JFS Case Study HRM

1. INTRODUCTION
V.S. Radhakrishnan launched Janalakshmi Financial Services in 1999 as a non-banking financial
enterprise. It is a profitable but not profiteering organization with a social cause of extending
loans and services to the bottom of the pyramid with a market penetration of 40% that was
valued at about $600 billion, hence championing the goal of financial inclusion and providing an
opportunity of growth to this highly underbanked section of the society. Recently, there had
been a huge increase in attrition rate (Attrition rate was 42% while the industry average
showcased 32% attrition.) in JFS sales employees which was worrisome as the sales operation
formed the core asset of the organization as it was the team which was ultimately instrumental
in realizing revenues. A few challenges that the organization was facing on the HR front were
devising a compensation structure which motivated the right kind of behavior in employees,
ensuring simple and fair performance appraisal and which would bring about higher
productivity in the organization through better employee engagement and relationship
management.
Q1 - What were the main problems with JFS's loan officer compensation plan?
Answer:- JFS' incentiveandrewardsystemincludedbothmonetaryandnonmonetarycomponents.
Workerswhohad beenwiththe companyformore than a year were givenloanstocomplete their
educationthroughthe non-cashcomponent.Theyhave alsodelayedinterestpaymentsforemployees
whohave workedforthe company formore than three years,andinterestandprincipal paymentshave
beeneliminatedforthose whohave beenwiththe companyforatleastfouryears.Workerswho stayed
for more than fouryearswere alsogivenhouse loans.The keygoal wastostrengthenthe salesforce's
financial skills.
The monetarycomponentconsistedof afixedpayandadditional incentivesbasedonsuccessagainst
particularcriteria.Theyalsohandedoutthe total bonusamountson a quarterlybasis.
The commissionsonsellingSGLsandmicro pensionsencouragedCRESofficers.Officerswere paida
commissionforeachSGL disbursedeachmonth,althoughitwascappedat 1400. There was no limiton
howmany newloansa salespersoncouldsell inordertoreceive acommission.If 40% of the tickets
were soldbefore the 15th,theymay receive anextra$1,000. Cross-sellingmicropensionscouldprovide
themwithadditional incentives.
There were fewissueswiththese compensationsystemsaswell.
• Salesofficerswerepaidminimal base pay,andall officersreceivedauniformsalarypackage regardless
of cityor municipality.
• Branch managersalsobelievedthatCRES'compensationsystem emphasized SGLorigination.Creating
a linkbetweensalestargetsandbranchportfolios.

2.  The salesteamin charge of distributingsmall grouploanswaslosingproductivityandhadan
attritionrate of 41%, whichwashigherthanthe marketaverage of 32%.
Q2 - Should JFS have changed its officer compensation plan to the one proposed by HR? Why
or why not?
Answer:- Yes, JFS should have modified its loan-officer pay plan to the one offered by HR, as
JFS' present compensation plan clearly needs to be updated and can be easily transferred to the
newly proposed HR plan with a few minor tweaks. The main reason is that the current plan's
structure contains flaws, which has resulted in personnel churn and lower productivity.
The Demerits of the Current Compensation Structure:
• There are no location-based allowances for sales officers, resulting in low compensation for
sales officers (Rural vs Urban living expense differences are not considered).
• Concentrates on the SGL business generation lone for CRES with less focus on whole range
financial product.
• By tying sales targets to branch portfolio size, the current model rewards officers who work in
small branches while penalizing officers who work in high-performing branches.
• Lack of employee recognition and engagement, less visibility of an employee in the
office.
• Officers in high-potential locations have a better chance of earning large commissions.
How does the new compensation structure address the issues?
• In a sliding plan, junior management is motivated because they receive the 90th percentile of
market rates and a variable component quarterly. Attrition and low pay will be reduced as a
result of this.
• By tying the target to branch age rather than portfolio size, the issue of top-performing
branch officers being penalized is expected to be resolved, and the scope of high commission
for top-performing branch officers is likely to be reduced.
• COLA (cost of living allowances), which are based on the consumer price index, rent index,
and food index, address the issue of wage structures that do not reflect location-related living
expenses.
• Increasing the linked target and incentivizing cross-selling reduces the focus on the SGL
business alone and encourages the growth of other products such as micro pensions, house
loans, mortgages, and savings products, among others.
• The promotion of savings and micro items may be in accordance with the firm's mission of
elevating the urban poor.
As a result, the new compensation system addresses the majority of the flaws in the current
structure, and JFS should seriously consider adopting HR's suggestion.
Q3 -What changes would you make to the proposed plan? Why? What elements would you
retain from the existing plan?

3. Answer :-
• In order to set more realistic expectations, linking targets to branch age rather than portfolio
size should additionally include the branch's location.
• Increasing the percentage of variable pay in sales officers' compensation could encourage
them to be too aggressive in selling loans and financial products, which would be counter to the
firm's goal. As a result, they should concentrate on boosting both fixed and variable pay in a
balanced manner rather than merely increasing variable pay, which may encourage employees
to be more aggressive. Having a combination of fixed and variable pay increases can also help
with cost control.
• Distribute the percent of variable pay across management levels evenly. If they receive the
same rating, Top Management and Senior Management now receive the same percentage of
income as variable pay. Because sales force attrition is a key issue, provide more variables to
the junior level than to the senior level in order to keep the sales force motivated.
• The micro-pension sales targets should not be increased because this plan is likely to have
cost implications because selling savings schemes was not a successful activity and was less
profitable than selling loan products to clients. Instead, the emphasis should be on products
with better margins and that are simple to sell to clients.
• Revise the procedure for assigning ratings. The pay of a star performer like Kumar and a
mediocre performer like Murthy should be significantly different. This distinction should
motivate mediocre performers to achieve star status. Star performers will be demotivated by
the current system of awarding ratings.
Elements of the current plan that I would retain are :
• Employee non-cash perks should be preserved since they provide financial access to JFS's
salesmen.
• There should be no minimum need for a salesperson to close a certain number of new loans
before receiving a commission payment.
• When allocating incentives, the size of the branch, as well as the age of the branch, should be
taken into account.
Q4 - What should JFS have done to decrease its loan officer attrition rate?
Answer :- In order to prevent attrition, Loan officers must maintain their intrinsic desire and
maintain a positive attitude throughout their workday. This can be accomplished by:
1. The organization should try to improve Loan officers' effective satisfaction by clearly stating
expected achievements and goals.
2. The business should try to create an environment in which legitimate loan officer concerns
are recognized and remedied (internal grievance redressal)

4. 3. Instilling a sense of pride in the organization can be a powerful motivator for employees.
4. Hiring the right employees with the correct skillset and related experience would be one
internal step. This would lessen the cognitive dissonance of not getting the job they expected.
5. Developing a motivating overall compensation plan would be quite beneficial.
6. Providing intangible benefits to loan officers, such as job stability, insurance plans, or
employee benefit programmes, would be beneficial.
7. Better and more comprehensive training and development programmes can also help to a
large extent.