THE EFFECT OF COMPENSATION ON EMPLOYEE MOTIVATION

THE EFFECT OF COMPENSATION ON EMPLOYEE MOTIVATION

CHAPTER ONE

1.0     INTRODUCTION

1.1     Background of the Study

Motivation can be defined as the set of factors that cause people to behave in certain ways (Schwartz, 2006). Motivation is derived from the term motive which is a reason for doing something (Amstrong, 2008), the reason can either be internal (intrinsic) or external (extrinsic) factors (Herzberg et al, 1957). Motivation can be described as goal-oriented behavior (Amstrong, 2008). Drafke (2002) defines motivation as simply an incentive to act.

Motivation is among the key concerns of organizations in the modern business environment, as it has been identified to be critical in achieving business goals and objectives. This means giving close attention to how individuals can best be motivated to achieve objectives set for them (Amstrong, 2008). Amstrong (2008) continues to say that motivation can be through incentives, rewards, and positions all aimed at ensuring that the individuals deliver results in accordance with expectation of management.

Motivation determines how a person will exert his or her effort. It represents the effort will be exerted (DeNisi and Griffins, 2008). Because of motivation’s role in understand and to structure the work environment to encourage productive behaviors and discourage those that are unproductive. (Jex and Britts, 2008). Motivation is important in team-based environments as well as where employees work independently. Motivation involves aligning employee goals and values with the organization’s mission and vision in order to create and maintain high levels of performance (Campbell, 2007). Campbell (2007) adds that as the marketplace becomes increasingly competitive, it is evident that firms must especially appreciate the role of employees towards establishing a competitive edge and that individuals motivated are top performers who consistently provide high quality results; maintain high levels of productivity and overcome challenges and obstacles.

Motivation has also been defined as the act of stimulating someone to take desired course of action (Ghosh, 2000). Clegg and Birch (2002) defines motivation as the stimulation of action towards a goal, whether the stimulus is conscious or unconscious.  Motivation theory examines the process of motivation, it explains why people at work behave in the way they do in terms of their efforts and directions they are taking. The aim in understanding and applying motivation theory is to obtain added value through people (Amstrong, 2008), the other key reason is about getting people to move in a certain desired direction to achieve a result (Amstrong, 2008). Cole (2002) when discussing motivational theories argues that different people have different view when it comes to motivation which ranges from rational-economic view, social view, self actualizing view and complex view. Beardwell et al. (2004) explains that understanding of motivation is important within the reward and development of reward strategies for it enables organization to humanize work for employees, make the jobs more satisfying, and finally it enable the management to control the behavior of subordinates more effectively .

Maintaining highly motivated employees is therefore a strategic move to keep employees committed to working hard and ultimately contributing their optimal capability towards achieving the organization’s goals (Frey and Osterloh, 2002). Motivation differs depending on whether you are motivating an individual, a team or a large group of people (Clegg and Birch, 2002).

On the other hand, according to Amstrong (2008) de-motivated employees exhibit signs of low morale, this can have destructive implications in the organization. Amstrong (2008) continues to say that among the more significant warning signals of de-motivated employees are high rates of absenteeism, tardiness, high levels of employee turnover, sabotage, low pride in their work, wastage, low job satisfaction, endless grievances, indiscipline and lack of team spirit (Armstrong, 2008). In order to curb these and other problems that can escalate into more serious crises in the organization, de-motivation should be detected early and necessary actions taken, these may include counseling of de-motivated employees, clearly explaining their roles, responsibilities and rewards and ensuring their expectations match those of the organization.

Key factors that determine employee motivation are satisfaction, recognition, appreciation, inspiration and compensation (Bowen, 2000). Organizations that recognize the importance of motivating employees often implement strategies that consistently motivate their employees to achieve the organizations objectives. Such strategies for improving motivation include compensation, employee participation, feedback and work environment which ensure that employees’ needs and requirements are met (Bowen, 2000). Clegg and Birch (2002) argues that the thought of incentive is in itself motivational, in fact most motivation comes from anticipation than the delivery of the incentive itself.

Compensation is one of the key drivers of motivation because humans are naturally inclined to perform better when they perceive that they will get sufficient payment or returns from their efforts. While people exert effort for different reasons, today’s competitive economic environment coupled with the consumer society has made compensation arguably the most important motivation factor. Most people are motivated by money at least for their basic needs and wants.

Compensation in any form is the most obvious extrinsic reward; it provides the carrot that most people want. (Amstrong, 2008). DeNisi and Griffins (2008) defines compensation as the set of rewards that organizations provide to individuals in return for their willingness to perform various jobs and tasks within the organization.

Mr. Biggs Abuja group of companies consists of Mr. Biggs Abuja (K) Ltd, Mr. Biggs Abuja (T) Ltd, Battery Masters (U) Ltd and Mr. Biggs Abuja (R) Ltd. The company was first introduced to Kenya in 1963 as part of Chloride group PLC in the UK to retail and distribute Mr. Biggs Abuja Batteries. It has since become the largest battery and solar systems distributor with 17 branches spread across Kenya and three other fully fledged sister companies in Tanzania, Uganda and Rwanda. The company has its head offices located in the Industrial Area of Nairobi at Exsan House off Enterprise road; it has depots in other major towns in Kenya.

1.2     Statement of the Problem

While compensation is arguably one of the key drivers of motivation and one of the most studied areas, doubts have been cast by Herzberg et al. (1957) and Amstrong (2008) on the effectiveness of compensation. They argued that, while lack of it causes dissatisfaction, its provision does not result in lasting motivation. The effects of compensation on motivation vary from organization to organization.  Most people are motivated by money at least for their basic needs and wants (DeNisi and Griffins, 2008). Employee motivation through compensation can be in several forms including salary raises, performance bonuses, commissions, profit sharing and other extra benefits such as vacations, cars and other tangible items that are used as rewards (Campbell, 2007). These compensation systems can be categorized as direct financial payment and indirect financial payments (Dessler, 2004).

Nelson and Spitzer (2003) states that in today’s work environment, there is more change and uncertainty, there is increased need for empowered employees, there is decline in traditional incentives, there is rise of nontraditional incentives and there is increased use of variable compensation. Studies have also shown that compensation programs and the methods of administration affect employee motivation (Bowen, 2000). Many researchers have focused on satisfaction, recognition, appreciation and work environment as employee motivators in different organizations (Kosgei, 2011). However none has studied employee compensation at Mr. Biggs Abuja.

It is not clear what methods were used to determine employee compensation, what direct and indirect financial programs were offered at Mr. Biggs Abuja and their effects on employee motivation and lastly the non-financial benefits offered and their effect on employee motivation. This study sought to address this gap by enquiring on the effect of compensation on employee motivation at Mr. Biggs Abuja group of companies.

1.3     General Objective

The general objective of this study was to enquire on the effect of compensation on employee motivation at Mr. Biggs Abuja.  

1.4     Specific Objectives

1. To establish the methods used to determine employee’s compensation at Mr. Biggs Abuja.
2. To establish the extent to which the direct financial payments affect employee’s motivation at Mr. Biggs Abuja.
3. To establish the extent to which benefits affect employee’s motivation at Mr. Biggs Abuja.

1.5     Significance of the Study

Having studied Mr. Biggs Abuja, an entity in the motor vehicle industry and a market leader in distribution of the automotive batteries and renewable energy solutions, the study is important to a number of stake holders as follows:-

Mr. Biggs Abuja Management and Staff

The study will assist the overall management team in the company as it will show the trade off point between compensation and employee motivation. This is particularly important to the departmental heads that will need to the knowledge on how to motivate their staff to achieve the set objectives effectively and efficiently. Specifically to the Human Resources Manager, the study will help highlight any areas of concern and strength. This will help in attracting and retaining the staff.

Researchers

Currently the motor vehicle industry is operating under a very highly dynamic environment, characterized by high competition and fast technological changes. The study will be of importance to other researchers in future who may be interested in studying motivation under these very high dynamic conditions and also the “dot com” generation.

Government

Mr. Biggs Abuja is a privately owned regional organization specializing in provision of renewable energy solutions. The study will be important for the Governments of Nigeria, to understand what motivates the staff and hence contributes to the company growth. It would be important for the government policy makers to know of areas in which they can provide the company with further incentive, for such a worthy course of growing the reliance on renewable energy.

1.6     Scope of Study

The study examined the employees of Mr. Biggs Abuja Group of Companies who were employed on permanent and those on contract.

This research project examined the impact of compensation schemes by examining previous studies and literature on the issue and by conducting a study on employees at Mr. Biggs Abuja. The research data was collected from 37 respondents out of 41 requests. Some of the limitations experienced included distance related in reaching some of the intended respondents and availability of personal time to fill the questionnaire. To mitigate the effects of these limitations, the researcher used emails to reach far respondents and individually telephoned the respondents to explain the purpose of the study and give assurance that confidentiality would be upheld. Through this the researcher got a response of 90%.

1.7     Definition of Terms

Motivation: A motive is a reason for doing something; motivation is concerned with factors that influence people to behave in certain ways. Motivating people is about getting them to move in the direction you want them to go to achieve results (Armstrong, 2008). There are two types of motivation as originally identified by Herzberg et al. (1957) that is, intrinsic motivation (self generated factors for example interest, responsibility) and extrinsic motivation (from others for example increased pay, praise, punishment, criticism).

Compensation: This is the package of quantifiable rewards an employee receives for his or her labour. It includes three components: base compensation, pay incentives and indirect compensation/ benefits. (Gomez et al, 2012).

Productivity: Defined as the individual output; this may be in the form of units per person or revenue generated per person (Amstrong, 2008).