Full Project – Impact of employee compensation on organizational performance

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CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

According to Mathis and Jackson (2003), compensation is an indirect reward given to an employee or group of employees as a part of organizational membership.

Bratton and Gold (2009) define them as that part of the total reward package provided to employees in addition to base or performance pay. Fringe benefits focus on maintaining (or improving) the quality of life for employees and providing a level of protection and financial security for workers and for their family members. Like base pay plans, the major objective for most organizational fringe compensation programs is to attract, retain and motivate qualified, competent employees (Bernardin, 2007). Mathis and Jackson (2003) continue to state that an employer that provides a more attractive benefits package often enjoys an advantage over other employers in hiring and retaining qualified employees when the competing firms offered similar base pay. In fact, such benefits may create “golden handcuffs,” making employees more reticent to move to other employers. Some common examples are; retirement or pension plans, medical and dental insurance, education reimbursement, time off, paid vacation and use of company car.

Productivity is a relationship between outputs and inputs. It rises when an increase in output occurs with a less than proportionate increase in inputs, or when the same output is produced with fewer inputs (ILO, 2005). Productivity can also be considered in monetary terms. If the price received for an output rises with no increase in the cost of inputs, this is also seen as an increase in productivity. Productivity improvements can also be understood at different levels.

The productivity of individuals may be reflected in employment rates, wage rates, stability of employment, job satisfaction or employability across jobs or industries. Productivity of enterprises, in addition to output per worker, may be measured in terms of market share and export performance.

The benefits to societies from higher individual and enterprise productivity may be evident in increased competitiveness and employment or in a shift of employment from low to higher productivity sectors.

According to Mathis and John (2003), productivity is a measure of the quantity and quality of work done, considering the cost of the resources used. The more productive an organization, the better its competitive advantage, because the costs to produce its goods and services are lower. Better productivity does not necessarily mean more is produced; perhaps fewer people (or less money or time) was used to produce the same amount. McNamara (2003) further states that, results are usually the final and specific outputs desired from the employee. Results are often expressed as products or services for an internal or external customer, but not always. They may be in terms of financial accomplishments, impact on a community; and so whose results are expressed in terms of cost, quality, quantity or time. He further notes that measuring productivity involves determining the length of time that an average worker needs to generate a given level of production. You can also observe the amount of time that a group of employees spends on certain activities such as production, travel, or idle time spent waiting for materials or replacing broken equipment. The method can determine whether the employees are spending too much time away from production on other aspects of the job that can be controlled by the business. Employee productivity may be hard to measure, but it has a direct bearing on a company’s profits. An employer fills his staff with productivity in mind and can get a handle on a worker’s capabilities during the initial job interview. However, there are several factors on the job that help maximize what an employee does on the job (Lake, 2000).

Brady (2000) state that, perhaps none of the resources used for productivity in organizations are so closely scrutinized as the human resources. Many of the activities undertaken in an HR System are designed to affect individual or organizational productivity. Pay, appraisal systems, training, selection, job design and compensation are HR activities directly concerned with productivity.

Bernardin, (2007) continues to state that controlling labour costs and increasing productivity through the establishment of clearer linkages between pay and performance are considered to be key human resource management (HRM) component of competitive advantage. In addition, increased concerns over productivity and meeting customer‟ requirements have prompted renewed interest in methods designed to motivate employees to be more focused on meeting (or exceeding) customer requirements and increasing productivity.

1.2 STATEMENT OF THE PROBLEM

Numerous surveys and experience of HR professionals have shown that while employees are concerned about how to earn more pay and enjoy attractive conditions of service, employers on the other hand would be striving to cut costs so as to post impressive profit at the end of the accounting period (Milkovitch and Newman, 2004). Meanwhile, studies have shown that provision of motivators has been resulting in employees’ increased interest in the job, enthusiasm and increased productivity at work and absence of motivators has been the other way round (Mathis and John, 2003). Research into employee benefits and organizational commitment is becoming more important because some researchers have examined the relationship between them (Christoph, 1996) and also the relationship between employee benefits, motivation and productivity (Hong, et al., 1995). There is however, still some debate over fringe benefits on whether they facilitate in employee productivity leading to organizational performance and do benefits impact on an organization’s ability to attract, retain and motivate employees leading to productivity and improved organizations‟ performance (Milkovitch and Newman, 2004). Given the absence of empirical evidence on the relationship between employee benefits and productivity and the escalating cost of benefits, it is clear that there is a research gap and that further research needs to be carried out, in order to find out whether fringe benefits really do have any effect on the productivity of employees in the organization.

1.3 OBJECTIVE OF THE STUDY

To determine whether employee security benefits have an effect on employee productivity in the public sector.
To find out whether health protection benefits have effect on employee productivity in the public sector.

To examine whether retirement benefits have an effect on employee productivity in the public sector.

1.4 RESEARCH HYPOTHESIS

HYPOTHESIS I

HO: Employment security benefit does not have effect on employee performance in an organization.

HI: Employment security benefits have effect on employee performance in an organization.

HYPOTHESIS II

HO: Health protection benefit does not have effect on employee performance in an organization.

HI: Employment security benefits have effect on employee performance in an organization.

HYPOTHESIS III

HO: Retirement benefits does not have effect on employee performance in an organization.

HI: Retirement benefits have effect on employee performance in an organization.

1.5 SIGNIFICANCE OF THE STUDY

There is some debate over compensation on whether they facilitate organizational performance and whether they impact on an organization’s ability to attract, retain and motivate employees.

Conventional wisdom also says that compensation can affect recruitment and retention, but there is little research to support this conclusion. This statement indicates that there is a gap which has not been explored and therefore this study was undertaken to seek to establish whether fringe benefits really do have an effect on employee productivity and make appropriate recommendations on how to address the problem. The researcher benefitted from the study as it added on to the growing body of knowledge on the roles of fringe benefits in organizations. The study will also act as a source of reference for further studies to be done on human resource in most organizations in Kenya. Employees will also benefit much from this study. Fringe benefits being one of the huge components in determination of organization performance, most of the employees will use the recommendations given to enhance high level of cooperation in their various job groups. The study will also help the Government and other employers with information which will help them come up with policies and legislations on the administration of fringe benefits.

Future researchers will also benefit from this study because it will provide them with relevant information on the topic.

1.6 SCOPE OF THE STUDY

This research focuses attention on the impact of employee compensation on entrepreneurial productivity using Dangote Cement Company, as a case study.

1.7 LIMITATION OF THE STUDY

This research work is not devoid of problem. The project work could have been more elaborate but due to some constraints, the strength of the researcher to engage upon further survey and research was limited. Those obvious constraints are the factors responsible for the limitation of this study such factors include:

Finance: The amount of cash available at the researchers disposal for the execution of this research was inefficient since the collection of data involved traveling between the boundaries of the area covered.
Time Constraints: The stress of combining research work with other academic activities was not easy to cope with.
Inadequate Resources: Most of the resources are so limited at the researcher disposal.
Data Collection: The accessibility to some essential information for instance some persons were unwilling to collect questionnaire and answer them as required.

1.8 DEFINITION OF TERMS

Employee: Henri Fayol defined employee as a term for workers and managers working for a company, organisation or community. These people are the staff of the organization. Generally speaking, any person hired by an employer to do a particular job is an employee.

Compensation: Henri Fayol, defined compensation as a form of insurance providing wage replacement and medical benefits to employees injured in the course of employment in exchange for mandatory relinquishment of the employee’s right to sue their employer for the tort of negligence.

Entrepreneurship: ( BACKLUND 2000) as the process of designing, launching and running a new business, which is often initially a small business, and the people who create these businesses are called entrepreneurs.

Productivity: (ROBERT 2003).describes various measures of the efficiency of production. A productivity measure is expressed as the ratio of output to inputs used in a production process, i.e. output per unit of input.

Between employee benefits and productivity and the escalating costs of benefits, it is clear that there is a research gap and that further research needs to be carried out, in order to find out whether fringe benefits really do have any effect on the productivity of employees in the organization.

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Full Project – Impact of employee compensation on organizational performance

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Full Project – Impact of employee compensation on organizational performance

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