Performance and Productivity Management

Performance Based Incentive System

1. Concept [2]

A performance based incentive system is a reward mechanism in which the pay, bonus, increment or other benefit of an employee is linked directly to his or her measured performance, rather than to seniority, fixed grades or attendance alone. Under this system, specific and measurable targets are set for an individual, team or unit; performance is evaluated against those targets through agreed indicators; and monetary or non-monetary rewards are distributed according to the level of achievement. Its underlying logic is that of the expectancy and goal-setting theories of motivation — an employee who believes that effort will lead to measurable performance, and that performance will lead to a valued reward, is motivated to perform better. Common forms include piece-rate and production bonuses, sales commissions, profit sharing, gain sharing, group or team incentives, merit pay, and performance-linked allowances. In Nepal Telecom, for example, annual performance appraisal results are linked to increments, promotion and cash rewards, which is a form of performance based incentive.

2. Obstacles in implementing such a system in Nepal [4]

• Weak and unreliable performance measurement: Most Nepali organizations lack scientific job descriptions, clear key performance indicators and reliable appraisal records. Appraisal is often subjective, influenced by personal relations, favouritism and political linkage, so the incentive loses credibility.
• Trade union and political interference: Strong unions and politically affiliated employee groups resist differential rewards, insisting on equal treatment and seniority based benefits. Any attempt to reward some and not others is treated as discrimination and invites disputes, strikes or litigation.
• Legal and procedural rigidity: The Civil Service Act, 2049 and similar service regulations provide for fixed salary scales, annual increments and promotion largely on the basis of seniority and performance appraisal of a formal nature. Introducing variable pay requires amendment of rules, which is slow and politically sensitive.
• Weak financial and institutional capacity: Many public enterprises run at a loss or with irregular cash flow, so funds for incentive pools are uncertain. Budget release is delayed, and the amount actually distributed becomes too small to motivate.
• Lack of managerial skill and will: Supervisors are often untrained in goal setting, feedback and coaching. They avoid rating subordinates honestly for fear of conflict, producing inflated and uniform ratings that destroy the incentive value.
• Cultural and social factors: The culture of "sabai jana barabar" (equal treatment), reluctance to single out high performers, and the importance of personal relationships over objective results weaken the system. Employees also distrust that rewards will actually be paid as promised.
• Weak monitoring and evaluation: Absence of periodic review, audit of results and grievance handling allows manipulation of targets and data, so the system loses fairness and acceptance.

3. Possible impact on organizational performance [4]

• Positive impact on motivation and productivity: When rewards are seen as fair and attainable, employees put in greater effort, absenteeism and turnover fall, and output, sales or service quality rises. In commercial units such as Nepal Telecom, sales commissions and target bonuses have visibly raised revenue collection and customer acquisition.
• Better goal alignment: Linking incentives to organizational objectives aligns individual and team effort with strategic priorities such as revenue growth, cost reduction, customer satisfaction and network expansion.
• Improved efficiency and cost discipline: Gain-sharing and profit-sharing schemes encourage employees to reduce waste, control costs and use resources economically, since part of the saving returns to them.
• Attraction and retention of talent: Competitive performance pay helps retain skilled technical and managerial staff who might otherwise migrate abroad or join the private sector.
• Possible negative effects if poorly designed: Excessive individual incentives can cause rivalry, hiding of information, neglect of teamwork and quality, gaming of targets, and short-termism. If rewards are delayed, arbitrary or limited to a few, demotivation, grievance and union resistance increase, and performance may actually decline.
• Effect on organizational climate: A transparent and participative system builds trust and a performance culture; an opaque and biased one breeds distrust and conflict.

Conclusion: A performance based incentive system can substantially raise efficiency, motivation and goal alignment, but in the Nepali context its success depends on objective measurement, rule reform, union cooperation, adequate and timely funding, and honest supervisory practice. Without these, it may produce more dispute than performance.

Productivity Management — Definition, Importance in Service Delivery and Corporate Governance

1. Definition of Productivity Management (2 marks)

Productivity is the ratio of output produced to the inputs used in producing it:

$\text{Productivity} = \frac{\text{Output}}{\text{Input}}$

Productivity management is the systematic process of planning, measuring, analysing and improving this output–input ratio in an organisation. It involves setting productivity targets, measuring performance against them, identifying the causes of low productivity, and applying suitable techniques (work study, method improvement, training, technology upgradation, motivation and reward systems) to raise efficiency continuously. In short, it is managing the organisation in such a way that it produces more and better goods or services with the same or fewer resources.

2. Importance in Improving Service Delivery (3 marks)

In a service enterprise like Nepal Telecom (NT), productivity is measured not only by cost per unit but also by the quality, speed and reliability of service. Its importance:

1. Faster and more reliable service — Higher productivity in network operations, fault repair and customer care means fewer dropped calls, quicker complaint resolution and shorter waiting times for new connections.
2. Lower cost per subscriber — Efficient use of manpower, bandwidth and infrastructure reduces the average cost of serving each customer, allowing affordable tariffs.
3. Wider coverage and capacity — Productivity gains release resources for expansion into rural and remote areas and for capacity upgradation in congested urban networks.
4. Better quality and customer satisfaction — Standardised, well-managed processes reduce errors and complaints, improving NT's image against private competitors such as Ncell.
5. Motivated and skilled employees — Productivity management identifies training needs and links performance with rewards, which directly improves the behaviour of front-line staff towards customers.

3. Importance in Promoting Corporate Governance (5 marks)

Corporate governance means conducting the affairs of an enterprise with transparency, accountability, fairness and responsibility towards all stakeholders. Productivity management supports good governance in a public enterprise like NT in the following ways:

1. Transparency through measurement — Productivity management requires measurable indicators (revenue per employee, cost per line, fault clearance time). Published performance data makes the working of the corporation visible to the government, the regulator (NTA) and the public, reducing secrecy and suspicion.
2. Accountability of management — When targets are fixed and performance is reviewed against them, managers and employees become answerable for results. This discourages the culture of unaccountability common in public enterprises.
3. Efficient use of public resources — NT is a public investment. Reducing waste, overstaffing, idle capacity and unnecessary expenditure is a fiduciary duty of the board and management; productivity management is the instrument for discharging it.
4. Reduced scope for corruption and favouritism — Objective, data-based criteria for promotion, procurement and resource allocation leave less room for nepotism, rent-seeking and political interference in day-to-day decisions.
5. Fairness to stakeholders — Higher productivity generates surplus that can be shared as fair tariffs for customers, reasonable returns to the government as owner, timely payment of taxes and dues, and better pay and working conditions for employees.
6. Compliance and risk control — Productivity reviews expose operational and financial weaknesses early, supporting compliance with the Companies Act, Public Enterprises Act, NTA directives and audit observations.
7. Strategic and social responsibility — A productive NT can cross-subsidise rural telephony and expand into underserved areas, fulfilling its public service obligation while remaining financially viable — a core governance expectation from a state-owned enterprise.
8. Board effectiveness — Productivity information enables the board of directors to take informed decisions on investment, tariffs and manpower, rather than approving proposals mechanically.

Conclusion: In Nepal Telecom, productivity management is not merely a cost-cutting tool; it is a governance mechanism. By making performance measurable, managers accountable and resource use efficient, it simultaneously improves customer service and strengthens transparency, accountability and fairness in the conduct of a public enterprise.