Citibank: Performance Evaluation – Flashcards

• Define a specific performance scorecard and link rewards to the accomplishments of the specific measures to induce employees to pursue the firm's strategy • To implement its strategy, Citibank decides to include nonfinancial measures using a balanced scorecard

Financial Strategy Impementation Customer Satisfaction Control People Standards

Variables: Revenue Expense Margin Measures: measured objectively accounting system Target: negotiated (subject to manipulation/favoritism)

Variables: revenue from target segments households (total, new, lost) retail market share Measures: measured objectively, accounting system additional data collection Target: negotiated (subject to manipulation/favoritism)

Variables: customer satisfaction Measures: survey conducted by external firm telephone interview of 25 customers who visited branch and Citibank services (e.g. ATM) Target: score of 80 common target

Variables: audit legal regulatory Measures: measured subjectively by auditors using standard procedures Target: 4 (on 1-5 scale) common target

Variables: performance management teamwork training/development employee satisfaction Measures: measured subjectively by the employee's superior Target: none

Variables: leadership business ethics/integrity customer interaction/focus community involvement contribution to overall business Measures: measured subjectively by the employee's superior Target: none

no bonus

bonus up to 15%of salary

bonus up to 30% of salary

• Need "par" or "above par" in all 6 objectives for an above par overall evaluation • Need "par" rating on Control to be eligible for a bonus

- He would have received an "above par" rating and a 30% bonus

• Strategy implementation: Rated "above par" in all quarters but one • Control:Rated "above par" in all quarters • People: Subjectively rated "above par" in all quarters • Standards: Subjectively rated "above par" in all quarters

• If he gets a "below par" rating on customer satisfaction, he will not be eligible to receive an overall "above par" rating. In this case, he cannot receive the 30% bonus • The committee's decision is carefully watched by other branch managers

• Following guidelines of the new system (i.e., credibility) • This move emphasizes Citibank's strategy: It signals to other managers that company is committed to its strategy • Customer satisfaction is a leading indicator of performance. Low satisfaction will result in poor future financial performance • Focuses all managers' attention on the importance of customer satisfaction to achieving intended strategy

• The survey may not correctly measure customer satisfaction (i.e., selection bias; small sample size) • His customers are more demanding; target may be too high • James does not control all factors that affect measured customer satisfaction (e.g., ATM; phone banking) • Too much emphasis on customer satisfaction may induce wrong asset allocation; over-investment in customer satisfaction • James became branch manager in 1992 and is still producing great financial results; customer satisfaction does not seem to be leading indicator of future performance

• Rewards James' effort. Allows him to receive maximum bonus of 30% • This is what James would have received if old system were still in place • Easier to communicate to James • The system should be flexible to adapt to exceptions • Will keep James' motivation up • Par rating could cause conflict, reduced motivation, quitting (James may resign if he feels that the new evaluation system penalized his efforts)

• Gives credibility to the new strategy and the performance evaluation system • Communicates the importance of customer satisfaction to the rest of the organization • Motivates James and other managers to focus more attention on strategically important variables

• James received a "below par" rating on customer satisfaction • Frits chose to override the system and gave James an overall "above par" rating for the year • To indicate the importance of customer satisfaction, however, Frits awarded James a 25% bonus instead of the maximum 30%

• Nonfinancial performance measures help communicate strategy to employees and motivate specific actions to further this strategy • Nonfinancial measures can be leading indicators of future financial performance