Bunna Bank’s proposed new talent management procedure has drawn fierce backlash for including a provision that could lead to salary cuts through demotions for underperforming employees.
The controversial 68-page procedure, effective as of July 01, 2023, would allow the bank to demote workers to lower positions and pay grades if their performance is deemed “unsatisfactory” over multiple evaluation periods.
Any demotion under the policy would automatically reduce the employee’s compensation.
If approved, the policy would introduce even termination for unsatisfactory work.
The bank distributed the proposed procedure to all chief officers, directors and branch managers for feedback.
As details emerged, the policy drew fierce criticism from employees and labor advocates who argue “it goes too far.”
At the core of the controversy are provisions that allow punitive demotions and wage reductions. The procedure states that any demotion would automatically reduce an employee’s salary and benefits. Workers already demoted due to past performance issues would also be barred from internal promotions for a year.
“Any demotion shall result in reduction of salary and benefit entitlements,” reads the procedure.
Bank staffers who reviewed the plan blasted its “harsh penalty clauses.”
“This policy introduces laws that never existed before in a way that disadvantages employees,” one told The Reporter on condition of anonymity.
They worry the demotion and pay cut rules violate Ethiopia’s employment laws protecting workers.
Labor groups echoed those concerns.
Desta Berhe is president of the Finance Industry Federation under the Confederation of Ethiopian Trade Union.
“Salary cuts cannot legally be used as punishment for poor performance alone,” he said.
He argued the Bank should focus on training, not penalties, to develop worker competency.
Executives at Bunna Bank defended the new procedure, with an anonymous executive source saying “annual reviews found that some employees had advanced in roles and pay grades without maintaining the required level of performance.”
A senior executive of the bank, whose name withheld upon request, framed the salary reductions as necessary due to past negligence.
“The demotion would be a last resort after exploring options for improvement,” said the executive.
On the frontlines, branch managers expressed their concerns over the new procedure.
One noted the procedure “fails to consider the difficult deposit-raising conditions in the struggling industry.”
“It is not fair to penalize branch managers for something that is beyond their control,” a branch manager in Addis Ababa said.
Another agreed “contextual factors must be a part of evaluating performance under the new framework.”
Ethiopia’s Labor Law protects only non-managerial employees from salary reductions due to demotions except in certain agreed-upon circumstances.
According to the law, wages cannot be decreased as a result of a non-managerial employee being transferred to a new role within a company unless both parties consent to the pay change through a signed agreement between workers and employer.
As of June 2022, Bunna Bank had a total branch network of 343 across Ethiopia, with 197 locations outside of the capital Addis Ababa and the remaining within the city. Approximately 2,932 staff were employed across all the bank’s branches.