Principles for Designing Staff Incentive Schemes

This article attempts to summarize important principles for the design of monetary staff incentive schemes of microfinance institutions (MFIs). The paper:

• Examines factors that influence the choice of staff incentive schemes, which include:
  • Technology;
  • Composition of workforce;
  • Organizational culture;
  • External environment, such as the levels of unionization, social norms, legal issues, including labor laws, and worker co-determination;
  • System of governance and strategy.
• Presents the critical design parameters for staff incentive schemes, that include:
  • The timing of implementation;
  • Frequency of incentive payout;
  • The weight of bonus in total remuneration.
• Provides an overview of the basic forms of incentive schemes for staff members, such as:
  • Individual incentive schemes;
  • Group-based incentive schemes;
  • Employee stock ownership plans;
  • Profit sharing and gain-sharing schemes;
  • Delayed benefits.

Further, the paper suggests adequate schemes for the different occupational groups in MFIs.Finally, it lists some of the common causes for the lack of success of incentive schemes:

• Failure to incorporate the organizational culture and history, and the social fabric;
• Divergence between the effects produced by the incentive scheme and MFI's strategic goals;
• Inflexibility of incentive schemes and occasional failures to deal with external contingencies
• Failure to calibrate the incentive scheme to the nature of the work;
• Use of purely algorithmic pay systems when the quality of the work is important;
• Reliance on outsiders and compensation consultants in designing incentive schemes.