Rewarding Good Performance at a Bank

The performance of a bank branch manager is often difficult to measure. Evaluation can include such variables as loan quality, deposit growth, employee turnover, complaint levels, or audit results. However, many other factors that influence performance, such as the rate structure, changes in the market area served by the branch, and loan policy as set by senior management, are beyond the branch manager's control. The appraisal system presently used by First Trust Bank is based on points. Points are factored in for a manager's potential productivity and for the actual quality and quantity of work. In this system, the vast majority of raises are between 4 and 10 percent of base salary.

Sales growth is a major responsibility of a branch manager. Although many salespeople are paid a salary plus bonuses and commissions, no commissions are paid on business brought in by a branch manager. Therefore, one problem for the bank has been adequately rewarding those branch managers who excel at sales. In May 1999, First Trust Bank opened a new branch on North side Parkway, located in a high-income area. Three competing banks had been in the neighborhood for some 15 years. Jim Bryan, who had grown up in the North side Parkway area, was selected as branch manager. In addition to Jim, the branch was staffed with five qualified people. Senior executives of the bank had disagreed about the feasibility of opening this branch.

However, it was Jim's responsibility to get the bank a share of the market, which at that time consisted of approximately $28 million in deposits. After one year of operation, this branch had the fastest growth of any ever opened by First Trust Bank. In 12 months, deposits grew to $6 million, commercial loans to $1 million, and installment loans to $0.5 million. As measured by Federal Reserve reports, the new branch captured 50 percent of the market growth in deposits over the 12 months. The customer service provided was extremely good, and branch goals for profit were reached ahead of schedule. Aware of the success, Jim looked forward to his next raise. The raise amounted to 10 percent of his salary. His boss said he would like to have given Jim more, but the system wouldn't allow it.

QUESTIONS

1. Should Jim have been satisfied with his raise since this was the maximum raise the system allowed?

2. Do you think the bank currently offers adequate sales incentives to its branch managers? If not, what would you recommend?