Chemical Bank

Topics: Logic, Cost, Profit Pages: 2 (563 words) Published: March 4, 2013
Financial measure of performance
Easy and widely accepted
May ignore important non-financial information
Profitability may be influenced by non-controllable factors Goal system
Fair and effective
May consider all relevant information
Hard to establish appropriate goals for each period
High cost and time-consuming

The “Pay for performance” approaches resemble the approach used for Treasury or Branches in the case. There is a saying “you get what you measure”. Branches do not get any credit in selling due bills while Treasury does, which exactly results in the conflict that scarifies the bank’s overall interests.

Arguments for
Incentives do matter
Not measuring performance is illogical and insensible
Many professionals are motivated by money
Existing pay schemes and union contracts too often protect the worst and discourage the best Arguments against
Get more of what can be measured instead of what we want •Potential for unintended consequences
Difficult to get a measure
There are always loopholes in the system

The arguments against PFP shed light on why the conflict between Treasury Group and the Branches occur. The inappropriate performance measure system causes the Branches to get rid of selling the profitable product, because this group would not benefit from the sale but only bear more costs. In the contrast, Treasury Group who has incentives and gets the full credit wants to sell more due bills through the Branches. The unintended consequence results in lots of resources waste and inefficiency in the Bank. The management may need to consider whether the systems used now are effective and how to develop a useful and fair evaluation system at the Bank level which would align all the groups with the Bank’s best interests.

I would say the highest level Treasury would give up could be $25 per transaction and lowest...
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