The impact of performance contracting on operational performance in the banking Industry: a case of multinational banks in Kenya

Abstract

This study sought to determine the extent performance contracting as a control mechanism impacts operations and service delivery in multinational banks in Kenya; and, to establish the challenges of implementing performance contracting by multinational banks in the banks' operations and delivery of service. This research surveyed all the multinational banks in Kenya whose head offices are based in Nairobi. A multinational bank is defined as a bank operating in more than one country with the goal or objective of maximizing stockholders' wealth or the stock price. This study surveyed the impacts of performance contract in Banks in Kenya using a case study of multinational banks. Both primary and secondary data was collected for the study. The data analyzed showed the non-financial performance indicators as well as the qualitative indicators of performance contracting. The study results indicated that performance contracts increases performance. It also revealed that banks have adopted PCs in order to reveal information and motivate managers to exert effort. Implementation of these measures has improved governance, transparency, Accountability and operational efficiency in the management of bank affairs, and as a result, made the private sector is more effective in its delivery of services as part of its commitment to ensuring efficiency. In this study, the results revealed that 80% of all the banks that adopt PCs have increased growth in terms of turnover. In addition, the banks that use performance contracts are more likely to retain their employees than those that do not use. This is because the evaluation is more objective and hence employees would be more likely satisfied with the results of the evaluation process.