compensation report on habib bank

COMPENSATION SYSTEM OF HABIB BANK LIMITED

PREPARED BY: Umair shabeer 19452


Table of ContentsDATA COLLECTION..................................................................................................................................3

INTRODUCTION TO HBL.........................................................................................................................4

Company Description:............................................................................................................................4

Brand of HBL:...........................................................................................................................................4

Vision of HBL:...........................................................................................................................................4

Mission & Mission statement of HBL: ............................................................................................4

Values of HBL:..........................................................................................................................................4

HISTORY OF THE COMPANY...................................................................................................................5

BOARD OF DIRECTORS...........................................................................................................................6

INTRODUCTION OF HUMAN RESOURCE MANAGEMENT DEPARTMENT OF HBL..........................7

1.SELECTING AND RECRUITING:..............................................................................................................7

2.TRAINING AND DEVELOPMENT:...........................................................................................................7

3.PERFORMANCE MANAGEMENT AND APPRAISAL:................................................................................7

4.COMPENSATION:..................................................................................................................................8

5. Employee relation:...............................................................................................................................8

COMPENSATION SYSTEM OF HABIB BANK LIMITED.........................................................................9

BASES FOR PAY........................................................................................................................................9

Merit pay plan.....................................................................................................................................9

Incentive Pay Plans..............................................................................................................................9

Person-focused Pay Plans.................................................................................................................10

DESIGNING COMPENSATION SYSTEM...................................................................................................10

Internally consistent compensation system......................................................................................10

Job Description and Job Evaluation--- Tools for internal consistency................................................10

Market Competitive Compensation System..........................................................................................11

Designing Compensation Policies..........................................................................................................11

Employee Benefits.................................................................................................................................12

CONCLUSION.............................................................................................................................................13

LIMITATIONS...........................................................................................................................................14

RECOMMENDATIONS.............................................................................................................................15

PERFORMANCE APPRAISAL FORM.............................................................................................................16

APPENDIX:..............................................................................................................................................18

SUKKUR INSTITUTE OF BUSINESS ADMINISTRATION


DATA COLLECTION

Data for this reportis collected by conducting face to face/direct interview from Shabir Memon;Branch manager of HBL Sukkur branch and telephonic interview from Adnan Rehman.So,we are heartily thankful to Shabir Memon and Adnan Rehman for their support to our work.



INTRODUCTION TO HBL

Habib Bank Limited commonly referred to as "HBL" and head-quartered in Habib Bank Plaza, Karachi, Pakistan, is the largest bank in Pakistan. The bank has a network of 1425 branches in Pakistan and 55 branches worldwide. It has a domestic market share of Over 40%. It continues to dominate the commercial banking sector with a major market Share in inward foreign remittances (55%) and loans to small industries, traders and Farmers. Overseas, it has operations in the following countries: Afghanistan, Australia, Bahrain, Bangladesh, Belgium, Canada, China, France, Hong Kong, Iran, Kenya, Lebanon, Maldives, Nepal, Netherlands, Nigeria, Oman, Singapore, Sri Lanka, Turkey, UAE, UK & USA.

Company Description:HBL is a Banking Company, which is engaged in Commercial & Retail Banking andRelated services domestically and overseas.

Brand of HBL:HBL says “Our brand identity is the outward expression of what we stand for as an Organization. This is summarized in our vision, mission and is supported by our values.”

Vision of HBL:“Enabling people to advance with confidence and success”

Mission & Mission statement of HBL:To be recognized as the leading financial institution of Pakistan and a dynamic International bank in the emerging markets, providing our customers with a premium set of innovative products and services, and granting superior value to our stakeholders – Shareholders, customers and employees. “To make our customers prosper, our staff excel and create value for shareholders”.

Values of HBL:HBL’s values are the fundamental principles that define its culture and are brought to life in its attitudes and behavior. It is company’s values that make its unique and unmistakable. Company values are defined below:· Excellence· Integrity· Customer focus



· Meritocracy· Progressiveness

HISTORY OF THE COMPANY

Mohammed Ali Jinnah, Pakistan's founding father, realized the importance of financial intermediation while he was campaigning for the creation of a separate homeland for the Muslims of India. He persuaded the Habib family to establish a commercial bank that could serve the Indian Muslim community. His initiative resulted in the creation of Habib Bank in 1941, with HO in Bombay (now Mumbai), and fixed capital of 25,000 rupees. The bank played an important role in mobilizing funds from the Muslim community to finance the All-India Muslim League's campaign for the establishment of Pakistan. Habib Bank also played an important role in channeling relief funds to the people hurt in the communal riots and violence that preceded the departure of the British from India. After Pakistan was born in 1947, Habib Bank, at the urging of Governor-General Jinnah, moved its headquarters to Karachi, Pakistan's first capital. This gave Karachi its first commercial bank of the newly formed Islamic Republic of Pakistan. HBL was incorporated on 25th August 1941 and operated in the private sector until its nationalization in 1974. HBL has been approved for privatization and the privatization commission has selected a Financial Advisor to prepare a comprehensive plan and assist in the sale process. The government has appointed a professional management team to restructure the bank and to recover and clean it’s doubtful and classified portfolio.



BOARD OF DIRECTORS

Sultan Ali Allana Chairman

Nauman K. DarPresident & CEO

Moez JamalDirector

Sajid Zahid Director

Dr. Najeeb Samie Director

Mr. Shaffiq Dharamshi Director

Agha Sher Shah Director



INTRODUCTION OF HUMAN RESOURCE MANAGEMENT DEPARTMENT OF HBL

HUMAN RESOURCE MANAGEMENT STRUCTURE

The HRM department plays an important role in value of any company. HBL has veryActive and one of the best HR department in Pakistan as well as worldwide. The structure is as the President is assisted by ten Senior Executive Vice-Presidents and a staff of 29 Executive Vice Presidents, 154 Senior Vice Presidents, 420 Vice Presidents, 831 Assistant Vice Presidents, 2350 officers Grade-I, 4108 officers Grade-II, 3364 officers Grade-III and 10658 Clerical/Non-Clerical employees.

HR manual contains five processes1. Selecting and Recruiting2. Training and Development3. Performance Appraisal4. Compensation5. Employee relation

1.SELECTING AND RECRUITING:

The recruitment and selection process starts with employment planning. This process of deciding what positions the firm will have to fill, and how to fill them. Personnel or employment planning embraces all future positions, from maintenance clerk to CEO.

2.TRAINING AND DEVELOPMENT:

Training is the process of teaching new employees the basic skills they need to perform their jobs and development is result of that training.

3.PERFORMANCE MANAGEMENT AND APPRAISAL:

Evaluating an employee’s current and past performance relative to its performance standards is called performance appraisal. A process that consolidates goal settings, performance appraisal, and development into a single common system to ensure that employee’s performance is according to company’s aims is called performance management.



4.COMPENSATION:

Compensation refers to both intrinsic and extrinsic rewards employees recieve for performing their jobs.Compensation is a tool used by management for a variety of purposes to further the existence of the company. Compensation may be adjusted according the business needs, goals, and available resources.

5. Employee relation:

Employee Relations involves the body of work concerned with maintaining employer employee relationships that contribute to satisfactory productivity, motivation, and morale. Essentially, Employee Relations is concerned with preventing and resolving problems involving individuals who arise out of or affect work situations.




HBL`s focus on attracting,developing and retaining their emlpoyees by offering market competetive compensation system.HBL has well established and one of best compensation system in Pakistan.

BASES FOR PAY

Different companies use different bases for pay like some use senority pay and some merit pay. HBL follows Merit pay plans that are based on performance evaluation of employees. In addition to that, incentive plans are also offered on the bases of behavioral encouragement plans and along with that person focused pay is also considered. The objective of person focused pay is to compensate employees for their knowledge, skills and competencies require for particular job.

Merit pay plan

Merit pay plans can be defined as pay increses based on performances.HBL perfer merit pay to motivate future performance because they give merit pay for excellent efforts or results.HBL`s gives merit pay with addition to fixed salary to its employees .Companies uses different performance appraisal methods like trait charactertic,behavorial ,goal oriented etc to check performance of emlpoyees for merit pay.in same manner HBL also do performance appraisal of its employees.At HBL behavorial system for performance appraisal is used.Behavorial system rate employees on the extent to which they display successful job performance behaviors.But these performance apprisal system may vary as per postion but for majority of postion/posts HBL uses behavorial system for performance appraisal.HBLuses number of deposit for apprisal of employees;greater the number of deposit higher the rewards. Sometimes,number of deposits are set to be achieved by employee and if any employee exceed set target then he/she is rewarded more than those who have not exceed the given target. Performance appraisal at HBL at the end of year in December by supervisor of given postion./post.Supervisor are given performance apprisal form and they have to fill for each employee working under them.Performance appraisal form are given at the end of report.

Incentive Pay Plans

Incentive or variable pay is defined as compensation,other than base wages or salaries,which fluctuates according to employees`attainment of some standard,such as a preestablished formula,individual or group goals,or company earnings.incentive pay are one time payment for attaining some standards.Incentive pay plans are divided into three categories,

1. Individual incentive,2. Group incentive,



3. Company wide incentive.

HBL also gives incentive on individual basis.and these individual incentive are based on behavorial encouragement plans.under behavorial encouagement plans employees recieve payment for speific behavorial accomplishments like good attendance etc.At HBL group incentive are also given.And these group incentives are given on team base like if any team completes a project of HBL then all members of groups will be given financial reward for completing project successfully.

Person-focused Pay Plans

Person focused pay plans generally reward emplyees for acquiring job related competencies,knowledge or skills rather than for demonstrating successful job performance.With addition to merit and incentive pay HBL also use person focused pay palns for rewarding its employees.HBL specially use person focused pay to keep their employees up to date with new software relating to banking sector or acquiring new knowledge/degrees like HBL rewards employees for doning MBA/ACCA etc,HBL mainly gives person focused pay on educational basis like doing MBA etc.HBL uses person-focused pay because it thinks that through person-focused pay plans everyone will start working and try to learn new skills that will help HBL to achieve its long term goal.

DESIGNING COMPENSATION SYSTEM

There are certain aspects that must be considered while designing compensation system for any organization. These aspects are:

Internal consistency in compensation system Market competitiveness in compensation system Employee contribution in pay structure

Internally consistent compensation system

Internally consistent pay system defines the relative worth of each job within a company on the bases of which job structures are designed. It is due to internal consistency that makes easier for the compensation manager to identify the differences in jobs in terms of compensable factors and set the pay accordingly. HBL consider internal consistency as a core factor before setting pay design for particular job. The reason is to bring a balance among all jobs in terms of valuing them.

Job Description and Job Evaluation--- Tools for internal consistency

In order to have internal consistency HBL has job descriptions that define the required skills knowledge and abilities for particular job along with job related tasks, responsibilities and duties.



Along with clear job descriptions HBL uses job evaluation techniques for bringing internal consistency with in company. HBL uses both job evaluation techniques that are market based evaluation and job content evaluation for the jobs of only top management. The reason they do not follow the same pattern for all jobs is that after 2006-07 hierarchical structure of HBL was changed. They have not upgraded the whole evaluation system till now due to that hierarchical transformation and evaluation of top management jobs has become possible up to now.The most common compensable factors HBL consider for evaluation are skills and knowledge of employees related to particular job.

Market Competitive Compensation System

Market competitive compensation system represents the policies of companies that can give the company competitive advantage in the market. Such system can be designed by conducting strategic analysis, examining the competitor’s pay practices with compensation surveys or by any other method, integrating the internal structure of jobs with external market pay rates and by determining the pay policies of the company.HBL believes that there must be market competitive compensation system and they have such system at work. Currently in HBL employees from same job family at same job levels receive unequal pays. The reason is compensable factors. Employees of a particular job level possess more skills and knowledge than other employees of same job level would definitely be compensated accordingly and in order to have market competitiveness in system HBL do so. HBL follows benchmark system for the sake of compensation survey. It is linked with a company named Hewitt which provide market survey data. It also provides information of competitor’s policies and practices that are helpful in comparison for further improvement as well.

Designing Compensation Policies

HBL does not follow “one size fits all” policy for paying to its employees.HBL designs compensation policies while taking into consideration of such factors like internal consistency of pay structure, market competitive pay system, information of market and competitors. HBL believes that by taking information of all aspects effective and fair policies can be designed by policy makers. Along with that, HBL considers three aspects as important, these are performance of employee, and his /her previous performance appraisal and what pay is currently prevailing in market for specific job family. On the bases of these factors HBL set three categories of employees named alpha, beta and gamma categories. Employees are also divided into three categories, one with “outstanding” performance, previous performance appraisal and knowledge and skill set are put into Alpha category. One with a little below in all above criteria than employees of Alpha category is put into Beta category and all others into Gamma categories. In this way all employees are treated and compensated fairly in compliance with policies of company.HBL has a little different policy making procedure for compensation bur it keeps into consideration that its pay rates does not fall below or above of the market pay rates. It means it follows market match policy in setting pay rates.



HBL offers commissions along with pay to those employees who are directly involved in sales and marketing activities of company. These commission plans vary according to job duties and responsibilities and they are paid periodically to the deserving employees.

Employee Benefits

`There are three types of employee benefits and these are:1. Discretionary benefits2. Employer-sponsored retirement plans and health insurance programs3. Legally required benefits

Discretionary employee benefits are also called voluntary benefits. The goals which employers hope to achieve when offering discretionary benefits are: protection, paid time off and services to enhance work and life experiences. Protection program are like income protection program, health protection program, retirement programs etc. Paid time off is compensating employees when they are not performing their primary work duties like holidays, vacations, sick leaves, sabbatical leaves etc. Services are like employee assistance programs, family assistance programs, transportation services, outplacement assistance etc.

Discretionary benefits which HBL is offering to their employees are protection program and paid time off services. In protection program they give their employees health and safety insurance and in paid time off they offer sabbatical programs like they give them opportunity that in evening time you can join any institute for further education. And the services which HBL bank is offering to their employees are employee assistance and family assistance services.

HBL bank believes that providing benefits along with pay to employees give them motivation to work more for organization and if employees are motivated then they can perform more work which ultimately are beneficial for whole thy organization and also benefits make them more committed to their work because they are getting what they are deserving.

The retirement benefits which HBL is providing to their employees are provident and gratuity funds. Provident fund is an investment fund contributed by employers and employees and then a lump sum is provided to each employee on the time of retirement. Gratuity fund is part of salary that is received by an employee from his/her employer in gratitude for the services offered by the employee in the company. HBL pays retirement benefit in the form of lump sum payment(50% of employer contribution and 50% of employee contribution)at the time of retirement. After that they don’t give them any monthly payment as pension or in the form of annuity. Up to 2005 whole the banking sector was providing pension fund but after 2005 no any bank is providing pension fund to their employees that’s why HBL is also not providing.

HBL is providing life and health insurance coverage to its all employees even if they work for one day and next day he is dead then he is covered under life and health insurance. If any employee in HBL had borrowed loan I case of death of employee whole loan is covered and also



bank will give 7.5lacs to his/her family. Group insurance plan is also workable in HBL bank. The retirement options which HBL bank give to their employees depends on market, first they do market survey then accordingly they give to their employees.

CONCLUSION

The Compensation system of HBL values the performance of employees most. It has a direct relationship with employee motivation and performance. It includes extrinsic as well intrinsic compensation factors for employees. Extrinsic benefit plans plays an important role in developing positive perception of an employee towards its organization and towards its work. Instruments of intrinsic factors have a profound impact upon an employee’s loyalty and commitment. In addition to that it is helpful in employee retention as well as in reducing organization’s turn over. Intrinsic factors play the role of motivators for the employees and associate them with their job and organization. They feel important and consider their performance as organization performance and image of organization as their own image.



LIMITATIONS

1. HBL don not have pension plan policy.2. Employee performance is the only major criterion on which employees are evaluated.3. There is no defined policy for paying bonuses and commissions to the employees.

Commissions are only offered to those employees who are involved in sales transactions and commissions are not fixed.

4. Employees more focus on enhancing their knowledge base rather than practicing the current knowledge and skills properly.

5. There is no appropriate performance evaluation system set for all employees. Therefore there lapses in performance of employees.



RECOMMENDATION S

1. HBL bank must offer monthly pension plan for their retired employees.2. In HBL employees are categorized in three categories according to their performance that

is Alpha, Beta and Gamma categories. Employees in gamma category have not good performance rating therefore they must be given special attention in terms of providing them additional training and compensating them fairly.



3. Commission plans at HBL are provided to those employees who are involved in sales and marketing activities of Bank products and services. Such commission plans must be defined rather paid periodically.

4. In order to build market competitive compensation system HBL focuses more on knowledge and skills of employees. Along with that efforts of employees and their responsibilities must be considered as important compensable factors so that employees not only keep themselves up to date in terms of knowledge and skills but they must exercise them by putting their efforts for achieving targets.

5. After 2006-07 hierarchical change HBL has not developed its complete performance evaluation system yet. HBL must develop such system as soon as possible so that performance of employees of all levels can be evaluated and they can be compensated accordingly.



PERFORMANCE APPRAISAL FORM



APPENDIX: QUESTIONNAIRE FOR COMPENSATION REPORT OF HABIB BANK LIMITED

Q1.What are components of HR department of HBL?Ans:_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Q2.Do you have a formal job evaluation plan in place?a.Yesb.No

Q3.Do you have written job descriptions?a.Yesb.No

Q4.Do you have an employee policy manual?a.Yesb. No

SECTION BASIS FOR PAY

Q5.Do you reward employee on senority basis?a.Yes b.NO

Q6. If yes then what is criteria of senority pay( years and amount of increment)?Ans:______________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Q7.What type of advantages and disadvantages do senority pay systems give to your bank?Ans:ADVANTAGES___________________________________________________________________________________________________________________________________________________________DISADVANTAGES____________________________________________________________________________________________________________________________________________________________



Q8.Do you give employees merit pay/pay for their performance?a.Yesb.No

Q9.If yes then how do you measure employees performances for merit pay(performance indicators)?Ans.______________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Q10.Which of the following performances appraisal method do you use and for what position?

a.Trait Charicteristics POSITION____________________________________________________________________ b.ComparisonPOSITION____________________________________________________________________ c.BehavioralPOSITION____________________________________________________________________ d.Goal orientedPOSITION____________________________________________________________________ e.360 feedbackPOSITION____________________________________________________________________

Q11. Which of following is source of performance appraisal in your bank?a.Employeeb.Supervisiorc.Coworkerd.Customers

Q12.Do you reward employees for attaining a perdefined goal?a.Yesb.No

Q13.You give incentive on basis of ______________ performancea.Individualb.Groupc.Companyd.all of above

Q14.If indivdual incentive plan then which of following?a.Management incentive payb.Behavorial incentive payc.Referral pland.all of above



Q15.If group incentive pay then which of following?a.Team baseb.Gain sharing

Q16.If company incentive pay then which of following?a.Profit sharing b.Employee stock option

Q17.Do you employee reward for acquiring new job related skills?a.Yesb.No

Q18.Which type of pay for knowladge your bank follows?a.Stairs stepb.Skill blockc.Job point accrual methodd. Cross departmental model

Q19.What advantages and disadvantages your bank get from pay for knowladge?Ans.ADVANTAGES________________________________________________________________________________________________________________________________________________________________________________________________________________________DISADVANTAGES___________________________________________________________________________________________________________________________________________

Q20.What is your benchmark date for conducting performance appraisals/salary reviews?a. Anniversaryb. Fiscal year endc. Other fixed date

SECTION:DESIGNING COMPENSATION SYSTEM

Q21.Which job evaluation technique you prefer to use?a) Market based evaluationb) Job content evaluationc) Any other

Q22.What are the compensable factors that you consider while designing pay structure of any job?Ans:_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________



Q23.Do you think there must be market competitive compensation system? In any case give reason.Ans:______________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Q24.Do you have market competitive compensation system?a.Yes b.No

Q25.From where you get information related to market and competitors compensation system?Ans:______________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Q26.On what bases your compensation policies are designed?Ans:_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Q27.Do you follow” one size fits all policy” for paying your employees? a.Yesb.No

Q28.Which policy do you follow for pay design?a) Market leadb) Market lagc) Market match

Q29.Why above mentioned policy is preferred over other policies? Give reason.Ans:______________________________________________________________________________________________________________________________________________________________________________________________________________________________________ Q30.In addition to your base pay do you give your employees any commission on sales or services?a.Yesb.No

Q31.What is the appropriate amount of the annual commission you give your employees?Ans:_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________



SECTION Discretionary benefit section

Q32.What sort of discretionary benefits your bank offers to employees?a) Protection program like health and safetyb) Paid time offc) services

Q33.Do you offer sabbatical leaves to your employee? If yes then is such leave paid?a.Yesb.No

_____________________________________________________________________________

Q34.Do you offer any employee assistance or family assistance service to employees?a) Yes b) No

(Do you ask for records for the sake of providing such services?)Q.35Do your bank uses any retirement benefit formula?a.Yesb.No

Q36. What type of retirement plan your bank is using? 1. Defined Benefit Pension 5.401(k) Profit Sharing Plan 2. Money Purchase Pension 6. Simplified Employee Pension (SEP/IRA) 3. Target Pension 7.Other Qualified Salary Deferral Arrangements (403(b)) 4. Profit Sharing Plan 8. SIMPLE Retirement Account

Q37.What is the contribution based on:a.Percent of base salaryb. Match, based on employee contributionc. Discretionary contributions

Q38.What is the vesting schedule?a.100% immediatelyb. Graded vesting, 100% by 6 yearsc. Graded vesting, 100% by 5 yearsd. Cliff vesting, 100% by 3 yearse. OtherQ39.When do your employees become eligible for life insurance coverage?a.Immediatelyb. After one monthc. After two monthsd. After three monthse. After probationary periodf. Life Insurance not offered



Q40.When do your employees become eligible for medical insurance coverage?a. Immediatelyb. After one monthc. After two monthsd. After three monthse. After probationary periodf. Medical Insurance not provided

Q41.Do your bank discuss with employees about healthcare and retirement option?a.Yesb.No

Q42.Do your bank have any retirement policies?a.Yesb.No

which one___________________________________________________________________

Q43.In your opinion is it beneficial for the your bank to offer benefits along with pay to employees? Give reasonAns:______________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Q44.Do you think that provision of discretionary benefits to the employees make them more committed to their work?a.Yes b.No

Q45.What suggestions you will give for improving compensation system of your bank?Ans:__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________


compensation report on habib bank

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