nach oben

Journal of Financial Services Research

Erschienen in:

02.09.2021

Worker Incentives in the Banking Industry

verfasst von: Selay Sahan, Euan Phimister

Erschienen in: Journal of Financial Services Research | Ausgabe 2/2022

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

This study shows that monetary incentives together with performance disclosures lead to significant increases in effort and productivity in the multi-branch banking industry. Our results are based on an incentivized credit card campaign run by a commercial bank in which employees were paid a piece-rate if they sold a credit card to a customer. Later in the campaign, the head office started to provide daily performance reports for all branches of the bank. The campaign ultimately resulted in a significant 12.5% increase in the average daily productivity of branch staff and productivity changes found were heterogeneous across different branches.

Vorheriger Artikel How Much Does Your Banker’s Target-Specific Experience Matter? Evidence from Target IPO Underwriters that Advise Acquirers

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Nur mit Berechtigung zugänglich

Academic literature also presents other forms of incentive problems in banking industry, one being the incentive problem in which the bank directors with negligible ownership in the bank collude with the insider borrowers to the harm of both the regulator and the shareholders, although the information costs are lower in insider loans (Kummer et al. 1989). One other problem relevant in banking industry is mentioned Gomez and Ponce (2019) noting that the impact of introducing different regulatory tools on managers’ incentives basically creates moral hazard problems in the form of traditional effort problems and risk shifting (taking excessive risk).

At the start of the campaign, April 1, 2008, the TL/USD exchange rate was 1.31. Thus a 5 TL piece-rate incentives corresponds to 3.82 USD.

Among the conditions, the bank required that the staff had to hold its type A credit card. The type A credit card refers to a specific, recently introduced type of card that provides a longer term interest-free instalment plan and bonus points. The card was introduced in 2007—one year before the campaign—and the head office wanted to activate the use of this competitive product and started the Credit Card Activation Campaign. The ultimate aim was to increase the use of this card among the customers, but it also wanted extensive use of this card among its employees. So the employees who wanted to join the campaign were encouraged to apply for the credit card (normally five working days were required to obtain the card) or to access the application using the card number of a peer. The latter could have created a peer incentive although the evidence from the first part of the campaign does not indicate this effect was strong. The campaign was valid for both type A and type B cards. Besides the type A cards, the bank also had various types of standard (type B) cards. Standard cards do not provide benefits in the form of interest free instalments or bonus points, so they have a lower annual fee. The annual fees for the banking sector’s lowest fee credit cards charged between 3 TL to 35 TL in 2008. While the annual fee of the bank’s standard card was at minimum level of 3 TL, the type A card entered the market with an annual fee of 15 TL. Additionally, while the interest rate for a cash withdrawal for the bank’s standard card was 2.90%, it was 4% for type A card. The bank also aimed at borrowers who were more sensitive to annual fees or higher interest rates, so the campaign was also valid for standard cards. The bank staff were exempt from paying annual fees for any type of card of the bank. In addition, it should be noted that obtaining a type A card was not related to having better scores or higher income as these only determined the credit limit of the card. Nor did this mean that “bad risks” could obtain the card. Rather, customers who were able to pass the specified controls (regarding repayment behavior, repayment performance, or ability to pay) could obtain the credit card.

When the final date for using the card (September 29, 2008) passed, a separate report was sent to the branches clarifying total entries and total cards that fulfilled the conditions for the piece-rate on staff basis. Exploring this issue is beyond the scope of this research.

The email contained an excel file with three spreadsheets that displayed the absolute and relative performances of regional headquarters, branches, private operation centres, and bureaus as of one day prior to the reporting date (see Appendix, Note 2). The daily reports sent by the head office do not contain any information regarding the piece-rates earned by the branch staff.

The scales of the branches are determined by the head office based on solid and objective criteria such as deposits, credits, securities, profits, and net interest-free revenues / operational expenditure. Once determined, the scales were updated every year. New branches were not scaled for the first six months till their indicators became known.

The bank makes more than 40 million pension payments to retired people every year that corresponds to about an average of 3.5 million payments every month. Thus, on payment days, pension transactions may impede the other banking transactions. In order to reduce the workload of branches, especially in busy locations, private operation centers are formed.

The underlying descriptive statistics are provided in Tables A1 to A5 of the appendix.

The campaign was run during the global financial crises of 2007–2008 where there was a general global tendency to reduce credit supply which might have resulted in contraction in borrowing, reduction in labour productivity and failure of the firms (as mentioned in a recent study of Franklin et al. (2020) which studies the relationship of contractions of credit supply and reductions of labour productivity during global crisis of 2007–2008) resulting in unemployment and need for funding of retail customers. In order to account for the confounding effects of the global financial crisis and other economic conditions that might have affected the sales of credit cards, we controlled nation-wide credit card sales as well as other forms of credits and indicators such as unemployment, GDP per capita, CPI etc.

March was excluded as there was a campaign running designed to promote consumer loans that may have affected the sale of credit cards.

Customer complaints on credit card issuance were typically seen before 2006 when the private banks with very aggressive strategies for credit card sales issued credit cards without the consent of the customers. However, such situations were much less likely to occur during this campaign (especially for a public bank) since the law had been changed (Article 8 of Bank Cards and Credit Cards Law (Act. No. 5464) on February 23, 2006). This change meant banks were no longer able to issue a card to a person who did not file a request or sign a credit card agreement. Article 35 of the same law imposes administrative fines of 2000 TL up to 10,000 TL in cases of breaches of the Article 8 provision. Also, since 2003, in order to deal with the consumer complaints and to settle the disputes arising from the Consumer Protection Law (Act. No. 4077, 4822 and 6502), a dual dispute settlement mechanism (both Consumer Arbitration Boards and Consumer Courts) was introduced in Turkey. According to the Screening Report on Turkey by the European Union in 2006, about 79% of the 68,855 complaints handled by the arbitration boards were in favor of the consumers.

Akerlof GA (1976) The economics of caste of the rat race and other woeful Tales. Q J Econ 90(4):599–617CrossRef

Anderson R, Manoogian ST, Reznick JS (1976) The undermining and enhancing of intrinsic motivation in preschool children. J Pers Soc Psychol 34(5):915–992CrossRef

Ariely D, Gneezy U, Loewenstein G, Mezear N (2009) Large stakes and big mistakes. Rev Econ Stud 76:451–469CrossRef

Asch BJ (1990) Do incentives matter? The case of navy recruiters. Industrial and Labour Relations Review 43(3):89–106CrossRef

Azmat G, Iriberri N (2010) The importance of relative performance feedback information: evidence from a natural experiment using high school students. J Public Econ 94(7–8):435–452CrossRef

Azmat G, Iriberri N (2016) The provision of relative performance feedback: an analysis of performance and satisfaction. J Econ Manag Strateg 25(1):77–110CrossRef

Baker G (1992) Incentive contracts and performance measurement. J Polit Econ 100(3):598–614CrossRef

Bandiera O, Barankay I, Rasul I (2009) Social connections and incentives in the workplace: evidence from personnel data. Econometrica 77:1047–1094CrossRef

Bandiera O, Barankay I, Rasul I (2013) Team incentives: evidence from a firm level experiment. J Eur Econ Assoc 11(5):1079–1114CrossRef

Barankay, Iwan (2012). Rank incentives: evidence from a randomized workplace experiment. Working Paper. Wharton School, University of Pennysylvania. Retrieved from https://repository.upenn.edu/bepp_papers/75

Benabou R, Tirole J (2006) Incentives and prosocial behavior. Am Econ Rev 96(5):1652–1678CrossRef

Besley T, Ghatak M (2008) Status incentives. Am Econ Rev 98(2):206–211CrossRef

Blanes-I-Vidal J, Nossol M (2011) Tournaments without prizes: evidence from personnel records. Manag Sci 57(10):1721–1736CrossRef

Bolton GE, Ockenfels A (2000) A theory of equity, reciprocity, and competition. Am Econ Rev 90(1):166–193CrossRef

Brickley JA, Zimmerman JL (2001) Changing incentives in a multitask environment: evidence from a top-tier business school. J Corp Finan 7(4):367–396CrossRef

Casas-Arce P, Martinez-Jerez FA (2009) Relative performance compensation, contests and dynamic incentives. Manag Sci 55(8):1306–1320CrossRef

Charness G, Masclet D, Villeval MC (2014) The dark side of competition for status. Manag Sci 60(1):38–55CrossRef

Deci EL (1972) Effects of contingent and noncontingent rewards and controls on intrinsic motivation. Organizational Behavior and Human Performance 8(2):217–229CrossRef

Delfgaauw J, Dur R, Sol J, Verbeke W (2013) Tournament incentives in the field: gender differences in the workplace. J Labour Econ 32(2):305–326CrossRef

Delfgaauw J, Dur R, Non A, Verbeke W (2014) Dynamic incentive effects of relative performance pay: a field experiment. Labour Econ 28(2014):1–13CrossRef

Delfgaauw, Josse, Robert Dur, and Michiel Souverijn (2017). Team incentives, task assignment, and performance: a field experiment. Tinbergen Institute Discussion Paper TI2017–090/VII

Dellavigna S, Pope D (2018) What motivates effort? Evidence and expert forecasts. Rev Econ Stud 2018(85):1029–1069CrossRef

Eriksson T, Poulsen A, Villeval MC (2009) Feedback and incentives: experimental evidence. Labour Econ 16(2009):679–688CrossRef

Falk A, Ichino A (2006) Clean evidence on peer pressure. J Labour Econ 24(1):39–57CrossRef

Fehr E, Schmidt KM (2006) Chapter 8 the economics of fairness, reciprocity of altruism- experimental evidence and new theories. Handbook of the Economics of Giving, Altruism and Reciprocity 1(2006):615–691CrossRef

Fernie S, Metcalf D (1999) It’s not what you pay, It’s the way that you pay it and That ' s what gets results: jockeys’ pay and performance. Labour 13(2):385–411CrossRef

Frank RH (1984) Are workers paid their marginal products? Am Econ Rev 74(4):549–571

Franklin J, Rostom M, Thwaites G (2020) The banks that said no: the impact of credit supply on productivity and wages. J Financ Serv Res 57:149–179CrossRef

Friebel G, Heinz M, Krueger M, Zubanov N (2017) Team incentives and performance: evidence from retail chain. Am Econ Rev 107(8):2168–2203CrossRef

Gibbons R (1998) Incentives in organisations. J Econ Perspect 12(4):115–132CrossRef

Gjedrem, Gilje, and Ola Kvaloy (2018). Relative performance feedback to teams. CESifo Working Paper No. 6871, January 2018

Gneezy U, Rey-Biel P (2014) On the relative efficiency of performance pay and noncontingent incentives. J Eur Econ Assoc 12(1):62–72CrossRef

Gneezy U, Rustichini A (2000) Pay enough or Don’t pay at all. Q J Econ 115(3):791–810CrossRef

Gomez F, Ponce J (2019) Regulation and bankers’ incentives. J Financ Serv Res 56:209–227CrossRef

Hannan RL, Krishnan R, Newman AH (2008) The effects of disseminating relative performance feedback in tournament and individual performance compensation plans. Account Rev 83(4):893–913CrossRef

Hecht G, Tafkov I, Towry KL (2008) Incentives in a multi-task environment: timing is everything. Unpublished Manuscript

Holmström B, Milgrom P (1991) Multitask principle-agent analyses: incentive contracts, asset ownership and job design. J Law Econ Org 7:24–52CrossRef

Jenkins DG Jr, Gupta M, Mitra A, Shaw JD (1998) Are financial incentives related to performance? A meta-analytic review of empirical research. J Appl Psychol 83(5):777–787CrossRef

Kandel E, Lazear EP (1992) Peer pressure and partnerships. J Polit Econ 100(4):801–817CrossRef

Kosfeld M, Neckermann S (2011) Getting more work for nothing? Symbolic awards and worker performance. American Economic Journal: Microeconomics 3(3):86–99

Koszegi B (2006) Ego utility, overconfidence, and task choice. J Eur Econ Assoc 4(4):673–707CrossRef

Kuhnen CM, Tymula A (2012) Feedback, self-esteem, and performance in organizations. Manag Sci 58(1):94–113CrossRef

Kummer DR, Arshadi N, Lawrence EC (1989) Incentive problems in Bank insider borrowing. J Financ Serv Res 3:17–31CrossRef

Lazear EP (1986) Salaries and piece rates. J Bus 59(3):405–431CrossRef

Lazear EP (2000) Performance pay and productivity. Am Econ Rev 90(5):1346–1361CrossRef

Mas A, Moretti E (2009) Peers at work. Am Econ Rev 99(1):112–145CrossRef

Moldovanu B, Sela A, Shi X (2007) Contest for status. J Polit Econ 115(2):338–363CrossRef

Paarsch H, Shearer B (2000) Piece rates, fixed wages and incentive effects: statistical evidence from payroll records. Int Econ Rev 41(1):59–92CrossRef

Pokorny K (2008) Pay but do not pay too much: an experimental study on the impact of incentives. J Econ Behav Organ 68(2):731–747ç

Shearer B (2004) Piece rates, fixed wages and incentives: evidence from a field experiment. Rev Econ Stud 71(2):513–534CrossRef

Steffen, Angela and Frauke von Bieberstein (2018). Go beyond (your) average: a field experiment on real-time performance feedback and sales productivity. Working Paper

Titel: Worker Incentives in the Banking Industry
verfasst von: Selay Sahan
Euan Phimister
Publikationsdatum: 02.09.2021
Verlag: Springer US
Erschienen in: Journal of Financial Services Research / Ausgabe 2/2022
Print ISSN: 0920-8550
Elektronische ISSN: 1573-0735
DOI: https://doi.org/10.1007/s10693-021-00361-0