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Term Paper

On
“Performance linked incentive schemes of schedule banks”

Submitted to, Submitted by,


Mr. R.S.Deol Karan Wadhera
RT1803A16
10808494 (reg. no.)
CONTENTS
 EXECUTIVE SUMMARY
 SCHEDULE BANKS
 PERFORMANCE LINKED INCENTIVE SCHEMES
 INCENTIVE SYSTEM
 REVIEW OF LITERATURE
 PERFORMANCE LINKED INCENTIVE SCHEMES OF –
✔ STATE BANK OF INDIA
✔ ICICI BANK
 BIBLIOGRAPHY

EXECUTIVE SUMMARY
The basic purpose of this project is to find out what the various performance based
incentive schemes are and how are these being used by the bankers to improve
their profitability.
Scheduled Banks in India constitute those banks which have been included in the
Second Schedule of Reserve Bank of India(RBI) Act, 1934. RBI in turn includes
only those banks in this schedule which satisfy the criteria laid down vide section
42 (6) (a) of the Act.

The basic purpose of the PERFORMANCE BASED INCENTIVE SCHEMES is to


motivate the employees to work more effectively and efficiently in order to attain
the organizational goals. As we know that success of any service organization
depends upon how stong that bank is in managing its employees and retaining
them over the period of time to have much better customer and employee
relationship.
For my project I have studied the incentive schemes at :-
 STATE BANK OF INDIA
 ICICI BANK
These both are schedule banks , STATE BANK OF INDIA is a public bank where
as ICICI is a private bank.
State bank of India is following the PERFORMANCE BASED INCENTIVE
SCHEMES , which is based on basic pay + additional incentives.
ICICI bank is more towards ESOP-Employee Stock Option Plans and Early
Retirement benifts.

Scheduled banks
Scheduled Banks in India constitute those banks which have been included in the
Second Schedule of Reserve Bank of India(RBI) Act, 1934. RBI in turn includes
only those banks in this schedule which satisfy the criteria laid down vide section
42 (6) (a) of the Act.

As on 30th June, 1999, there were 300 scheduled banks in India having a total
network of 64,918 branches.The scheduled commercial banks in India comprise of
State bank of India and its associates (8), nationalised banks (19), foreign banks
(45), private sector banks (32), co-operative banks and regional rural banks.

"Scheduled banks in India" means the State Bank of India constituted under the
State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the
State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding
new bank constituted under section 3 of the Banking Companies (Acquisition and
Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking
Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or
any other bank being a bank included in the Second Schedule to the Reserve Bank
of India Act, 1934 (2 of 1934), but does not include a co-operative bank".

"Non-scheduled bank in India" means a banking company as defined in clause (c)


of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a
scheduled bank".

The following are the Scheduled Banks in India (Public Sector):


• State Bank of India
• State Bank of Bikaner and Jaipur
• State Bank of Hyderabad
• State Bank of Indore
• State Bank of Mysore
• State Bank of Saurashtra
• State Bank of Travancore
• Andhra Bank
• Allahabad Bank
• Bank of Baroda
• Bank of India
• Bank of Maharashtra
• Canara Bank
• Central Bank of India
• Corporation Bank
• Dena Bank
• Indian Overseas Bank
• Indian Bank
• Oriental Bank of Commerce
• Punjab National Bank
• Punjab and Sind Bank
• Syndicate Bank
• Union Bank of India
• United Bank of India
• UCO Bank
• Vijaya Bank

The following are the Scheduled Banks in India (Private Sector):


• ING Vysya Bank Ltd
• Axis Bank Ltd
• Indusind Bank Ltd
• ICICI Bank Ltd
• South Indian Bank
• HDFC Bank Ltd
• Centurion Bank Ltd
• Bank of Punjab Ltd
• IDBI Bank Ltd
• Jammu & Kashmir Bank Ltd.

The following are the Scheduled Foreign Banks in India:


• American Express Bank Ltd.
• ANZ Gridlays Bank Plc.
• Bank of America
• Bank of Tokyo Ltd.
• Banquc Nationale de Paris
• Barclays Bank Plc
• Citi Bank N.C.
• Deutsche Bank A.G.
• Hongkong and Shanghai Banking Corporation
• Standard Chartered Bank.
• The Chase Manhattan Bank Ltd.
• Dresdner Bank AG.
PERFORMANCE LINKED INCENTIVE SCHEMES
The basic purpose of this system is to motivate the employees to work more
effectively and efficiently in order to attain the organizational goals.
As we know that success of any service organization depends upon how strong that
bank is in managing its employees and retaining them over the period of time to
have much better customer and employee relationship.

From the figure it’s clear that for attaining high profitability the banks should try to
have customer satisfaction which can only be attained if the employees are
satisfied and they work wholly and solely for the banks.
The scheme aims at rewarding the performers. The following officers are eligible
under this scheme:-
• Branch Managers.
• Managers of division at branches.
• Assistant General Managers of regions.
INCENTIVE SYSTEM

In many industries or undertakings and for a large group of operations well-


designed systems of payment by results shall yield advantages to all concerned.
Many of these benefits shall be realized when sufficient safeguards are provided.
Such prerequisites are:
1. The co-operation of workers in the implementation of an incentive scheme is
essential because the employees somehow devise, if they do not like a
scheme, ingenious ways of evading or sabotaging the plan, often with the
tacit connivance of the foreman of supervisor. Worker’s cooperation may be
secured through proper discussion with their representatives.

In particular, worker’s co-operation is necessary in:

(a) the methods followed in measuring the results or output upon which
payment is based
(b) the methods followed in setting wage rates for different classes of work and
(c) appropriate safeguards concerning earnings, job security and settlement of
disputes over piece-work rates and allotted time.
To prove that the schemes were often introduced without workers’ co-
operation and consequently met with failure we quote the following:

‘ .. the practice adopted by several industrial establishments in the Mumbai


region in regard to the preparation of an incentive scheme is to hire an
industrial consultant and to make him work in the establishment under the
cloak of secrecy, until a scheme has been finally prepared. It is only after
several months that the workers of the establishment and their unions begin
to suspect that some scheme is under preparation. Trade union leaders, who
are not employees currently, are not even allowed to watch how standards
have been evolved. Naturally, the workers reject out-of-hand, a scheme
prepared so surreptitiously.’
1. The scheme must be based on scientific work measurement. The standards
set must be realistic and must motivate workers to put in better performance.
Workers must be provided with necessary tools, materials and equipments
so as to enable them reach their standards.
2. Indirect workers, such as supervisors, foremen, charge hands, helpers, crane
operators, canteen staff, store keepers and clerical staff should also be
covered in the incentive scheme.
3. There should be management commitment to the cost and time necessary to
administer incentive schemes properly and these must be carefully assessed
before embarking on an incentive program. There are many situations in
which the potential gains are just not worth the cost and effort involved. It
also means a commitment in terms of integrity to the spirit as well as the
letter of the programme – having the courage to abide by it when the payout
deteriorates and the honor to own up when the results are not forthcoming.

4. There is a greater need for planning. Many incentive schemes, started


hurriedly, planned carelessly and implemented indifferently have failed and
have created more problems for the organization than they have tried to
solve. This was what happened to three big plants of Hindustan Steel (now
SAIL), where an incentive scheme was introduced during 1960s. Though the
initial objective of raising the output was achieved, problems arose regarding
production of sophisticated items and improvement of the quality of
products. The scheme did not function satisfactorily from the point of view
of maintenance of plant and equipment, which, in turn affected output. The
performance of ancillary units like the repair shops was unsatisfactory
because the incentives in these shops were based on the overall steel
production and not the units’ own performance. Thus, the need for careful
preparation for the installation of an incentive scheme.

5. The other safeguards are:

(a) The incentive scheme should be appropriate to the type of work carried out
and the workers employed.
(b) The reward should be clearly and closely linked to the efforts of the
individual or group.
(c) Individuals or groups should be able to calculate the reward they get at each
of the levels of the output they are capable of achieving.
(d) Individuals or groups should have a reasonable amount of control over their
efforts and therefore their rewards.
(e) The scheme should operate by means of a well-defined and easily
understood formula.
(f) The scheme should be properly installed and maintained.
(g) Provisions should be made for controlling the amounts paid, to ensure that
they are proportionate to effort.
(h) Provisions should be made for amending rates in defined circumstances.
(i) Create incentives for performance and disincentives for non-performance.
(j) Set and review specific objectives for each employee periodically.

Prerequisites of a Good Wage Incentive Scheme


The installation of an incentive scheme presupposes the existence of certain
prerequisites, which are, more often than not, ignored. Quite often, incentive
payments are just taken to be necessary part of the total wage packet, and hastily
conceived schemes are introduced primarily because of pressures from workers
and trade unions. such schemes naturally result in a number of personnel problems
which may, in fact, be
1.Impediments to improve productivity
It is, therefore, advisable to ensure that a proper climate exists for the introduction
of such schemes. Some important considerations, which should ordinarily be taken
into account while choosing a particular type of wage incentive scheme, are:
(i)The management should strive to create a proper climate by adopting sound
policies of recruitment, promotion, trading etc., right from the inception of an
enterprise. Unless there is mutual understanding and concern for improving
productivity, even a well-conceived incentive scheme may not yield the optimum
results. Therefore, the management must concentrate on creating a proper
industrial relations climate before introducing incentive schemes.
(ii) The objectives of the scheme must be clear, and these should be well
understood at the levels of management and of workers. Certain specific factors
may be selected as the basis for a scheme. Too many factors selected at a time may
make it complicated. The scheme should suit both the particular enterprise and its
workers. At every stage, right from the conception of the scheme to conducting
studies, etc., all the workers and supervisors should be consulted so that they
understand the objectives and benefits of the scheme and may contribute to its
success.
(iii)Incentive schemes should be installed only when production has reached 60 per
cent of the rated capacity. Care should be taken to provide a suitable gestation
mechanism in the scheme on a time-bound basis so that incentive payments at a
lower level of the performance are allowed only for limited time periods. The
quantum of incentive paid at the low levels of production and efficiency should be
such as to ensure that earnings continuously increase when the targets are raised.
(iv)The scheme chosen should be one which would result in overall economy for
establishment. Incentives should not only increase production but also result in
higher productivity and lower cost per unit; and the gains of increased productivity
should be shared both by the employer and the employed.
(v)The scheme should not be very costly in operation, i.e., it should not involve the
maintenance of very elaborate records, complicated calculations, and too much
material handling.
(vi)The scheme should be based on a work study, and the work contents of various
jobs should be stabilised.
(vii)In principle, each individual or group should be paid according to effort and
productivity, for disparity in earnings may create discontent. Unless the scheme i.e.
well defined, it may turn out that indirect groups may receive higher incentive
earnings than the main production group.
(viii)The scheme should have elasticity to take care of technological and other
changes taking place from time to time and rectify errors that may have crept in at
the time of its initial introduction.
(ix)The scheme should not undermine co-operation amongst the workers. It should
rather stimulate co-operation with a view to achieving the common objective of
increasing the well-being of the business and, therefore, of the workers in general.
(x) Performance standards and norms for incentive payments should be set up at
the average performance level of the employees, i.e., they should not be too high
nor too low. Such performance standards should be set as are within the control of
employees. The adoption of objective assessment procedures and the use of
functional responsibility are to be advocated in addition to such indices of
productivity as wage cost per unit sale, salary savings on inventory, etc.
(xi)To make the scheme effective, a climate should be created in which the
employees feel that the management is fair and just in its dealings with them on
wage incentive matters. For this purpose, mutual discussions and appropriate
management action would be called for.
(xii)Incentive payment should be made as soon as possible after a job is completed.
Any hastily conceived or haphazardly introduced incentive scheme does more
harm than good. Therefore, it should be introduced after a proper consideration of
the various preparatory measures.
2. Incentive Plans for White Collar Workers/Salesman
The salesmen are usually given incentives in the form of sales commissions. One
study reported that almost 75% of the organisations surveyed paid salesmen on
some type of incentive basis. This is due to three factors:
(i) The unsupervised nature of most sales work.
(ii) Tradition in the market, and
(iii) The assumption the incentives are needed to motivate salesmen.
There are several incentive plans, each appropriate for different markets, products,
etc., but all plans are basically variations of three types of plans: straight salary,
straight commission, and combination plans.
a. Straight Salary Method: Is not an incentive plan; the salesman is simply paid
on weekly, monthly, or on yearly basis. The advantages of this method are that:
(i) The salesmen know in advance what their income will be; and
(ii) The expenditure on salesmen is known beforehand.
The disadvantages are:
(i) This method tends to shift salesman’s emphasis to just making the sale rather
than prospecting and cultivating long- term customer; and
(ii) Pay is not related to results. This lack of relationship reduced salesmen’s
performance.
b.Straight Commission Basis: Under this method the salesmen are paid on the
basis of sates effected, i.e., they are paid for results and only for results. Therefore,
high performance salesmen are generally attracted. But the disadvantages are:
(i)Salesman focuses on making a sale on high volume items. Cultivating dedicated
customers and working to push hard-to-sell items are often neglected,
(ii)Salesmen tend to be less company-oriented and more money-oriented, and the
company has less control over them;
(iii)Salesmens income generally fluctuates widely.
(c) Combination Method of Salary and Commission Basis:
Under this, salesman not only gets a fixed salary but also a commission in
proportion to the sales effected. The advantages of this method are:
(i)Since salesmen are assured of minimum earnings, they are relieved of financial
worries.
(ii)The company has more control over its salesmen, as there is sizable salary
component in most combination plans. So that it can direct salesman’s activities by
detailing what services and salary component is being paid for.
But the main disadvantage is that salary is not related to performance; only
incentive value of money is being traded off for its security value. Such plans also
tend to become very complicated, and misunderstanding often results in
frustration. In spite of these disadvantages, these plans are widely used with
several basic variations.
d.Salary Plus Commission: Commission Plus Drawing Account where not only
commission is paid but the salesman is also allowed to draw on future earnings to
get him through low sales period; commission plus bonus, where salesmen are paid
primarily on the basis of commission but they are also given a bonus for activities
like slow moving items; and salary plus bonus, wherein salesmen are paid a basic
salary; and also given a bonus for carrying out specified activities.

3. Incentives for Management Employees


In many organizations, the managers are paid bonus. There are two types of bonus
plans: one determined by formula (i.e., some criteria like increased sales) and two,
determined by some discretion used in allocation of bonus (i.e., paid on more or
less permanent basis). The bonus plans are generally reviewed annually to make
them more effective. For top level management, bonuses are generally tied to
overall corporate results. The size of bonus is much higher for top-level executives,
and lower for the lower level executives.

Review of literature
 Jacob P. Koshy , Oct-2008

Performance-based incentive scheme now on a voluntary basis.


The study recommended an annual bonus of up to 20% to employees whose
achievements exceed certain targets, which has been accepted by the cabinet.
 Brian Bijdeveldt, 2009
Creating Effective Employee Incentive Schemes
Traditional Incentive Plans are probably not appropriate for many smaller
companies. However, with a little work and a little creativity, you can create an
Incentive Program for your small business that really will work

 Performance-Based Incentives Working Group , Jun-2009


Performance incentives affect utilization, quality and efficiency; provides guidance
for the design, implementation and evaluation of performance incentive
arrangements; and sets out recommendations for the donor community and for
policymakers and program managers in developing countries.
 Service target performance incentive scheme (March 2009)
The incentive schemes works best for the service industries such as banking ,
telecom , aviation etc where the core role is played by the employees for the
success of the organization. Thus there is need to provide the achievers with the
incentives in order to motivate them for their work.
 The Financial Express, April 2010
Performance-based incentives for public sector bank
execs
The incentive package would be determined on the basis of overall performance of the chairmen.
The bank chairmen would be required to project their targets at the beginning of the year. The
performance would be assessed on the basis of the target achievement,” the official said. The
autonomy of the bank CMDs has already been increased.
Earlier, the finance ministry had indicated the existing salary structure would not be tampered
with, but the hike would come in the form of incentives.

Performance linked incentive schemes of :-


 STATE BANK OF INDIA
The incentives will be given annually based on business performance and
other specified criteria.
The Scheme operates on the principle of achieving certain benchmarks of
performance and at the present juncture achievement of business and profitability
budgets for the branch are considered as the most noncontroversial and acceptable
benchmarks. The inclusion of profit as one of the criteria is to ensure that an
official will not be eligible merely on the achievement of budgetary goals in
deposits and advances alone. Profit is a derivative of proper mix of the interest rate
that is paid on deposits and received on advances. Moreover, profitability also
reflects the concern of the Branch Manager/Assistant General Manager in
controlling costs and improving other income by increasing non-fund based
business.
2. All AGMs who are controllers of regions, Branch Managers and Managers of
Divisions who achieve atleast 100% of their budgeted growth in aggregate
deposits, advances and net profit (not applicable to Managers of Divisions) during
the year ending 31st March will be eligible for consideration. Budget and
achievement for this purpose will be defined as quarterly average of deposits and
advances and net proftfor the year.
Further, for Branch Managers and AGMs of regions, there must be at least
75% budget achievement in deposits and advances in all market segments taken
together after excluding the C&I segment. For Branch Managers and Managers of
Divisions the audit rating of their branch should be A or A (+).
Separate criteria regarding audit ratings are stipulated for AGMs of regions. In
addition, there should be at least 50% achievement under the budget for NPA
recovery. The detailed criteria for each category are set out in.
1. These parameters for evaluation may undergo changes in future so as to keep an
element of challenge therein. The respective amounts of incentive are also set out’
3. The incentive will be in cash and it is proposed to be given to those who meet
the requirements detailed in Annexure I. The format in which the details of
performance of Branch Managers, Managers of Divisions and Assistant General
Managers of Regions is to be submitted to the Sanctioning Authority to claim the
incentive.
4. The Deputy General Manager of the Zone will be the Recommending
Authority for granting of incentives to Managers of Divisions, Branch Managers
and Assistant General Managers of regions under their control. The Deputy
General Manager (Credit Department) will recommend for grant of incentives to
BMs, MoDs of branches under his direct control. The General Manager
(Operations) will be the Sanctioning Authority. For operational convenience and to
ensure the motivational aspect, all the recommendations from a Zone must be put
up to the General Manager (Operations) in a single lot as early as possible and in
any case, not later than 31st May.
The incentives are proposed to be given on the following scales:-

1) For Branch Managers, the incentives will be subject to the following


conditions:
a) For achievement in deposits and advances, budgeted growth and actual
calculated as quarterly average for the entire year are to be reckoned. Year-end
budget achievement in deposits and advances in segments other than C&I, taken
together, must be atleast 75%. For profit, year-end achievement of the budget is to
be taken.
b) The audit rating of the branch should have been maintained at or upgraded to A
or A+. If the branch has been downgraded from A+ the incumbent will not be
eligible.
c) NPA recovery must be at least 50% of the budget of the branch.
d) The Branch Manager must have remained in that position on 31st March for 9
months or more.
2) For Managers of Divisions, the incentives will be subject to the following
conditions:
a) The incentive scheme applies to divisions that have budgets for deposits,
advances and NPA recovery.
b) In respect of Managers of Divisions (P&SB, NRE, SIB, C&I & Agriculture) for
achievement in deposits and advances, budgeted growth and actual calculated as
quarterly average for the entire year are to be reckoned. Since divisional budgets
are not settled for profit this parameter will not apply.
c) The audit rating of the branch where the division functions should have been
maintained at or upgraded to A or A+. If the branch has been downgraded from A+
the incumbent will not be eligible.
d) NPA recovery must be at least 50% of the budget of the division.
e) The Managers of the Division must have remained in that position on 31st March
for 9 months or more.
3) For Assistant General Managers of regions, the incentives will be subject to
the following conditions:
 For achievement in deposits and advances, budgeted growth and actual
calculated as quarterly average for the entire year are to be reckoned. Year-
end budget achievement in deposits and advances in segments other than
C&I, taken together, must be atleast 75%. For profit, year-end achievement
of the budget is to be taken.
 If 10% or more of the branches in their region are having ‘B’ or ‘B (-)’
ratings in the Audit Report Formats as on 31st March or if 25% or more of
the branches of the region audited during the year had slippage in audit
rating or if 25% branches have registered negative growth in P segment
deposits as on 31st March, the AGM will not be eligible. Year-end budget
achievement of the region in deposits and advances in segments other than
C&I, taken together, must be at least 75%.
 NPA recovery must be at least 50% of the budget for the region.
 The Assistant General Manager must have remained in that position on
31st March for 9 months or more.

 AT ICICI BANK
At year-end fiscal 2003, we had 15,179 employees, an increase from 5,063
employees for ICICI at year-end fiscal 2002 and 3,460 employees for ICICI at
year-end fiscal 2001. ICICI Bank had 4,820 employees at year-end fiscal 2002 and
4,491 employees at year-end fiscal 2001. Of the 15,179 employees at year-end
fiscal 2003, 5,558 were professionally qualified, holding degrees in management,
accountancy, engineering, law, computer science, economics or banking.

Management believes that it has good relationships with its employees. ICICI
Bank has a staff center, which serves as a forum for grievances, pay and benefit
negotiations and other industrial relations matters. ICICI Bank had inducted 2,725
employees of Bank of Madura consequent to its acquisition in March 2001. The
employees inducted from Bank of Madura in the grade of clerks and sub-staffs are
unionized. We have a cordial relationship with this union. We have realigned the
service conditions and compensation structure of the officers who came to us from
Bank of Madura, which is now comparable with the one existing for ICICI Bank’s
officers.
The financial services industry in India is undergoing unprecedented change as
deregulation gains momentum. Moreover, changing customer needs and rapid
advances in technology are continually redefining the lines of innovation and
competition, thereby providing us with new challenges and opportunities.

To meet these challenges, we have relied extensively on our human capital, which
comprises some of the best talent in the industry. They continue to attract the best
graduates from the premier business schools of the country. They dedicate
significant amount of senior management time to ensure that employees remain
highly motivated and perceive the organization as a place where opportunities
abound, innovation is fuelled, teamwork is valued and success is rewarded.

Employee compensation is clearly tied to performance and we encourage the


involvement of all our employees in our overall performance and profitability
through profit sharing incentive schemes based on the financial results. A revised
performance appraisal system has been implemented to assist management in
career development and succession planning.
ICICI Bank has an employee stock option scheme to encourage and retain high
performing employees. Pursuant to the employee stock option scheme as amended
by the Scheme of Amalgamation, up to 5.0% of the aggregate of ICICI Bank’s
issued equity shares after the amalgamation, can be allocated under the employee
stock option scheme. The stock option will entitle eligible employees to apply for
equity shares. The grant of stock options is approved by ICICI Bank’s board of
directors on the recommendations of the Board Governance and Remuneration
Committee.
The eligibility of each employee is determined based on an evaluation of the
employee including employee’s work performance, technical knowledge and
leadership qualities. Moreover, ICICI Bank places considerable emphasis and
value on its policy of encouraging internal communication and consultation
between employees and management.

Management – Compensation and Benefits to Directors and Officers – Employee


Stock Option Scheme
ICICI Bank has training centers at Khandala in the state of Maharashtra, which
conduct various training programs designed to meet the changing skill
requirements of its employees. These training programs include orientation
sessions for new employees and management development programs for mid-level
and senior executives. The training center regularly offers courses conducted by
faculty, both national and international, drawn from industry, academia and ICICI
Bank’s own organization.
95Training programs are also conducted for developing functional as well as
managerial skills. Products and operations training is also conducted through web-
based training modules.
In addition to basic compensation, employees of ICICI Bank are eligible to
receive loans from ICICI Bank at subsidized rates and to participate in its
provident fund and other employee benefit plans. The provident fund, to which
both ICICI Bank and its employees contribute a defined amount, is a savings
scheme, required by government regulation, under which ICICI Bank at present is
required to pay to employees a minimum 9.0% (9.5% until fiscal 2003) annual
return. If such return is not generated internally by the fund, ICICI Bank is liable
for the difference.
ICICI Bank’s provident fund has generated sufficient funds internally to meet the
minimum annual return requirement since inception of the funds. ICICI Bank has
also set up a superannuation fund to which it contributes defined amounts. In
addition, ICICI Bank contributes specified amounts to a gratuity fund set up
pursuant to Indian statutory requirements.

ICICI Bank offered an Early Retirement Option to its employees. All employees
who had completed 40 years of age and seven years of service with ICICI Bank
(including periods of service with Bank of Madura, ICICI, ICICI Personal
Financial Services and ICICI Capital Services which were amalgamated with and
into ICICI Bank) were eligible for the Early Retirement Option.
Out of approximately 2,350 eligible employees, approximately 1,495 employees
exercised the Option. The amount payable to these employees was the lesser of the
amount equal to:
• 3 months’ salary for every completed year of service, and
• 1 month’s salary for the number of months of service left.
The above payment was subject to an overall limit of Rs. 2.0 million for employees
at the level of Joint General Manager and below, and Rs. 2.5 million for employees
at the level of General Manager and Senior General Manager. For the purpose of
this computation, salary included basic pay and dearness allowance but
excluded all other allowances.
The total cost of the Early Retirement Option is estimated to be approximately Rs.
1.7 billion (US$ 36 million). In addition, while we have made provisions for leave
encashment and retirement benefits based on actuarial valuation in accordance
with relevant accounting guidelines, the early retirement of employees will result
in additional payouts over and above the provisions made to date in respect of
those employees. The total retirement benefits in excess of provisions made are
estimated to be approximately Rs. 300 million (US$ 6 million). These costs will be
accounted for in their financial statements.

BIBLIOGRAPHY
WEBPAGES
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