AN INVESTIGATION ON THE EFFECT OF REMUNERATION ON MOTIVATION AND PERFORMANCE OF EMPLOYEES

By

KIBET MUREY

Presented To

Department of Business Administration and Management

61 Pages 10,531 Words 1,828 Views PDF Format No. of Chapters: 1 to 5 Chapters

ABSTRACT

The objective of the study was to identify the effect of remuneration on motivation and performance of employees a case of Nation Media Group.

Understanding what motivated employees and how they were motivated was the focus of many researchers following the publication of the Hawthorne Study results (Terpstra, 1979). Five major approaches that have led to our understanding of motivation are

Maslow's need-hierarchy theory, Herzberg's two- factor theory, Vroom's expectancy

theory, Adams' equity theory, and Skinner's reinforcement theory.

Qualitative research was applied in this study. This is ideal because it facilitates the

identification of variables for the study. In this study, the variables were derived from the

research objectives. The population of interest in this study was employees at the Nation

Media Group. A sample size of 100 employees of the target population will be used in this

research on cessation. The study collected data u§ing a self administered questionnaire.

Coded data was tabulated in Statistical Package for Social Science and Frequency * 4 ^

tabulation was to capture the effect of remuneration on motivation and performance of

employees.

From the data analysis finding, Forty one of the targeted 100 staff responded by returning

the questionnaire. Motivation has a great influence on the output of a business. Enterprises rely on the

efficiency of the staff to make sure that services meet the demands of the customers. If

employees lack motivation, their services to the customers are threatened. This indicates

that employees are the most important of all the factors of production and if their

motivation is low then there will be an influence on their effectiveness and efficiency.

CHAPTER ONE

1.0 INTRODUCTION

1.1 Background of the Study

The term motivation has been derived from the word ‘motive’. Motives may be defined as

drives or impulses within an individual. It implies something within a person which

prompts him into action. Motives are expression of a person’s need or wants and hence

they are personal or internal. Motives are needs start and maintain activity and determine

the behaviour of an individual. Motives provide direction to human behaviour as they are

directed towards certain conscious and sub conscious goals. Therefore motivation is the

complex of forces inspiring a person at work to willingly use his capacities for the

accomplishment of certain objectives. It is something that impacts a person into action and

continues him in action with enthusiasm. According to Dale’s Beach motivation is an

inspiration process which implies the members of a team to pull their weight effectively

to give their loyalty to the group to carry out properly the tasks.

The foregoing definition points out the several characteristics of motivation.

Motivation is a psychosocial concept.

It is concerned with intrinsic forces operating within an individual which impel him to act

or not to act in a particular way.

A motive is a personal and internal feeling.

Motivation is a dynamic and continuous process as it deals with human beings who are an

ever changing entity modifying themselves every moment. Motivation is a complex and

difficult function. Therefore a manager must understand and satisfy multiplicity of human

needs, but needs are mental feelings which cannot be described and measured accurately.

Motivation process has been presented as a circular process; it starts with a feeling of an

unsatisfied need that causes tension and an individual takes action to reduce this tension.

When the needs are satisfied, tension is removed and the person feels inspired to work in a

particular direction. This in turn results in revaluation of the situation and discovery of new

needs. Motivation is different from satisfaction; motivation is the process of stimulating an

individual or a group to take desired action. On the hand satisfaction implies contentment

arising from the satisfaction of a need.

At the cognitive level, motivation is the product of anticipated values from a given course

of action and the perceived probability that the action will lead to these values. Motivation

has been described as a complex process. To understand or explain it, three approaches

have been adopted; the content theory approach, Incentive theory approach and the process

theory approach. From the content theory approach, two prominent theories are those of

Maslows and Herzbergs

Maslows need hierarchy theory by Abraham H. Maslow an American psychologist has

developed a theory of motivation on the basis of human needs. The theory positions man as

perpetually wanting animals and his needs are never fully satisfied as soon as its place is

satisfied, another one takes its place. This process continues from birth to the death of a

person.

The Maslows need hierarchy involves the physiological needs i.e. Sex, sleep, clothing,

shelter etc, Safety needs i.e. physical safety or protection against murder, fire, accident

and economic security against unemployment, social needs i.e. the need to belong and to

be accepted by others ego needs i.e. Need for self respect, self confidence, feeling of

personal worth and independence and self actualization needs. This need lies at the top

rank.

In some cases, improving worker’s performance and morale can be a secondary objective

for introducing Performance Related Pay. The real motivation can be to use PRP by the

corporate organisations as an instrument to obtain political support for more funding or

more flexibility over pay by the government. PRP may also be used as a way to have better

control of the pay bill. The introduction of PRP strategies can indeed be a way to contain

salary costs by reducing the incidence of automatic progression through salary levels. The individualisation of pay may sometimes also be a way to circumvent the collective

bargaining process, thus reducing the influence of trade unions and re-establishing

managerial control.

Results of the recently completed survey on strategic human resources management1 show

that more than four-fifths of European countries have developed a performance appraisal

system for employees. Two thirds of countries have a system that, at least in formal terms,

links individual performance with organisational goals. In 80 % of cases, performance

management systems are “somewhat linked” or “strongly linked” with pay. In countries

where no reforms of the pay system have taken place, priority is often given to promotion

policies, position re-classification and other non-pay instruments.

The first experience with pay for performance proceeds the 1980s-1990s periods. In

Canada, for example, a formal system of merit increments for civil servants was first

introduced in 1964. In France, the earliest version of the General Regulations for civil

servants, enacted in 1946, specified that individual or collective bonuses could be granted

periodically to civil servants in the recognition of exceptional performance. In Japan, there

has been a provision for a “diligence allowance” for national public employees since the

early 1950s. However, most of these plans (except in Canada) were ad hoc granting of

rewards and did not allow financial rewards to be included in salaries - or in the calculation

of pensions - on a longer term basis.

* 4 %

The introduction of PRP policies across the EC Countries for example took place in the late

1970s and early 1980s. PRP schemes were introduced in the United States in 1979 for the

Senior Executive Service and in 1981 for middle-level managers. Denmark, the

Netherlands, New Zealand, Spain, Sweden and the United Kingdom, all adopted some

form of performance-related pay policy in central government during the 1980s.

Experimental policies were tried in the 1980s in selected agencies in Finland, Italy and the

German postal service. A second wave of introduction of PRP schemes occurred in the late

1980s and early 1990s, with Australia, Finland, Ireland or Italy adopting PRP policies. A

more recent wave took place in the late 1990s, with countries such as Germany, Korea, Switzerland and Hungary adopting PRP policies. Norway also adopted performance-related

pay elements for top level managers at the end of the 1990s.

It is likely that the use of performance-related pay will continue to spread in the public

sectors of other countries. Yet, there has been very little evaluation of whether

improvements actually occur and whether benefits justify costs in corporate organisations.

Studies reveal a similar lack of evaluation of many private sector schemes. Despite this

lack of evaluation, there seems to be widespread support both among elected officials and

public sector managers themselves for the principle of linking pay to performance.

The extent of PRP application and its target group differs from country to country and

organisation to organisation. Initially, PRP policies were essentially directed only at senior

management and middle management levels. It is still the case in countries like Canada,

Ireland, and Italy. Progressively PRP policies have tended to include all categories of

public employees, even if policies are often more effectively applied for managerial staff.

The form of payment as a tool for employee motivation and performance varies

considerably across countries and organisations. Two main types of systems can be

identified (in many cases the two are combined in a single policy):

• Merit increments, which take the form of either a fixed or variable increase which

is added to and can become a permanent part of the basic pay. Pay progression is

* 4 ^

therefore linked, wholly or in part, to individual performance rather than seniority.

• Bonuses, which are one-off payments which are not consolidated into basic pay.

They may be expressed in either cash terms or a percentage of the basic pay. They

can be distributed independently of the level of salary.

1.2 Problem Statement ,

In the right circumstances, incentives such as pay lead to enhanced motivation, effort, and

performance. In the real world, however, incentives often have dysfunctional effects, and

do not necessarily lead to improved motivation and performance. If the incentive system is badly designed, or badly communicated to staff, it can have serious adverse effects that can

lead to degradation in individual or collective performance.

Previous reports on PRP in European countries just like in Kenya show that there are

recurring problems with the implementation of performance-related pay policies , notably a

lack of discrimination and inflation in performance ratings, and a failure to establish a clear

relationship between pay and performance. In many cases, PRP policies have been found to

fail to satisfy key motivational requirements for effective performance pay. Overall,

previous reports in the UK for example revealed widespread dissatisfaction with PRP

schemes and raised important questions as to the impact of these schemes on the

motivation and performance of managers.

A number of academicians have written on the weaknesses and shortcomings of

performance-related pay systems2 3. Other experts tend to assert that performance pay

systems have a positive impact on performance4. What is more consensual is the fact that

despite the growing use of performance-related merit schemes, their true impact remains

sadly under-researched5.

It seems from the available literature that both collective and individual PRP policies have

risks. These risks include and are not limited to the following:

• Under an individual performance pay policy, resources and information are more

likely to be hoarded than shared. Marsden and Richardson, (1992) reported that

many workers said that merit produced a degree of staff jealousy and a decline in

morale. Employees can see PRP as an entitlement, not as a reward. Instead of

trying harder, low performers may rationalise their poor performance evaluations

as merely a sign of incompetence or bias on the part of those conducting the -

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