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Why External Hires Get Paid More, and Perform Worse, than Internal Staff

Here is some research sure to rankle every employee who has applied for an internal promotion and been passed over in favor of someone brought in from the outside. According to Wharton management professor Matthew Bidwell, “external hires” get significantly lower performance evaluations for their first two years on the job than do internal workers who are promoted into similar jobs. They also have higher exit rates, and they are paid “substantially more.”

Bidwell suggests that his paper “provides unique evidence on the value to firms of internal labor market structures. Results show that internal mobility allows the firm to staff higher-level jobs with workers who have better performance but are paid less.” By detailing the strong advantage of internal mobility over external hires, he adds, “these findings help to explain the continued resilience of internal labor markets in the face of pressures for worker mobility.”

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Executive Summary: Promote, Don’t Pass Over, Wharton Magazine, Summer, 2012

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ADB Support to Improve Portfolio Performance and ODA Effectiveness

The ADB has identified the main constraints that need to be solved for improvement of portfolio and aid effectiveness in Viet Nam, including:

• lack of harmonized procedures on ODA project management
• project start-up delays
• limited effectiveness of joint portfolio performance management mechanism
• project management capacity constraints, and
• delays in institutionalization of results of dialogue between Government and development partners on aid effectiveness

ADB carried out a first technical assistance (TA) project to enhance ODA absorptive capacity and efficiency from October 2007 to August 2011. A new TA project, from June 2012 to Nov 2014 will address the above-mentioned constraints and further institutionalize the outcomes of the policy dialogue between Government and the Six Development Banks Group (6BG) as agreed in the second Joint Action Plan (JAP-2). The 6BG brings together the ADB, the World Bank, JICA (Japan), Korea Eximbank (Korea), KfW (Germany) and AFD (France).

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ADB: Support to Improve Portfolio Performance and Aid Effectiveness in Vietnam, (Inception Report), June 2012

Official Development Assistance (ODA) has been an important catalyst for Viet Nam’s rapid economic development since resumed international development partners resumed ODA in 1993. However, portfolio performance as reflected in indicators such as disbursement, project start-up compliance and average loan extension has deteriorated in 2004 and improved in 2009, but slid back in 2010. Some portfolio performance indicators in Vietnam are worse than those of other Southeast Asia countries. This situation requires that ODA utilization and management in Vietnam need to be improved to contribute to better ODA effectiveness.

ADB’s portfolio performance review in 2010 and 2011 identified main constraints that need to be solved for improvement of portfolio and ODA effectiveness, which include, among others: (1) lack of harmonized procedures on ODA project management, (2) project start-up delays, (3) limited effectiveness of joint portfolio performance management mechanisms, (4) project management capacity constraints, (5) delays in institutionalization of results of dialogue between Government and development partners on aid effectiveness.

The purpose of this report is to set out a clear approach and methodology to implement the Technical Assistance, present the implementation plan, activities, timeframe and resources to implement the TA over the period Jun 1, 2012 – Nov 30, 2014.

New tool shows relationship between development, aid and governance
Dani Kaufmann and Homi Kharas have combined their expertise on governance and aid at the Brookings Institution to produce a new tool for “connecting the empirical dots” on development, aid and governance. The tool – an interactive platform and databank of information about aid quality and governance – aims to ensure that policy discussions are informed by the best available evidence.

Planning ODA Effectiveness
How do donors go about improving aid effectiveness in practice? The inception report “Socialist Republic of Viet Nam: Support to Improve Portfolio Performance and Aid Effectiveness” gives an insight into how the Asian Development Bank’s (ADB) thinks it should do it. At the end of the report there is a useful Design and Monitoring Framework (p. 17-19).

A performance booster for SOEs – McKinsey & Co.

Some SOEs in emerging markets are closing the gap with their private-sector competitors. Petronas, the state-owned energy company in Malaysia, for example, began an operational excellence campaign focusing on improved technical capabilities and a more effective working culture at its plants. After five years, the initiative delivered upward of $1 billion in savings and new revenues. What’s more, the company’s operational effectiveness, judged by a metric combining utilisation, quality, and performance, is now in the industry’s top quartile. While these better-performing companies draw from well-known best practices in the private sector, they also concentrate on three areas of specific importance in the public sector. These are clarifying objectives and securing an explicit mandate, focusing scarce resources on areas with the highest financial impact and redefining the talent proposition. Governments play a big role in creating the right environment for SOEs to excel.

“A performance booster for SOEs,” McKinsey & Co, July 2012

The unlearned lesson: Vinashin, VinaLines, and other SOEs’ inefficiencies, Saigon Times, May 26, 2012

Additional background

According to the Committee for Enterprise Reform and Development and the Ministry of Planning and Investment, state-owned enterprises hold 70% of the total real property in the economy, account for 20% of investment capital throughout society, and devour a staggering 60% of the credit in the commercial banking system, 50% of state investment capital and 70% of official development aid capital.

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Weekly Update Apr 2: Competitive Local Compensation, Business Gets Social 2012

Highlights

HCM City & S. Key Economic Region Infrastructure: Ports, Industrial Parks (update)
Welcome to new AmCham companies in 2012
Member Survey 2012
AmCham Vietnam Direct Selling Committee – About Us
Fr, Apr 6 Networking Night: Competitive Local Compensation Realities Vs Global Recession
Tu, Apr 10 Legal Committee Meeting
Fr, Apr 13 Business Lunch: Business Gets Social 2012
FDI Rivals Turn Up the Heat on Vietnam
Myanmar: the Next Tiger? Hub for Low-cost Manufacturing (BusinessWeek)
Bangla Desh: the Next Apparel Sourcing Hot Spot? (McKinsey)
Inside the Chinese Boom in Corporate Espionage
Bitexco Financial Tower: a new HCM City icon

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Managing your performance by measuring your risks! (Part I)

Risk is, by definition, forward looking. It is a measure of probability of either loss or gain. And that probability of value destruction or creation directly impacts a company’s performance objectives. The way American business magnate Warren Buffet put it, risk comes from not knowing what you’re doing. So, you’ve got to align your risk and performance management in a holistic manner, to avoid the ‘blind spot which many companies fail to see.’

Uncovering the connection between risk and performance management
Studies of companies with large market capitalisation have found that nearly 60 percent of the time, failure to assess and respond to strategic or business risks is behind rapid declines in shareholder value (PwC, State of the Internal Audit Profession Study). Nonetheless, many business leaders continue to view risk and compliance as two sides of the same coin.

Compliance with regulatory and reporting rules is a non-negotiable feature of doing business. These days, it’s not enough to view risk management strategies solely for prevention purposes, because by doing so, you will fail to account for the likelihood of change or the possibility of growth. A holistic risk management program encompasses the tools and processes used to identify, assess, and quantify business threats and the measures taken to prioritise, monitor, control and mitigate those threats.

Performance-focused risk management
According to a senior risk management executive at one multinational energy company, performance-focused risk management can enable both compliance and business strategy. “We found that if we manage and design according to risk, we usually exceed any government requirements that anybody can lay on us, just because risk is such a logical way to do it. We know the risk associated with a certain thickness of pipe on a platform leg. We know the risk associated with a certain type of valve or a certain type of pump in a refinery. And we are going to design to a level higher than most government expectations,” he said, adding that the primary drivers of his company’s risk management programs are safety and finance. “We are more interested in protecting an USD8 billion book-value refinery than any government is. We’ve got a lot invested in those assets, and we want nothing to go wrong.”

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