Compensation Management Practices in Banking Sector of Bangladesh a Case Study on Dhaka Bank Ltd.

1. Introduction During the late nineties the banking sector of Bangladesh saw a sudden shift of expansion as the government approved operation of a good number of new Private and Foreign Commercial Banks. This expansion irresistibly brought in greater benefits to the consumers because of the highly competitive market condition. The period has seen emergence of some dynamic and high-tech banking services of which our consumers were deprived of. This new era of banking services include:      

One Stop Utility Service Automated Teller Machine Phone Banking Credit Card On-line Banking Syndicated loan

But these advancements in banking technology didn’t solely benefit the customers. It brought greater challenge in parts of the employees or bankers who were designated with high profile jobs with tougher goals to meet, a dynamic career with attractive remuneration, greater benefits and stunning status. This report will take an attempt to study the career private commercial banks of our country through the evaluation of the employee maintenance functions as practiced in this sector. In contrast to theories, many business firms of Bangladesh have the least or even no exposure to one of the crucial areas of business - Human Resource Management. But since every organization is made up of people, compensating them, acquiring their services, developing their skills, motivating them to high levels of performance, and ensuring that they continue to maintain their commitment to the organization are essential to achieving organizational objectives. We will find out how management in the selected organizations is dealing with compensation system mainly. Real life business is far more different from our classroom studies. Sometimes the books we read are the oversimplification of facts and most of the time actual practices don’t match with the theories written in books. So our objective is to relate our classroom studies with real life scenario and get a clear view of what actually is happening in the area of Human Resource Management of the selected banks.

Compensation Management Practices in Banking Sector of Bangladesh: A Case Study on Dhaka Bank Ltd. Page 1

2. A Brief Discussion about Compensation Compensation is a systematic approach to provide monetary value to employees in exchange of work performed. Compensation may achieve several purposes assisting in recruitment, job performance, and job satisfaction. According to Handerson “a step by step approach for designing a remuneration system that recognizes job requirements, employee related knowledge and skills and performance related incentives that link individual, work unit and organizational performance”. Total remuneration also includes a host of benefits that protect and expand the life style and health of workers and their families. Compensation is the remuneration received by an employee in return for his/her contribution to the organization. It is an organized practice that involves balancing the work-employee relation by providing monetary and non-monetary benefits to employees. Compensation is an integral part of human resource management which helps in motivating the employees and improving organizational effectiveness. Compensation may be used to:      

Recruit and retain qualified employees. Increase or maintain morale/satisfaction. Reward and encourage peak performance. Achieve internal and external equity. Reduce turnover and encourage company loyalty. Modify (through negotiations) practices of unions.

Compensation will be perceived by employees as fair if the approach is based on systematic components. Various compensation systems have developed to determine the value of positions. These systems utilize many similar components including job descriptions, salary ranges/structures, and written procedures.

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2.1 Types of Compensation Compensation can be of two types. They are Direct or Indirect Compensation.

Compensation

Direct

Pay

Base Pay

Indirect

Incentives

Benefits

Services

Merit Pay

Direct compensation is remuneration provided to employees in exchange for their labor and services. What makes it direct is that it is given to the employee without an intermediary. Under direct compensation there are two sub types of compensation. 

Pay: It consists of wages and salaries received for performing work. It can be base pay and merit pay based on job performance.

Compensation Management Practices in Banking Sector of Bangladesh: A Case Study on Dhaka Bank Ltd. Page 3



Incentives: They are provided for higher performance. They can be piece wage, commission, bonus, profit sharing, stock option etc.

Direct compensation refers to monetary benefits offered and provided to employees in return of the services they provide to the organization. The monetary benefits include basic salary, house rent allowance, conveyance, leave travel allowance, medical reimbursements, special allowances, bonus, Pf/Gratuity, etc. They are given at a regular interval at a definite time.

Medical Reimbursements Special Allowances

Basic Salary

Direct Compensation House Rent Allowance

Bonus

Conveyance

Leave Travel Allowance

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Indirect compensations are provided for the employees benefit, but are not given directly to the employee. Under indirect compensation there are two types of compensation

 Benefits are the payments addition to pay. They can be  Pay for time not worked: Paid vacation, holidays, leaves etc.  Protection Programs: Pension, gratuity, insurance etc.  Executive Benefits: Free Newspapers, telephone rental etc.

 Services and Perquisites: They increase employees wellbeing at no cost or significantly reduced cost to employees. They can be  Housing, transport, food  Loans, children’s education expenses  Discount on purchases, credit cards  Social-cultural recreational activities; club subscriptions.

Indirect compensation include Leave Policy, Overtime Policy, Car policy, Hospitalization, Insurance, Leave travel Assistance Limits, Retirement Benefits, Holiday homes.

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Overtime Policy

Leave Policy

Flexible Timings

Hospitalization

Indirect compensation

Holiday homes

Insurance

Leave travel

Retirement Benefits

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2.2 Components of Compensation System Compensation systems are designed keeping in minds the strategic goals and business objectives. Compensation system is designed on the basis of certain factors after analyzing the job work and responsibilities. Components of compensation system are as follows:

Job

Salary Structures

Analysis

Salary Surveys

2.3Theory behind Compensation  Reinforcement and Expectancy Theories Reinforcement theory states that a response followed by a reward is more likely to recur in the future (Thorndikes Law of Effect). The implication for compensation management is that high employee performance followed by a monetary reward will make future high performance more likely. By the same token, high performance not followed by a reward will make it less likely in the future. The theory emphasizes the importance of a person actually experiencing the reward. Like reinforcement theory, expectancy theory (Vroom, 1964) focuses on the link between rewards and behaviors (instrumentality perceptions), although it emphasizes expected (rather than experienced) rewards (i.e., incentives). Motivation is also a function of two other factors: expectancy, the perceived link between effort and performance, and valence, the expected value of outcomes (e.g., rewards). Compensation systems differ according to their impact on these motivational components. Generally speaking, pay systems differ most in their impact on instrumentality: the perceived link between behaviors and pay also referred to in the pay literature as "line of sight." Valence of pay outcomes should remain the same under different pay systems. Expectancy perceptions often have more to do with job design and training than pay systems. Compensation Management Practices in Banking Sector of Bangladesh: A Case Study on Dhaka Bank Ltd. Page 7

 Equity Theory Equity theory suggests that employee perceptions of what they contribute to the Organization, what they get in return, and how their return-contribution ratio compares to others inside and outside the organization, determine how fair they perceive their employment Relationship to be (Adams, 1963). Perceptions of inequity are expected to cause employees to take actions to restore equity. Unfortunately, some such actions (e.g., quitting or lack of cooperation) may not be helpful to the organization. Two recent empirical studies provide good examples of the types of counterproductive behaviors that can occur as a result of perceived inequity. In the first study, Greenberg (1990) examined how an organization2 communicated pay cuts to its employees and the effects on theft rates and perceived equity. Two organization units received 15% acrossthe-board pay cuts. A third unit received no pay cut and served as a control group. The reasons for the pay cuts were communicated in different ways to the two pay-cut groups. In the "adequate explanation" pay-cut group, management provided a significant degree of information to explainits reasons for the pay cut, and also expressed significant remorse. In contrast, the "inadequate explanation" group received much less information and no indication of remorse. The control group received no pay cut (and thus no explanation).The control group and the two pay-cut groups began with the same theft rates and equity perceptions. After the pay cut, the theft rate was 54% higher in the adequate explanation group than in the control group. However, in the "inadequate explanation" condition, the theft rate was141% than in the control group. In this case, communication had a large, independent effect on employees’ attitudes and behaviors. Cowherd and Levine (1992) used a sample 102 business units in 41 corporations to examine whether the size of the pay differential between lower-level employees and top management had any impact on product quality. Cowherd and Levine suggest that individuals often compare their pay to that of people higher in the organization structure. If lower-level employees feel inequitably treated, they may seek to reduce their effort to achieve equity. Quality, in their study, was defined as customer perceptions of the quality of goods and services. They hypothesized that extra role, or citizenship behaviors, such as freely offering to help others, following the spirit rather than letter of rules, and correcting errors that would ordinarily escape notice, would be less likely when pay differentials between hourly and top managerial employees were large. Their results supported this hypothesis, suggesting that Employees may use other comparisons standards also, such as their previous or expected future jobs or cost of living. Organizations need to take care that they not forget the potential adverse motivational consequences of executive pay for the motivation of other employees. Compensation Management Practices in Banking Sector of Bangladesh: A Case Study on Dhaka Bank Ltd. Page 8

 Agency Theory Agency theory, until recently best known in the economics, finance, and law literatures, focuses on the divergent interests and goals of the organizations stakeholders, and the ways that employee compensation can be used to align these interests and goals (Eisenhardt, 1989; Fama &Jensen, 1983). Ownership and management (or controls) are typically separate in the modern corporation, unlike the days when the owner and manager was often the same person. With most stockholders far removed from day-today operations, so-called agency costs (i.e., costs that arise from the interests of the principals/owners and their agents/managers not converging are created. What is best for the agent/manager may not be best for the owner. Examples of agency costs include management spending money on perquisites (e.g., "superfluous" corporate jets) or "empire building" (acquisitions that do not add value to the company but may enhance the manager’s prestige or pay) rather than seeking to maximize shareholder wealth (Lambert & Larcker, 1989). In addition, the fact that managers and shareholders may differ in their attitudes toward risk gives rise to agency costs. Shareholders can diversify their investments (and thus their risks) more easily than managers can diversify risk in their pay. As a consequence, managers may prefer relatively little risk in their pay (e.g., high emphasis on base salary,-low emphasis on uncertain bonuses or incentives). Indeed, research shows that managerial compensation in manager-controlled firths is more often designed in this manner (Tosi & Gomez-Mejia, 1989).Agency costs also stem from differences in decision-making horizons. Especially where managers expect to spend little time in the job or with the organization, they may be more inclined to maximize short-run performance (and pay), perhaps at the expense of long-term success. Agency theory is also of value in the analysis and design of non-managers compensation. In this case, the divergence of interests may exist between managers (now in the role of principals) and their employees (who take on the role of agents). In designing either managerial or non-managerial compensation, the key question is, "How can such agency costs are minimized?" Agency theory says that the principal must choose a contracting scheme that helps align the interests of the agent with the principals own interests (i.e., reduces agency costs). These contracts can be classified as either behavior oriented (e.g., merit pay) or outcome oriented (e.g., stock options, profit sharing, commissions). At first blush, outcome-oriented contracts seem to be the obvious solution. If profits are high, compensation goes up. If profits go down, compensation goes down. The interests of "the firm" and employees are aligned. An Compensation Management Practices in Banking Sector of Bangladesh: A Case Study on Dhaka Bank Ltd. Page 9

important drawback, however, is that such contracts increase the amount of risk borne by the agent. Furthermore, because agents are averse to risk, they may require higher pay (a compensating wage differential) to make up for it. Behavior-based contracts, on the other hand, do not transfer risk to the agent, and thus do not require a compensating wage differential. However, the principal must be able to monitor with little cost what the agent has done. Otherwise, the principal must either invest in monitoring/information or structure the contract so that pay is linked at least partly to outcomes. Which type of contract should an organization use? It depends partly on the following factors (Eisenhardt, 1989):  



  

Risk aversion. Risk aversion among agents makes outcome-oriented contracts more costly. Outcome uncertainty. Profit is an example of an outcome. Linking pay to profits (outcome-based contract) is more costly to the extent that profits vary and so there is a risk of low profits. Job programmability. As jobs become less programmable (i.e., less routine and less structured), and more difficult to monitor, outcome-oriented contracts become more likely. The increasing complexity of organizations and technology makes monitoring more difficult, and may help explain the growing use of variable pay programs (discussed below), which are examples of outcome-based contracts. Consistent with this idea, outcome-oriented contracts (e.g., profit sharing and stock plans) are more prevalent in research and development organizations, where monitoring is especially difficult (Milkovich, Gerhart, & Hannon, 1991). Pay levels are also higher, consistent with the idea that employees must be compensated for sharing more risk. Measurable lob outcomes. When outcomes are more measurable, outcomeoriented contracts are more likely. Ability to pay. Outcome-oriented contracts contribute to higher compensation costs because of the risk premium. Tradition. A tradition or custom of using (or not using) outcome-oriented contracts will make such contracts more (or less) likely.

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3. An Overview of Banking Sector in Bangladesh The Banking Industry in Bangladesh is a complex and competitive one. The sector can be diagramed as follows:

The sector can be diagramed as follows:

Bangladesh Bank

Specialized Banks

Nationalized Banks

Commercial Banks

Private Commercial Banks

Non-Banking Financial Institutions

Foreign Banks

A brief description of each of the groups is noted here: Bangladesh Bank Bangladesh Bank is the Central Bank of Bangladesh and the chief regulatory authority in the sector. The banking system consists of four nationalized commercial Banks, around forty private commercial banks, nine foreign multinational banks and some specialized banks. The ministry of Finance in association with Bangladesh bank regulates the banking sector through monetary and fiscal policies whereas banks are operating under guidelines set by Bangladesh Bank.

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Specialized Banks These banks basically are specialized micro-finance institution, which revolutionized the concept of micro-credit and contributed greatly towards poverty reduction and the empowerment of women in Bangladesh.

The Nobel-prize winning Grameen Bank is a specialized micro-finance institution, which revolutionized the concept of micro-credit and contributed greatly towards poverty reduction and the empowerment of women in Bangladesh. Out of the specialized banks, two (Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank) were created to meet the credit needs of the agricultural sector while the other two ( Bangladesh Shilpa Bank (BSB) & Bang ladesh Shilpa Rin Sangtha (BSRS) are for extending term loans to the industrial sector. The Specialized banks are:

       

Grameen Bank Bangladesh Krishi Bank Bangladesh Shilpa Bank Rajshahi Krishi Unnayan Bank Bangladesh Shilpa Rin Sangstha Basic Bank Ltd (Bank of Small Industries and Commerce) Bangladesh Somobay Bank Limited (Cooperative Bank) The Dhaka Mercantile Co-operative Bank Limited (DMCBL)

Nationalized Banks The banking system of Bangladesh is dominated by the 4 Nationalized Commercial Banks, which together controlled more than 50%-55% of deposits. The nationalized commercial banks are:    

Sonali Bank Janata Bank Agrani Bank Rupali Bank

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Private Commercial Banks Private Banks are the highest growth sector due to the dismal performances of government banks (above). They tend to offer better service and products.            

AB Bank Limited BRAC Bank Limited Dutch Bangla Bank Limited Dhaka Bank Limited Islami Bank Bangladesh Ltd IFIC Bank Limited United Commercial Bank Limited NCC Bank Limited Prime Bank Limited Exim Bank Limited Bank Asia Limited Trust Bank Limited and many more

Foreign Commercial Banks      

Citigroup HSBC Standard Chartered Bank Commercial Bank of Ceylon State Bank of India National Bank of Pakistan and many more

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4. The Segments of Pay Components in Banking Sector of Bangladesh

To evaluate the various components of the total compensation package, the values of non-cash perquisites and benefits have been monetized at current market rates.

While computing Annual Guaranteed Cash, items like Performance Bonus, which is variable, and Terminal Payments have not been taken into account though these have been considered for the purpose of Annual Cost to the Company.

The compensation package has been divided into five segments: a) b) c) d) e)

Monthly Guaranteed Cash Annual Guaranteed Cash Annual Variable Cash Terminal Payments Monthly Cost of Benefits

a. Monthly Guaranteed Cash  Basic Salary Actual average basic salary of the benchmarks has been taken.

No employer agrees to provide actual individual salary for the benchmark jobs as this is confidential between the employer and the employee. Where a job is held by one person, the individual’s actual salary has been shown. Where 2/3 benchmark jobs fall under one grade, actual average of that grade has been taken. Where actual average has not been available, the meaningful point of the salary range, applicable to the job grades of the benchmark has been taken.

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 House Rent Allowance Specific amounts or percentage of basic salary paid in cash for each matched job have been taken.

 Domestic Aid’s Wage Specific amounts paid in cash for each matched job have been taken.

 Utilities / Maintenance Specific amounts paid as cash allowance have been taken.

 Transport Allowance Specific amounts paid in cash for each matched job have been taken.

 Medical Allowance A specific amount paid in cash has been used.

 Personal / Special / Other Allowance Specific amounts paid in cash as allowances have been utilized. Quite a few costs are lumped into this and paid in cash. With reduction of personal tax slabs, employers are opting for a more transparent pay system conforming to the tax regulations.

 Meal Allowance Specific amounts paid in cash as allowance have been used.

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 Children Education Allowance Specific amount paid in cash has been used.

b. Annual Guaranteed Cash  Annual Bonus

This is a deferred wage not linked to profitability. Actual amount paid under this head has been used.  Festival Bonus Actual amount paid under this head has been used.

 Leave Fare Assistance Actual amounts paid to the employees have been taken.

c) Annual Variable Cash  Performance Bonus Actual amounts paid have been taken. This is paid by the employers in different forms based on:

 Employee’s performance only  Combined performance of the group, business unit and the employee  Company performance

 Profit Bonus Actual amounts paid, based on company profitability, have been taken.

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 Incentive Bonus SMC pays an incentive bonus to its all its employees. The incentive amount is a fixed sum for each grade.

d) Terminal Payments

 Provident Fund Actual payments made by the employers to the Fund have been used.

 Gratuity Actual amounts provided by the employers in the Books of Accounts have been used.

 Pension Fund Actual payments made by the employers to the Fund have been used.

e) Monthly Cost of Benefits

 Company Leased Accommodation Actual cost has been taken.

 Household Effects (Depreciation) This reflects the cost of depreciation on account of hard and soft electrical appliances provided by the comparators.

furnishing and

 Utilities / Maintenance Costs under this head have been taken at actual. Compensation Management Practices in Banking Sector of Bangladesh: A Case Study on Dhaka Bank Ltd. Page 17

 Telephone Actual cost has been taken.

 Company Car (Depreciation) Where company cars are provided for both functional and personal purposes, the figures mentioned represent the cost of depreciation.

 Running and Maintenance Cost Actual amounts spent for fuel and car maintenance have been used.

 Driver’s Wages Where drivers are Company employees, their actual cost has been taken. Where Private Driver's wages are paid for, actual amounts paid to the employees have been taken.

 Registration / Insurance / Tax Costs of registration, insurance, tax, etc. have been taken, at actual.

 Pickup-Drop / Transportation Cost Actual cost to the company for pickup-drop facility has been taken.  Entertainment Allowance Specific costs reimbursed have been utilized.

 Canteen Subsidy Specific costs on account of company provided subsidized meals have been taken.

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 Company Products Specific costs on account of company products have been taken.  Club Membership The actual amounts paid for by the employers have been utilized.

 Group Life Insurance Actual premium paid by the employers has been used.  Medical Expense The average cost to the employer on account of medical reimbursement has been used, at actual.

 Hospitalization Scheme Premium paid by the comparators under the Hospitalization Insurance Policies has been taken at actual.

 Loan Amount of interests absorbed by the comparator for utilization of various loan policies has been taken.

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 Fringe Benefits Employee benefits, sometimes called fringe benefits, are those rewards that employees receive for being members of the organization and for their position in the organization unlike wage, salaries and incentives, benefits are usually not related to employee performance. The term fringe benefits was coined over 40 years ago by the war labor Board, Reasoning that employer provided benefits such as paid vacation, holidays and pensions were on the fringe of wages , are agency exempted them from pay controls. It has been argued that this action, more that any single event, led to the dramatic expansion of employee benefits that has since occurred. However, because of the significance of benefits to total compensation, many employers have dropped the word fringe for fear that it has a minimizing effect. Following is the list showing the types of benefits that employees can receive from the company: RETIREMENT

INSURANCE

RELATED

RELATED

PAYMENT FOR TIME NOT

OTHERS

WORKED

Pension fund

Medical insurance

Vacation

Company discounts

Annuity plan

Accident insurance

Holidays

Meals furnished by company

Early retirement

Life insurance

Sick leave

Moving expenses

Disability insurance

Military leave

Severance pay

Dental insurance

Paid rest periods

Tuition refunds

Survivor benefits

Lunch periods

Credit union

Travel time

Company car

Disability retirement Retirement gratuity

Legal service Financial counseling Recreation facilities

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5. Dhaka Bank Limited 5.1 Background of Dhaka Bank Limited (DBL) Dhaka Bank Limited (DBL) was incorporated as a Public Limited Company on April 06, 1995 under the Company Act 1994 and started its Commercial Operation on June 05, 1995 as Private Commercial Bank. The Bank started its journey with an Authorized Capital of Tk.1000.00 Million and Paid up Capital of Tk.100.00 Million. Today it is one of the most renowned Private Commercial Banks having multiple branches in the major cities of the Country.

Dhaka Bank Limited (DBL) has started its Business with all the features of a Corporate Bank and the Products of both Corporate and Retail Banking System; to facilitate the daily clientele requirements. DBL is always trying to improve their Customer Services in every sector, but in today’s Competitive Business World, Banks need to offer additional concentration to the Clients‟ requirements in order to stay at the top. Therefore, besides dealing with the general attributes of Different Products, they have been trying to put more emphasis on the Customer Benefits and other Customer related Facilities.

Mission & Vision The Mission of the Dhaka Bank Limited (DBL) is to be the Premier Financial Institution in the country providing High Quality Products and Services backed by Latest Technology and a Team of Highly Motivated Personnel to deliver Excellence in Banking. “The stars in the seven skies sparkle in brilliance and twinkle in blissful beauty. We wonder at them in profound admiration and speculation. At Dhaka Bank we draw our inspiration from the distant stars. Our team is committed to assure a standard that makes every banking transaction a pleasurable experience. Our people, products and processes are aligned to meet the demand of our discerning customer. Our goal is to achieve a distinction like the luminaries in the skies. Our prime objective is to deliver a quality that demonstrates a true reflection of our vision Excellence in Banking.”

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Goals of the Bank



Long-term Goal:

To be the Market Leader both in terms of Deposits and good advances among Private Commercial Banks in Bangladesh by the year 2009.



Short-term Goal:

To increase Current Market Shares.



Financial Goal:

To reduce the existing Cost of Fund

Values      

Customer Focus Integrity Team Work Respect for Individual Quality Responsible Citizenship

Management Committee

Mr. Khondker Fazle Rashid Managing Director

Mr. Tanweer Rahim Deputy Managing Director Compensation Management Practices in Banking Sector of Bangladesh: A Case Study on Dhaka Bank Ltd. Page 22

Mr. Kaiser Tamiz Amin Deputy Managing Director

Mr. Neaz Mohammad Khan Deputy Managing Director

Mr. M.M. Haikal Hashmi Senior Executive Vice President Head of Credit Compliance & Administration

Mr. Arham Masudul Huq Senior Executive Vice President Company Secretary

Mrs Shamshad Begum Principal, Dhaka Bank Training Institute & Head of Human Resources Division

Mr. S.A.F.A. Musabbir Executive Vice President Legal & Recovery

Mr. Fakhrul Islam Senior Vice President Head of Operations

Mr. Shah Azizul Islam Senior Vice President In-charge, Retail Banking Compensation Management Practices in Banking Sector of Bangladesh: A Case Study on Dhaka Bank Ltd. Page 23

Mr. Md Shahadat Hossain Senior Vice President In-charge- Credit Operations

Mr. Darashiko Khasru Vice President Head of Finance & Accounts Division

Mr. J.Q.M. Habibullah Vice President Board Secretariat & Share Division

Mr. Imran Ahmed Vice President In-charge-RMU & Head BASEL-II Imp Cell

Mr. Syed Faisal Omar Vice President In-charge, Global Transaction Services

Mr. Md. Shaukat Ali Khan Vice President In-charge, SME Unit

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Mr. Faruk Ahmed Senior Assistant Vice President In-charge, CPC-Trade Operations

Mr. A K M Ahsan Kabir Senior Assistant Vice President In-charge Internal Control & Compliance

Mr. Saiful Momin Senior Assistant Vice President In-charge, Information Technology Division

Mr. Mesbah Uddin Ahmed Senior Assistant Vice President In-charge, Syndication & Structured Finance

Mr. Shaikh Altaf Mahmud Senior Assistant Vice President In-charge, Monitoring

Mr. Kamrul Aziz Nippon First Assistant Vice President In-charge, Capital Market Services

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Mr. K. M. Faisal Faruqui Assistant Vice President In-charge Treasury Division

Mr. Ibrahim Khalil Senior Principal Officer Head of Public Relations & Brand Communication

5.2 Total Compensation and Benefits Package of DBL

 Objectives

This chapter outlines the rules relating to compensation structure and the benefit package of the Bank and gives detailed procedures for exercising them in order to promote fair treatment and consistency within the organization.

 Salary Structure

Refer to the Salary & Remuneration Package Structure for Supervisors and Executive Staff of DBL for details regarding the structure of salary and allowances for different units under DBL.

 Revision of Pay Elements

The compensation structure may be revised, if necessary, with the approval of the Director, Admin/HR, Head of the Dept., Finance and the Chief Executive.

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 Employee Compensation Records

Employee Pay Records are maintained by the Personnel & Admin Department for Workers and Supervisors and by the Human Resource Department for the Executives. These departments maintain personal file of all employees where all records in regards to the employee are kept in addition to any soft copy (in computer database) maintained by the departments. These records are confidential and should not be accessible to any unauthorized persons (authorization defined by HR or Personnel & Admin dept. head).

5.3 Basic Employee Benefits for Permanent Employees

 Provident Fund The Bank's Provident Fund is a funded scheme. All confirmed and permanent employees are entitled to be members of the Provident Fund. The employee contribution, equal to 10% of the basic salary, is deducted each month through the payroll. The Bank contributes an equal amount and both the employees' and the organization's contributions are paid to the Fund each month. In the Provident Fund Ledger, both the employee's and the Bank's contributions are credited to the individual employee's account.

The membership of the Trustees of the Provident Fund must include at a minimum: a) Representation from the HR Department b) Representation from Finance & Accounts Department c) Two representatives from the Workers

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 Group Term Life Insurance The Bank provides coverage of life insurance to all Permanent employees after their joining with the organization effective on the date of joining. To participate in the Group Term Life Insurance policy, all employees are required to fill up "Group Term Life Insurance Registration Form", and submit to HR/Personnel & Admin dept for processing. To change the beneficiary at any time, the employee must complete the “Beneficiary Change Form”, and submit to the Human Resource Department or to the Personnel & Admin dept. for making the changes.

In the event of the death of an employee while in the bank’s service, other than: 1) death by suicide, 2) death by criminal prosecution, or 3) death by taking part in any activities subversive of the state, the bank depending on the classification of employees shall pay benefits on normal death and accidental death from insurance bank as follows: Employee classification

Normal death benefit

Accidental benefit

Executives

36 month salary

72 month last basic salary

last

basic

death

Detail of compensation other than death (partial disability) will be determined as per calculation within the purview of insurance coverage policy. No recovery or adjustments of loans or salary advances etc. shall be made from the insurance claim benefits. In addition to this coverage of insurance benefits compensation will also be made as per "Workman's Compensation Act 1923" in the case of death/disability of employees.

5.4 Bonuses All confirmed Permanent employees of Dhaka Bank Limited are entitled to one Annual Bonus each equivalent to “Basic Salary” under the following conditions: Attendance in the Calendar Year

Bonus Entitlement

213 days +

100% of the Bonus

107 days +

50% of the Bonus

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5.5 Meal Facilities The following facilities are provided in each of the organization under Dhaka Bank Limited:  Branches Executives:  Meals are provided at a subsidized rate.

 Head Office: Executives:  No meals are provided.

5.6 Accommodation The Bank on the basis of requirements and availability provides accommodation to DBL’s Top Executives at their own established facilities in Dhaka city. Outside the Dhaka city, the Bank provides expenses of the accommodation.

5.7 Utilities Allowances Executives between grades J to M4: No utility allowance is paid. Executives of grades M5 and above: Designation

Manager / Sr. Manager EVP and above

Electricity

Gas

Water

2,500

At Actual

At Actual

Telephone (Limit/Month) (Limit/Month) (Limit/Month) (Local & NWD) Taka Taka Taka (Limit/Month) Taka

At Actual

At Actual

At Actual

At Actual At Actual

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To get reimbursed for utilities bills, complete “Expense Reimbursement Form”, and submit to the Accounts Department. The Accounts Department will make reimbursement payment to the employee within 45 days from the date of submission. Telephone bill has to be forwarded to the IT department, so payments can be made by the company, if it is in the name of the Bank.

5.8 Medical Benefits

 Medical Benefits for the Executive Staff The bank will reimburse the cost of authorized medical treatments in Bangladesh including hospitalization, surgical and childbirth subject to the conditions mentioned hereunder. In case of any overseas treatment prior approval from the Chief Executive is required. The following are the basic guidelines in regards to medical benefits provided to the Executives: i.

Treatment to be carried out by a registered Medical Practitioner. The Bank reserves the right to approve the Medical Practitioner consulted. ii. Dental treatment included as preventative measures, the Bank will reimburse for „Upper and Lower‟ dental cleaning twice a year. iii. Reimbursement of the cost will be restricted to the treatment of the executive, spouse and children. iv. Relevant details including names and dates of birth of spouse and the eligible children should be sent to HRD for record. v. Children attaining 21 years of age or getting married, whichever is earlier, will not be entitled to reimbursement of the cost of medical treatment. vi. Expenditure on medical treatment of Executives is reimbursed by the company as per following entitlements: vii. Expenses Cannot not be claimed: The Bank will not reimburse the following expenses:  The supply of dentures and false caps.  Any cosmetic dental work.  The supply of spectacle frames.  Special diets except in hospitals under medical advice  Treatments not covered under paragraphs (i) and (ii) Compensation Management Practices in Banking Sector of Bangladesh: A Case Study on Dhaka Bank Ltd. Page 30

5.9 Transportation Facilities and Car Purchase Scheme

 Transportation Facilities for the Executives Executives DBL Branches: There are no transportation facilities provided for the Executives between grade J to M4 Head Office: There are no transportation facilities provided for the Executives between grades J to M4. For business purpose travel, Pool Car can be provided based on availability.

 Car Purchase Scheme: Senior Executives: Employees in this grade, which is Managers, Senior Managers, and Vice President, are eligible to apply for a Car Purchase Scheme upon the expiry of one month after the date of joining in the Bank. To initiate the request for participating in this Car Purchase Scheme, the employee is required to write a note to the HR Department. The Human Resource Department then gets necessary approvals and then forwards the request to the Head Office Admin department.

The objective of the scheme is to provide financial assistance to bank executives for the purchase of cars and thus to provide executives with transport necessary for carrying out their duties.

An employee who has acquired a car under this scheme will not be eligible to apply again for a period of five (5) years. The following are the approved specification of the transport and benefit given to the employee:

Compensation Management Practices in Banking Sector of Bangladesh: A Case Study on Dhaka Bank Ltd. Page 31

Description of the car :

1300/1500 cc new or reconditioned. Four door Sedan.

Car Price :

Tk 900,000/= (maximum Tk 1,000,000)

Purchase Contributions :

Employee – 50%; Bank – 50%

Fuel Allowance

Allowance of 350 liters per month to be paid by the Bank f o r w o r ke r b a s e d a t H e a d O f f i ce a n d a l s o worker who are working at the branches.

Maintenance:

Based on manufacturer‟s year model, for up to 6 year old car, the Bank will pay a maintenance allowance of Tk 3,000/= per month. For 8 years or older cars, the Bank will pay a maintenance allowance of Tk 4,000/= per month. For 10 years or older cars, the Bank will pay a maintenance allowance of Tk 5,000/= per month.

Driver :

The money will be accumulated in the employee’s account in the accounts department and will be utilized for repairs and maintenance when they arise. The accounts department will be responsible to pay the money immediately upon submission of paid in receipt from the Workshops. To be employed by the employee concerned. An allowance of Tk 4,100 per month will be paid by the Bank to cover the driver’s salary.

Major Accidental Repairs

st

Any vehicle under this scheme will maintain a 1 Party insurance. The Admin. Department will ensure filing of all insurance claims considering the amount of money required to repair and the amount of deductible. The amount of deductible and/or the amount of repairs will be split 50:50 between the employer and the employee if the balance of the maintenance fund is not adequate to cover the expenses. The employer initially will make the full payment to the insurance company and/or to the repair shop, then the portion of the employee will be deducted from the salary in equivalent 12 installments, if not covered by the insurance. The Admin. Department (and the employee if willing to) will supervise all repair work and do the administrative tasks, then forward a bill of the employees portion, signed by the employee, to the Accounts Department for repayment.

Compensation Management Practices in Banking Sector of Bangladesh: A Case Study on Dhaka Bank Ltd. Page 32

Purchase of re-conditioned cars will be subject to inspection on behalf of the Bank, by the Transport department or by a workshop designated for this purpose by them. The car will be checked for engine and body condition, suspension and safety features. The “Automobile Inspection Report” will be completed and signed by the Administration Department for processing the request of car purchase. The company, bank or a leasing company may finance the purchase of the car. The car will be initially registered as follows: By the company

- in the name of the company

Through a bank loan

- as stipulated by the bank

Through a leasing contract

- in the name of the leasing company

The employee’s 50% contribution towards the cost of the car will be paid by him to the Bank in equal monthly installments over a period of three years if the car is financed by the Bank, or over a period equal to the currency of the loan or leasing contract, as the case may be.

If the car is acquired through a leasing contract or a bank loan, the employee will be required to contribute 50% of the lease payments or loan installments every month until the expiry of the lease period.

If the price of the car exceeds Tk 1,000,000 the employee will pay the amount in excess of Tk 1,000,000 to the company in cash.

The Bank’s 50% contribution to the cost of the car will be amortized over a period of five years. After the expiry of this period, or the expiry of the leasing contract if the car has been leased, or the repayment of the bank loan if the car has been acquired through a bank loan, and subject to prior receipt of the final installment of his contribution, the ownership of the car will be transferred to the employee. Costs incurred in connection with the transfer will be payable by the employees.

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In the event that the employee leaves the Bank before the expiry of five years, he shall have the option to purchase the car from the Bank at the written down value in the books of the Bank, plus the total of the unpaid installments towards, his own contribution. This option to purchase will only be available to an employee who has been with the company for a minimum period of two years. In case he does not choose to exercise the purchase option, the Bank will reimburse the employee 75% of the amount contributed by him/her towards the cost of the car, and the car will then remain in or be transferred to the ownership of the Bank.

The employee will be expected to use the car for the Bank’s business as well as for fulfilling his private transport needs, including the transport of children to school, etc. Employees who have availed for this scheme are expected to meet all their transportation needs with the vehicle provided under scheme. No other transport will be provided to an employee who has availed of this scheme. However, if the employee is asked to travel outside Dhaka on Bank’s business, he will be reimbursed at Tk. 6/- per km, subject to prior permission from his department head, plus an allowance of Tk. 100/- per day for the driver. Tolls and other expenses will be paid at actual.

Repairs and maintenance of the vehicle will be the responsibility of the employee. A maintenance allowance will be paid as explained earlier in this section.

All taxes, fees, duties, registration costs, and insurance will be paid by the Bank. The employee must inform the Admin Department one month prior to the due date for Fitness/Insurance and the Admin Department will take full responsibilities to complete the said tasks.

The Bank’s approval to participate into this scheme will be based on the nature of the employee’s job and on the availability of funds with the Bank, at the time when the application to join the scheme is made.

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The employee may choose to select a car that is presently in the name of the Bank and if made available to the employee for purchase. The administrative department will be responsible to identify the market value of the car, get approval from the HR Department, and make an offer to the employee. For the purchase of the company car, the employee shall be liable to pay 50% of the market value of the vehicle, in equal monthly installments to the Bank over a period of three (3) years. All other terms and conditions shall remain the same. The Management reserves the right to change, modify, amend, cancel or waive any or all of the provisions of this scheme at its absolute discretion and without any prior notice and also to withhold or reject any application to join the scheme, without assigning any reason whatsoever.

Top Executives Top Executives of grade M6 and above, i.e. Sr. Vice President and above are entitled to 24 hours company paid transportation. The company also pays for the fuel at cost, Driver’s salary, and for all necessary maintenance/repair and administrative cost of the vehicle.

5.10 Leave Entitlements  Basic Leave Types

All Permanent Executives of the Bank are entitled to various types of Leaves that are calculated based on calendar year and prorated from the date of joining the Bank's service for the first year. Leave entitlements of expatriate (Contract) employees shall be governed by their respective terms of employment with the company specified in the Appointment Letter.

For Employees the leave entitlements are calculated in accordance with "The Shops and Establishment Act 1965", Factories Act 1965 and the Factory Rules 1979.

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These entitlements are as follows: Types of Leave Casual Leave (with full wages)

Days Per Year 10

Sick Leave (on ½ average wages)

14

Earned Leave (1 for every 22 days actual work with wages)

12

Public Holidays

10 (minimum)

The following are the Basic Leave entitlements for the Executives at Head Office: Types of Leave

Days Per Year

Weekends (with full wages)

As per Section 5.5

Casual Leave (with full wages)

15

Sick Leave (with full wages)

10

Earned Leave

15

Public Holidays

As per list of holidays declared by the Govt.

The following are the Basic Leave entitlements for the Executives at Branches: Types of Leave

Days Per Year

Weekends (with full wages)

As per Section 5.5

Casual Leave (with full wages)

15

Sick Leave (with full wages)

10

Earned Leave

15

Public Holidays

10 (minimum)

Public Holidays for Head Office worker are governed by the policy of the Board of Directors of the Bank and is based on the list of holidays declared by Govt. For Branch employees, the Management determines the Public Holidays (minimum 10 days) and it is announced at the beginning of the year. Compensation Management Practices in Banking Sector of Bangladesh: A Case Study on Dhaka Bank Ltd. Page 36

5.11

Definitions of Basic Leave Entitlements

The following are some definitions of Basic Leaves entitlements:  Casual Leave Entitlement to casual leave for the Executive at Head-Office and Branch Site, it is 15 days based on each calendar year. The employee is entitled to exercise Casual Leave from the very next day of joining; though the Casual Leave is pro-rated for the balance period of the year counting from the joining date. Casual leave cannot be availed for more than three days at a time. Also, it cannot be carried forward to the following year or cashed. Casual Leave can be taken with Weekends, Public Holidays, Earned Leaves, etc. but be limited to only 3 days.  Sick Leave Entitlement to Sick Leave for the Executives at Head-Office and Branch Site it is 15 days on the basis of each calendar year. The employee is eligible to exercise the Sick Leave benefit from the date of his/her joining. The above entitlements represent the maximum number of days Sick Leave that an employee can avail in a year. Normally, medical certificates are not required but if the sick leave exceeds three days at a time or if it is being taken as an extension of Earned Leave, then a Medical Certificate is required. Where this is not the case an application for Sick Leave is considered enough. Sick leave cannot be carried forward to the succeeding year and cannot be cashed. If an employee is sick on Weekend or on a Public Holiday, that day will not be counted as a sick day and the number of Sick Leave taken out of his/her allocated days will be excluding those days.  Earned Leave Entitlement to Earned Leave for the Executives at Head-Office and Branch Site is 15 days on the basis of each completed year of service. A maximum of thirty (30) days can be accumulated. Any accumulation beyond this will automatically lapse on the following 1st of January each year. The entitlement to Earned Leave is exclusive of Weekends and Public Holidays i.e., Weekends and Public Holidays falling during the annual leave taken will be considered additional to the entitlement. Though Earned Leave is counted from the date of joining but it cannot be taken until the employee passes the probationary period receiving confirmation.

Compensation Management Practices in Banking Sector of Bangladesh: A Case Study on Dhaka Bank Ltd. Page 37

 Other Leave Options The following sections explain some additional leave options that an employee may exercise depending on the need.

 Maternity Leave Married woman employees are entitled to Maternity Leave benefit as per "The Maternity Benefit Act, 1939". The period of Maternity Leave shall be 84 actual days of absence which shall include the Public Holidays and Weekends (non-working days) and including the day of delivery. The entitlement to maternity leave is to be availed as follows:  Six weeks or 42 days immediately preceding and including the day of delivery.  Six weeks or 42 days immediately following the day of delivery.  A woman shall not be entitled to maternity leave unless she has been employed by the Bank for a period of not less than nine months immediately preceding the date of delivery.

 Study Leave An Executive may be granted Study Leave, with or without pay, entirely at the bank’s discretion, once s/he has been in the bank for at least one year. Study leave is normally granted if the course of study which the employee intends to pursue is likely to benefit the Bank’s operations. Study Leave can be given for up to a maximum period of two years.

 Hajj Leave A Permanent Executives who intends to perform Hajj at his own expenses, upon completion of one year of service, may be allowed for a 45 days Hajj Leave with pay at the sole discretion of the management. This leave can only be availed once in the entire period of service. Similar leave may be granted for employees other than Muslims, if the occasion is a once in a life time holy event significant to the believers. Compensation Management Practices in Banking Sector of Bangladesh: A Case Study on Dhaka Bank Ltd. Page 38

 Special Leave Special leave may be granted to the Permanent or Contract employees with or without pay and allowances at the sole discretion of the management. Application for special leave should be forwarded to HR/Personnel department, through the relevant departmental head, along with appropriate reasons and recommendations for necessary action. Some examples of such leave request may be for marriage, death in the family, etc.  Leave Encashment Executives before leaving the Bank due to resignation, retirement or termination are allowed to cash the Earned and Compensatory Leave due to them up to a maximum of 30 days, while for workers it is 20 days plus the prorated entitlement for the current year. The amount paid on encashment includes only the employee's last drawn basic salary for the period. Allowances are not included in this amount.

 Maintenance of Leave Records Approved leave applications received from departments are entered in a Leave Register and the lower portion of the leave application showing the balance of leave is sent to the employee. Leave records for all Executives and Head Office Staffs are maintained by HR Department.

5.12 Financial Assistance Schemes

 Objectives To meet various emergency and incidental expenses, the Bank provides financial assistance in the form of advance payment of salary and loan against provident fund to its employees. The following sections give detailed procedures for salary advances and loan sanctions under Financial Assistance Schemes.

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 Priorities for Loan against Provident Fund (PF) or Salary Advance The following priorities will be maintained for PF loan or salary advance request processing: 1) Medical emergencies for spouse or children 2) Death of Spouse or children 3) Medical emergencies for other dependent 4) Death of other dependent 5) Rental advance 6) Own marriage 7) Other emergencies 8) Marriage of siblings 9) Education 10) Other requirements

 Loan against Provident Fund (PF) or Salary Advance Eligibility and Limits  Loan against Provident Fund 1. All Permanent employees who have contributed to atleast18 installments in the Contributory Provident Fund of Dhaka Bank Limited and have been in the Bank for less than 3 years, are eligible to take loan against the provident fund equal and up to 75% of the employee’s own contribution. 2. All Permanent employees who are members of the Contributory Provident Fund and have been in the Bank for more than 3 years but less than 4 years, are eligible to take loan against the provident fund equal and up to 100% of the employee’s own contribution. 3. All Permanent employees who are members of the Contributory Provident Fund and have been in the Bank for more than 4 years but less than 5 years, are eligible to take loan against the provident fund equal and up to 70% of the total contribution (employee’s own contribution + Bank’s contribution). 4. All Permanent employees who are members of the Contributory Provident Fund and have been in the Bank for more than 5 years are eligible to take loan against the provident fund equal and up to 75% of the total contribution (employee’s own contribution + Bank’s contribution).

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 Salary Advance Salary Advance is given only in those situations where the Permanent employee does not have enough contribution to the Provident Fund but the urgency is very high. Usually one month’s average gross salary is given as advance but based on the emergency; a maximum of two months‟ salary can be given as advance.

 Repayment of Loan or Salary Advance One month’s grace period is given to the employee before the repayment starts. The employee, through automatic deductions by the Accounts Dept. from his/her Paycheck, makes the payment. The following are some guidelines for repayment s: 1. If financial situation permits, the employee is asked to pay the money back with 6 equal monthly payments. 2. If the financial situation does not permit, the employee is given the opportunity to pay back with 12 equal monthly installments. 3. If the amount of loan is large and the repayment imposes hardship on the employee, it may be considered to extend the repayment schedule to a maximum of 24 equal installments. In such cases, the Department Head of the employee must recommend the accounts department to do so. 4. If the loan or advance is related to medical payments and the employee is eligible for medical benefit, the advance/loan will be applied towards the eligible benefit once the treatment is received. Upon receipt of all medical vouchers, the employee is required to submit “Medical Bills Reimbursement Form”, as per guidelines provided in Section 6.12.2 and apply the advance/loan towards the refund. Any excess amount taken as advance/loan must be paid back immediately after the treatment is over.

 Procedures to Apply and Processing of a Loan or Salary Advance Request The employee completes a “Loan Application Form”, and upon receiving an approval from the Department Head, submits to the Accounts Department. The Accounts Dept. personnel review the application, discuss with the employee if necessary, and let the employee know about the outcome. At the time of processing the loan/advance request, the Accounts Dept. identifies the repayment agreement discussing with the employee. Compensation Management Practices in Banking Sector of Bangladesh: A Case Study on Dhaka Bank Ltd. Page 41

The following are guidelines for loan/advance approving:

Loan Amount (Tk.) < or = 5,000.00 >5,000.00

<

or

> 20,000.00

Approval Authority Section Head responsible for Loan/Advance

= 20,000.00

Second level authorization by Manager or above. Department Head

6. SOWT Analysis:

Strength

Weakness

The main strength of DBL HR Division is the authority to work. DBL HR Division has authority to maintain the employee properly. They provide enough salary to employee. The employees from different division have proper respect for HR division. This respect was gained by the HR division. Opportunity In DBL there are four types of employee; Regular, Contractual, Part time and Internee. DBL HR Division has to look after all types of employee. HR division can work in several sectors along with those employees. Very few Bangladeshi organizations have this kind of opportunity. An additional thing is DBL also enough financial resources for successful implementation of HR policies.

Still Bangladesh has lack of enough compensation systems to satisfy & motivate employee. DBL does not have proper person to provide enough compensation to their employees. It is important to satisfy & motivate employees to increase productivity & performance. Thread It is also very difficult for DBL to handle with such a gigantic number of employees. It is very normal that any process can be bewildered when there are not enough internal resources. Sometimes the total process can be injudicious. Employee switch to other organization lack of compensation’s & benefits. They lose lots of talented worker just because of lack of compensation & benefits.

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7. Recommendations The Human Resources Management system of DBL is up to mark. But the management authority needs to look some major issues like compensation policies, allowances and transfer policies. DBL needs more man power for handling its huge volume of employee. Temporary employees at DBL do not have the security and stability that permanent employees have. They should be provided with little health care, pensions or other similar benefits. DBL should also set a production; distribution and sales target and any employee belonging to the particular area reaching a desired target in the first quarter should be selected as a permanent employee. At DBL teamwork is given immense importance as the management realizes the fact that the only way to attain and conform a high standard is by working like a well -knit unit. Thus it is imperative that Tapas should have an effective performance appraisal system, which fosters teamwork. DBL has devised a very comprehensive performance appraisal program in which each employee is given objectives against which his/her performance will be evaluated. For the setting up of these objectives with its work force, the company utilized Management by Objectives. The way these objectives are set is through mutual agreement, where the employees are told exactly what is required of them, how they will be evaluated against each of their objectives and what will be the reward in case if the objectives are met or exceeded. The mutual setting up of these objectives in a participative manner motivates the employee to achieve these objectives as they have a hand in setting them up as well. DBL should have a time limit, evaluation criteria and clearly defined rewards that will contribute towards motivating the employees to contribute the best towards fulfilling their goals.

8. Conclusion This study has been focused on the compensation system, practiced by a private bank of Bangladesh. There are some components that are taken into consideration during pay in our country, but it varies significantly among banks regarding pay. It could have been better, if we might have worked with all types of banks. Here in our study we have worked with only one type of bank. In our study we have tried to focus on the pay differences, possible reasons of using different pay components used by the banks in our country. Finally, we came up with some recommendations, which can be used for both of the banks so that they can perform better. Compensation Management Practices in Banking Sector of Bangladesh: A Case Study on Dhaka Bank Ltd. Page 43

9. References 1. Richard I. Henderson. (2012) Pearson Education, Inc. Panchsheel Park, New Delhi, India. 2. DeCenzo, D. A., & Robbins, S. P. (2008). Human Resource Management (Eighth Edition ed.).New Delhi: Prentice - Hall of India. 3. www.essaytown.com/paper/art-hallen-corporation-compensation-managementprogram-compensation-management-understand. 4. http://www.managementstudyguide.com/compensation-management.htm 5. http://en.wikipedia.org/wiki/Compensation_and_benefits. 6. http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi 7. http://www. http://dhakabankltd.com 8. www.scribd.com 9. www.slideshare.com 10. www.Academia.com

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