I’ve not had time to dig into these, but I hope to soon, as I think this certainly is an important topic.

Chuck

I would recommend the following articles:

Rashmi Ekka, ‘Integrating social performance management into microfinance capacity building: Staff Incentives’

Eduardo Bazoberry, ‘We Aren’t Selling Vacuum Cleaners: PRODEM’s Experience with Staff Incentives’, MicroBanking Bulletin, April 2001

Martin Holtmann and Mathias Grammling, ‘A Toolkit for Designing and Implementing Staff Incentive Schemes,’ MicroSave, http://www.microsave.org, 2005

Martin Holtmann and Mathias Grammling, ‘Designing Staff Incentive Schemes to Balance Social and Financial Goals,’2006

Martin Holtmann and Mathias Grammling, ‘The Role of Staff Incentive Schemes in Balancing Social and Financial Goals – Evidence From Four MFIs,’ 2008

Imp-Act Consortium, ‘Staff incentives: Integrating SPM into microfinance capacity building,’ 2011

Best,
Julie

I’m curious to read more that has been written on what I would call “Stage 2″ of incentive pay schemes. I think “Stage 1″ focussed primarily on productivity and financial goals. What has been written on how to correct for some of the dis-incentives that have resulted?

What case studies are there of efforts to advance in more balanced systems?

If I run an MFI that wants to ensure staff work for more balance between financial and social goals, and want to communicate that through the incentive system they all monitor every day, not just in their initial orientation session when they first join the organization, are there some documents I can find to help me think through how to do this?

I think this essential to get 100% staff commitment to our values. Otherwise, 10%, or 20% of my staff might be persuaded to bend decisions toward their own economic self-interest.

Do you have some documents along these lines that you’ve read and would recommend?

Chuck

One theme that seems to continue to emerge is this question of tradeoffs – that when management creates an incentive for one area, they are causing loan officers to spend less time on another area, and the outcome cannot always be predicted ahead of time. Therefore I think it’s really important that management is constantly monitoring the impact of the incentives and tweaking the system when necessary.

To your question on incentives for social measures, there is absolutely a lot of progress to be made here. This particular MFI is not yet tracking social data for clients, in part because they use a group-lending model, but they do plan to move in this direction. They expressed concern that incentives for social measures, in the current system, would actually be disincentives, because there would be no objective measurements upon which to base them.

I can’t say for sure how much incentive is too much, but I think the real question is the environment in which the incentives are provided. If loan officers join the MFI strictly for the extrinsic rewards, and there is little or no mention of a social mission in the organizational culture, then yes, there might be a danger of the situation you describe with loan officers pressuring clients. If, on the other hand, loan officers enter the organization because they are strongly dedicated to the social mission, and feel that the incentives are fair and attainable, they are more likely to have positive results.

Overall, I think there is a lot of potential for MFIs to impact their performance through innovative HR strategies (beyond monetary incentives) and look forward to continuing this discussion!

The indicators for this MFI are rather heavily slanted toward the business side of the MFI. The two that fall partly in the social camp are still also solidly engaged with the profitability of the MFI. Do you have some ideas on additional social measures that should be worked into the formula?

And do you have any feeling of when the incentive might be too high? In this case, you say 50% of the pay is incentives. One way of seeing that is to say it “doubles the salary”, but I don’t know the base salary, and in most examples the base salary (without any incentives) is not a real “market rate”. In other words, the loan officer might see this as “If I don’t hit my targets, my salary gets cut in half, and then I’m in big economic trouble.”

And since the loan portfolio quality indicator is so heavily weighted in this system — if you don’t get solid repayment, you lose half your salary — it draws attention to the recent news on staff incentive programs in India. SKS loan officers, fearing that they were to lose their incentive payment, pressured clients into suicides. These stories of microfinance-motivated suicides were just rumors eighteen months ago, but the news reports now include details that make it pretty clear that in some instances the strong pressure of the incentive system motivated some SKS loan officers to pressure clients to the point of death.

We do all believe this is extremely rare. Still, there this is something of the risk of using payment incentive systems. If they are too strongly weighted, they can motivate behaviors we clearly do not want to happen. Do you have any opinions on “how much incentive might be too much”? Or do you have other ideas on how we can ensure the appropriate behaviors and decisions of our loan officers?

Chuck Waterfield
CEO, MFTransaparency