National Bank of Abu Dhabi is a commercial bank of the UAE, established in 1968 in Abu Dhabi. With 58 branches in the UAE and 120 ATMs, it has the largest branch network. NBAD is the largest bank in the UAE with regard to assets, deposits and earnings. It has decided to expand its services into retail banking in 1999. It offers 24-hour internet banking facilities, and can be accessed through NBAD online. There is also a 24-hour customer support to respond to the queries and complaints of the customers.
Abu Dhabi International Bank, a subsidiary of NBAD, has twelve branches in Egypt; apart from the branches in Oman, Bahrain, Sudan, France, UK and the US.
An important department of NBAD is the HR department. This department has manifold activities with regard to employee compensation and benefits. The department is responsible for recognizing, development and execution of the employee’s compensation policies. (National Bank of Abu Dhabi, ameinfo, 1996 – 2010 AME Info FZ LLC)
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NBAD: Vision, Mission & Values
Vision: To become the number one bank in the UAE
Mission: Provide the best customer service experience
Values: To value stakeholders
To be accessible to the customers 24-hours
Having a global outlook
Understanding customer needs and requirements
To strive for continuous organizational excellence
Corporate Social Responsibility: The bank pledges for social and environmental development of the UAE. (National Bank of Abu Dhabi, NBAD, 2010)
The Pay-Structure Issue: The current issue with NBAD is its pay structure. The present pay process requires re-structuring as it is outdated. It has too many allowances that make it rather complex and confusing for the HR in analyzing the compensation components. The various allowances, bonuses and cash incentives are not properly defined in the pay structure. A pay structure must be simple and consistent in for being beneficial both to the employer and the employees. An outdated pay structure leads to confusion and unfairness in the system, with inconsistency in the pay of similar grades. If allowances are not defined, there shall be problem in the measurement of performances of the employees. Too much of cash incentives cannot boost employee motivation to take additional responsibilities. This is because cash incentives are small amounts of money that is spent away too quickly. Imprecise tax components in the pay structure may lead to confusion too. The employees may have a feeling that they are overburdened with tax. The HR department must explain the tax items and exemptions clearly to the employees.
Identifying the Problem: The feedback received from the line managers as well as the employees were similar as far as the pay structure issue is concerned. A complex and rigid pay structure has the following negative impacts:
Confusion at the work place.
An endless & tedious process of adding new allowances to the pay structure.
Wastage of time in tracking payments.
There is no consistency in the pay of same grade.
Employees feel that there is unfairness in the system.
There is no clarity in the pay as allowances are not properly defined.
Wastage of money.
Aims & Objectives: The objective of this project is to re-structure the existing pay system and make it simple and consistent. The basic aims and objectives of a good pay structure are:
It shall help in linking pay structure with performance.
Closing the salary gaps within the same grade.
There are 4 steps in linking competencies with performance:
Rating the employee’s demonstrated capabilities.
Rating the employee’s achievement of the goals.
Mapping the ratings on X and Y axis of grid.
Determining how the employees can be paid keeping in the current market conditions. (By Vogeley, Edward G., HR magazine, Link employee pay to competencies and objectives, all business, October1, 1995 )
Benefits to Employees:
A simple and well defined pay structure helps in better understanding.
Employees get a feeling that there is fairness in the pay system.
It reflects transparency.
Performance level of the employees can be examined among employees of the same grade.
Benefits to Bank:
A well planned pay system is cost effective for the bank.
Salaries can be paid within the bank’s budget.
Easier to compare or compete with the pay structure of other banks.
Easier to track payments.
Benefits to the HR
Saves HR’s time in the detailed explanation of the pay system.
Time to focus on strategic HR issues.
A modern and up-date pay system helps being aligned with global HR practices.
Better recruitment and retention of employees.
Giving the company an effective pay system.
Methodology: Developing an Ideal Salary Structure
The current wages and salary components of an organization (Abu Dhabi National Bank) must be based on well defined group of jobs. The prices and costs that are associated with these groups of jobs affect an organization’s competitive position as well as determine the competitive salary level of the bank.
Factors for Developing a Cost Effective Salary Structure
There are two factors:
A particular job’s current salary rate,
The data collected from salary surveys.
It is upon the organization to decide whether it shall pay the salaries:
Above market rate.
Below market rate.
At par with market rate.
Three approach for an Organization’s Salary System
These three methods are discussed as follows:
Lag The Market: The salary survey data is updated to the commencement of the next financial year. After this is done, a new salary structure is incorporated in the company. For example, a change in the labor market of 10 percent is assumed for the next year. In such a case, the only time the bank shall be competitive with the market is the beginning of the year. Hence, by the year end, the salary structure shall lag the market by 10 percent.
Lead the Market: The organization pays above the existing market rate. This is done by starting the year at 10 percent above the salary survey data. Consequently, by the year-end the bank will be just paying the market rate.
Lead Lag: The bank considers 10 percent estimated changes in the market and wishes to meet the market rate at the middle of the year. (Creating a competitive salary structure, scribd.com, N.D., Anon)
The interview of the HR manager, employee survey and CIPD survey regarding payment methodology may be tabled as follows:
Table 1 (HR Manager)
What are the main components of an ideal salary structure?
They are basic pay, commissions, overtime, bonus, cash incentives, non-cash incentives, performance pay, HRA, conveyance, meal allowance, medical insurance,and taxes.
What is most important while deciding on salaries?
The most significant part is to decide whether the company shall set salaries above, below or at par with market conditions.
What is the benefit of setting salaries at par with present market rates?
The benefit lies in the fact that adhering to market rates makes the salary competitive. It is beneficial for both the employer as well as the employee.
How important it is to determine grades and grade pays?
It is absolutely necessary to establish senior, junior, intermediate and beginner’s level. Then assigning a grade to each level.
Next step is to determine grade pays or the monetary range of a position at a particular level.
What are the benefits of such grade pay?
It brings fairness in the pay structure and reduces gaps in salaries of the same grade. Results in employee satisfaction.
Table 2 (Employee Survey)
Feedback/Individual Opinion &Findings
What is the total number of years you have been working at your current organization?
In Bahrain and Oman employee retention and loyalty is higher than other countries.
How many jobs have you changed in the last five years?
In UAE, employees seem to change jobs more frequently.
Which of the following do you think is a better pay structure?
Fixed Pay Structure
Partially Fixed Pay Structure (with variables like commissions &incentives) OR
Full Variable Pay
Respondents from UAE, Bahrain, Qatar and Lebanon prefer a fixed income structure.
While Tunisia, Algeria and Saudi Arabia prefer a variable pay structure.
Which of the following should be included as attractive incentives in your compensation package?
Stock options, Commission, Professional training OR Performance pay
Respondents in Qatar, Oman and UAE like to have performance based pay. On the other hand, Syria prefers professional training and development.
Which income levels does your personal monthly income fall into?
UAE and Qatar have higher income levels. Algeria, Morocco and Egypt have lower personal income levels.
Which are the most well paid and lower paid industries according to you?
Respondents said that Banking, Construction, Oil and gas are well paid than other industries. While Education, Electronics and Tourism are lower paid.
Do you feel the pay in your company is competitive?
Employees in UAE, Bahrain and Qatar feel that their salaries are not that competitive to others.
(The Middle East Salary Survey, bayt.com, Feb 2010)
Table 3 (Website)
It was found that newer companies, especially those in the hi-tech sectors are rewarding employees with exciting benefits i.e. handsome financial rewards.
Pensions, Stock Options, Company Cars and medical insurance.
(Steve Palme, Pay levels market pricing, CIPD, February 2010)
After having a glance through the surveys, some findings and results have been obtained. These findings are the components of the pay structure like cash and non-cash incentives, bonus and overtime pay. There are also certain other aspects such as fixed pay structure, partially fixed pay structures and a total variable pay structure. We also get an idea of higher and lower income level groups, and attractive incentives in the pay package. We get a glimpse of the higher and lower paid industries in UAE too. The competitiveness of the pay package is another significant aspect of a bank’s pay structure. The best practices adopted by companies in rewarding their employees may be implemented in the pay structure of poorly paid orgnizations. In the next section of this project, the discussion shall mainly focus on the analysis of the above findings.
There are incentive programs in every company’s salary structure. In this regard, it must be noted that the incentive plans may vary from company to company. There is no one particular incentive strategy that may work universally in every corporate organization. The pros and cons of cash incentives are discussed as follows:
It is very easy to give out cash incentives as every employee is familiar with it.
Since the reward is in the form of cash, it allows the employees to spend the amount for their personal needs.
It is often the most popular choice among employees since it is a choice based on the employee’s urge.
It is not motivating since cash incentives come in small amounts.
It has no value in terms of honor or award.
It is often confused with salaries and bonuses.
It is mostly spent on small necessities of the employees. The amount is so small that it is often forgotten.
It has no lasting value. The small amount is received, spent and gone without much satisfaction. (Cash incentives- Pros & Cons, incentives marketplace, Anon, 2010)
For employers it is affordable. More affordable than cash bonuses.
It has more simplicity than bonuses or cash incentives. Cash incentives may involve difficult formulas and include multiple targets.
It has brag value as non-cash incentives are generally in the form of gifts.
It is not taken that seriously by others as it does not have any cash value.
Employees may not be aware of the value of non-cash incentives over hard cash. This may result in employee dissatisfaction. (Janet Egan, non-cash incentives, CIPD, April 2009)
Motivate employees and help in team building.
Encourages employees to take additional responsibilities for financial benefits.
It enhances profitability since it encourages problem solving skills.
Variable pay implies, better the performance- the more the hike in the pay. In this way, it encourages an environment of continuous learning, improvement and innovation.
It creates a competitive atmosphere and comes useful in promoting the best performers in the company.
If the bank does not have clarity in its goals and objectives, then variable pay is a complete waste of money.
Slow workers may be forced to work extra without any payment to decrease payroll expenses. This may result in employee dissatisfaction and enhance attrition rates in the company. (Kelly Swaggerty, The pros & cons of variable pay, resources hrbrainbank, 6 March 2009)
An effective method of dealing with absenteeism, shortage of staff without any new recruitment.
Enhanced earnings for employees.
Result in inefficiency if the employees slower their rate of work in order to be eligible for overtime.
Extra expenses for the company.
Long working hours may result in health issues with employees and no social or family life.
If employee expectation levels do not tally with overtime pays, it may result in employee resentments. (Manage overtime, Department for business, innovation & skills, .businesslink.gov.uk, 2010)
It can be inferred from the above analysis that a sound pay structure is very crucial in determining employee satisfaction as well as for the benefit and profitability of the bank or any organization. It is often wrongly said that an apt and decent pay package is only beneficial for the employees. But in reality, the welfare of the company is equally dependent on its pay components. As we have seen in the surveys that an organization that does not have a competitive pay structure results in employee dissatisfaction. This results in the tendency to move to other companies offering a competitive pay. Small or insignificant cash incentives do serve the desired purpose. Hence, it is highly essential to implement a simple, competitive and sound pay structure in NBAD. Various factors and constraints must be looked into by the HR department before planning a perfect pay structure of the bank.
Recommendations: Best Pay Practice
Here are some recommendations for implementation of best pay structures:
Implementation of pay for performance.
Shape the pay for performance according to the nature of the job.
Linking 20 percent to 100 percent of an employee’s compensation to his performance.
Outstanding performers must be given lucrative pays.
Best performers with greater responsibilities must be given stock options and car allowances.
Introducing pensions and medical insurance in the pay structure.
Making the pay structure more competitive.
Greater incentives for employees who exceed expectations regarding production and quality targets.
Investment opportunities to reduce tax burdens.
(George CloutierHYPERLINK “http://www.businessweek.com/bios/George_Cloutier.html”, To improve performance, revise your pay structure, businessweek.com, Oct2, 2009)