Hi Anjali

In the recent times, you can very well see that the Public sector banks have started implementting the Variable Pay system - some of the recent news columns authenticate the same, where the VP is getting incorporated into the salary of Bracn Managers and above where the objective assessment of performance is relatively easier t perform

As everybody reiterated, the success of the VP system lies in the objectivity and transparency levels of the PMS in an organization. Defining performance and most importantly the performance mesausres and matrices are expected to be holding the keys to the successful implementation of any VP

VP - can be designed using various components - individual performance, team performance and organizational performance or a combination of more than anyone of them.Linking performance and pay with the organizational performance will be the difficult task to perform. This requires integration of individual performance aligned to the organizatinal objectives

The following are imperative in a succesful VP

1. What is performance - Definition

2. How is measured - Matrices

3. Who is measuring - Authority (transparency comes into picture here)

4. How is performance differentiated ( scales of measuring - objectivity)

5. How is pay distribution happens

6. How is employee communicated

All the best

Rajesh B

From India, Bangalore
Hi Anjal
Your study on this topic is really good.
I feel that the differential pay should be linked to the benchmarked parameters in all the areas of appraisal.
And the pay structure should have a percentage system based on the parameters.This amount should comprise of certain percentage of their salary so that this amount can be fixed and on this amt the differential pay can be calculated as per the parameters.
For example, for a salary of 20,000 it will be ideal to take 10% or 2000 or any other percentage as differential pay and take appraisal of the parameters and the pay be worked for this amount.
This kind of structure along with compensation will be ideal,So that the performnace will be on track records.
Pradeep Kumar

From India, Hyderabad
We should see the both sides of coin and comments on the issue. Why Central/state Govt adopted such type of increment policy? You should think on indian culture/environment where socio-economical factors are dominants. I think that ur idea is very good for Russia, USA, England etc.. where such type of factors are in controlled. In our country, social, regional, cultural, polical etc.. factors compells the authority to take the wrong decision even they think that it is not good but they become helpness. Keeping in mind of this influential factors, Govt has taken such type of decision. In nutshell, It is the only a way in Public sector otherwise influential person will be benefited every time.
Note: Against my view, other opinions are most welcome. You can write on

From India, Bangalore
Hi there,

You have a hugh task ahead of you and I will share some of my views with you with the thought that this may spark some ideas which will work for you.

Executives graduated from business schools over the past twenty years have been trained to manage by assessing a business in terms of performance metrics. How effective are these management professionals in a business environment lacking these work management tools?

How effective would physicians be in providing patient care if they lacked access to lab tests, x-rays and other tools for diagnosis. What if they had to "guess" the patient's vital signs?

To develop the performance metrics and to develop the performance standards necessary to keep your business healthy requires that the major work functions in every department be identified as to volume and it must relate to time. Most simply stated, WORK NOT MEASURED CANNOT BE MANAGED.

To underscore this crucial issue, pose this exercise to senior managers at your next management meeting:

Take the next fifteen minutes and write down the following information for each department or work unit that reports to you:

• What is the "measure" of work (# invoices files, # holes drilled. # phone calls, etc.)?

• What is the hourly or daily volume?

• How much time is required to complete each unit of work?

Make sure the managers do not try to explain the "process" (the first thing that happens...etc.) of how the work is being done, just the quantities.

Collect the data from each manager. Then ask them to actually gather the hard data from each department or work unit supervisor. The exercise is completed when the two sets of data are compared. The variance involved may illuminate a pot of gold!

Ironically, successful businesses are coping with the demands of the future not with new or more sophisticated theories of management. but by getting back to the basics. They are returning to those ingredients that made the business successful in the first place; QUALITY, SERVICE and EFFICIENCY. All three can be achieved simultaneously only by establishing performance standards and using performance metrics to ensure the standards are being met.

One must also consider the voice of the customer and how both internal and external clients view the performance. Perhaps using a customer score card would assist in determining the performance through the eyes of those who keep the business profitable. There have been many posts on 360 degree feedback which is another thought.My personal view is this is tough to implement unless there is an internal culture of trust, growth and the process can be fraught with dishonesty and pleasing the boss.

Like others I could go on and on expressing my views.The one thing I can say for certain....Pay for Performance will only work when there is support from the top, is supported by strong HR processes and methodology and if new to an organization, treated as a change management initiative so that everyone can reflect on WITFM( what's in it for me).Employee buy in will make or break!

The danger, I think is to treat this initiative as a stand alone.It can not be as all the processes discussed in this forum are critically interlinked and contribute to Human Resources management as a value added business process.

Hope you may be able to use some of my ranting to spark some ideas.




From Canada, Ottawa
It is in fact an intersting topic. Usually the MD/Directors will decide how much to be paid as performance linked pay, as per the budget.
Then the kitty has to be shared. Now HR has to play an important role. How to share- based on the performance? if so what is the gap between the reward for poor performance & good performance. If you have a kitty of Rs. 100 to be shared between A & B, A's perofrmance level is 25%achivement of target & B's is 50% of the target. You can now share this Rs.100 like- A-40%, B-50%. or A-25%, B-75% .
It is HR's work to find out the 'differentating factor' through discussions and analysis.
You can create your own formula. Hope you got an idea ..

From India, Madras
Dear friends,
In Hospitals like us, how can we measure the performance? We can do it in admn. areas, but for medical & paramedical areas which includes treatment & therapy like nursing, laboratory, pharmacy, physiotherapy, radiology where the satisfaction level of the patients differ from person to person and mostly it is subjective and qualitative.
In such case, how we can introduce this kind of a system.
Kindly throw some light on this whether any health sector which take care of inpatients and outpatients (hospitals) do this.

From India, Chennai
hi! everyone
i'm a PGDM student doing my summer training on topic training process-
so i need material and i want to know abt training calendar how it is designed?training need analysis process,how training needs are identified...
plz send me pdf files or some relevant matreial to make my concepts clear....
i'll will be highly obliged.

From India, Delhi
Hi Anjali,

To develop a variable linked pay its important as suggested by many that the KRAs be well defined and based on the goals set and goals achieved comparison the variable component be paid.

Now to develop the KRA its important to understand that what is the purpose of a particular employee's job.

For example the branch head's overall job purpose is to deliver profitability of the branch.

One of his KRA should be based upon the profitability of the branch, apart from other KRAs, so his variable pay should depend on the performance of the branch.Its true that branch profitability depends upon team performance but then he would drive the team to perform well or perform average depending on his leadership style,so his performance would be measured upon branch profitability and does not matter if its come through team performance coz he's the one who has driven that right?

This profitability could be transformed to variable pay through pre-determined calculation wherein for this much % increase in branch profit would mean this much % increase of the fixed or basic pay of the branch manager.

This same way can be cascaded to other employees.To start with the profit center heads can be brought under the variable scheme and later on the lower grades.This way the change could happen gradually and so be accepted.

To put variable pay in place its important that a good appraisal system is in place coz Variable Pay is directly linked to performance,so this would mean cultural changes in PSUs.

Well this would also mean many people would have to wake up and perform! which is generally the objective of Variable Pay.

This particular piece of write-up posted by me is open for scrutiny by you all!

Thanks and All the best for your project!


From India, Mumbai
Hello Anjali,

First of all, congrats for taking up a complex project.Your project is the need of the hour in the market now and your approach has been spot on.

Though I am neither into HR nor into Banking industry, I would like to pass on the information that I have on the subject.

I am working as Manager- Business Development & International Alliances in a Software firm based in Mumbai. We have implemented Variable pay structure. The same structure might not help you out but the approach might.

As you have already mentioned, 1st step is to find out the parameters/KRAs of the person then plan variable pay accordingly.

I have tested 2-3 approaches. Here are those

1. The 1st approach is:-

-The variable component is only applicable based on cash flow generated.

-Achievement of upto 50% of target will yield 0% of cash flow generated.

-Achievement of upto 75% of target will yield 2% of cash flow generated.

-Achievement of upto 100% of target will yield 3% of cash flow generated.

-Achievement of 100% or above of target will yield 3.5% of cash flow generated.

In case banks, this will not work on cash flow. You can devise some other parameters rather than cashflow.

This amount can be given monthly or quarterly.

2. Keep a fixed amount as variable pay. E.G from someone's CTC of 7.2 lacs/Annum, 6 lacs/Annum is fixed and 1.2 Lacs/Annum is variable.

Whatever percentage the employee will achieve out of his KRAs, he will get that much percentage of 1.2 Lacs.

3. You can also give variable pay out of profits. You can have some percentage of total profit assigned to variable pay and each employee can have the respective % of that amount as per the KRAs

4. This is the one that we planned to do, but did not get good feedback.

Keep 10% of gross salary as variable component each month. After the end of the quarter, give rating for the KRAs. Find out the percentage and give that much out of this variable amt.

e.g- Gross Salary- 20k/month

Variable pay-2k/month

At the end of the quarter, you can pay % of 6k as variable pay as per KRAs. Employee will be motivated to get that whole amt after each quarter if he performs well.

Let me know, if this helps you or you need any other help. Feel free to contact for any other information. I can recollect my Project days during MBA :)



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