THE EFFECT OF COMPENSATION ON EMPLOYEE MOTIVATION: A …

THE EFFECT OF COMPENSATION ON EMPLOYEE

MOTIVATION: A CASE STUDY OF CHLORIDE EXIDE

BY

PATRICK K. MWANGI

UNITED STATES INTERNATIONAL UNIVERSITY

SPRING 2014

THE EFFECT OF COMPENSATION ON EMPLOYEE

MOTIVATION: A CASE STUDY OF CHLORIDE EXIDE

BY

PATRICK K. MWANGI

A Project Report Submitted to the Chandaria School of Business in

Partial Fulfillment of the Requirement for the Degree of Masters in

Business Administration (MBA)

UNITED STATES INTERNATIONAL UNIVERSITY

SPRING 2014

ii

STUDENT’S DECLARATION

I, the undersigned, declare that this is my original work and has not been submitted to

any other college, institution or university other than the United States International

University in Nairobi for academic credit.

Signed: Date:

Patrick Kihato Mwangi (ID 628678)

This project has been presented for examination with my approval as the appointed

supervisor.

Signed: Date:

Dr. Teresia Kavoo Linge

Signed: Date:

Dean, Chandaria, School of Business

iii

COPYRIGHT

© 2014 by Patrick Kihato Mwangi

All rights reserved.

No part of this report may be photocopied, recorded or otherwise reproduced, stored

in a retrieval system or transmitted in any form or by any electronic or mechanical

means without prior permission of the owner.

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ABSTRACT

The general objective of the study was to determine the effect of compensation on

employee motivation at Chloride Exide group of Companies. This study was guided

by three research objectives namely: to establish the methods used to determine

employee’s compensation at Chloride Exide, to establish the extent to which direct

financial rewards affect employee’s motivation at Chloride Exide, and to establish the

extent to which benefits affect employee’s motivation at Chloride Exide.

The study used descriptive research design. A sample of forty one respondents was

selected out of the population of one hundred and thirty seven employees using

stratified sampling technique. This represented a 30% sample of the whole

population. A structured questionnaire was used to collect data from the respondents.

The data was analyzed using the Statistical Package for Social Sciences (SPSS). It

was interpreted in frequencies, percentages and correlations. The findings were

presented using tables and figures.

The study found that many of the respondents were not very conversant with the

methods used to determine employee compensation at Chloride Exide. In particular

they were not familiar with the compensation plan used in the organization. Only a

small number felt that the existing pay structure ensured internal and external equity.

The respondents however, concurred that their jobs were well defined.

With regard, to the extent to which financial payments affect employee’s motivation,

the respondents were impressively aware of all entitlements both basic and other

contingent payments. The level of motivation was relatively low and the respondents

felt that their motivation levels would be boosted if their basic pay was to be

increased. The response on pay for performance system, team work and team reward

was positively high. There was however a small percentage of respondents who were

either not sure how the financial payments received affected their motivation.

In relation to the effect of benefits on employee’s motivation, the study showed that

there was a high level of awareness of benefits entitled to the respondents. The

respondents valued the benefits given and they had a general consensus that the

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benefits motivated them. Most respondents also agreed that there was a system that

recognized staff and rewarded performance. This system motivated them.

In conclusion the study demonstrated that a proper compensation plan was lacking

and employees lacked some of the key information in employee compensation

determination. The study also concluded that although the employees were highly

motivated by basic pay and were well aware of their compensation entitlements, the

motivation was not driven by the basic employee motivators. The study also

concluded that most of the employees were knowledgeable of their benefits.

The study recommends that a proper system of compensation plan be developed. The

system should have all the fundamentals of a good compensation plan. The

organization should ensure that key information on staff and compensation is

deliberately communicated to them. Feedback mechanism should also be developed

and staff encouraged to use them. This helps to improve the level of awareness by

staff. Further recommendation is that management should clearly document pay

structures and effectively communicate the same to all. In addition the study

recommends a thorough review of total rewards and a job evaluation exercise. This

exercise should aim at enhancing internal and external equity between the employees.

The management should create forums where employee compensation and motivation

would be discussed and implemented.

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ACKNOWLEDGEMENT

I humbly acknowledge the great support I have received from various people and for

their contribution to this project, without their support this work would never have

come to completion.

To my supervisor Dr. Teresia Kavoo Linge for her dedication, time and the push to

achieve academic excellence. The entire thesis academic team at USIU for working

tirelessly to ensure that academic excellence is maintained at the highest level.

To all colleagues at Chloride Exide, for the support you have given me throughout

and for time taken off busy schedules to complete the questionnaire. To my prayer

and accountability group members, your continuous prayers and support messages

have been real.

To my family my greatest motivation and reason for waking up every day, thank you

for the support and patience. Lastly but not least; to my God, you are my strength, my

provider and my guidance. Your faithfulness and mercy endures forever.

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DEDICATION

To my family: Wife Susan Kihato and Children, Abigail Kihato and Jeremy Kihato

May you be motivated not by things of this world but by the everlasting love to live

and do good.

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TABLE OF CONTENTS

STUDENT’S DECLARATION ............................................................................................... ii

COPYRIGHT ........................................................................................................................... iii

ABSTRACT .............................................................................................................................. iv

ACKNOWLEDGEMENT ....................................................................................................... vi

DEDICATION ........................................................................................................................ vii

LIST OF TABLES .................................................................................................................... x

CHAPTER ONE ....................................................................................................................... 1

1.0 INTRODUCTION ................................................................................................. 1

1.1 Background of the Study......................................................................................... 1

1.2 Statement of the Problem ........................................................................................ 4

1.3 General Objective ................................................................................................... 4

1.4 Specific Objectives ................................................................................................. 5

1.5 Significance of the Study ........................................................................................ 5

1.6 Scope of Study ........................................................................................................ 6

1.7 Definition of Terms ................................................................................................. 6

1.8 Chapter Summary ................................................................................................... 7

CHAPTER TWO ...................................................................................................................... 8

2.0 LITERATURE REVIEW ..................................................................................... 8

2.1 Introduction ............................................................................................................. 8

2.2 Methods Used to Determine Employee’s Compensation ....................................... 8

2.3 Direct Financial Payments and Employee’s Motivation ....................................... 12

2.4 Benefits and Employee’s Motivation .................................................................... 17

2.5 Chapter Summary ................................................................................................. 20

CHAPTER THREE ................................................................................................................ 21

3.0 RESEARCH METHODOLOGY ....................................................................... 21

3.1 Introduction ........................................................................................................... 21

3.2 Research Design .................................................................................................... 21

3.3 Population and Sampling Design .......................................................................... 21

3.4 Data Collection Methods ...................................................................................... 23

3.5 Research Procedures ............................................................................................. 24

3.6 Data Analysis Methods ......................................................................................... 24

3.7 Chapter Summary ................................................................................................. 25

CHAPTER FOUR ................................................................................................................... 26

4.0 RESULTS AND FINDINGS ............................................................................... 26

4.1 Introduction ........................................................................................................... 26

ix

4.2 General Information .............................................................................................. 26

4.3 Methods Used to Determine Employee’s Compensation ..................................... 29

4.4 Direct Financial Payments and Employee Motivation .......................................... 34

4.5 Benefits and Employee Motivation ....................................................................... 40

4.6 Chapter Summary ................................................................................................. 43

CHAPTER FIVE .................................................................................................................... 45

5.0 DISCUSSION, CONCLUSIONS AND RECOMMENDATIONS .................. 45

5.1 Introduction ........................................................................................................... 45

5.2 Summary ............................................................................................................... 45

5.3 Discussions ........................................................................................................... 46

5.4 Conclusion ............................................................................................................ 51

5.5 Recommendations ................................................................................................. 52

REFERENCES ........................................................................................................................ 55

APPENDICES ......................................................................................................................... 59

APPENDIX I: COVER LETTER ......................................................................................... 59

APPENDIX II: QUESTIONNAIRE ..................................................................................... 60

x

LIST OF TABLES

Table Page

Table 3.1 : Population size ……………………………………………… 22

Table 3.2 : Sample size …………………………………………………. 23

Table 4.1 : Response Rate per Strata …………………………………… 26

Table 4.2 : Gender Distribution ………………………………………… 27

Table 4.3 : Age Distribution ……………………………………………. 27

Table 4.4 : Education Level Distribution ………………………………. 27

Table 4.5 : Years of Employment ……………………………………… 28

Table 4.6 : Employment Motivation level ……………………………... 28

Table 4.7 : Employee Compensation Constitutes a Significant Portion of

the Company’s Costs ……………………………………….

29

Table 4.8 : Employee’s Compensation Plan is Well Formulated ……… 30

Table 4.9 : Pay Structure Meets the Requirement of The Government of

Kenya ……………………………………………………….

30

Table 4.10 : Pay Structure Ensures Internal Equity ……………………... 31

Table 4.11 : Pay Structure Ensures External Equity …………………….. 31

Table 4.12 : Jobs are Well Defined ……………………………………… 32

Table 4.13 : Employees are Adequately Compensated for the Use of Skills

……………………………………………………………….

32

Table 4.14 : Incentives for Gaining New Skills or Knowledge …………. 33

Table 4.15 : Employee Compensation Decisions are Centrally Managed .. 33

Table 4.16 : Salary Surveys are Conducted Before Determining New

Salaries ………………………………………………………

34

Table 4.17 : Basic Pay is Reviewed Periodically ………………………… 34

Table 4.18 : Basic Pay Variations ………………………………………… 35

Table 4.19 : Basic Pay Motivates ………………………………………… 35

Table 4.20 : Basic Pay is Well Balanced Compared to Work Done ……... 36

Table 4.21 : Basic Pay Well Balanced for All Employees ………………. 36

Table 4.22 : Basic Pay Increase and Motivation ………………………… 37

Table 4.23 : There Exists a Performance Pay System …………………… 37

Table 4.24 : Team Reward Motivates Employees ……………………….. 38

Table 4.25 : Team Work was Enhanced by Team Reward ……………… 38

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Table 4.26 : There Exists an Organizational Reward System …………… 39

Table 4.27 : Correlations Between Direct Financial payments and

Employees Motivation ………………………………………

40

Table 4.28 : Importance of Benefits to Employees ……………………… 41

Table 4.29 : Contribution of Benefits to Staff Motivation ……………… 42

Table 4.30 : There Exists a System of Staff Recognition ……………….. 42

Table 4.31 : Recognition System Motivates …………………………….. 43

Table 4.32 : Correlations Between Employees Benefits and Employees

Motivation …………………………………………………..

43

1

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.

2

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

3

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.

Chloride Exide group of companies consists of Chloride Exide (K) Ltd, Chloride

Exide (T) Ltd, Battery Masters (U) Ltd and Chloride Exide (R) Ltd. The company

was first introduced to Kenya in 1963 as part of Chloride group PLC in the UK to

retail and distribute Chloride Exide 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.

4

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 Chloride Exide.

It is not clear what methods were used to determine employee compensation, what

direct and indirect financial programs were offered at Chloride Exide 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 Chloride Exide 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 Chloride Exide group of companies.

5

1.4 Specific Objectives

1.4.1 To establish the methods used to determine employee’s compensation at

Chloride Exide.

1.4.2 To establish the extent to which the direct financial payments affect

employee’s motivation at Chloride Exide.

1.4.3 To establish the extent to which benefits affect employee’s motivation at

Chloride Exide.

1.5 Significance of the Study

Having studied Chloride Exide, 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:-

1.5.1 Chloride Exide 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.

1.5.2 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.

1.5.3 Government

Chloride Exide is a privately owned regional organization specializing in provision of

renewable energy solutions. The study will be important for the Governments of

Kenya, Uganda, Tanzania and Rwanda, 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.

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1.6 Scope of Study

The study examined the employees of Chloride Exide Group of Companies who were

employed on permanent and those on contract in the year 2013. Chloride Exide group

of companies consisted of Chloride Exide (K) Ltd, Chloride Exide (T) Ltd, Battery

Masters (U) Ltd and Chloride Exide (R) Ltd. The company was first introduced to

Kenya in 1963 as part of Chloride group PLC in the UK to retail and distribute its

branded batteries. Chloride Exide is the market leader and the single 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’s

head office is located in the Industrial Area of Nairobi at Exsan House off Enterprise

road. It has depot network in other major towns in Kenya and the rest of the Eastern

African countries.

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

Chloride Exide. 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

1.7.1 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).

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1.7.2 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).

1.7.3 Productivity

Defined as the individual output; this may be in the form of units per person or

revenue generated per person (Amstrong, 2008).

1.8 Chapter Summary

This chapter presented the background of the study. The statement of the problem was

provided. The chapter stated the general objective and also the specific objectives of

the study. Next the chapter gave the significance and the scope of the study. Finally

the definition of terms and the chapter summary were provided.

The next chapter reviews the literature and other studies carried out in the same area

of employee’s motivation. This was done in order to form substantial basis for the

analysis of the findings and possible conclusions. Chapter three discusses the

methodology of the study, while chapter four will present the findings of the study.

The last chapter five discusses the findings, conclusions and recommendations.

8

CHAPTER TWO

2.0 LITERATURE REVIEW

2.1 Introduction

This chapter will review the critical literature of current knowledge including

substantive findings, theoretical and methodological contributions to the area of

employee’s compensation and the effect on employee’s motivation. The review will

address three research objectives namely; to establish the methods used to determine

employee’s compensation, to establish the extent to which direct financial payments

affect employee’s motivation and finally to establish the extent to which benefits

affect employee’s motivation.

2.2 Methods Used to Determine Employee’s Compensation

According to Gomez et al. (2012), employee’s compensation is the single most

important cost in most firms, in some manufacturing organizations it accounts for

60% of the total cost. However, this is even higher in some service organizations and

this means that the effectiveness with which compensation is allocated can make a

significant difference in gaining or losing the competitive edge. The same is echoed

by Dessler (2008) who says that developing a good employee compensation plan is

important for any organization and its employees. He continues to say that improperly

developed compensation plan may result to a wage rate that is too high hence

unnecessary expenses; while paying less may guarantee inferior employee quality and

high employee turnover. At the same time internally inequitable wage rates reduce

employee morale and cause endless complains from the employees.

The most important aspect of any compensation plan is the relationship that exists

between performance and reward (Nelson and Spitzer, 2003). For that reason,

administration of compensation in any organization involves designing a cost

effective pay structure that will attract, motivate and retain competitive employees

(Decenzo et al, 2007). Amstrong (2008) also notes that one of the aims of reward

management is to motivate people and obtain their commitment and engagement.

9

According to Dessler (2008) there are several factors that affect the design of any

compensation plan, these include, legal considerations, union influences, company

policies and competitive strategic objective and lastly internal and external equity. To

fully understand how any organizations determine its employee compensation plan

one need to look at how employee compensation plans are categorized, the factors

used to determine the compensation plans and the process of developing the

compensation plans.

2.2.1 Categorization of Employee’s Compensation

According to Dessler (2008) there are two broad ways of categorizing compensation,

namely; Job-based approach and Skill-based approach. The Job-based approach is the

most traditional and widely used type of compensation plan. According to Gomez et

al. (2012) the plan assumes that jobs are very well defined and titled, for example a

cashier, a matron or a chef. The works in these jobs is done by people who are paid to

perform them well. In this plan since all jobs are not equally important to the firm, the

labour market puts greater value on some jobs than on others with the most important

jobs paying the most. DeNisi and Griffin (2008) refers to this as pay-for-knowledge,

which they describe as compensating employees for learning specific information.

Milkovich et al. (2013) defines job-based approach, as paying an individual for the

jobs they are assigned irrespective of skills they possess.

The skill-based approach on the other hand assumes that workers should not be paid

for the jobs they hold but for how capable they are at performing the task or multiple

tasks (Gomez et al, 2012). The greater the variety of job-related skills one possesses

the more they are paid. DeNisi and Griffin (2008) defines skill-based pay as rewards

to employees for acquiring skills. Milkovich et al. (2013) defines skill-based approach

as paying an individual for all the skills they have been certified regardless of whether

the work they are doing requires all or just a few of those particular skills.

From the definitions given by DeNisi and Griffins (2008), Gomez et al. (2012), and

Milkovich et al. (2013), and in conjunction with an article by Neil Kokemuller of

Demand Media in the Houston chronicles extracted from Compensation & Benefit

review of September 1994, we can see that some of the advantages of Job-based pay,

include simplicity of understanding and administration. This offers employees a more

10

predictable method of pay, making it easier to budget and plan for raises each year.

The approach rewards employees who stay with the employer for a long time and

there is less room for unfairness within job titles since pay is structured by the job.

This reduces the potential for discriminatory pay practices. On the other had Job-

based pay offers little room for upward pay mobility for employees who have no

desire for promotion; there is little incentive to gain new skills, some people also get

frustrated when they perform at a higher level and see colleagues get similar pay. In

some organizations, senior employees struggle for motivation because they are at the

high end of the pay schedule and can go no further regardless of performance. This

system also contributes to sometimes controversial office politics because employees

feel the only way to get ahead is to work their way up the corporate ladder.

Skill-based approach on the other hand rewards those employees who learn new skills

and acquire new knowledge. Ambitious, self-motivated employees typically prefer

this approach because it gives them a reason to focus on career development. It also

provides a mechanism to reward employees who want to perform at a higher level.

When companies pay for knowledge and skill development, they contribute to a

systemic rising of the bar for performance across all jobs. On the negative side of the

approach, the competitiveness within job ranks may cause conflict among colleagues

and co-workers. Colleagues may feel slighted or bitter toward one another especially

where one makes more money performing similar tasks. One may also feel underpaid

and undervalued if they are not paid the same as someone doing the same job at a

competing company. The approach may also cost the individual and organization

more in terms of time and cost additional training to develop skills in the bid to make

more money.

2.2.2 Factors Determining a Compensation Plan

Whether an organization uses job-based or skill-based compensation plan, the main

aim of the plan is to enable the organization achieve its strategic objectives (Gomez et

al, 2012) and attract, motivate and retain competent employees (Decenzo et al, 2007).

It is for these reasons that the plan is developed to fit the organizations unique

characteristic and environment (Gomez et al, 2012).

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According to Gomez et al. (2012), the key factors to be considered when determining

a compensation plan in any organization are;- Internal versus external equity. This

refers to the perception of the plan to be fair within the company and relative to what

other employers are paying, flexibility of the pay; whether the pay is fixed or variable,

employee performance consideration in the plan; whether the plan pays for

performance or for membership, value placed on the job versus individual skill,

employee differentiation; whether all employee are treated the same (Egalitarianism)

or treated differently (Elitism), motivation method; whether the plan motivates with

monetary or non-monetary awards, employee compensation information accessibility

to employees and finally the decision making process in the organization whether it is

centralized or decentralized.

2.2.3 Compensation Plan Determination Process

Determining a well-balanced employee’s compensation plan comprises of five steps

namely, salary survey, job evaluation, grouping similar jobs into pay grades, pricing

each pay grade and fine-tuning pay rates (Amstrong, 2008). Salary survey is the

conducting a survey of what other employers are offering for comparable jobs, this

helps ensure there is external equity (Dessler, 2008). This is also called benchmarking

and is the process of identifying the rates of pay in the labour market for comparable

jobs to inform decisions on level of pay within the organization (Amstrong, 2008). A

good salary survey provides specific wage rates for specific jobs and a salary survey

can be done formally (written questionnaire) or informally by use of telephone,

internet check or newspaper adverts. Salary surveys published by consulting firms,

professional associations or government agents can also help.

Job evaluation is a systematic process of defining the relative worth or size of jobs

within an organization in order to establish internal relativities and provide the basis

for designing an equitable grade structure, grading jobs and managing job and pay

relativities (Amstrong, 2008). The process involves comparing, the effort required,

responsibility, and skills and this helps ensure there is internal equity. The process

eventually results to a wage or salary hierarchy as the jobs that require greater

qualifications, more responsibilities and more complex jobs are paid more highly than

jobs with lesser requirements (Dessler, 2008). Job evaluation does not determine the

12

level of pay directly and it is based on the analysis of jobs or roles, which leads to the

production of job descriptions or role profiles (Amstrong, 2008).

Job-grouping entails grouping similar jobs into pay grades; it is the process of turning

job evaluation results to pay grades. A pay grades comprises of jobs of approximately

equal difficulty or importance as established by job evaluation (Dessler, 2008).

Pricing each grade is also referred to as the process of forming a wage curve. A wage

curve shows the relationship between the value of a job and the wage paid for the job

(Dessler, 2008). Fine-tuning pay rates, this involves developing pay ranges and

correcting out-of-lines rates (Dessler, 2008). Pay range is a series of steps or levels

within a pay grade, usually based upon years of service.

According to Amstrong (2008), pay grades and pay structures are important part of a

reward plan and if well designed and maintained they provide a logically designed

framework within which an organization’s pay policy can be implemented. They

enable the organization to determine where jobs should be placed in a hierarchy,

define pay levels and the scope for pay progression, and they provide the basis upon

which relativities can be managed, pay equality achieved and lastly they show how

the process of monitoring and controlling the implementation of pay practice can take

place. A grade structure can also serve as a medium through which the organization

communicates career and pay opportunities available to employees.

2.3 Direct Financial Payments and Employee’s Motivation

Financial payments are rewards that enhance employees financial well being directly

or indirectly (Decenzo et al, 2007). According to Dessler (2008) the direct financial

rewards refers to payment to employees which when done they enhances employee’s

financial position directly. Direct financial rewards come in form of wages, salaries,

incentives, commissions and bonuses (Dessler, 2008). Bowen (2000) also notes that

financial rewards mean those direct and indirect payments that enhance an employee's

well being, they make employee financially sound so that he/she can fulfill his/her

material desire. There are two main categories of direct financial rewards namely:-

Base/Basic pay and Contingent pay. Dessler (2008) reckons that financial payments

are determined on the basis of equity which he defines as the fair treatment of

employees. This may be internal equity where employees are paid according to

13

relative value of their jobs within same organization or external equity where

organizations’ employees are paid comparably to workers who perform similar jobs in

other firms.

2.3.1 Base/ Basic Pay

Base/ Basic pay also known as membership based reward, refers to the amount of pay

that constitutes the rate for the job, it may be varied according to the grade of the job

or for manual workers, the level of skill required (Amstrong, 2008). Several factors

influence the base pay; these include legal (government regulations), union (staff

labour relations), company policy (company strategic aims) and equity (internal and

external/market comparisons) (Dessler, 2004). Chruden and Sherman (1980) indicate

that other additional factors include worth of the job and individual bargaining power.

According to Amstrong (2008) the basic pay is normally expressed in form of normal

rate and allowances. The normal rate may be hourly, weekly, monthly or annually

while the allowances may be overtime, shift working or increased cost of living

adjustment. DeNisi and Griffin (2008) differentiates between salary and wage by

defining salary as income paid to an individual on the basis of performance or

position held while wages refers to hourly compensation paid to operating employees

on the basis of time worked.

Basic pays as the name suggests, are just base pays and though their absence de-

motivates employees, their presence may not necessary motivate the employees as

they expect to get it anyway for the work done, time worked or for them being there.

According to Amstrong, (2008) some of the key determinant of an individual basic

pay include; organization policies, labour market, the job content and finally the

employees themselves. It is however important that base pay helps achieve the

internal and external equity to avoid de-motivation (Dessler, 2008). Drafke (2002)

emphasis this point by pointing out that money can increase performance but this is

often limited to short term increase. On the other hand DeNisi and Griffin (2008)

argues that in general higher levels of pay and more attractive benefits tend to result

in greater satisfaction, a point that is affirmed by Bretz and Thomas (1992) who stated

that pay dissatisfaction reduce performance and morale. Clegg and Birch (2002)

argues that “pay peanuts and you will get monkeys”, and in addition to that they said

14

that if you show that you value people by paying a reasonable wage then they

appreciate it.

2.3.2 Contingent Pay

Contingent pay on the other hand refers to additional financial rewards that may be

provided and are related to performance, competence, contribution, skill or experience

(Amstrong, 2008). They may come inform of incentives, commissions, bonuses and

merit pays (Decenzo et al, 2007). Dransfield, (2000) states that automatic increases

within the fixed pay bands have largely disappeared and the trend is toward

performance-related-pay as the preferred method. Dessler (2008) defines financial

incentives as financial rewards paid to workers whose production exceeds some

predetermined standard. Bowen (2000) adds to the definitions that performance based

rewards are such benefits which are provided on the basis of an employee's job

performance ability. The reward depends upon the performance of an individual in the

actual work floor. These rewards are exemplified by the use of commissions, piece

work pay plans, incentive systems, group bonuses or other forms of merit pay plans.

Many people see contingent pay as the best way to motivate people, but it is simplistic

to assume that it is the only extrinsic motivator in the form of pay that creates long-

term motivation (Amstrong, 2008).

Gomez et al. (2012) states that most employees believe that they should be rewarded

to recognize their performance, they defined pay-for-performance or incentive system

as a system that rewards employees on the assumptions that individual employees and

work teams differ in how much they contribute to the firm and that the firms over-all

performance depends to a large extent on the individuals and groups within the firm.

They also argued that for a firm to attract, retain and motivate employees, the firm

needs to reward employees on the basis of their relative performance. Lazear (2000),

Paarsh and shearer (2000) and Parent (1999) recons that use pay performance

schemes has been shown to increase employee morale. Brown and Session (2003)

confirmed the same by stating that employees prefer environment where productivity

is rewarded and that this increases employee morale.

Amstrong (2008) says that there are different incentives and recognition programs

applicable to different people in a firm, they include incentives for individual

employees, sales people related, team or group based, organization wide and

15

executive incentives. He continues to argue that the individual employee incentive

and recognition programs are incentive plans particularly suited for use with

individual employees and examples include; Piece work plan, merit pay as an

incentive, merit pay options and incentives for professional. According to Bowen,

(2000) the incentive plan can be designed on individual, group or organization wise

performance. An individual incentive refers to incentives given to individual

employees for their additional contribution towards organizational objectives, while

group incentives applies when the output of the individual employees is not

measurable due to interdependency with other employees tasks. An organization

incentive occurs when the incentives are provided to all employees of the

organization.

Dessler (2008), defined some of the incentives such as piece work plan, which refers

to a system of pay based on a number of items processed by individual worker in a

unit of time. Merit pay as an incentive,(also known as merit raise) is a salary increase

to an individual for better performance, it goes toward increasing one’s base salary.

Merit pay options are one off short term bonuses, given to individuals as recognition

of better performance without raising the base pay of the individual.

Decenzo et al. (2007) refers to incentives for professional employees like system

analysts and programmers, engineers, doctors, economists whose work involves use

of learned knowledge to provide solutions, to as competency-based compensation

plan. Professional employees are also incentivized by used of recognition-based

awards, these are non-financial incentives such as employee-of-the-year award, job

well done card, star award card which are meant to give performance feedback

(Decenzo et al, 2007).

Incentives for sales people come in the form of sales commissions, straight salaries or

combination of both, this is with aim of ensuring the top line numbers or turnover

(Dessler, 2008). Amstrong, (2008) expounded the above points by giving the

applicability of the different forms like salary only, salary plus commission and salary

plus bonus. He argued that the “salary only option” is applicable in a company where

direct selling is more important than sales volume; hence need to encourage its

customer service rather than high pressure selling. This may however attract under

achievers while salary plus commission is more appropriate when it’s believed that

16

sales can go up if a commission is given, however, a base salary is needed to attract

people as it provides a direct motivation for performance. This may result to people

concentrating on easier to sell product and not those generating high margins. Finally

the salary plus bonus operates well when flexibility in providing reward is important

and sales staffs need to be motivated to focus on certain aspects of their work other

than simply maximizing sales volume, thus ensure that other goals like high margins

are achieved. The latter may however be complex to administer and understand.

Commission only works well when sales performance depends on ability to sell and

staff is not involved in non-selling activities. This provides a direct financial

incentive, attracts high performing sales staff and ensure selling cost vary directly

with volume. Finally, additional non-cash rewards for example recognition and

opportunity to grow, is better applied when it is believed that other methods of

payments need to be enhanced to provide additional motivation to the sales person.

Team or group incentives plans are plans in which production standard is set for a

specific work group and its members are paid incentives if the group exceeds the

standard (Dessler, 2008). While team incentives may foster a sense of cooperation and

unanimity, the main disadvantage of plans is that one may not get paid

proportionately to the personal effort put to the work, which may de-motivate top

workers (Dessler, 2008). In addition, Gomez et al. (2012) also adds that although

team based approach may aid in performance measurement, the system may allow

free-riding effects and social pressure may limit performance.

Organization-wide incentive plans, also called variable pay plan are plans in which all

or most employees enjoy rewards as a result a performance of over-all companywide

nature (Dessler, 2008). Examples include profit sharing, employee stock ownership

(ESOP) and gain sharing plans. According to Bowen (2000), these organization-wide

rewards are also called Membership based rewards. They are those rewards that are

paid on the basis of being a member of an organization. It means, the basis of

allocating rewards is employee's organizational membership. Hence, the reward goes

to all employees irrespective of their performance. Incentives for managers and

executives are rewards meant for recognizing the crucial roles that managers play in

the divisional and companywide profitability (Dessler, 2008). They may be inform of

short-term incentives like, annual bonus or long-term incentives like stock options.

17

2.4 Benefits and Employee’s Motivation

According to Amstrong, (2008), there is more to rewarding people than throwing

money at them, a point that is also echoed by Clegg and Birch (2002) that reward is

not all about money. Decenzo et al. (2007), states that today’s workers expect more

than just a salary or wage, they want additional considerations that will enrich their

lives. They described non-financial rewards as the desirable extras in the organization

which do not directly increase the employee’s financial position, but rather add

attraction to life on the job. Examples of such rewards may include things like,

preferred office furnishing, assigned parking space, business cards, own secretary and

recognition and amongst other things.

Dessler (2008) defines benefits as indirect financial and non-financial payments

employees receive for continuing their employment with the company. Gomez et al.

(2012) also says that benefits are sometimes called indirect compensation as they are

given to employees in form of plan rather than cash; they provide security for

employees and their family members. Decenzo et al. (2007) too defines employees

benefits as non-financial rewards offered to attract and keep employees, he adds that

they have grown in importance and variety as employers have realized that such

benefits affects the discretion of applicants when accepting or declining employment

offers. DeNisi and Griffins (2008) defines benefits as the various rewards, incentives

and other things of value that an organization provides to its employees beyond their

wages, salaries and other forms of direct financial compensation. Bernardin (2003)

defines benefits as indirect forms of compensation that are intended to maintain or

improve the quality of life for employees. Indirect financial rewards come in form of

subsidized benefits such as retirement plans, paid sick leaves and purchase discounts

(Decenzo et al, 2007). Dessler (2008) classifies other payments like employer-paid

insurance and vacations as forms of financial benefits.

2.4.1 Benefits Classifications

Employee benefits have been classified widely according to different authors and the

context of circumstance. Dessler (2008) for example classifies benefits into four basic

types, namely; Supplemental pay benefits, Insurance benefits, Retirement benefits and

Personal Service and family-friendly benefits. Supplemental pay benefits provide for

18

time not worked, they include unemployment insurance, vacation and holiday pay,

severance pay and supplemental unemployment benefits. Insurance benefits includes,

workers compensation, group hospitalization, accident and disability insurance; and

group life insurance. Retirement benefits include social security and pension plans.

Personal service and family-friendly benefits include food services, recreational and

child and child-care opportunities, legal advice, credit unions, educational subsidies

and counseling. These may also be referred to as voluntary benefits.

Decenzo et al. (2007) on the other hand classifies the benefits into seven categories,

Legally required benefits such as social security, Unemployment insurance, Voluntary

benefits, Retirement benefits, Survivor benefits, Paid time offs, Insurance plans and

Health insurance. Cole (2002) classifies employee benefits into three key categories,

security benefits like pension and life insurance, work related benefits like subsidized

meals and special training opportunities and finally status-related benefits like

prestige car and entertainment allowance. DeNisi and Griffin (2008) argues that

although most of the above named benefits are designed for all the employees in an

organization (with varying levels) some organizations have developed a cafeteria-

style benefit plans which allows the employees to choose the benefits that fits them.

2.4.2 Recognition Benefits

The irony of benefits however is though they attract and retain good workers; they do

not directly affect workers performance. According to Decenzo et al. (2007) they are

membership based offered regardless of performance levels as their absence

contributes to employee’s dissatisfaction and increased absenteeism and turnover.

According to Nelson and Spitzer (2003) there is revolution going on in today’s

workplace, workers want respect and they want it now, they want to be trusted to do a

good job, they want autonomy to decide how best to do it, they want support even if

they make mistake and they want to be appreciated when they do a good job. Cascio

(2010) adds that employee benefits do not enhance productivity but are rather

powerful tools of attracting and retaining talent, and for improving the quality of life

of employees and their dependents.

Recognition and performance are closely linked (Nelson and Spitzer, 2003), this is

because recognition helps one motivate employees more and it helps in providing

19

practical feedback. A genuine and effective recognition system exhibit the following

characteristics of being based on contingency, being timely, frequency, informal and

spontaneous, the right setting and context (personal touch), significance of provider

and value to the recipient. Nelson in his study also found out that low use of

recognition as a tool for motivation was attributed to six main excuses described as

follows; I don’t know how best to do it, I don’t feel it is important, I don’t have time, I

might leave somebody out, others don’t value the recognition I give, the organization

does not facilitate or support the initiative. Clegg and Birch (2002) indicates that a

simple recognition for success, whether it’s a simple pat on the back or Nobel prize

can be very useful. As a matter of facts a simple comment can have totally

disproportionate effect on motivation. It is hard to believe but extra cash in the pocket

does not motivate as much as genuine recognition argues, Clegg and Birch (2002).

Clegg and Birch 2002 adds that the effect of recognition becomes weaker as the

numbers get larger. The more personal the better and it is also important that the

person giving recognition is respected by the recipient.

2.4.3 Other Benefits

Nelson and Spitzer (2003) also gave the following list of item as the prime non-

financial motivators which if more are present the more the employees are motivated.

These are action, fun, variety, input, stake sharing, choice, responsibility, leadership

opportunity, social interaction, teamwork, using strength, learning, error tolerance,

measurement, goals, improvement, challenges, encouragement, appreciation and

significance. Robert (1999) in his hand book, “Dealing With People” concurs with

Nelson & Spitzer’s list. Expounding on the motivators, Nelson and Spitzer, (2003),

and Robert Heller (1999) explained action as being actively engaged in productive

work while fun is a work environment that includes enjoyable activities not just hard

work. Input on the other hand represents feeling that one’s opinion matters while

stake sharing is the feeling of ownership in the organization. Choice is about being

empowered to make discretionary decisions while responsibility is taking a role in

whole task rather than piecework. A leadership opportunity is a chance to manage a

team, meeting or event. Social interaction is the freedom to interact with others freely

while team work is about being a member of a productive team. Using strength is

being encouraged to do the things that one does well and learning is enhancing one

20

capabilities. Error tolerance is being allowed to fail without punishment and being

helped to learn from experience. Measurement is being encouraged to keep one’s own

score rather than being micromanaged while goals is being encouraged to set one’s

targets rather than having them imposed by others. Improvement is being in an

environment that enables people to become little better every day while challenge is

about giving appropriately difficult tasks that cause one to stretch without feeling

anxious. Encouragement is being in an environment which others believe in people

while appreciation is about receiving acknowledgment of contributions and lastly

significance is feeling part of a mission that matters.

DeNisi and Griffin (2008) adds to the above list by noting that some organizations

have resulted to different type of benefits known as wellness programs. These

concentrate on keeping employees from becoming sick rather than paying expenses

when they become sick. Others forms include child care and Eldercare. Pilbeam and

Corbridge (2006) reckon that a diverse workforce has diverse benefit needs. Flexible

benefits provide an opportunity to respond to this diversity in the workforce and to

increase the potency of the benefits offer within the total reward value proposition

while checking on cost. Cheatle (2001) also adds that with increasing competition for

scarce skills in the market place, many employers are looking to develop innovative

packages to recruit and retain key staff. Cole (2002) closes on employee benefits by

saying that in deciding on a benefits policy to adopt an organization need to consider

several things such as, the main purpose of the benefit policy, the range of benefit to

be provided, the recipients of the benefits, the estimated cost of the benefits’

programme, the effect of the programme in the industry, and finally the expected

results of such programme internally.

2.5 Chapter Summary

The chapter reviewed relevant literature on the three research questions. In this

regards literature was reviewed on the methods used to determine employee’s

compensation. Next literature was reviewed on direct financial payments and finally

literature was reviewed on the employee benefits. The next chapter presents the

methodology used to conduct the study.

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CHAPTER THREE

3.0 RESEARCH METHODOLOGY

3.1 Introduction

This chapter discusses the methodology of the study, it describe the research design,

the population and sample size, the sampling design, the instruments and the process

of data collection and finally the chapter concludes by describing the statistical

procedures used to analyze the data so as to achieve the objective of the study.

3.2 Research Design

DeVos and Fouche (1998) defines a research design as the blue print or detailed plan

of how a research study is to be conducted, this is of crucial importance because it

determines the success or failure of the research, it guides with the logical

arrangements for the collection and analysis of data so that conclusions may be

drawn. In this study, the researcher employed descriptive research design approach;

Kothari (2007) defines descriptive research studies as those which are concerned with

describing the characteristics of a particular individual or of a group. This approach

was appropriate for this study since the research sought to describe the characteristics

of employees at Chloride Exide. A survey was administered to a selected sample from

the bigger and specific population identified by the researcher in Chloride Exide. A

survey is used to collect original data for describing a population too large to observe

directly (Mouton, 1996). A survey obtains information from a sample by means of

self report, that it people responds to a series of questions posed by the investigator

(Polit and Hungler, 1993). The dependant variable was employee’s motivation while

the independent were employee’s compensation methods and types.

3.3 Population and Sampling Design

3.3.1 Population

Burns and Grove (1993) define population as all the elements (individuals, objects

and events) that meet the sample criteria for inclusion in a study. The population of

this study consisted of all employees of Chloride Exide who are on permanent or

contract basis. For the study we refer to permanent employees as those whose letter of

appointment does not specify the duration of employment while contract employees

22

as those whose letters specifies the beginning and the expected last day of

employment. The Chloride Exide group had a total 137 employees who are permanent

and contract spread in the company establishments in various towns in Kenya,

Rwanda, Tanzania and Uganda. Table 3.1 shows the population size and distribution.

Table 3.1: Population size

Category Population Percentage

Sales people 94 69%

Finance and Administration 25 18%

Technical staff 18 13%

Total 137 100%

3.3.2 Sample Design

3.3.2.1 Sampling Frame

A sampling frame consists of a list of all items from which the sample is drawn

(Kothari 2007). The sampling frame for this study was a list of all employees of

Chloride Exide, a total of 137 employees as provided by the Human resources office

of the organization.

3.3.2.2 Sampling Technique

Kothari (2007) defines sampling design/technique as a definite plan for obtaining a

sample from the sampling frame. A stratified sampling technique was used. This

method was considered to give the best, due to the fact that employees in Chloride

Exide are classified either into departments or pay levels. The pay level classification

was two tiers only; for junior payroll and senior payroll, which would not give a very

good representation of the company employees. The departmental classification was

able to attain a good level of homogeneity within any single department hence the

sample picked from the different departments would give a better representation of

the population. Stratified sampling technique also helped reduce bias on any one

given area as departments with higher population had more respondents. The

researcher divided the sample into, sales people, finance and administration and

technical department staffs and the sample was picked randomly from the list of staff

per department.

23

3.3.2.3 Sample Size

Sample size represents the number of items selected from the population (Kothari,

2007). According to Mason and Marchal (2002) a good sample size depends on three

key factors namely; the level of confidence desired, the margin of error and the

variability of the population. Denscombe (2003) confirmed the same by stating that

the adequacy of a sample depends on a number of factors connected with the research

as weighed by the researcher in the process of reaching decision on sample size.

Mugenda and Mugenda (2003) stated that even a sample size of 10% could be

sufficient. A 30% was deemed to be a sufficient sample and a good representation of

the whole population on the basis of two main reasons. The first reason was

minimizing cost due to the diverse spread of sales team across all the four East

African countries. The second reason was a case for supporting homogeneity of basic

pay within any single department. Table 3.2 below shows the sample size distribution

of respondents across the departments.

Table 3.2: Sample size

Category Population Percentage Sample size

Sales people 94 30% 28

Finance and Administration 25 30% 8

Technical staff 18 30% 5

Total 137 30% 41

3.4 Data Collection Methods

The study used primary data and the main data collection technique used was

structured questionnaires. The questionnaire was divided into four main parts, Part I,

II, III and IV. Part I of the questionnaire consisted of five questions seeking general

information about the respondent, these included the age, the gender, the level of

education, category of employment, the number of years they have worked at

Chloride Exide and finally the general feeling of staff motivation in the organization.

Part II of the questionnaire sought to establish the methods used to determine the

employee’s compensation. It had ten questions. Part III had ten questions and it

sought to establish the extent to which direct financial compensations affect

24

employee’s motivation. Finally part IV consisted of five questions seeking to establish

the extent to which benefits affect employee’s motivation. Part II, III and IV consisted

of questions on a 5 point likert scale asking the respondents to give their opinions by

ticking option 1 for “Strongly Agree” to 5 for “Strongly Disagree”.

3.5 Research Procedures

The researcher started by writing an introductory letter for the questionnaire. The

letter described what the research was all about, how the respondent answers were to

be used and the letter also assured the respondents that confidentiality would be

observed strictly. The information of time span expected with the questionnaire was

also provided. The main purpose of writing the letter was to make the respondent

understand the reason for the study; this made them more willing to participate.

The questionnaires designed by the researcher were first administered to 5

respondents as a pilot study, these respondents were not included in the sample, this

was to enable the researcher fine tune the questionnaire for efficiency and objectivity.

Once the researcher was satisfied, the questionnaire was then administered by means

of hand delivery to all respondent, the questionnaire was estimated to take 20 minutes

to complete, the researcher completed the questionnaire for those who could not read

or write. Personal hand delivery, self explaining of the purpose and assisting manually

to fill questionnaire done to all respondents helped to ensure a high rate of response.

3.6 Data Analysis Methods

The questionnaires were collected and sorted to eliminate those with errors and the

incomplete ones. Data was then analyzed using descriptive statistics like percentages

and frequencies. Descriptive statistics are methods used for describing the basic

features of the data in a study (Trochim, 2006).

The tools used for the analysis were first by use of Microsoft excel and further by use

of computer assisted programme called Statistical Package for Social Sciences

(SPSS). This was done to explore the relationship between dependent and

independent variables. The data was then presented using tables and figures.

25

3.7 Chapter Summary

This chapter introduced and discussed the choice of the methodology used in the

study. It described the population, sample, sampling frame and technique and data

collection instruments. The chapter further detailed the strategies used to ensure

validity and reliability of the study. The following chapter addresses the findings of

the study and discusses them in detail in relation to the research questions.

26

CHAPTER FOUR

4.0 RESULTS AND FINDINGS

4.1 Introduction

This chapter presents the results and findings of the study based on the three research

questions. Part one gives the general information of the respondents. Part two covers

findings on research objective one which was to establish the methods used to

determine compensations at Chloride Exide. Part three focuses on the second research

objective which was to establish the extent to which direct financial rewards affect

employee’s motivations. Part four addresses the findings of the third research

objective which was to establish the extent to which benefits affect the employee’s

motivation at Chloride Exide. A summary of the chapter is also given. Out of the

targeted forty one respondents, thirty seven responded to the questionnaire, this

represented a 90% response rate. Table 4.1 shows the response rate per department.

Table 4.1: Response Rate per Strata

Category Sample size Response Percentage

Sales people 28 24 86%

Finance and Administration 8 8 100%

Technical staff 5 5 100%

Total 41 37 90%

4.2 General Information

This part had five questions touching on Gender, Age, Education level, Employment

duration and the general feeling on motivation in the organization.

4.2.1 Gender of Respondents

The findings showed that 8 of the respondents were female and 29 were male. This

shows a 22% and 78% representation of female and male respectively. This implies

that the population of male is higher than female as shown in Table 4.2.

27

Table 4.2: Gender Distribution

Gender Distribution

Frequency Percentage

Female 8 22%

Male 29 78%

Total 37 100%

4.2.2 Age of Respondents

From the findings 14% of the respondents were aged between 20-30 years old. Fifty

one percent of the respondents were the middle aged group of between 30-40 years

old. Lastly 35% were between 40-50 years. This implies that the company has over

50% of its population at a youthful age of 30-40 years old. The data is as presented in

the Table 4.3.

Table 4.3: Age Distribution

Age Bracket Distribution


20 – 30 years 5 14%

30 – 40 years 19 51%

40 – 50 years 13 35%

Total 37 100%

4.2.3 Education Level

Table 4.4 shows education level representation. The respondents who had a college

certificate were 16%, while those who had diploma training were 32%. The first

degree and masters degree were represented by 35% and 16% respectively.

Table 4.4: Education Level Distribution

Education Level Distribution


Certificate 6 16%

Diploma 12 32%

Degree 13 35%

Masters 6 16%

Total 37 100%

28

4.2.4 Years in Employment

The findings showed that 49% of the respondents had been in employment for less

than five years. A 27% had worked for between 5-10 years, 8% between 10-15 years,

11% were between 15 – 20 years. Another 5% of the respondents had over 20 years

working in the company. This is illustrated in the Table 4.5.

Table 4.5: Years in Employment

Level Distribution


Less than 5 years 18 49%

5 – 10 years 10 27%

10 – 15 years 3 8%

15 – 20 years 4 11%

Over 20 years 2 5%

Total 37 100%

4.2.5 Employee Motivation Level

When asked about the general feeling of motivation in the organization, 11% of the

respondents felt that the motivation levels were high. A 62% of the respondents said it

was moderately high. 16% were not quite sure and 11% felt that levels were

moderately low. This is illustrated in Table 4.6.

Table 4.6: Employee Motivation Level

Level Distribution


High 4 11%

Moderately high 23 62%

Not sure 6 16%

Moderately Low 4 11%

Low 0 0%

37 100%

29

4.3 Methods Used to Determine Employee’s Compensation

Part II of the questionnaire had ten items which sought to establish the methods used

to determine employees compensation at Chloride Exide. The respondents were

required to give their opinions on a likert scale by ticking option 1 for Strongly Agree

to 5 for Strongly Disagree.

4.3.1 Employee Compensation Constitutes a Significant Portion of the

Company’s Costs

The employees were asked if employee’s compensation constituted a significant

portion of the organization cost. The findings showed that 11% of the respondents

strongly agreed that employee compensation is of significant importance, 62% agreed,

24% were not sure, 3% disagreed and none strongly disagreed as illustrated in Table

4.7.

Table 4.7: Employee Compensation Constitutes a Significant Portion of the

Company’s Costs

Level Distribution


Strongly Agree 4 11%

Agree 23 62%

Not sure 9 24%

Disagree 1 3%

Strongly Disagree 0 0%

Total 37 100%

4.3.2 Employee’s Compensation Plan is Well Formulated

The respondents were asked if they believed that compensation plan in the company

was well formulated to cover all aspects of employee compensation. The findings

captured in Table 4.8 showed that 5% of the respondents strongly agreed that

employee compensation plan is well formulated, 41% agreed, 27% were not sure,

24% disagreed and 3% strongly disagreed.

30

Table 4.8: Employee’s Compensation Plan is Well Formulated

Level Distribution


Strongly Agree 2 5%

Agree 15 41%

Not sure 10 27%

Disagree 9 24%


Total 37 100%

4.3.3 Pay Structure Meets the Requirement of The Government of Kenya

When asked whether employees believed that the pay structure in the company met

the requirement of the government of Kenya. Nineteen percent of the respondents

strongly agreed that the pay structure met government requirement, 49% agreed so,

24% were not sure, 8% disagreed and none strongly disagreed. Table 4.9 presents the

results of responses.

Table 4.9: Pay Structure Meets the Requirement of The Government of Kenya

Level Distribution



Agree 18 49%

Not sure 9 24%

Disagree 3 8%


Total 37 100%

4.3.4 Pay Structure Ensures Internal Equity

The respondents were asked whether they believed that the pay structure in the

company ensured there was internal equity between employees in the organization.

Only a 3% of the respondents strongly agreed that the pay structure ensures there was

internal equity. Twenty two percent agreed and 43% were not sure. Those who

disagreed and strongly disagreed were 27% and 5% respectively. This is presented in

Table 4.10.

31

Table 4.10: Pay Structure Ensures Internal Equity

Level Distribution


Strongly Agree 1 3%

Agree 8 22%

Not sure 16 43%

Disagree 10 27%


Total 37 100%

4.3.5 Pay Structure Ensures External Equity

When asked whether employees believed that the pay structure in the company

ensured there was external equity between employees in the organization and other

employees in other organizations. The findings indicated that only 3% of the

respondents strongly agreed while 27% agreed. Forty one percent of the respondents

were not sure. A response of 24% and 5% was received for disagreeing and strongly

disagreeing respectively. This is shown in Table 4.11.

Table 4.11: Pay Structure Ensures External Equity

Level Distribution


Strongly Agree 1 3%

Agree 10 27%

Not sure 15 41%

Disagree 9 24%


Total 37 100%

4.3.6 Jobs are Well Defined

The respondents were asked if they believed that their jobs were well defined. A 22%

of the respondents strongly agreed that their jobs were well defined, 70% agreed, 5%

were not sure, 3% disagreed and none strongly disagreed as illustrated in Table 4.12.

32

Table 4.12: Jobs are Well Defined

Level Distribution



Agree 26 70%

Not sure 2 5%

Disagree 1 3%


Total 37 100%

4.3.7 Employees are Adequately Compensated for the Use of Skills

When asked if they believed that they were adequately compensated for use skills in

their jobs. There was no response for strongly agreeing and strongly disagreeing.

However a 62% agreed while 8% were not sure. Those who disagreed were 30%. This

is illustrated in table 4.13

Table 4.13: Employees are Adequately Compensated for the Use of Skills

Level Distribution


Strongly Agree 0 0%

Agree 23 62%

Not sure 3 8%

Disagree 11 30%


Total 37 100%

4.3.8 Incentives for Gaining New Skills or Knowledge

When asked whether the respondents believed that their Jobs offered incentive for

gaining new skills or knowledge. Three percent of the respondents strongly agreed

and 16% agreed. 8% of the respondents were not sure. Those who disagreed and

strongly disagreed were 49% and 24 % respectively. This is presented in Table 4.14.

33

Table 4.14: Incentives for Gaining New Skills or Knowledge

Level Distribution


Strongly Agree 1 3%

Agree 6 16%

Not sure 3 8%

Disagree 18 49%


Total 37 100%

4.3.9 Employee Compensation Decisions are Centrally Managed

The respondents were asked to confirm that all decisions relating to their

compensations were centrally managed. Table 4.15 presents the findings. Twenty

seven percent of the respondents strongly agreed while 38% agreed, 14% were not

sure, 19% disagreed and 3% strongly disagreed.

Table 4.15: Employee Compensation Decisions are Centrally Managed

Level Distribution



Agree 14 38%

Not sure 5 14%

Disagree 7 19%


Total 37 100%

4.3.10 Salary Surveys are Conducted Before Determining New Salaries

This question sought to establish if a thorough survey of salaries was conducted

before determining new salaries. The findings indicated that 11% of the respondents

strongly agreed that a thorough survey is conducted, 5% agreed, 46% were not sure,

24% disagreed and 14% strongly disagreed as illustrated in Table 4.16.

34

Table 4.16: Salary Surveys are Conducted Before Determining New Salaries

Level Distribution



Agree 2 5%

Not sure 17 46%

Disagree 9 24%


Total 37 100%

4.4 Direct Financial Payments and Employee Motivation

Part III of the questionnaire had Ten items which sought to establish the extent to

which direct financial payments affect employee motivation at Chloride Exide. The

respondents were required to tick their opinions on a 1 to 5 Likert scale, 1 being

Strongly Agree and 5 being Strongly Disagree.

4.4.1 Basic Pay is Reviewed Periodically

The respondents were asked if the basic pay was reviewed periodically. The findings

showed that 35% of the respondents strongly agreed, 60% agreed and 5% of the

respondents disagreed. There were 0% responses for not sure and strongly disagreed.

This is as shown in Table 4.17.

Table 4.17: Basic Pay is Reviewed Periodically

Level Distribution



Agree 22 60%

Not sure 0 0%

Disagree 2 5%


Total 37 100%

4.4.2 Basic Pay Variations

When asked if their basic pay varied from other employees. Table 4.18 shows that

27% of the respondents strongly agreed that their basic was different from other

35

employees in other levels, 49% agreed, 21% were not sure, 3% disagreed and 0%

strongly disagreed.

Table 4.18: Basic Pay Variations

Level Distribution



Agree 18 49%

Not sure 8 21%

Disagree 1 3%


Total 37 100%

4.4.3 Basic Pay Motivates

The respondents were asked if the basic pay motivated them. Table 4.19shows the

response on the same. Only 3% of the respondents strongly agreed. 54% agreed, 8%

were not sure, 32% disagreed and 3% strongly disagreed.

Table 4.19: Basic Pay Motivates

Level Distribution


Strongly Agree 1 3%

Agree 20 54%

Not sure 3 8%

Disagree 12 32%


Total 37 100%

4.4.4 Basic Pay is Well Balanced Compared to Work Done

When asked if their basic pay was well balanced compared to the work done. There

was none who strongly agreed. A 36% agreed, 24% were not sure, 32% disagreed and

8% strongly disagreed. Table 4.20 presents the same.

36

Table 4.20: Basic Pay is Well Balanced Compared to Work Done

Level Distribution


Strongly Agree 0 0%

Agree 13 36%

Not sure 9 24%

Disagree 12 32%


Total 37 100%

4.4.5 Basic Pay is Well Balanced for All Employees

The respondents were asked if their basic pay was well balanced compared to other

employees. Table 4.21 shows the findings. 11% of the respondents agreed, 57% were

not sure, 27% disagreed and 5% strongly disagreed.

Table 4.21: Basic Pay Well Balanced for All Employees

Level Distribution


Strongly Agree 0 0%

Agree 4 11%

Not sure 21 57%

Disagree 10 27%


Total 37 100%

4.4.6 Basic Pay Increase and Motivation

When asked if an increase in the basic pay would motivate them. A 38% of the

respondents strongly agreed and 46% agreed. 3% were not sure and 13% disagreed.

There was nil response for strongly disagreed. This is shown in Table 4.22.

37

Table 4.22: Basic Pay Increase and Motivation

Level Distribution



Agree 17 46%

Not sure 1 3%

Disagree 5 13%


Total 37 100%

4.4.7 There Exists a Performance Pay System

The respondents were asked if they received a performance pays on attaining their set

targets. Table 4.23 shows the responses. Fifty one percent of the respondents strongly

agreed, 43% agreed, 3% were not sure, and 3% strongly disagreed.

Table 4.23: There Exists a Performance Pay System

Level Distribution



Agree 16 43%

Not sure 1 3%

Disagree 0 0%


Total 37 100%

4.4.8 Team Reward Motivates Employees

The respondents were asked if employees were motivated for being rewarded for what

they had achieved as a team. The findings were as illustrated in Table 4.24. Twenty

four percent of the respondents strongly agreed, 41% agreed, 16% were not sure, 16%

disagreed and 3% strongly disagreed.

38

Table 4.24: Team Reward Motivates Employees

Level Distribution



Agree 15 41%

Not sure 6 16%

Disagree 6 16%


Total 37 100%

4.4.9 Team Work was Enhanced by Team Reward

When asked if team work was enhanced by the team reward. Nineteen percent of the

respondents strongly agreed, 68% agreed, 5% were not sure, 8% disagreed while none

strongly disagreed as shown in Table 4.25.

Table 4.25: Team Work was Enhanced by Team Reward

Level Distribution



Agree 25 68%

Not sure 2 5%

Disagree 3 8%


Total 37 100%

4.4.10 There Exists an Organizational Reward System

The respondents were if they received an organizational reward if the whole

organization achieved its target. Table 4.26 shows the findings. Thirty percent of the

respondents strongly agreed so, 59% agreed, 0% was not sure, 11% disagreed and 0%

strongly disagreed.

39

Table 4.26: There Exists an Organizational Reward System

Level Distribution



Agree 22 59%

Not sure 0 0%

Disagree 4 11%


Total 37 100%

4.4.11 Correlations Between Direct Financial Payments and Employees

Motivation

A Pearson’s correlation test between direct financial payments and employees

motivation showed different correlations levels for the various areas tested. The

results show that there is a relatively strong correlation between basic pay and

employee motivation (r=.403, p<0.05). This is illustrated in Table 4.27.

40

Table 4.27: Correlations Between Direct Financial payments and Employees

Motivation

Employee’s Motivation

My basic pay is reviewed

periodically

Pearson Correlation .403(*)

Sig. (2-tailed) .013

My basic pay varies from

others

Pearson Correlation .309


My basic pay motivates me to

do my work well

Pearson Correlation -.028


My basic pay is well balanced

with what I do



My basic pay is well balanced

compared to Other staff



An increase in basic pay will

motivate me more



Staff are compensated for

achieving set targets



Team rewards motivates Pearson Correlation .273


There exist good team work Pearson Correlation .214


Staff are entitled to

organization reward



* Correlation is significant at the 0.05 level (2-tailed).** Correlation is significant at

the 0.01 level (2-tailed).

4.5 Benefits and Employee Motivation

Part IV of the questionnaire had five items which sought to establish the extent to

which benefits affect employee motivation at Chloride Exide. Question one required

the respondents to give their opinions on whether they receive the listed benefits. On

questions two to five the respondents were required to give their opinions on a 1 to 5

Likert scale, 1 being strongly Agree and 5 being strongly disagree.

4.5.1 List of Benefits Entitled

When asked if they were entitled to a list of sampled benefits namely, medical,

pension, paid leave, insurance, car loans, free meals, child care and severance. The

41

findings showed that on medical benefits all the 37 respondents agreed so, on pension

only 31 affirmed, Paid leave 33, insurance 32, car loan 16, Meals 35, Child care 14,

and severance pay had 23 affirmations. The findings are as illustrated in Figure 4.1.

. Figure 4.1: List of Benefits Entitled

4.5.2 Importance of Benefits to Employees

The respondents were asked if benefits were of importance to them. Table 4.27 shows

the findings. A 16% of the respondents strongly agreed so and 46% agreed. Eight

percent were not sure, 30% disagreed and 0% strongly disagreed.

Table 4.28: Importance of Benefits to Employees

Level Distribution



Agree 17 46%

Not sure 3 8%

Disagree 11 30%


Total 37 100%

4.5.3 Contribution of Benefits to Staff Motivation

The respondents were asked whether they felt motivated by the benefits they received,

19% of the respondents strongly agreed that they were motivated by the benefits they

received, 62% agreed, 5% were not sure, 14% disagreed and none strongly disagreed

as illustrated in Table 4.29.

37

31 33 32

16

35

14

23

0

6 4 4

18

2

22

12

0

10

20

30

40

Medical Pension Paid Leave Insurance Car Loan Meals Child Care Severencepay

Yes

No

42

Table 4.29: Contribution of Benefits to Staff Motivation

Level Distribution



Agree 23 62%

Not sure 2 5%

Disagree 5 14%


Total 37 100%

4.5.4 There Exists a System of Staff Recognition

When asked if there existed a system of staff recognition in the organization. The

findings showed that 22% of the respondents strongly agreed so, 54% agreed, 11%

were not sure, 11% disagreed and 3% strongly disagreed. Table 4.30 illustrates the

findings,

Table 4.30: There Exists a System of Staff Recognition

Level Distribution



Agree 20 54%

Not sure 4 11%

Disagree 4 11%


Total 37 100%

4.5.5 Recognition System Motivates

The respondents were asked if they were motivated by the system of recognition

when they have exceptionally performed. The findings are as presented in Table 4.31.

A 22% of the respondents strongly agreed that they were motivated, 49% agreed, 8%

were not sure, 16% disagreed and 5% strongly disagreed.

43

Table 4.31: Recognition System Motivates

Level Distribution



Agree 18 49%

Not sure 3 8%

Disagree 6 16%


Total 37 100%

4.5.6 Correlations Between Employees Benefits and Employees Motivation

A Pearson’s correlation test between employee’s benefits and employee’s motivation

showed different levels correlations on the areas tested. The results show that there

were no significant correlations between employee benefits and their motivation.

Table 4.32 shows the findings.

Table 4.32: Correlations Between Employees Benefits and Employees’

Motivation

Employee’s Motivation

Benefits are very

important



Benefits I receive

motivates me



I am recognized for what

I do



The recognition system

motivates me



** Correlation is significant at the 0.01 level (2-tailed).* Correlation is significant at

the 0.05 level (2-tailed).

4.6 Chapter Summary

This Chapter presented the findings of the study. First there were the findings on the

respondent’s general information. This was then followed by the findings on the

methods used to determine compensation. The findings on the direct financial

payments and staff benefits were also presented followed by the Pearson’s correlation

44

matrix. The next chapter discusses the findings of the research and interprets them in

view of earlier literature reviewed. Conclusions and recommendations are also given.

45

CHAPTER FIVE

5.0 DISCUSSION, CONCLUSIONS AND RECOMMENDATIONS

5.1 Introduction

This chapter discusses the findings of the study as detailed in chapter 4, concludes and

gives recommendations as deemed fit on the effect of employee compensation on

motivation at Chloride Exide.

5.2 Summary

The general objective of the study was to determine the effect of compensation on

employee’s motivation at Chloride Exide group of Companies. The study was guided

by the following three research objectives: to establish the methods used to determine

employee compensation at Chloride Exide, to establish extent to which direct

financial rewards affected employee’s motivation at Chloride Exide, and to establish

extent to which benefits affected employee’s motivation at Chloride Exide. The study

used descriptive research design. A sample of forty one respondents was selected out

of the population of one hundred and thirty seven employees using stratified sampling

technique. This represented a 30% sample of the whole population. A structured

questionnaire was used to collect data from the respondents. The data was analyzed

using the Statistical Package for Social Sciences (SPSS). It was interpreted in

frequencies, percentages and correlations. The findings were presented using tables

and figures.

From the findings, over half of the respondents were not clear on the compensation

plan of the organization. A majority of respondent disagreed or was not sure that there

was internal and external equity with the existing pay structure. Many respondents

were of the opinion that their jobs did not incentivize gaining of new skills or

knowledge and finally a high response of almost half of the respondents was not sure

if salary survey were conducted before determining new salaries while a significant

number disagreed. Only a small portion agreed to salary surveys being conducted.

The findings on whether the respondents were motivated by their current basic pay,

slightly above half of the respondents felt so and over one thirds of the responses was

46

negative. There was an almost equal response in agreement and in disagreement that

the current basic pay was well balanced with the work done by the respondents. An

overwhelmingly high positive response was received that the respondents would be

motivated if their basic pay was to be increased. An even higher positive response

came when the respondents were asked if they received additional pay for their

performance against the set targets. A good percentage of the respondents also

consummated to the fact that they felt motivated for being rewarded for what they

achieved as a team.

Summary of the findings on employee’s benefits showed that all respondents received

at least a benefit and that majority of the respondents received one or the other form

of benefit in the organization. A good response of slightly less than two thirds was

received on whether the respondents valued the benefits given; there was even a

stronger response on the question of benefits motivates. Over three quarter of the

respondents also agreed to there being a system that recognizes and rewards

performance and over two thirds of the respondents believed that this system

motivated them well.

5.3 Discussions

5.3.1 The Method of Determining Employee’s Compensation

The study found out that, majority of the respondents agreed that compensation

constituted a significant component of the organization cost. Gomez et al. (2012),

states that employee compensation is the single most important cost in most firms and

that in some manufacturing organizations it accounts for 60% of the total cost. This is

higher in some service organizations and hence this meant that the effectiveness with

which compensation is allocated can make a significant difference in gaining or losing

a competitive edge. Dessler (2008) added that improperly developed compensation

plan may result to a wage rate that is too high hence unnecessary expenses. This

shows that the findings agree with those of Gomez et al. (2012), and Dessler (2008).

Arguably one of the factors that affect the design of any compensation plan is

government requirement and a good compensation plan must meet the minimum

government requirement (Dessler, 2008). The findings showed that a more than half

47

of the respondents believed that the compensation plan met the government

requirement, a quarter were not sure while less than one tenth disapproved. Gomez et

al. (2012) indicates internal and external equity as one of the key factors that must be

considered when determining a compensation plan. The study showed that on the

internal equity only a small group of about a quarter believed that the pay structure

achieved internal equity. Almost half of the respondents were not sure while another

one third felt that the structure did not achieve internal equity. The findings on

external equity showed an almost similar response with only a third agreeing that the

system achieved external equity.

Amstrong (2008) and Dessler (2008) describe the steps in ensuring a well balanced

employee compensation to include job definitions, job evaluation and salary surveys

amongst others. Although a majority of the respondents at 92% agreed that their jobs

were well defined, An almost half of the respondents felt that process of

compensation determination especially the salary survey was not adequately

conducted before determining new salaries. DeNisi and Griffins (2008), Dessler

(2008) and Milkovich et al. (2013) points out to the two main broad ways of

categorizing compensation as skills-based and job-based approach. A job based

approach assumes that jobs are very well defined and titled for example a cashier, a

matron or a chef. The works in these jobs is done by people who are paid to perform

them well. In this plan since all jobs are not equally important to the firm, the labour

market puts greater value on some jobs than on others with the most important jobs

paying the most. Skills based approach on the other hand assumes that workers should

not be paid for the jobs they hold but for how capable they are at performing the task

or multiple tasks (Gomez et al, 2012). The greater the variety of job-related skills one

possesses the more they are paid. DeNisi and Griffin (2008) defines skill-based pay as

rewards to employees for acquiring skills. From the study a two thirds majority of the

respondents felt that at Chloride Exide employees were compensated for the use of

their skills. The study also showed that less than a quarter of the respondents felt that

employees were incentivized to gain new skills. Over two thirds of the respondent

disagreed that there were incentives for gaining new skills or knowledge.

48

5.3.2 Direct Financial Rewards and Employee’s Motivation

The researcher found out that almost all of the respondents agreed to their basic pay

was reviewed periodically to adjust for the cost of living. On question of pay variation

for different levels a majority agreed that there was variation in the organization. This

finding was in line with the expectations of the different authors, Amstrong (2008),

Decenzo et al. (2007) and Dessler, (2008). They defined basic pay as membership

based reward that constitute rate for the job, this is reviewed regularly and may be

varied according to the grade of the job or the level of skills. Further findings from the

study showed that half of the respondents were motivated by their current pay and a

third were not motivated at all. This was in line with Dessler (2008) view that basic

pays as the name suggests, are just base pays and though their absence de-motivates

employees, their presence may not necessary motivate the employees as they expect

to get it anyway for the work done, time worked or for them being there. It is however

important that base pay helps achieve the internal and external equity to avoid de-

motivation.

The number of respondents, who agreed to their pay matching the work they do netted

to about a third while those who disagreed were almost half. A whole quarter of the

respondents were not sure. This tied to the above findings on respondent view that the

processes of compensation determination were not followed, in this case the job

evaluation. Job evaluation is a systematic process of defining the relative worth or

size of jobs within an organization in order to establish internal relativities and

provide the basis for designing an equitable grade structure, grading jobs and

managing job and pay relativities (Amstrong, 2008). The same was also evidenced

with the findings on basic pay being balanced as compared to other employees where

only a small percentage of the respondents agreed.

In the finding on the fact that basic pay would motivate more, an 84% response was

received in favour of agreeing. This was in agreement to the argument by Drafke

(2002) who pointed out that money can increase performance but only in the short

time, DeNisi and Griffins (2008) on the other hand argued that higher level of pay

tend to increase satisfaction greatly, the study findings was in agreement with DeNisi

and Griffins view. It was however not clear whether it was only for short term or for

49

long term. The researcher also found out that almost all of the respondents improved

their performance on receiving a pay for performance, according to Gomez et al.

(2012), Lazear (2000), Paarsh and shearer (2000) and Parent (1999) use of pay for

performance schemes has been shown to increase employee morale. Brown and

Session (2003) confirmed the same by stating that employees prefer environment

where productivity is rewarded and that this increases employee morale.

The Findings on team rewards and organizational rewards were that over two thirds of

the respondents agreed that they received additional pay for their performance against

the set targets and that they felt motivated for being rewarded for what they achieved

as a team; and as a result of the whole organization achieving its set objectives, this

was in line with the above views of Gomez et al. (2012), Lazear (2000), Paarsh and

shearer (2000) and Parent (1999). Finally a Pearson’s correlation test on direct

financial payments and employees motivation showed a positive correlation on all

areas tested except for one. The correlation between current basic pay and motivation

was negative. This was as expected as per the views of authors like Drafke, (2002),

DeNisi and Griffins (2008), Bretz and Thomas (1992) and Clegg and Birch (2002).

5.3.3 Benefits and Employee’s Motivation

The study found out that all the respondents were entitled to a number of benefits as

sampled. The highest response was on medical benefits with all the 37 respondents

confirming that they were entitled. The lowest response was in child care support with

only 12 respondents confirming entitlement. Dessler (2008) defines benefits as

indirect financial and non-financial payments employees receive for continuing their

employment with the company. Gomez et al. (2012) also says that benefits are

sometimes called indirect compensation as they are given to employees in form of

plan rather than cash; they provide security for employees and their family members.

Decenzo et al. (2007) too defines employees benefits as non-financial rewards offered

to attract and keep employees, he adds that they have grown in importance and variety

as employers have realized that such benefits affects the discretion of applicants when

accepting or declining employment offers. DeNisi and Griffins (2008) defines

benefits as the various rewards, incentives and other things of value that an

organization provides to its employees beyond their wages, salaries and other forms

50

of direct financial compensation. Bernardin (2003) defines benefits as indirect forms

of compensation that are intended to maintain or improve the quality of life for

employees.

The study also found out that two thirds majority of the respondents was in agreement

that benefits were important. As regards to the fact that the presence of benefits

motivates employees, the researcher found out that a great percentage of the

respondents felt motivated. Only a small percentage felt otherwise. These findings

were in accordance to the views of Amstrong, (2008), Clegg and Birch (2002), and

Decenzo et al. (2007). The authors said that there was more to rewarding people than

throwing money at them, reward is not all about money and that today’s workers

expect more than just a salary or wage, they want additional considerations that will

enrich their lives, they described non-financial rewards as the desirable extras in the

organization which do not directly increase the employee’s financial position, but

rather add attraction to life on the job. Examples of such rewards may include things

like preferred office furnishing, assigned parking space, business cards, own secretary

and recognition and amongst other things.

On recognition rewards the researcher found out that there was a system in place with

almost all respondents agreeing and that the recognition system motivates the

employees. This last finding begs to differ with the views of authors like Decenzo et

al. (2007) and others. Their argument was that the irony of benefits was though they

attract and retain good workers; they do not directly affect workers performance.

According to Decenzo et al. (2007) they are membership based offered regardless of

performance levels as their absence contributes to employee’s dissatisfaction and

increased absenteeism and turnover. According to Nelson and Spitzer (2003) there is

revolution going on in today’s workplace, workers want respect and they want it now,

they want to be trusted to do a good job, they want autonomy to decide how best to do

it, they want support even if they make mistake and they want to be appreciated when

they do a good job. Cascio (2010) adds that employee benefits do not enhance

productivity but are rather powerful tools of attracting and retaining talent, and for

improving the quality of life of employees and their dependents.

51

5.4 Conclusion

The purpose of the study was to determine the effect of employee compensation on

employee motivation at chloride Exide. Based on the findings of the study, the

following conclusions were drawn on the three key and specific objectives of the

study.

5.4.1 The Methods of Determining Employee’s Compensation

The fact that a good number of the respondents were not sure of the compensation

plan in place and minimum government requirements and that they disagreed that the

plan achieved internal and external equity could only mean that, the plan was either

not communicated to them adequately or it was not strongly upheld. On job well

definition there was a good response of agreeing which implies that this was well

communicated to employees and employees understood what was expected of them.

Compensation for use of skills received nearly two thirds agreeing response while a

third disagreed, this could mean that the organization uses a mixture of skills and job

based pay or it could mean that some individuals are not placed in the jobs that match

their skills. A two thirds majority confirmation that compensation decision were made

centrally indicates majority of decisions were made centrally. The fact that many

respondents were not sure or disagreed about salary survey being conducted to

determine salaries could mean that the system was not used and so they were not

familiar with it.

5.4.2 Direct Financial Payments and Employee’s Motivation

In conclusion a very high agreeing response on regular pay was review and variation

within the organization implies that employees were well aware this and that it was

actually happening. The mixed response of respondent feeling either motivated or

otherwise by increase in basic could only mean that basic pay does not fully motivate.

The almost equal response of those agreeing and those disagreeing to basic pay being

well balanced with the work done means that there was no good relationship between

work done and compensation received or not enough communication was done to

help employee understand how their work contributed to pay received. A very high

responses of not being sure that there was a good balance on basic pay between fellow

52

employees, could mean that there was a high imbalance in salary levels or that the

salary levels for each group or level of employees was not well communicated.

The overwhelmingly high response on pay for performance implies that a there was a

good communication of targets and individual achievements. It also meant that

individual people were well aware of the system. Since a high percentage of the

respondents felt motivated for being in a team and for achieving team targets, then

this meant that team work was highly encouraged and that it gave the desired results.

The negative correlation between current basic pay and motivation could mean that

staffs were not motivated.


The strong response on the entitlement of benefits shows that employees were quite

aware of the benefits. It also meant communication about the benefits was better.

Although there was a high response on the value that the respondents put on the

benefits, a good percentage of them felt otherwise, this could mean that the benefits

were not sold well to them or the combination of the various benefits did not work for

them. On there being a system of recognition and such a system recognizing the

respondents the high response again points out that to a high awareness on the

employee’s side and a better communication in the organization.

5.5 Recommendations

The recommendations for the specific areas covered are as follows.

5.5.1 The Methods of Determining Employee’s Compensation

From the findings and the conclusions made, there seems that proper methods of

determining employee’s compensation in the organization are lacking, and especially

in evaluation against what the different authors advocate for. It is with this knowledge

that the researcher recommend that the Human Resources Manager should develop

systems that will ensure that there is a proper compensation plan entailing proper job

evaluation processes and pay structures in the organization. Any changes in the plan,

like salaries or process should be supported by right fundamentals like salary survey

and facts on the ground. Employees should be encouraged to take up-skills

53

enhancement programmes and lastly proper communication and clarification channels

to be set where information is disseminated regularly to all or is easily and readily

available to all employees.

5.5.2 Direct Financial Payments and Employee’s Motivation

In the light of the findings, of high awareness of existence of basic and other

additional payment, only a small population was motivated with their basic pay and

the overwhelming positive response on motivation improving as a result of change in

basic pay. The researcher recommended that a proper salary survey and job evaluation

vis-a-vis total rewards received to be commissioned in a bid to ensure there is internal

and external equity in the organization and that motivation is driven by the right

fundamentals. On the contingent pay, although the study did not go deep into finding

out the various forms of contingent pay in the organization, the general feeling of

motivation was high. The researcher also recommends that a further study be done

even by department to determine the specifics and take necessary actions. In the area

of team work, team rewards and whole organization reward it is recommended that

further study be done to enhance it.


The respondents seemed quite aware of the benefits available and what they were

entitled to. There was also a high level motivation for benefits received, although a

small group felts benefits were not important. In the light of the findings the

researcher would recommend that management to take initiatives in finding out which

benefits work well and why. This could be done by creating an environment

conducive for information sharing and brain storming. Different views would then be

evaluated and implemented as necessary. This could help the organization in cost

saving with unnecessary benefits and help in improving motivation..

5.5.4 Suggestions for Further Research

To add value to this study the researcher would also recommend that further studies

be done. The study on base pay can be done to find out its effects on internal and

external equity in the organization. A further study on contingent pay can be done to

find out the different forms contingent pays in place and which form motivates more

54

and why. Finally further study on benefits is recommended to find out how current

benefits can be improved and motivates employees more. In light of the great number

of youthful population in the organization and the number of years spent in the

organization. The researcher would also recommend that further studies done on what

motivates the youth to give their best and expected duration of stay.

55

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59

APPENDICES

APPENDIX I: COVER LETTER

Patrick K. Mwangi

P.O Box 15070-00100 Nairobi

2nd

July 2013

To:

Chloride Exide Group

P.O. Box 14242 – 00800, Nairobi

Dear sir/Madam:

Request to participate in research study

I wish to carry out a research on the effect of compensation on employee motivation;

this is a partial fulfillment of MBA programme at USIU, which I am currently

undertaking.

The study uses Chloride Exide as the case study organization and you have been

selected as one of the lucky respondent, the finding will provide the organization with

information necessary to help improve on the employee motivation and this will

intern improve on employee productivity and reduce on negative effects of de-

motivated employees in the organization.

A questionnaire that will take approximately 20 minutes to complete is attached.

Please note that all the information provided is only for this study only and will be

treated with strict confidentiality, your name will not appear anywhere in the report.

Thank you for your time and participation

Yours sincerely

Patrick Kihato

60

APPENDIX II: QUESTIONNAIRE

This study is a requirement for partial fulfillment of MBA programme at USIU, the

purpose of the study is to determine the effects of compensation on employee

motivation.

The study uses Chloride Exide as the case study organization; the finding will provide

the organization with information necessary to help improve on the employee

motivation and this will intern improve on employee productivity and reduce on

negative effects of demotivated employees

This is an academic exercise and all information will be treated with confidentiality

PART I – GENERAL INFORMATION

1. Gender : Male Female

2. Age : 20-30 30-40 40-50 Over 50

3. Education : Certificate Diploma Degree Masters

Phd

4. How long have you worked for Chloride Exide

: <5 year5-10 years 10-15 years 15-20 years >20 years

5. How would you describe staff motivation at Chloride Exide

: High Moderate high Not sure Moderately low Low

61

PART II – METHODS USED TO DETERMINE EMPLOYEE’S

COMPENSATION

Please tick the box that best fits your opinion for each statement

1 2 3 4 5

Strongly

Agree

Agree Not

Sure

Dis -

agree

Strongly

Disagree

1 Employee compensation costs forms a

significant portion of our company’s costs.

2 Employee compensation plan at Chloride

Exide is well formulated

3 The pay structure at Chloride Exide meets

the requirement of government of Kenya

4 The pay structure at Chloride Exide ensures

there is a good balance of pays between the

employees in the company

5 The pay structure at Chloride Exide ensures

that there is a good balance in comparison

with other employees of other related

companies.

6 I feel that my job is very well defined

7 I feel I am adequately compensated for use

of my skills in my job

8 My Job offers little or no incentives for

gaining new skills or knowledge.

9 All the decisions affecting employee

compensation are managed at one central

place as opposed to every departmental head

handling their areas

10 In my opinion a thorough survey of salary is

conducted within the industry before

determining a new staff salary or change in

the organization

62

PART III – DIRECT FINANCIAL PAYMENTS AND EMPLOYEE

MOTIVATION


1 2 3 4 5

Strongly

Agree

Agree Not

Sure

Dis -

agree

Strongly

Disagree

1 My Basic pay is reviewed periodically

2 My basic pay varies from others in other

levels of employment.

3 My basic pay motivates me to do my work

well

4 My basic pay is well balanced compared to

the work I do

5 My basic pay is well balanced compared to

other employees in the company

6 An increase in my basic pay will motivate

me improve on my performance.

7 There exist a system in the company of

compensating employees if they achieve

their targets

8 In my work, the team reward motivates me

well

9 My team works very closely to enable

achieve the team reward

10 I am entitled for a reward if the whole

organization achieves its set target

63

PART IV – EMPLOYEE BENEFITS AND EMPLOYEE MOTIVATION


Yes No

1. In addition to my pay for the work I do, I am entitled

to the following benefits.

a. Medical

b. Pension

c. Paid leave

d. Insurance

e. Car loan

f. Meals

g. Child-care

h. Severance pay

64

1 2 3 4 5

Strongly

Agree

Agree Not

Sure

Dis -

agree

Strongly

Disagree

2 The benefits are so important to me they are one

of the reasons I have not moved from Chloride

Exide

3 The benefits I receive motivates me to do well at

my work

4 At Chloride Exide there is a system of staff

recognition, where outstanding performance are

recognized on a timely manner, regularly and

also for the right reasons

5 The recognition system motivates me to work

well in my area and even to go beyond the call

of duty

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