, balance sheet and various documents of BRAC Bank Limited

Data Collection Then the report is based on the internship and regarding on related information. After collecting essential information from employee, I transferred it in MS-word. For the secondary data took the help of Internet, websites, magazines, books & article.

Limitations:
The research report may not show the overall condition of the bank as Head office or may not be a proper representative. There may be a completely different scenario in other branches of other banks. The study has suffered from a number of barriers. Data from BRAC Bank is highly confidential for the outside people. No banks in Bangladesh disclose the opposite partys name in the transaction.

Time is also a big constraint for my research. I have to submit a broader deal in a shorter form of outcome.

It was difficult to communicate with the employee, as many of them were unable to give me much time for interview.

Lack of information

So naturally our research is not up to the standard, as we wanted it to be

Company profile:
BRAC Bank Limited, with institutional shareholdings by BRAC, International Finance Corporation (IFC) and Shore cap International, has been the fastest growing Bank from 2004 to 2007. The Bank operates under a "double bottom line" agenda where profit and social responsibility go hand in hand as it strives towards poverty free enlighten Bangladesh. A fully operational Commercial Bank, BRAC Bank focuses on pursuing unexplored market niches in the Small and Medium Enterprise Business, which hitherto has remained largely untapped within the country. In the last six years of operation, the Bank has disbursed over BDT 7500 crore in loans to nearly 200,000 small and medium entrepreneurs. The management of the Bank believes that this sector of the economy can contribute the most to the rapid generation of employment in Bangladesh. Since inception in July 2001, the Bank's footprint has grown to 56 branches, 30 SME Service Centers, 427 SME unit offices and 112 ATM sites across the country, and the customer base has expanded to 465,000 deposit and 187,000 advance accounts till December 2008. In the years ahead BRAC Bank expects to introduce many more services and products as well as add a wider network of SME unit, Retail offices Branches and ATMs across the country.

BRAC Bank Limited, one of the latest generation commercial banks has started its operation on 4th of July 2001 with a vision to be the market leader through providing all kinds of banking services suitable to the needs of modern and dynamic business in the commercial world. The promoter of BRAC Bank is BRAC the largest development agency of the world rooted in the economy of Bangladesh. BRACs traditional expertise in the field of multifaceted development program has been one of the driving forces behind BRAC Bank. The Bank

draws its strengths from the image of BRAC not only in Bangladesh but also across the globe where it is regarded as a beacon for the development of the economy. BRAC Bank Limited is a commercial scheduled bank operating under banking companys act & companys act extending full range of banking facilities as per the guideline of Bangladesh Bank. BRAC Bank Limited intends to set standards as the market leader in Bangladesh by providing efficient, friendly and modern fully automated on-line service one profitable basis. Since inception, it has introduced fully integrated online banking transaction to provide all kind of banking facilities from many of our conveniently located branches. The goal of BRAC Bank is to provide mass financing to enable mass production and mass consumption and thereby contribute to the development of Bangladesh. BRAC Bank Limited promotes broad-based participation in the Bangladesh economy through the provision of high quality banking services. BRAC Bank will do this by increasing access to economic opportunities for all individuals and business in Bangladesh with a special focus on currently under-served enterprises and households across the rural urban spectrum. BRAC Bank believes that the pursuit of profit and developmental goals is mutually reinforcing. Increasing the ability of underserved individuals and enterprises to build their asset base and access market opportunities will increase the economic well being for all Bangladeshis at the same time, this will contribute significantly to the profitability of the Bank. As a new comer with only three & half years of history to its portfolio BRAC Bank Limited has opened thirteen branches and extending all sorts of banking facilities/services to its customers.

Corporate Vision, Mission & Values:

Corporate Vision
" Building a profitable and socially responsible financial institution focused on Markets and Business with growth potential, thereby assisting BRAC and stakeholders build a "just, enlightened, healthy, democratic and poverty free Bangladesh".

Corporate Mission
BRAC Bank will adhere to highly professional and ethical business principles and internationally acceptable banking and accounting standards. Every BRAC Bank professional will need first of all a commitment to excellence in all that he/she does, a keen desire for success, a determination to excel and a drive to be the best. We will individually and jointly learn continuously from customers and professional colleagues around the globe to improve the way we do business so that we are the best. We will walk that extra mile with enthusiasm and empathy to serve our customers and to solve problems together so that our customers succeed in their business and remain loyal to our Bank. We will set up goals for ourselves and then exceed the goals that we set up. We shall not accept failure. Sustained growth in 'small & Medium Enterprise' sector Continuous low cost deposit growth with controlled growth in Retained Assets Corporate Assets to be funded through self-liability mobilization. Growth in Assets through

Syndications and Investment in faster growing sectors

Achieve efficient synergies between the bank's Branches, SME Unit Offices and BRAC field Manage Continuous endeavor to increase fee-based income. Keep our Debt Charges at 2% to maintain a steady profitable growth Various lines of business in a fully controlled environment with no compromise on service Keep a diverse, far flung team fully the bank's vision into reality motivated and driven towards

offices for delivery of Remittance and Bank's other products and services

quality materializing

Corporate Values
We hold the following values and will be guided by them as we do our jobs Value the fact that we are a member of the BRAC family. Creating an honest, open and enabling environment. Have a strong customer focus and relationships based on integrity, superior service and mutual benefit. Strive for profit & sound growth. Work as a team to serve the best interest of our owners. Relentless in pursuit of business innovation and improvement. Value and respect people and make decisions based on merit. Base recognition and reward on performance. Responsible, trustworthy and law-abiding in all that we do. Value and respect people and make decisions based on merit. Value Our Strength emanates from our owner - BRAC. This means, we will hold the values and will be guided by them as we do our jobs.

following

The fact that we are a member of the BRAC family.

Creating an Honest open and enabling environment.

Have a strong customer focus and build relationships based on integrity, superior service

and mutual benefit Recognition and reward on performance

Strive for profit & sound growth Work as a team to serve the best interest of our owners Relentless in pursuit of business innovation and improvement Responsible, trustworthy and law-abiding in all that we do

Strategic Statement:
growth Continues low-cost deposit growth with controlled growth in Retail Assets Corporate asset to be funded by self-liability mobilization. Growth in Assets through Continues endeavor to raise fee based income Keep our Debt Charges at 2% by continues refinement of Lending Risk Small & Medium Enterprise sector will be the major asset builder Continuous refinement of Lending Risk Management Techniques to continue asset

Syndications and Investment in faster growing sectors

Management Techniques to maintain a steady profitable growth

Achieve efficient synergies between the banks branches, SME unit officers and Manage various lines of business in a fully controlled environment with no Keep a diverse, far-flung team fully motivated and driven towards materializing

BRAC field offices for delivery of Remittance and Banks other products compromise on service quality banks vision reality

Long-Term Strategy:
Summed up in a single sentence, BRAC Banks long-term strategy is to go where the market is. The SME market in Bangladesh is large. The report produced by the shore Bank team, (Ronald Grzywinsky, Mary Houghton and Lynn Pikholz) and the independent consultant, Kaiser Zaman, indicates that the market size would be over hundreds of billions of takas. As a result of the achievements of the micro-credit provider, Bangladesh now has an hour glass shaped banking market in which credit and other limited financial services are valuable to both very large and every small businesses and very wealthy and very poor individuals. While there is well-known informal system that provides credit to businesses, virtually nothing is an available from either banks or micro finance provider to the million the middle-business and individual-who are severally constrained in their ability to produce and save for lack of access to financial resources and services. Until modern, competitive financial services are readily available-including credit in amounts, terms and conditions that small can access, Bangladesh will not be able to create the large middle class that is a prerequisite to social stability.

Functions & Activity of BRAC Bank Limited:

There are 5 (five) different business units that are generating business named as: Small and Medium Enterprise Corporate Banking Retail Banking Treasury Remittance Services

Credit Department Lending is one of the main functions of commercial bank. The success and failure of this department keeps a great influence over the profit & loss of the bank. One of the core functions of commercial banks is to create the claim against individual borrower or real the purpose of sanctioning credit. KYC (Know Your Customer) is also one of the main upper streams for any bank

Roles and Goals

Managing credit exposure Managing credit risk Compliance of the rules of central Bank Compliance the rules of BRAC Bank

 Support corporate and retail divisions regarding credit facilities Collection of overdue of retail loans and advantage

Corporate
BRAC bank offers its customers free access to their accounts through its online facility, which is now available in Dhaka, Chittagong and Sylhet. At BRAC Bank our corporate customers are served by dedicated account managers who understand their specific requirements. BRAC Bank Limited offers the following accounts to our valued corporate customers. Current Account Short Term Deposit Fixed Deposit Savings Account Convertible Account Foreign Currency Account

The corporate banking group would try to serve the financial market of the country with the following objectives ethics To provide and deliver services in a cost effective manner To develop and sustain mutually beneficial customer relationships based on high Maintaining a diverse and quality asset base and pursue a sustainable growth To pursue a management style that contributes to the well-being and development of

quality service and innovative products strategy a fully responsible and accountable workforce under a high corporate standard and business

Treasury
Money Market Desk
BRAC Bank has a strong presence in the Treasury Market in Bangladesh. The Money Market Desk of the Treasury Division mainly deals in Bangladeshi Taka transactions. Activities Management of Statutory Reserves viz. Cash Reserve Ratio (CRR) & Statutory Liquidity Ratio (SLR) Daily Funds & Liquidity Management Investment Management

Products and services

Call/Overnight Lending & Borrowing Term Money Borrowing & Lending Repurchase Agreement (Repo) Treasury Bills (T-Bills)

Foreign Exchange

BRAC Bank Treasury is an active player in the inter-bank foreign exchange market. The Bank deals in all the major currencies i.e. USD, GBP, JPY, CHF and EURO along with other currencies. Our experienced dealers are able to provide very competitive spot and forward prices to our clients. Products & Services Spot Contracts: Transactions widely used by corporate to cover their receivables and payables. Commitment by the Client to sale & purchase of foreign currency against Taka for delivery at the same day to eliminate the possible risk due to exchange rate fluctuations. Corporate can buy /sell foreign currency for genuine transactional purposes only. Forward Contracts: Commitment by the client to buy or sell one currency against Taka at a fixed rate for delivery on a specified future date. The onshore inter-bank forward market remains liquid for 6months.

SRS (Secured Remittance Service)

BRAC Bank has introduced an innovative remittance service for Bangladeshis living abroad with some unique features compared to any of the existing remittance program. Bangladeshi expertise can now send their money to their relatives any where in Bangladesh even to the remotest part within 24 hours at a reasonable cost and competitive exchange rate.

Special Feature

 Countrywide network comprising more than 1100 BRAC offers for payment to the recipients. For the first time in Bangladesh recipient to recipient to receive cash from the nearest BRAC office even without having ay Bank account No need to spend time for DD collection, as it has facility to draw cash instantly from the BRAC field office. Own communication network through advanced electronic media

Performance of BRAC Bank Limited:

The business of banking consists of borrowing and lending. As in others businesses, operational must be based on capital but banks employ comparatively small of their own capital in relation to the total volume of their transaction. The purpose of capital a reserve accounts its primary to provide an ultimate cover against losses on loans and investments. In Bangladesh, there are many types of Banks, which are formed as commercial banks, but above all, BRAC Bank is a new generation private commercial bank who introduces real time online banking at first in Bangladesh. Part of the others lending, BRAC Bank has introduced lending in SME (Small & Medium Enterprise) sector in first time. Other then doing all commercial business activities SME is an additional and specialized horizon of the bank that serves the banks special focus in promoting broad based participation by catering to the small and medium entrepreneur. The network of SME has already been established through out Bangladesh. In year 2004 BRAC Bank Limited made commendable in all business arenas like Deposit, Credit, Fund Management and Investment business and earned NET Profit of BDT. 99,302,749. Below we compare Balance Sheet and Profit & Loss Accounts of BRAC Bank Limited between 2003 & 2004 and come to know the growth rate.

Data Processing: After collection of the raw data using the following computer packages had done editing and processing SPSS MS-Excel MS-Word tables in an analysis Executive committee of the board part.
Board of Director Board of Director

Data Analysis: The classified and tabulated data has been analysis elaborately in a number of
Policy committee Of the board

Organogram of BBL: Board Secretariat/Company

Affairs & Shares

Managing Director
Board Audit Cell

Addl. Managing Director

Credit Committee

Deputy Managing Director

Sr. Executive VP /Executive VP Corporate Affairs Division

Credit Division

Research& Developme nt Cell

HR Division
EVP/VP

Audit and Inspection Division

SVP/VP

Training Institute SVP/VP

Public Relations Division

SAVP/AVP

Logistics & Support Division

Internationa l Division EVP/SVP

Card
Division

Treasury Division VP/SAVP

General Services Division

SVP

IT Division SVP/VP

MB & Investment Division EVP/SVP

Marketing Division SAVP/AV

P

Financial Administration Division EVP/SVP

Organizational Setup at Head Office, Finance Department:

Deputy Managing Director Head of Reporting and Taxation. Senior Asst. Vice Precedent Asst. Vice Precedent Senior Principle Officer Principle Officer

Officer Grade -1

Officer Grade -2

Organizational Setup at Branch:

Head of Branch

Corporate Banking

Credit Risk Management

Credit Administration Unit

Credit Recovery

Performance Related Pay:

An efficient transportation system is essential to facilitate economic growth in Bangladesh . The countrys economy needs to grow at a sustained 7 percent per year to achieve the first goal of the MDGs: that of halving the proportion of people living under a dollar a day by 2015. To achieve this growth, the transport sector will need to reduce costs and allocate resources among different modes of transport in a more balanced manner. Performance pay schemes link pay to a measure of individual, group or organizational performance. There is a wide variety of methods used, but all schemes assume that the promise of increased pay will provide an incentive to greater performance. Many employers are now seeking to sustain their competitiveness through pay increases which are more related to performance measures as a way of absorbing increased labour costs, while at the same time rewarding and motivating employees.

To create favourable environment for better motivation of employees and support achievement of organisational goals. Through performance based pay schemes employees are transmitted the message what results and effort is especially expected from them.

Types of performance based pay:

There are many different forms of performance related pay, which may be used on their own or side by side. Employers may move from one to another. Most common are: Piecework: A price is paid for each unit of output; this is the oldest form of performance pay. Payment by results: Bonus earnings depend on measured quantities or values of output for individuals or groups, usually based on work studied time units; this covers a wide range of bonus schemes. Plant or organization wide incentives: Bonus earnings or pay levels are based on measured quantities or values for the whole establishment. Merit pay: Bonus earnings or pay levels are usually based on a general assessment of an employees contributions to performance; this is an earlier, less structured form of the next system. Performance related pay: Bonus earnings or pay levels are based on an assessment or appraisal of an employees (or teams) performance against previously set objectives, usually part of a performance management system; this is a fairly recent development, particularly in the public sector, which has grown sharply in use since the 1980s. Competence based pay: Reward and training are linked to competency frameworks, based on the worker demonstrating certain skills (eg. Problem solving, decision making, leadership, customer service, dealing with differing views) or achieving certain qualifications.

Profit related pay: Bonus or share options are based on the organizations profit performance; this is widespread in the private sector, where share options are often important for senior managers. Profit related pay has become less common since the government phased out tax relief on PRP schemes. Individual performance based, such as incentive schemes and sales commissions. Profit-sharing, which applies to all or most of the employees. Gain-sharing measured by a pre-determined performance formula, applicable to all or groups of employees. The performance measure may be profit or some other objective, such as productivity. Employee share ownership of the company.

Example:
Average return on money invested in pay for performance programs was 134%. 500 companies reported in the Economist indicated that companies actively using pay for performance programs showed twice the shareholder returns as those who were not user of these programs

Objective of Performance Related Pay:

To clarify objectives and engage employees with the organizations goals To motivate employees by linking pay to achievement of targets not length of service To reward achievement and identify under performance; foster teamwork and fairness. To contribute to overall improvements in productivity; To introduce more flexible pay systems or deal with recruitment and retention problems In the case of some employers, to give greater power to managers and weaken trade union influence in bargaining and representation of staff.

Benefit of Performance Related Pay:

The effectiveness of any pay system depends on many factors. However, there are some problems inherent in all performance related pay schemes: Staff motivation and moral A wide range of research has found schemes less effective than expected. In the public sector this is frequently due to cash limits making rewards for high performance ratings too small to motivate staff. Problems of poor training for managers and inadequate communication with staff have had a negative impact on staff morale. Studies of NHS managers in 1997 and 1998 showed that performance-related pay did not contribute to improve performance but did cause jealousies between staff and undermine moral. (Dowling and Richardson, 1997, Marsden and French, 1998). Fairness Because performance related pay systems are based on appraisal of the individual worker, often by their line manager, bias and personal favoritism can influence the result of pay reviews. Instead of motivating workers, performance pay can undermine performance of both the individual and the organization by undermining team work, encouraging a short term focus and leading people to believe that pay is not related to performance, but to having the right relationships and an ingratiating personality. (Jeffrey Pfeffer, Harvard Business Review, May/June 1998) Discrimination Recent research found that performance based pay systems often discriminate against women because: the appraisal process is subject to gender bias and stereotypes; womens skills are often undervalued by their managers (and by women themselves); womenespecially those working part time-have fewer opportunities for training, and managers are less likely to correctly assess womens training needs.(M.T. Strebler, M. Thompson, P. Heron, Skills, Competencies and Gender; Issues for pay and training, IES Study 333, 1997). Performance pay may run counter to the development of objective, gender neutral job evaluation schemes which are being introduced to achieve equal pay for work of equal value. A study by the Institute of Personnel and Development, found that almost two-thirds of employers had no provision for monitoring sex and racial discrimination in their performance related pay systems

Review of Literature:
The New Economics of Personnel (NEP) stresses the superiority of performance-related pay over time-based pay systems under circumstances in which employees can exercise a good deal of discretion in their jobs and their effort is hard to monitor (Fernie and Metcalf, 1999). It is a powerful theory with important predictions because these conditions apply in a very large number of workplaces. The large-scale switch from time- to performance-based pay in the British public services over the past decade offers an excellent opportunity to test of some of these theories. This article analyses results from the first large-scale study of the effects on performance pay in the British public services to explore its effects on motivation and work relations. In particular, it seeks to establish how far employees judge the new incentives to have motivated them to perform, what they believe have been their effects on workplace cooperation, and how far alternative motivational forces, such as commitment and a belief in work standards are active in sustaining performance levels. Thus a novel feature of our study is to combine questions from the NEP and the Human Resource Management literature on incentives and employee performance. Based on questionnaire surveys of employees and their line managers who appraise performance, our study lacks objective data on output or organizational performance. Nevertheless, both the NEP and the dominant HRM theories, such as expectancy theory, predict that when employees have discretion in their jobs, heir willingness to use it positively, that is, their work motivation, is the chief link between incentives and performance, the other being the ability to recruit higher productivity workers. For a great many jobs in the public services, the NEP would predict that performance pay would give superior results. Teachers, health service professionals, job placement advisers and many tax officials have considerable control over how they work, and in many cases, it is very hard for management to monitor the effort and care they put into their jobs. In this regard, public sector employees differ little from their private sector counterparts. They also resemble private sector employees in that assessment of their performance relies heavily on

subjective appraisal by line managers. In his JEL review of theoretical and empirical work on performance incentives within firms, Prendergast (1999) contrasted the dearth of studies on the effects of incentive pay on such employees, who make up the majority of the workforce, with the large number devoted to CEOs, sports and sales personnel. From the point of view of incentive theory, conditions for public sector employees have become more like those in the private sector in another respect. The break up of large bureaucracies into specialist agencies responsible for the delivery of specific services, each with their own set of performance targets, has reduced the problems posed by conflicting levels of political and management leadership (multiple principals, Tirole, 1994). Finally, as Bewleys (1999) recent study shows, private employers also feel the need to take account of employees sentiments of fairness, commitment and risk aversion when adjusting their pay. Performance related pay (PRP) has been at the forefront of the reform of pay incentives for public servants in the UK since the late 1980s. By the late 1990s, it had replaced pure time-based pay with annual increases based on seniority for most civil servants, and for many in local government and the health service. In schools, head teachers also had a form of PRP, and by the end of 2000, classroom teachers will have their own system. The introduction of a new pay system on this scale offers an excellent test of some of the NEP theories of incentives. Its sheer scale gives an opportunity to assess the effects of performance pay across a wide variety of work environments and occupations. The drive for PRP from central government means that it applied both where local management might have adopted it anyway, such as in the NHS hospital trusts in our sample, and where agency management might, if free, have opted for a different kind of scheme. An example of the latter is the Employment Service whose moves to develop team-working conflicted with individual performance pay. Our study therefore avoids some of the self-selection problems highlighted by Prendergast (1999). The shift to performance pay also has taken place against a common background: that of time-based pay scales containing seniority-based increments. In fact, these were never intended to provide automatic progression up to the top of the pay scale for a particular grade, but as the Megaw inquiry (1982) observed, procedures for withholding increments for poor performance were rarely if ever invoked. In effect, public servants were paid on time rates, independently of their short-term performance. This is reinforced by the

weakness of promotion as an incentive for a great many non-managerial public servants. The National Audit Office highlighted the slow rates of promotion for many in the civil service, for example, 20 years for a newly promoted SEO to reach the next grade up of Principal (NAO, 1989). The de-layering of recent years will have restricted promotion still further. This is also reflected in employee expectations. In the evidence to the Sheehy enquiry on police pay, for example, it was found that over 40% of police officers did not expect to be promoted, despite the rank structure and a strong internal labor market (Touche Ross, 1993). Performance pay in the British public services is mostly consolidated into basic salary so that the accumulation of above average awards can lead to quite big and lasting benefits for individual employees. It is most commonly awarded on the basis of individual performance appraisal, by each employees line manager, against pre-agreed objectives. Given the importance assumed by qualitative aspects of public service performance, appraisal by line managers has been the preferred route, as predicted by the NEP. Nevertheless, line managers are given guidelines about relevant criteria, and about the need to be concrete about performance objectives, not least because the schemes must be defensible if challenged as discriminatory. The organizations covered in this study follow the same broad principles as those elsewhere in the British public services, with one exception. One of the trust hospitals has a trust-wide performance bonus payable to all satisfactory performers if the trust achieves its targets. Since the first performance pay schemes in the Inland Revenue in the late 1980s (see Marsden and Richardson, 1994), appraisal has undergone a sea change: away from evaluation against a standard set of criteria for all employees, and towards setting individual objectives in line with those of the organization as a whole. In many respects, all these schemes have followed the cannons of personnel management best practice at the time as systematized by bodies such as the Institute of Personnel and Development, ACAS (1990), and leading private sector consultants such as Armstrong and Murlis (1994).

Principal-Agent Moral Hazard Analysis of Performance Pay:

The theoretical rationale for performance related pay has been most clearly stated in the principal-agent moral hazard model. The idea can be explained very simply in terms of

Figure 1. For simplicity, assume that employees have discretion over the level of effort they provide, and that they can choose between providing low effort (e1) and high effort (e2). Suppose too that they wish to minimize the effort they exert for a given reward, and that the employer cannot observe effort directly. If the employer offers a fixed wage, then employees will supply low effort. The employer could respond by reducing the wage until it matches the value of the low effort level, but this may not always be desirable for either party. One solution is to link pay to observed output or performance, with a low wage (w 1) for low effort output (e1), and a high wage (w2) for (e2). This allows employees to choose, and the employer can offer a schedule of wages designed to encourage e2. If performance is easily measured and strongly correlated with employee effort this is a fairly simple matter. But in practice often neither relationship is straightforward. This is shown by the dispersion of performance levels associated respectively with the low and high effort levels. The two black (narrow) distribution curves represent the dispersion of output levels associated with each level of effort. As is well known, one might work hard and achieve low output because of lack of suitable training, poor management co-ordination, or other factors outside ones control. Equally, one may be lazy but lucky. With the two black distribution curves, the overlap is small so it is fairly easy for management to discriminate between employees providing the low or the high levels of effort. However, the curves could overlap a great deal more, as do the grey ones, and then it is much harder to determine whether a given level of output, say X, corresponds to low or high effort. In this case, there is a much greater chance that employees who work hard will not be rewarded, and vice versa. The solution, which has received more attention in the NEP literature, has been to use more highly geared incentives, by offering a performance bonus that is a larger percentage of basic salary (eg Lazear, 1999, Ch. 3). In effect, the prize is made larger to compensate for the greater probability of error. An alternative solution, more common in the HRM literature, is to stress the need for improved appraisal systems. Good appraisal can help by agreeing objectives and obtaining better measurement of outcomes, particularly where it is hard to obtain valid objective measures. In the public services, there are severe constraints on the use of highly geared incentives for large numbers of staff for budgetary and other reasons, which places a greater burden on the fairness of appraisals. Difficulty of measuring performance raises a second problem: whether management, which controls performance evaluation, can

be trusted to act fairly. Given the need for a mix of quantitative and qualitative work objectives, there is little alternative to subjective appraisal if a bias towards quantitative outcomes is to be avoided (Holmstrom and Milgrom, 1991). However, it is very difficult for employees to verify the accuracy and fairness of such appraisals at the individual level. Whatever the actual honesty with which appraisals are conducted, our survey illustrates the depth of employee suspicion regarding moral hazard by their employers. Across the organisations we surveyed, it was widely thought that performance pay was a device to cut the pay bill; over 60% thought management applied a quota to good appraisals; around 55% of employees thought they would not be awarded performance pay even if their work was good enough; and over 40% thought line managers used performance pay to reward their favourites1. On the latter two questions, similar results have been found in the US federal service (Milkovitch and Wigdor, 1991). 1 The favouritism question was not asked of head teachers. 4

Finally, Figure 1 brings out the importance of the initial assumption that employees are effort minimizes and will opt for low effort if they think it will pass undetected. That raises the question as to what sustained effort among the majority of public servants before PRP was introduced. Promotion may have been part of the answer, but, as mentioned earlier, for most employees such opportunities are limited. In some kinds of clerical work, clear job

descriptions and well-paced work-flows make sub-standard performance easily detectable by line managers. In contrast, where employees have a lot of discretion, as is the case for many public servants, a mixture of organizational commitment, a belief in professional work values, may counteract such tendencies.

Measuring the Effects of PRP on Work Behavior and Attitudes in Public Services:
In this paper, we consider three main kinds of impact of performance pay: on motivation, on work relations, and on communicating management objectives. They correspond to different aspects of the performance outcomes sought by the use of incentive pay: giving employees greater incentive to provide higher levels of effort; encouraging more flexible working and team work; and redirecting employees effort towards new goals that management wants them to achieve.

Motivation:
We interpret motivation as the willingness to undertake certain kinds of action, but we also ask about public servants agreement with the principle of performance pay, and whether they believe it rewards good work. Particularly important in the principal-agent analysis, but also in the views of management expressed to us in our interviews, was the willingness of staff to use their work discretion to the benefit of the organization. We focused on whether staff felt PRP gave them an incentive to work beyond the requirements of their jobs, and to show more initiative in their work. Agreement with the principle implies accepting its legitimacy as an ex ante incentive, in keeping with the principal-agent analysis. Agreeing that it rewards good work captures a different nuance: that one appreciates the ex post recognition by ones boss, and this might appeal more to those attracted to the intrinsic satisfactions of their work which might be especially important in health and education services (Deci and Ryan, 1985). 5 Work relations

In much of the public service, a high degree of cooperation between employees is needed for efficient working. Indeed, management has sought to encourage greater team working. We therefore asked employees whether, in their experience, performance pay caused jealousies among staff; whether it undermined team working; whether it improved cooperation with management; and whether management operated a quota on good assessments. The first two would be outcomes of PRP that inhibit more flexible work organization. Likewise, willingness to co-operate with management becomes more important the greater the amount of discretion employees have in their work. Finally, whether management operates a quota on performance pay and performance ratings can be interpreted as an indicator of trust in higher management. In fact, in the Inland Revenue higher management instructed line managers not to apply a quota, and the Employment Service scheme, like that of the trust wide bonus hospital, had no place for a quota of any kind. Only the hospital using individual PRP used a standardized distribution. Communicating objectives Over the past decade, there has been considerable devolution of public management towards specialist agencies, hospital trusts and local management of schools. One reason has been to enable management to formulate objectives closer to the point at which public services are delivered than previously. In all the organizations we studied, there was strong emphasis on formulating clear organizational objectives and communicating these to individual employees, together with a view that performance appraisal was a natural focus for this. The more discretion employees have, the more important it is that they are aware of organizational objectives. We therefore asked whether employees believed that PRP had raised their awareness of their organizations objectives.

PRP and employee willingness to work beyond job requirements:

Turning to the willingness of staff to use their work discretion positively, receiving above

average performance pay has a strong positive effect. Indeed, this was one of the consistently strong coefficients to emerge, holding across four of the five measures of positive performance effects. The question of objective setting and work measurement is critical. If employees believe PRP has led managers to set work objectives more clearly, then they are more likely to respond positively on working beyond job requirements and using initiative. Likewise, if they believe their work is hard to measure, then they respond negatively. Closely related is whether employees believe there is an appropriate standard of performance which they should achieve. This might be an internalized belief about work levels, or stem from professional work norms, but either way, it suggests a degree of conflict with management over the determination of work standards in connection with PRP. The link with professional norms was confirmed in a separate logic analysis, based only on organizational, occupational and biodata variables. That showed that professionals and those in professional bureaucracies were more likely to respond that performance was difficult to measure and that PRP did not motivate because employees already worked to an appropriate standard. What is the strength of the financial incentive relative to the other factors measured? As is well known, legit regression coefficients tell us the change in the log of the odds 4 that a person will work beyond job requirements for a unit change in the independent variable. This cumbersome concept can be made simpler by taking the exponent: the proportionate change in the odds arising from a unit change in the independent variable (Table 4). Values of less than one imply a decrease in the odds. Thus in moving to above average PRP increases the odds by a factor of 1.8. Because the mean values of the independent variables differ, it may be felt preferable to compare elasticity. These relativist the effect of getting above average performance pay: although still strong, it is considerably less so than the other variables. However, elasticity for binary and five-point scale variables are far from ideal, so a final check on the relative strength of each variable was done by computing logit coefficients for all of them measured as binary variables. This involves some loss of information, but it (4 The
odds are used in their strict sense here to refer to the ratio of the probability of the event occurring to its not occurring.

10 shows that the effect of getting above average performance pay is probably

weaker than the beneficial effects of setting work targets more clearly, and is of a comparable

order of magnitude to the negative effects of unfair appraisals and perceived measurement difficulties.

Performance pay and workplace cooperation:

The most devastating evidence of the malfunctions of PRP in the public services are to be found in the effects on divisiveness and cooperation among colleagues and with management. It was this evidence that a recent government report cited as showing that the current civil service PRP schemes were ineffective and discredited (MacKinnon, 2000: p2). The key factors likely to intensify perceptions of jealousies and divisiveness (that PRP undermines team working) were: a) poor target setting by line managers, b) the belief that even if one performed well one would not get a good appraisal, c) that line managers do not know ones work well enough to appraise fairly, and, very strongly, d) the belief that ones work is hard to measure. Willingness to co-operate with management, and employee trust in their fair dealing, were additionally undermined for those who thought their last appraisal had been unfair. The incentive effects of getting above average PRP did nothing to reverse this. There are two main reasons why PRP should cause jealousies, and why it should undermine relations with management. The first has to do with the transition to a new pay system in any organisation, and the second, with the difficulty of drawing the line between those who get PRP, and those who do not. When any new pay system is introduced in a brown field organisation, there are likely to be both winners and losers. The more losers there are, the greater the likely opposition, but equally, the more winners, the more costly is the whole system to management. The usual way out of this dilemma is to make transition to the new system voluntary for incumbent employees, and wait for the old system to wither as older employees leave or retire, and younger ones are promoted, the condition for which is often to move onto the new system. This was the method adopted in the trust hospitals, but not in the civil service, and is likely to have caused some jealousies between those on the new and the old systems.

The second problem is more fundamental, and concerns managements ability to justify why some employees get higher PRP awards than others. If everyone agrees that the appraisal system deciding the allocation of PRP is fair and honest, then it may be relatively easy. Cropanzano and Fulger (1991) show that employees are more likely to accept unfavourable ratings if they believe the appraisal process is fair. But if appraisals are poorly done, or managers lack good enough information, or they are thought to be biased or open to negotiation, then it can be hard to justify awarding only a standard appraisal rather than a good one. Examples chosen to explain tournament theory often compare extremes, such as between the manager who achieves only modest profit figures while turning round an unprofitable plant compared with one who gets good profits on an easy one. However, the difficulties of awarding PRP do not lie between the extremes, but rather, in dealing with the borderline cases. If we assume performance is normally distributed, then few workers are either extremely good or extremely bad performers, and most cluster around the borderline between satisfactory and good. As a result, line managers much more often face the task of explaining why they rate one employees performance good and anothers only satisfactory. Unlike academic examiners, line managers rarely have the luxury of anonymous double marking and examination boards to protect them, and mostly they have to continue working with the disappointed employee afterwards. It is enough of a problem if the feeling of injustice arises only from imperfect monitoring, but our research suggests that many employees were distrustful of managements motives. Many thought that PRP was about cutting labour costs, that management operated a quota, and that many line managers used PRP to reward their favourites.

Performance Outcomes, Professional Standards and Commitment:

Our study, therefore, highlights both that some employees find PRP motivates their performance, especially those getting above average payments, but a larger number experience its effects in a deterioration of workplace relations and cooperation. The latter effect shows the importance of how incentive systems are operated, and their effect on employees perceptions of fair treatment. In the public services there are limits on how far greater uncertainty of reward can be compensated by increasing its size. So the obvious route

if PRP is to be retained is to reduce the noise in the relationship between effort and assessed performance, narrowing the dispersions shown in Figure 1. The second conclusion concerns the role of commitment and prior work values in sustaining performance even though employees believe the incentive system is unfair. Following the principal-agent moral hazard analysis, one would expect employees to respond 12 in two ways when faced with an incentive system they feel is unfair. Our study found evidence of both. Employees might begin to bargain over their work objectives, and they might start gaming behaviour, for example, manipulating performance data. Both are potentially very destructive to the goal setting functions of performance appraisal. In the Inland Revenue, where we asked the question, about 40% of employees thought that employees exceeding their work targets did so because they were clever at negotiating easy performance agreements. Over 55% said that in agreeing their objectives they were more concerned to avoid a bad appraisal than to achieve a good one. Shortly after our survey, the Guardian newspaper reported a series of scams in the Employment Service, mis-reporting and double-counting job placements, which it estimated could have inflated placements nationally by up to 30%5. It seems that the grey area concerning whether a placement should be logged as successful, and so counting towards ones targets, had flipped from being a minor abuse, tolerated by management to help employees meet their targets, into serious over-reporting by both staff and management. The event was serious enough for the then government to launch an internal inquiry although its results were never made public. In both examples, the lack of faith among employees in the systems fairness seemed to transform an essential tool of good management - communicating work targets to employees - into a numbers game. In view of these dysfunctions one might expect real, as opposed to measured, productivity to have collapsed. A number of indicators suggest that it did not fall, and may even have risen. Our discussions with senior managers in the Inland Revenue and the Employment Service, who will have had access to internal performance benchmarking data, and with the unions, indicated that productivity had risen, and particularly in the Inland Revenue, there had been quite large cuts in staff without corresponding cuts in the organisations workload. Both trust hospitals did well on the NHS performance indicators. We have no hard data on schools,

but all the Teachers Review Body evidence points to sustained high workloads. We also have the evidence from line managers who conduct appraisals, and who were included in the sample. Between a quarter and a half believed PRP had led employees in their organisations to work harder, and a smaller percentage, believed it had increased work quality. Although there was a larger percentage of disagrees, they would include no change.

Findings of Study:
It is a great pleasure for me to have practical exposure in BRAC Bank Limited because without practical exposure it couldnt be possible for me to compare the pay and other related issue of bank There are number of commercial banks operating their activities in Bangladesh. The BRAC Bank Limited is a promising one in them. Sustainable profitable growth continue, to be prime objective and is fundamental to our success in that variable incentive pay what we call Performance Based remains as one of the key initiative for rewarding our employees based on their individual contribution to team performance also in individual performance. Learning from our experience, we have redesigned that their performance based pay policy to create a stronger and focused link between employees performance and banks business results which highlights our profit growth targets without losing sight on other growth priorities. This report will help us to know better about this factor.

Conclusion:
An evaluation of the Bangladesh Bank Reporting Department and Retail Department was the basic concern of my study and I completed this report on this basis Retail Department of BRAC Bank Limited. A retail loan files evaluate & approved by this department before disbursed a loan. Day by day, BRAC Bank increasing its business, that reason BBL approved

more loan files everyday to its retail customer and my study was find out the percentage of their performance pay and include it with their basic pay , it is the only one portion of my work, thats why I prepare report on about this. Banks always contribute towards the economic development of a country. BBL compared with other banks is contributing more by investing most of their funds in fruitful projects and risk free individual. It is obvious that the right thinking of the bank including establishing a successful network over the country and increasing resources, will be able to play a considerable role in the portfolio of development of financing in the developing country like ours. BRAC BANK Equipped with all modern banking facilities, the bank is expanding its activities more rigorously than ever, Our aim is to grab the position of number one bank in Bangladesh within a very few years," a statement from the management of BBL. Robust presence in the SME, institutional shareholdings along with public, broad business focus, tech savvy culture of banking operation, thrust on human capital development, young and vibrant management, strong corporate social responsibilities

Recommendation:
BRAC Bank Ltd provide their employees based on their individual contribution to team performance also in individual performance on basis their basic salary. Some employee get one times, some get two and half times and who perform excellent, get six times of his basic pay. But its a matter of great regret that the salary and performance pay of BBL is not so much attractive rather than other commercial bank of Bangladesh. So it is highly recommended to review their salary structure. But other facility and work environment is satisfactory.

Bibliography:
Zikmund William G., 2003, Research Methodology, 7th Edition, South-Western Publisher. Essentials of services Marketing, Concepts, Strategies, & cases. K.Douglas Hoffman, John E. Bateson. 2 nd Edition. Malhotra Naresh K., 2004, Marketing Research, 4th Edition, Person Education. Bateman, D. N. (1977), The employees' rights to know the issues and the corporations' responsibility to communicate, Journal of Business Communication, Vol. 14, No. 2, pp. 3-9. Bhagat, R. S. (1982), Conditions under which stronger job performance-job satisfaction relationships may be observed, Academy of Management Journal, Vol. 29, pp. 772-789. www.thedailystar.com www.financialexpress.com www.bracbank.com www.salary.com www.jstor.org.