impact of financial rewarding on performance

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Research Proposal

SRI LANKA INSTITUTE OF DEVELOPMENT ADMINISTRATION (SLIDA)

Master of Public Management (MPM) MPM (2011/2013)

Semester II

Research Methodology

A study on the relationship of employees

performance with the financial benefits not

related to their performanceIndividual Assignment II

M.A.Sudath Munasinghe (2011 / 2013 / 79)

[email protected]
mailto:[email protected]:[email protected]:[email protected]


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Research Proposal M.A.S. Munasinghe (2011/2013/79)

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A study on the relationship of employees

performance with the financial benefits

not related to their performance

1. Introduction1.a. BackgroundIt is an accepted fact that the employees in any organization work for their monthly salary. In

some organizations, employees are paid well depending on their performance such as rewardingfor achievement of targets etc. Apart from that, there are fringe benefits and allowances paid for

the employees, without considering their day to day performance, such as housing allowances,

transportation allowances, coverage of medical expenses etc. When the financial or other economical benefits granted for employees are not related with theirday to day performance, it is questionable whether they are motivated and devoted for their

duties to the same extent as when the amount paid for them is calculated on the basis of working

hours or work output.The salary structure of the MILCO PRIVATE LIMITED has not been reviewed for a long periodsuch as 20 years and the employees were offered additional amount of money along with their

salary package, without revising the basic salary structure. The salary was consisted with two

major components, the basic salary with the amounts added time to time, and a variable cost of

living allowance calculated on the Colombo Consumer Price Index (CCPI). The total salary

package consisted with both parts and therefore the percentages for provident fund, employerstrust fund as well the overtime work, were calculated considering the said total package.During the recent past, a major change in the salary structure was introduced, so that the cost of

living allowance is no more a part of the salary. Therefore, all employees are paid an equalamount as the cost of living allowance while the payment for the work was calculated with the

basic salary.The most dominant issue is that the amounts paid as basic salaries of the employees are very low

when compared with the amount paid as cost of living allowance; such as one sixth of theallowance, and thus the employees may not caring the salary alone much.

However, it is noted that the employees do not interested on overtime work and working on

holidays, since of recent past. In contrast, the employer or the management expects that theemployees shall be motivated with the higher amount paid as the cost of living allowance which

was doubled with the introduction of the new salary system.

MILCO PRIVATE LIMITED which is the successor to National Milk Board of Sri Lanka is a

public enterprise engaged in milk processing industry. It is affiliated to the Ministry of Livestock

and Rural Community Development of Sri Lanka as the line ministry, which is having four main

processing factories located at Narahenpita in City of Colombo (Colombo Milk Factory),


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Rajawella in Kandy (Digana Milk Factory), Ambewela in NuwaraEliya (Ambewela Spray Dried

Milk Factory) and Gallella in Polonnaruwa (Polonnaruwa Milk Factory) and a cattle feed plant in

Karandana, Polgahawela. There is a mini plant processing Curd at Labuduwa, Galle. MILCOalso has a network for milk collection and dairy development spread throughout the island except

in the northern peninsula. The milk collection network consists of 79 milk chilling centres fed by

over 2,000 Farmer Managed Societies.

1.a. Problem statementWhat is the effect of the financial benefits that are not directly related to the daily performance,

on the commitment of employees on their job?1.b. Significance of the studySo far no study has been carried out to find out this phenomenon, especially when no such salarysystem is introduced in any organization. Yet, it is important to study the behaviour of the

employees with the payment systems when revisions of the salary structures are done.1.c. Research objectives(a)Overall research objectivesTo find out how the commitment of employees towards the organization can be improved.

(b) Specific research objectivesTo find out, to what extent the employees commit to their duties irrespective of the instantaneous

returns.

To find out the effect of fringe benefits (financial) on the commitment of the employees toimprove the performance of the organization.


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2. Literature Review2.a. Relevant concepts and definitionsPerformance-related pay has become the primary device used to motivate people in the

workplace. It is based on the idea that, if people are promised monetary rewards, they will workharder and act appropriately in order to obtain them. But is this argument always borne out in

practice? What is the behavioural concept underlying the assumption that people will increase

their efforts if they are provided with these incentives?

Much research indicates that providing monetary incentives can increase outputs. However,some researchers argue that financial incentives may also reduce intrinsic motivation, or the

internal drive to complete a task and the pleasure derived from the process. Others point to the

possibility that monetary incentives may diminish ethical or other reasons for complying with

workplace social norms such as fairness. As a consequence, the provision of incentives mightresult in a net reduction of motivation across a team or organisation, and actually have a negative

impact on overall performance.

Researchers have been working on the topic for years and have gathered valuable empiricalinsights. Executives and HR managers carry a large stock of experience relating to the benefitsand pitfalls of incentive schemes in organisations.

2.b. TheoriesThere are a number of different views as to what motivates workers. The most commonly heldviews or theories are discussed below and have been developed over the last 100 years or so.

Unfortunately these theories do not all reach the same conclusions.

Taylor

Frederick Winslow Taylor (18561917) put forward the idea that workers are motivated mainlyby pay. His Theory of Scientific Management argued the following:

Workers do not naturally enjoy work and so need close supervision and control. Thereforemanagers should break down production into a series of small tasks. Workers should then be

given appropriate training and tools so they can work as efficiently as possible on one set task.

Workers are then paid according to the number of items they produce in a set period of time-

piece-rate pay. As a result workers are encouraged to work hard and maximise their productivity.

Taylors methods were widely adopted as businesses saw the benefits of increased productivity

levels and lower unit costs. The most notably advocate was Henry Ford who used them to design

the first ever production line, making Ford cars. This was the start of the era of mass production.

Taylors approach has close links with the concept of an autocratic management style (managerstake all the decisions and simply give orders to those below them) and Macgregors Theory X

approach to workers (workers are viewed as lazy and wish to avoid responsibility).

However workers soon came to dislike Taylors approach as they were only given boring,

repetitive tasks to carry out and were being treated little better than human machines. Firmscould also afford to lay off workers as productivity levels increased. This led to an increase in

strikes and other forms of industrial action by dis-satisfied workers.


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Mayo

Elton Mayo (18801949) believed that workers are not just concerned with money but could be

better motivated by having their social needs met whilst at work (something that Taylor ignored).

He introduced the Human Relation School of thought, which focused on managers taking moreof an interest in the workers, treating them as people who have worthwhile opinions and realising

that workers enjoy interacting together.

Mayo conducted a series of experiments at the Hawthorne factory of the Western Electric

Company in Chicago. He isolated two groups of women workers and studied the effect on theirproductivity levels of changing factors such as lighting and working conditions. He expected to

see productivity levels decline as lighting or other conditions became progressively worse.

What he actually discovered surprised him: whatever the change in lighting or working

conditions, the productivity levels of the workers improved or remained the same.

From this Mayo concluded that workers are best motivated by:

Better communication between managers and workers (Hawthorne workers were consulted over

the experiments and also had the opportunity to give feedback).Greater manager involvement in employees working lives (Hawthorne workers responded to the

increased level of attention they were receiving).

Working in groups or teams. (Hawthorne workers did not previously regularly work in teams)

In practice therefore businesses should re-organise production to encourage greater use of team

working and introduce personnel departments to encourage greater manager involvement inlooking afteremployees interests. His theory most closely fits in with a paternalistic style of

management.

Although some theorists like Herzberg believe that money is not a positive motivator (although

lack of it can de-motivate), pay systems are designed to motivate employees. The scientific /Theory X approach, in particular, argues that workers respond to financial rewards. Getting

employee pay right (often referred to as the remuneration package) is a crucial task for a

business.

Why is pay important?

It is an important cost for a business (in some labour-intensive businesses, payroll costs areover 50% of total costs)

People feel strongly about it. Pay helps to satisfy many needs (e.g. security, esteem needs,

resources to pursue self-actualisation)

Pay is the subject of much important business legislation (e.g. national minimum wage; equal

opportunities legislation)

It helps attract reliable employees with the skills the business needs for success

Pay also helps retain employeesrather than them leave and perhaps join a competitor

For most employees, the remuneration package is the most important part of a joband certainlythe most visible part of any job offer.

There are many methods of financial reward


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Time-rate pay Piece-rate pay Commission Performance-related pay Bonuses Shares and options Benefits in kind (fringe benefits) Pensions

Because pay is a complex issue, there are several ways in which businesses determine how much

to pay, and which methods to use:

Job evaluation / content; this is usually the most important factor. What is involved in the job

being paid? How does it compare with similar jobs?

Fairnesspay needs to be perceived and be seen to match the level of work

Negotiated pay rates the rate of pay may have been determined elsewhere and the business

needs to ensure that it complies with these rates.

Market rates another important influence particularly where there is a standard pattern of

supply and demand in the relevant labour market. If a business tries to pay below the market rate then it will probably have difficulty in recruiting and retaining suitable staff

Individual performance increasingly, businesses include an element of performance-related

reward in their pay structures.

However, it is important to remember that pay is only one element of motivation and will work

best where management also give attention to:

Developing good management and supervision;

Designing jobs and organising work groups to make them as satisfying as possible;

Providing feedback to staff about their performance and training and development;

Making effective arrangements for communications and consultation.

2.c. Best practices2.d. Relevant research studiesReview of construction and general management contributions (Rose 2008) suggests that

To assess the impact of financial incentive on motivation in a project

environment, consideration must be given to both potential extrinsic (external)

and intrinsic (internal) drivers of motivation. Therefore, a big picture approachmust be taken to identify and explore the various drivers within the project that

promote or discourage motivation to determine the value of financial incentives in

driving motivation and thus, performance. The unit of analysis is the construction


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project, which encompasses the project structure, team and dynamics. Given the

lack of research into the impact of incentives on motivation and performance in

construction (Bresnen and Marshall, 2000), the present article develops aconceptual framework, based on theoretical evidence, to explore the research

question: What are the drivers of motivation on construction projects?Motivation is a mediating variable between core project activities and projectperformance. Core project activities give rise to various motivation drivers thatinfluence the motivation of project participants. Five core activities are

conceptualized and motivation is seen to impact performance through four key

indicators. The current paper describes the drivers of this motivation, about which

little is currently known in the context of a construction project. This is the gap inthe literature addressed here.Mullins (1996) argues that performance is a product of motivation, ability and the

environment. Similarly, Howard et al. (1997) argues a construction contractors

(agents) output (or performance) is a function of factors within their control(ability and motivation) and external factors outside their control (environment).

Although participant ability and factors external to the project (e.g. market prices)

influence performance outcomes, these factors are beyond the scope of the

research.

The framework is based on insights from organizational management theory (Van

Herpen, Van Praag, and Cools, 2005; Moers, 2000; Gibbons, 1998),

psychological motivational theory (Locke and Latham, 2002; Colquitt, 2001;

Hollenbeck and Klein, 1987; Bies and Moag, 1986), and economic agency andreciprocity theory (Fehr & Falk, 2002; Howard et al., 1997; Holmstom and

Milgrom, 1991; Eisenhardt, 1989a; Jensen and Meckling, 1976). The framework

is based on a set of four motivation indicators distilled from these theoretical

sources, and interpreted in a project-based context. The four indicators representdistinct categories that cover key contributions in the literature. The motivation

indicators developed from the combined theories are: 1. Goal Commitment, 2.

Distributive Justice, 3. Procedural Justice and, 4. Interactional Justice. This is thefirst time that such a broad range of indicators has been conceptualized for

application to a construction project environment. The indicators are used in this

study to assess the relative impact of financial incentives and other project-basedmotivation drivers.

Jim Riley (Last updated: Sunday 23 September, 2012) Managing People - Financial Methods of

Motivation stated as below.

Though there are many reasons why people work for a living, it is undeniable thatmoney, or other financial rewards, play a key role in motivating people in theworkplace.

There is a wide variety of ways in which a business can offer money (or

financial rewards) as part of the pay package, including:

Salaries: fixed amounts per month or year for performing a role; these are

common for most managerial positions (e.g. Accountant, Payroll Manager)


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Benefits in kind (fringe benefits) very common in businesses of all kinds;

these include staff discounts, contributions to travel costs, staff uniforms etc

Time-rate pay: pay based on time worked; very common in small businesses

where employees are paid per hour.

Piece-rate pay: pay per item producedbecoming less common

Commission: payment based on the value of sales achieved.

Other performance-related pay: e.g. bonuses for achieving targets

Shares and options: less common in small businesses, but popular in businesses

whose shares are traded on stock markets

Pensions becoming less common and generous. Small businesses tend not to

offer pension benefits.

In most cases, an employee might expect to have a mixture of the above in a paypackage.

How important is money as a motivator? It is widely accepted that poor or lowpay acts as a de-motivator.

Someone who feels undervalued or under-paid may soon leave to find better-paid

employment. However, it is less clear that paying people more results in bettermotivation.

Selfdetermination theory (SDT) is a macrotheory of human motivation,

personality development, and wellbeing. The theory focuses especially on

volitional or selfdetermined behaviour and the social and cultural conditions that

promote it. SDT also postulates a set of basic and universal psychological needs,namely those for autonomy, competence and relatedness, the fulfilment of which

is considered necessary and essential to vital, healthy human functioningregardless of culture or stage of development.

Cognitive Evaluation Theory (CET) concerns how social contexts and

interpersonal interaction either facilitate or undermine intrinsic motivation.Intrinsic motivation is defined as doing something for its own sake, and applies to

activities such as play, sport, and leisure.

CET stresses the importance of autonomy and competence to intrinsic motion,

and argues that events that are perceived to detract from these will diminishintrinsic motivation. CET specifically addresses how factors such as rewards,

deadlines, feedback and pressure affect feelings of autonomy and competence and

thus enhance or undermine intrinsic motivation. For instance CET explains whysome reward structures, for example, financial incentives, actually detract fromsubsequent motivation, a phenomenon that is often called the undermining effect

of rewards (Deci, Koestner & Ryan, 1999).

2.e. Conceptual frame work for the studyThe research will be based on two stages


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The difference of the performance of employees under the two salary systems

This will be obtained from the available records.

The attitudes of employees on the performance, under the present salary system

The dependent variable will be the performance, which is indicated by the output

of the work measured by:

(A.1) The rate of output (where measurable)

(A.2) The number of effective hours worked.

(B) Accuracy of work

2.f. Research Hypotheses or research questionsEmployees perform depending on the maximum benefits they obtain. Thus, if any

benefit is received effortless, they do not wish to consider it as a pay.

3. Research design3.a. Population/sample

The research population will be the employees of the organization affected with

the problem (amounting to 1,500 approximately)

Basic salary

Allowances

Rate of OT

Incentives for

target

achievements

Rate of days

EPF / ETF

Output rate /

Hours of work

per day

Good quality

work

Performance


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Sample will be selected to represent each category of employees and the number

of members will be 5% the total of the category (totalling to 150).

3.b. Data collecting Techniques (qualitative/quantitative)This will be a quantitative study though the aspect is qualitative. Therefore, the

attitudes of employees will be categorized in order to obtain quantitative data.

Data collection will be with questionnaires. However, few interviews will be done

to support the concepts developed after the research.

3.c. Data Analysis techniquesQuantitative data will be analysed with the accepted empirical analysis methods

(with SPSS package).

4. Action Plan of the Study4.a. Reviewing relevant literature4.b. Collection of data with questionnaires provided to employees selected as

sample.

4.c. Data analysis4.d. Interviews to confirm the conclusion of analysed data.

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