Developing Staff Incentive Schemes (Report)

This paper discusses the factors to consider in designing staff incentive schemes in the MFI sector.

Discussing why staff should be given incentives for good performance, the paper states that:

• The staff works in remote areas on behalf of the owners and stakeholders; the quality of their decisions affect the whole institution;
• It is an economically rational strategy to reduce staff fluctuation by paying competitive salaries;
• Microfinance managers need incentives too, since their commitment is important to the success of the institution;
• Adequate staff incentives have a positive influence on the overall institutional performance, including outreach and sustainability.

The paper lists types of incentives as follows:

• Job satisfaction;
• Possibilities for promotion;
• Non-monetary benefits;
• Monetary bonus systems;
• Profit sharing;
• Stock ownership.

The paper then discusses topics in connection with staff incentive schemes, some of which are:

• Case studies and empirical findings;
• International experience;
• Factors influencing the choice and critical design issues;
• Some common reasons for failure.

It concludes by listing the steps in designing an effective staff incentive scheme:

• Definition and clarification of the strategic goals of the MFI;
• Analysis of culture, clientele, products and processes;
• Definition of the objectives of the incentive scheme;
• Decision on how much the MFI is willing to spend - a cost-benefit analysis;
• Staff members and occupational levels to be affected by the scheme;
• Choice of incentive mechanism;
• Technical design work;
• Field test - selling the scheme to the staff;
• Monitoring the performance of the scheme.