Impact Of Privatization On Non Performing Loans Finance Essay - Free Essay Example

Sample details Pages: 15 Words: 4602 Downloads: 1 Date added: 2017/06/26 Category Finance Essay Type Argumentative essay Did you like this example? Current study describes the effect of privatization on non-performing loans of conventional commercial banks in Pakistan to some extent. Process of privatization started from 1988 due to non-satisfactory performance of banks, as there was lack of lenders plans, weak credit operations, increased loans sizes and many other similar factors. Studies revealed the better performance of private banks as compared to government owned banks. Don’t waste time! Our writers will create an original "Impact Of Privatization On Non Performing Loans Finance Essay" essay for you Create order Most important factor is about handling of non-performing loans which may be through early risk assessment, better law and order situations, regular monitoring and other similar factors. MCB, ABL, UBL and HBL banks were privatized in order to attain efficiencies and all of these banks showed significant improvement after the privatization. Values of non-performing loans is divided in to pre-privatization and post-privatization period and collected from Banking Surveillance Department (BSD) and from the official website of SBP. This thesis is based on the two main things, firstly privatization of government owned banks and Secondly Non-Performing Loans proportion with respect to the effect of privatization. Privatization of government owned banks in Pakistan was the main reason behind the overcome of weak banking sector and as part of this policy, for the very first time in 1991, two governments owned banks of Pakistan Muslim Commercial Bank (MCB) and Allied Bank Limited (ABL) were converted into private entities. The nature of the topic puts on view that that it cannot be studied in artificial environment. The topic has been analyzed in natural environment without any involvement, so the research is more of exploratory research and as well as descriptive. The purpose of the study is Exploratory in nature, as it aimed to collect and create appropriate information related to the topic. The method of conducting this research is based on secondary data. We have adopted the secondary data collection method, for that we have gone through the newspapers, internet, books, magazines, annual reports, articles and different libraries have been investigated. Keywords: Privatization, Pakistani banks, Loans INTRODUCTION Non-performing is: A loan that is not earning income and: (1) full payment of principal and interest is no longer anticipated, (2) principal or interest is 90 days or more delinquent, or (3) the maturity date has passed and payment in full has not been made. Non-Performing Loans or we call it a bad loan has been a big problem for not only developing countries but also for developed countries. Privatization has become an important aspect all over the world especially in developing countries of the world. Privatization is the transfer of ownership of government owned institutions to the private sector. It may be share issue privatization, asset sale privatization, voucher privatization. Many countries have adopted the formula of privatization in order to strengthen the banking performance and until now most of the developed countries have converted their state owned banks to private banks. According to the different studies privatization has played a major role in Banking Sector to develop it in a more efficient manner but issue of Non-Performing Loans is still debatable all over the world, especially in developing countries. Researchers have found that most of the banks were merged or were closed in order to avoid the bankruptcy and main reason which was disclosed was high non performing loans and their high cost. All countries in the world consider banking sector as a backbone of any developed country and to make the financial sector strong and stable, governments involve actively. Pakistani government has also worked actively in making the banking sector efficient and no doubt that after privatization Pakistani banking sector has performed very well in the global market, but the main problem in Pakistan which is still held there, is the problem of Non-Performing Loans.The ongoing Non-Performing Loans has created a complex environment for banking sectors throughout the world but the most affecting one are developing countries whose banking sector has not really showed a vast improvement compare to developed countries. The main problem is the balance sheet which never figures out the true essence of Non-Performing loans. Pakistan Non-Performing Loans might be considered as a problem in the same way but there are so many reasons which compelled Pakistan to revive their banking sector and to exp ose the true picture of Non-Performing Loans. Privatization efforts in Pakistan began in Pakistan in 1988, when the banks were treated as the employment exchanges. Employers were hired on the political bases instead of on the merit bases. More and more branches were opened causing over employment. There were no trained professionals, less customer royalty, budget deficit, foreign debt burden, trade deficit, disequilibrium in the balance of payments, increasing non-performing loans. The performance of Government owned banks were at alarming level, there was lack of the financial disciplines. Privatization has been an important aspect all over the world especially the developing countries of the world like Pakistan. Two banks ABL and MCB were privatized in the decade of 1990 to 2002. A privatization commission was establish in 1991. The main purpose of privatization is to improve the performance of banking sector like asset quality, capital adequacy, earning profitability and liquidity. In 1991 Allied bank and MCB bank were privatized and the ownership of ABL was transferred to consortium comprising Ibrahim Leasing Limited and Ibrahim group. Ownership of MCB was transferred to Nishat Group lead consortium in 1991. HBL was privatized in 2003 when government of Pakistan firmly handover the management control to Agha Khan Fund for Economic Development (AKFED). In 2002 UBL was privatized with the ownership transferred to Best Way Abu Dhabi group. The main purpose of our study is to check the impact of privatization on non-performing loans of banks in Pakistan. Non-performing loan is the defaulted loan which is the sum of borrowed money upon which the debtor has not made the scheduled payment for at least 90 days. Non-performing loan is either default or closed to being in default. If debtor starts making payment again on a non-performing loan, it becomes a re-performing loan even if the debtor has not caught up on all the missed payments. When loan goes default maximum three months then that loan is consider to be a non-performing loan. Non-performing loans are classified by State bank of Pakistan into different categories according to their recovery. If the amount received is less than 75% of receivable and overdue by more than 180 days, it treated under the head of Other Assets specially mentioned. If the amount recovered is less than 60% and over due by more than 1 year is treated as substandard. If the amount recovered is less than 10% and overdue by more than 2 years is treated as doubtful. Similarly if the amount recovered is less than 2% and overdue by more than 3 years, treated as loss. The main reasons behind the occurrence of non-performing loans are due to the lenders lack plan to deal with risk, reduced intention to borrowers, moving along with the risk curve, weak credit operations, increased loan size increased the risk. In 1980 Italian market faced an increase in the non-performing loans due to high speculation in real estate market. The investors were more interested to invest their money in real estate markets as the economic condition of Italian markets at that time was so good. Investors were taking more and more loans from banks to earn from speculated prices in real estate markets but as the bubble of speculation burst in real estate, the investors faced a huge loss and become unable to pay back the loan to banks. The percentage of non-performing loans in Italy was contributed by real estate. Another reason of increase in non-performing loans in Italian markets was the poor policies of loans recovery. The government laws contradicted the banking policie s for loans recovery. The banker borrower relationships also contributed to increase in non-performing loans. This relationship weakened the credit control policies, as there was no detailed investigation process before the sanction of loans. The same problem was observed in Swedish financial markets where the non-performing loans caused the financial crises. They were focusing only on increasing the loan volumes and did not pay attention to cash flow processes. Our study is based on the four banks which were privatized in Pakistan and aimed to observe whether the privatization has reduced the amount of non-performing loans or not. SCOPE Paper focus on four Banks. SIGNIFICANCE There is a significant impact of privatization on the non-performing loans as the privatization has reduced the value of non-performing loans. There are many other factors along with privatization that positively impacted on banking performance in Pakistan. LITERATURE REVIEW Privatization is considered to be a tool to improve the values of non-performing loans of banks. Caribean development and cooperation committee (2001) conducted a study to observe the impact of privatization on the banking sector in Caribean. A significant improvement in the performance of banks was observed. Innovations, services and increased growth in the broad money to GDP was seen but it also increased the operating cost and interest rate spread. Megginson,W.L (2003) compared the performance of state owned banks with the private banks and found a significant difference in the performance of private owned banks. The empirical evidences showed that the state owned banks are less efficient than the private owned banks. Hussain,I (2004) observed that improvement can be achieved by privatizing the banks to some private investor instead of employees of that bank, as in the case of Allied Bank Limited whos ownership was transferred to its employees but it was a bad experience as the post-privatization performance was less than pre-privatization performance. Instead of this MCBs ownership was transferred to a group of private strategic investor that results in an efficient way. One study conducted by Jessica and Isac (2004) on the market of Italy and Sweeden and described the two ways for securing non-performing loans in small markets like Sweeden, it is better to handle bybanks himself, while in vast markets like Italy, the auction in public to asset management companies (AMCs) is better. After further investigation it was seen that historic actions of government, credit culture and management decisions crucially caused the spread of non-performing loans. Both methods of handling non-performing loans are important and they are to be used according to specific national conditions. Bonin, J.P, Hassan, I Wachtel, P (2005) studied the comparison of foreign-owned banks and government-owned banks in six relatively advanced countries, Bulgaria, the Czech Republic, Croatia, Hungary, Poland and Romania. It was found the foreign-owned banks more efficient than government-owned banks. Two important factors that affect the efficiency of banks are the timing of privatization and the methods of privatization. Beck, T, Cull, R Jerome, A (2005) the Nigerian banks performance for the period of 1990-2001 was observed to know the effect of privatization. The banks that were privatized showed improved performance while the government owned banks were in bad condition. Islam, S, M (2005) conducted a study to find the causes and consequences of non-performing loans and described that non-performing loan cannot be avoided but can handle in a wise able way. Loans are defaulted due to poor plans to deal with risk, reduce attentions to borrowers, moving along the risk curve and lack of good models. The non-performing loans can be recovered timely by early risk assessments, motivation, and law and order situation, helped from recovery agency, reducing relaxation, developing situation specific models, real time training, regular monitoring and trade off. Khalid, U (2006) the impact of privatization and liberalization was observed which showed an improvement in the banking indicators of Pakistan. Khan, B (2006) Pre and Post privatization impact was observed on banks in Pakistan. It was concluded that there was a significant improvement in liquidity ratios, profitability, deposits and non-performing loans after privatization. Umer (2006) used CAMELS framework of financial indicators to describe the effect of privatization and liberalization on the performance of banking sector of Pakistan. Privatization resulted in improved most of financial indicators in particular the performance of privatized banks has been less than satisfactory mainly due to poor showing of ABL whose ownership was transferred to its employees group. Imran and Tariq (2009) did a secondary data based result to see whether the privatization reduced the proportion of non-performing loans and increased the performance of banks or not. They studied the period of 1990 to 2004 during which MCB and ABL were privatized under the artificial environment, exploratory as well descriptive research was done by the use of SPSS software and found a positive impact of privatization on non-performing loans and improved performance. Takashi observed the Japans experience of non-performing loans, that how they affect the real economy. A relationship between the increase in non-performing loans and effects on economy was considered. They concluded the two main reasons of increase in non-performing loans i.e. the collapse of land prices, credit crunch and forbearance lending. It affected the economy indicators to fall below. Bakhtiar studied the two banks MCB and ABL to understand the impact of privatization on the banking sector Pakistan. The privatization effected on the efficiency, economy, employment, new product services and also effected legal environment. Improvement in liquidity ratios, deposits, profitability, new products and services showed the improved efficiency of banking sector, mobilization of savings increased loans, advances and investment showed improved economy. The impact was also observed on employees as salary and remuneration increased number of employees decreased but not at the alarming level. After studying the impact of privatization on economy, banking sector and effect on non-performing loans by using different models and techniques i.e CAMELS or CLSA, an effort is made to observe the impact of privatization on the non-performing loans of banks in Pakistan. PRIVATIZATION OF BANKS In 1977 it was observed that the economic situation of many industries especially banks is not satisfactory and they are suffering loss. There was lack of decision making, efficiency and investmentwas also limited. In order to overcome this situation the government of Pakistan has decided to privatize the banks. The study is based on the privatization of four banks i.e. Allied bank Limited, United bank Limited, MCB, and Habib bank Limited before and after privatization. Muslim Commercial Bank Limited (MCB) The bank has more than 60 years of experience as a leading bank in Pakistan. It was incorporated by Adamjee group on july9, 1947. The bank received prestigious recognition and award by Euro money, MMT, Asia Money, SAFA (SAARC), The Assets and the Asian Banker. Pre-Privatization Before the privatization the non-performing loans and other indicators of MCB showed that in the period of 1980-1990 the non-performing loans were in the range of 25% to 18%. The percentage of income to assets was 0.381. MCB was performing only traditional services like deposits mobilization and credit extension, project financing of industries. There were no services like personal financings, credit cards, ATM, online banking, phone banking and even housing finances. Privatization MCB was privatized on 6 April, 1991 with 26% share sold to national group at price of Rs.56 per share that amounts for total Rs.2.4 billion. There was a sales agreement between government of Pakistan and national group. According to that agreement further 25% shares were offered for subscription to public on Feb 19, 1992. Post-Privatization The growth of MCB after privatization can be observed by some indicators as total assets of MCB which were 18% in 1994 increased to 28% in 2003. A 10% increase in upward trend was seen. Total deposits were 17.6 in 1994 and grew to 26.5% in 2003 thus 9% increase in upward trend. Total advances in 1990 were 17.7% which increased to 26.7% in 2003. Non-performing loans to total loans percentage was 18.6% in 1993 which decreased to 11% in 2004 which is a great improvement in recovery of loans. Earning assets to total assets percentage for five years average is 81.20% which is higher than industry average. Allied Bank Limited (ABL) Allied Bank was the first Muslim bank which established in Pakistan as the Australian bank in Lahore with a paid up share capital of Rs.0.12 Million under the chairman ship of Khuwaja Bashir Bux. ABL has a history of more than sixty years of banking operation and having750 branches. Allied bank is leading the industry with the largest network of ATMs countrywide. Pre-Privatization As ABL was the only Muslim bank and formed on Aug 14, 1947, it faced many riots in East Punjab. Many of its branches in India were closed down and new branches in Karachi, Rawalpindi, Peshawar, Sialkot, Sargodha, Jhang, Gujranwala and Kasur. In 1974 the bank was renamed Allied Bank Limited due to the resolution of Board of directors of Australasia Bank. The profit in the first year exceeds Rs.10 Million. Deposits increased by 50% and reached Rs.1460 Million. Investment increased by 72% and advances exceeds Rs.1080 million and it was for the first time in the history of bank. The seventeen years of the Bank saw a rapid growth. Branches increased from 353 in 1974 to 748 in 1991. Deposits rose from Rs.1.46 billion, and Advances and investments from Rs.1.34 billion to Rs.22 billion during this period. It also opened three branches in the UK. Privatization After MCB, Allied Bank was the second bank in the public sector to be privatized. In September 1991 ABL was privatized through an Employee Stock Ownership Plan (ESOP). On September 9, 1991, 26% shares were sold to the Allied Management Group, which represented the employees of ABL at a price of Rs.70 per share. On August 23, 1993, another 25% shares were sold to AMG at a price ofRs.70 per share. This resulted in transfer of ownership from the Government of Pakistan to AMG so the ownership transfer from public to private. Post-Privatization After privatization, Allied Bank registered an unprecedented growth to become one of the premier financial institutions of Pakistan. Allied Banks capital and reserves were Rs.1.525 Billion and assets amounted to Rs.87.536 Billion and deposits were Rs.76.038 Billion. Allied Bank enjoyed an enviable position in the financial sector of Pakistan and was recognized as one of the best amongst the major banks of the country. In 1999, it transpired that one of ABLs major defaulters had purchased about 35-40% of ABL shares from employees but in July 1999, the State Bank imposed restrictions on the transfer of shares from employees to non-employees. On August 3, 2001, the SBP removed the Chairman and three Directors from the Board of ABL, who were also employees of ABL, as they were found to be working against the interests of ABL and its depositors and appointed a new Board to look after the affairs of the bank. In April 2003 the State Bank initiated the process of reconstruction of the bank and transfer of its ownership to one of the existing financial institutions in the private sector that will acquire strategic shareholding. In August 2004 as a result of capital reconstruction, the Banks ownership was transferred to a consortium comprising Ibrahim Leasing Limited and Ibrahim Group. United Bank Limited (UBL) Retail Banking and related services domestically and overseas. A professional team was appointed in the mid of 1997 for the purpose of restructure the bank and to commence rightsizing. The management is also in the process of rationalizing the branch network and identifying and recovering the doubtful and classified portfolio. It has planned to institute major improvements in customer services and internal UBL formed in 1959 and now one of the major banks in Pakistan in terms of deposits and advances with a huge domestic and international network. UBL is a Banking Company, which is engaged in Commercial systems to improve efficiency of bank. It also intends to launch innovative products. The bank is increasing resource mobilization through regular deposit campaigns and accelerating the process of recovery of outstanding advances and non-performing assets. Pre-privatization Tracking the history backward, after it was proposed that UBL privatized has recorded the heaviest fall in profitability in 1994. The pretax profit reduced from Rs.275 million in 1993 to Rs.59 million in 1994 an alarming decline of 79%. Since nationalization, around two decades ago, successive governments appointed management had doled out around Rs.17 billion (25% of all advances) worth of non-recoverable loans in the form of politically influenced advances. This is essentially Rs.17 billion of depositors funds given out to favorites who are now either unwilling or unable to pay them back. The bank, as a result, is now being run with an estimated negative net worth of more than Rs.12 billion The Banks 28 foreign branches were profitable but a large number of its local branches continue to incur heavy losses. On top of it the influence of Union and political pressures, to the level of rendering the management helpless, has resulted in 40% of its loans being termed non-performing. Th e bank was also suffering a surplus staff of nearly eight thousand in its total strength of 22,500, whose future hangs in uncertainty. Besides over-staffing the bank also suffers from non-professionalism, deliberate violation of rules, wasteful expenditures and lack of accountability. Privatization In 2002, the Government of Pakistan sold it in an open auction to a consortium of Abu Dhabi Group and Best way Group. Abu Dhabi Group has given Rs.12.3 billion each acquiring 25.5% shares and management control in the bank. In 2002 the bank merged its operations in the UK with those belonging to National Bank of Pakistan to form United National Bank Limited. United Bank owns 55% of the joint-venture and National Bank of Pakistan owning the remainder. Post-Privatization The performance of bank after the privatization improved as many banking indicators are showing. The Paid-up capital of United Bank Limited was increased by way of bonus during 2006, deposit base increased by 16% and that was Rs.335.1 billion. Due to the international growth of bank almost 19%of total deposits base is mobilized from the overseas branches and it contributed almost 52% of total growth in 2006. Net advances increased from Rs.204.b billion to Rs.247.3 billion during 2006 both the corporate and consumer lending contributed to the growth achieved during 2006. Although there has been growth in NPLs overall portfolio quality indicators have improved with net infection reducing to 1.1%. UBL has also grown to the international markets as 15 branches are created in various foreign countries. Profit before tax from these international operations increased by 31% to Rs.2.48 billion during 2006. Total assets of UBL also increased by 22% that is Rs.423.3 billion in 2006 from Rs.347 .1 billion at the end of previous year. Habib Bank Limited (HBL) Habib bank limited is the first commercial bank that was formed in 1947. It remained a successful bank in Pakistan and it was ranked as a largest private bank in Pakistan with 1450 branches across the nation. HBL is enjoy a good ranking for long term as well as for short term i.e. AA for long term and A1+ for short term.. Habib bank Limited was nationalized in Zulfiqar Ali Bhutto regime and after that the performance showed a positive indicator. The commercial banking market share reached to 55% by inward remittances and also the loan scheme for farmers and small businesses. It that times the profit of HBL was doubled from all other commercial banks like MCB, ABL, NBP and UBL. Pre-Privatization Habib bank was enjoying a good performance after its nationalization. In in the regime of Ayub Khan a new scheme for loans was introduced whose purpose was to boost the agriculture sector. That scheme was named Green revolution. In the government of Junejo a new strategy was formulated in order to cut down the expenses and for the profit maximization and that strategy provided fruitful results. In the government of Shoukat Aziz, another strategy was formulated which aimed to retire old employees by golden shake hand packages and to hire young, and energetic employees to gain the efficiency in workings. It boosts the bank performance as bank was enjoying huge profits, huge salary increment, bonuses and other compensative incentives. Privatization Privatization of HBL was done by Dr. Abdul Hafiz on 29th Dec 2003 and as a result of that biding the management was given to Agha Khan Funds for Economic Development by 51% shares for Rs.22.409billion. Post-Privatization A significant improvement in the performance of bank was seen. The management of the bank was handed over to chairman of the bank. HBL first time introduced the concept of corporate governance as per SBPs requirement due to which only the CEO was the executive body of the bank. It was decided to have meeting of board after every 3 months. If we observe the financial indicator of the bank after privatization, the impact of privatization can be viewed. The total deposits of the bank increased by 12% during the years of 2003-2004. The total assets also increased which reduces the risk of liquidity. Loan and advances grown by 41% and liquid assets were decreased which were due to the investments in different portfolios and it was resulted by the decrease in the non-performing loans. The net income also increased by 10%. Total expenditure of the bank was increased by 42 % which was the result of increase in deposits. The non-performing loans were decreased by 56%. Almost 46 branches were closed that were non-profitable. GRAPHICAL ANALYSIS Muslim Commercial Bank Limited The PR-P line is representing the pre-privatization non-performing loans of MCB Bank. In 1988 the non-performing loans reached to 29% which was very high and it may be due to the placement of new government. PO-P line is representing the non-performing loans after the privatization. During 2004 to 2008 NPLs reduced to one digit figure this was the period of new government of Parvez Musharaf. This was the booming period of economy. MCB has also been awarded as a Euro money Award 2008 for the Best Bank in Asia but unfortunately NPLs again begins to rise in 2010 because of the political crises. Figure 1: Muslim Commercial Bank Limited Allied Bank Limited In 1981-84 board of directors of bank was dissolved and new management took over the bank so there we find a large figure of NPLs. In the starting period after privatization in NPLs were increasing continuously till 2003 because of the continuous change in management and policies of banks. Bank saw a rapid growth in 2007-2010 as well as saw a decline in NPLs. Figure 2: Allied Bank Limited United Bank Limited In 1998 due to influence of union and political pressure, the management became helpless which results the 40% increment in NPLs. During 2001 the Bank merged their operations with National bank of Pakistan in UK which made decrease in NPLs. After privatization NPLs shows one digit figures because of his rapid growth in banking sector. Figure 3: United Bank Limited Habib Bank Limited HBL had a problem of over staffing which shrinkage the profits. During pre-privatization period HBL was highly influenced by the government policies which cause the lack of consistency. After privatization HBL had considerable growth. They changed their management style from traditional to corporate. On the other hand, the provisions provided by HBL to its NPLs are decreased by 56% as compare to pre-privatization period. Figure 4: Habib Bank Limited CONCLUSION From the graphical analysis it has been cleared that there is a significant impact of privatization on the non-performing loans as the privatization has reduced the value of non-performing loans. The most important is the Banking Reform by State Bank of Pakistan. From 1990s the effort was started to improve the banking performances, also with the non-performing aspect. A number of reforms were introduced for the restructuring regulations and policies. Due to banking reform, Corporate governance standards were first time introduced, risk assessment and loan portfolio management, supervision and improvement in credit decision by removing political influence was done. Human resource recruitments at all levels were made on merit. Information technology was improved to introduce e-banking. Almost 75% of banking employees and 90% of banking customers represented that these banking reforms has positively effected on the performance of banks. And only 20% banking employees, 4% banking custom ers showed dissatisfaction as it has increased the cost too. Minimum capital requirement was also set up in these reforms that are Rs.1.0billion to Rs.2.0billion. So, there are many other factors along with privatization that positively impacted on banking performance in Pakistan.

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Assignment on Principles of Management Free Essays

There are many factors that constitute on how to achieve excellence in management especially in the case of Starbucks under Howard Shultz. Indeed, management is getting things done, through efficient means that would maximize profit while keeping costs down. In order to be competitive and for an organization to be successful in the field of management and to be productive, there are lots of things to be considered. We will write a custom essay sample on Assignment on Principles of Management or any similar topic only for you Order Now Such aspects are the performance of the leaders or managers of the firm and the performance of the firm as whole, safety measures regarding the management, risks that will come along that the organization are going to face and ways to overcome them, and the influence of consultation (Pollock, 2001). In line with these factors that management of organization must consider are the needs of the organization. These needs can be achieved through the knowledge of the management and technological approaches the management would choose (Barclay, 1997). Dealing with those needs is important and constitute to the excellence in management. There are lots of experiments on how to achieve excellence in management was done by Shultz in achieving the status Starbucks have today. Some findings are the need to change strategies, designs that can be used to evaluate the organizations’ success, measures as standard basis, methods and ways to adapt to a complex environment; whether to stay with their current strategies in a constant environment or to change due to the changing environment, and many more (Resources, 2006). A. Ways to Achieving Management Excellence 1. Excellence through Performance Management One design that will constitute on the excellence in management of an organization is through the giving incentives to the individual. This will be dependent on their performance in their field of work. This is called the pay-for-performance system (William K. Redmon, 2005). For the simple reason, the aim for additional income, the individuals’ development can be achieve by doing this. By doing this, the gap in the individuals’ goal and the organizational goal can be lessen or even better, will be gone. In addition, the costs of goods and services are also in its minimal due to the incentive pays that motivates employees. This motivation factors makes employees to become more productive. In fact, some of the companies are now changing their way on how to pay their employees, from normal salary basis and or hourly basis wage systems, to payment based on the employee’s performance (pay-for-performance system). As of this time, organizations are having difficulty recruiting workers. This may be due to the minimum wage salaries that they offer. Because of this reason, the firms and other organizations are thinking of ways on how to attract new workers and to retain the old ones. Other companies have the way of increasing the employee’s salaries, thus making an addition to their expenses and labor costs. In addition to this, performance of these newly hired workers cannot be said to have reached the organization’s needs. Then the need for performance improvement are then on the play. Here comes the study on how to management motivates employees that will become a great use in achieving organizational goal. Organizations have used incentives using incentives such as additional pay depending on the performance of individual employees (Studies, 2004). What others have done is to give those who are in the hard work for the organization’s goal some incentives in the form of not a monetary value but for the recognition of their behaviors. Such examples of non-monetary value incentives are promotions. Most organizations do such things like this for motivating their employees to be more productive. Together with the individual’s aim for promotion, is the organization having greater profit and lessens the costs of services. Other non-monetary value incentives are recognition of the employees, for example, employee of the month award, best employee of the year, and many more. Such behavioral way of motivations is of great help in achieving excellence in management of an organization. Implementation of a goal through goal-setting program can be used by management to evaluate employee’s performances. Feedback program can be added and to this method. Feedback may be of good or bad based on the goal settled by the organization. For employees perception of this settled goal may have different effects depending on the individual. Some responds to the better productivity, while others have done absenteeism. An increase in productivity means the goal settled by the management served as a challenge and thus motivates the employee for better work. On the other hand, this served as constraints for other workers. Feedbacks however are used to chase away criticism but are used for employee’s performance evaluation. That’s for the reason that criticisms are agents of exploitation that management didn’t want to interfere with the management. What feedback supposed to do is to give an evaluation, whether it may be bad or good, that will serve as a constructive criticism to employees. If the feedback was bad, that doesn’t mean that the employee was bad at all, but to show the deficiency the employee have and to overcome for the employee to overcome this. If the feedback was good, that means that the employees work was recognized and then the tendency of being a more hard working employee will come up to the mind of the employee. This is how behavioral management in an organization plays. II. Management Practices: A. Comparison Let’s take a look at some organizations/companies that won some awards regarding the excellence in management. For the supply chain excellence, the Starbuck’s Coffee chain having the strategy model of high-speed build-to-order delivery services has been recognized. The Starbuck’s Coffee won one of the dealings on the supply chain excellence; speed. To measure the excellence in management of the Starbuck’s Coffee, a checklist was made with all the criteria of being excellent in management as the standard basis. How to cite Assignment on Principles of Management, Essays