Research Proposal

SRI LANKA INSTITUTE OF DEVELOPMENT ADMINISTRATION (SLIDA)

Master of Public Management (MPM) MPM (2011/2013) Semester II
Research Methodology

A study on the relationship of employees performance with the financial benefits not related to their performance
Individual Assignment II

M.A.Sudath Munasinghe (2011 / 2013 / 79) sudathmunasinghe.lk@gmail.com

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

A study on the relationship of employees performance with the financial benefits not related to their performance
1.
1.a.

Introduction
Background

It is an accepted fact that the employees in any organization work for their monthly salary. In some organizations, employees are paid well depending on their performance such as rewarding for achievement of targets etc. Apart from that, there are fringe benefits and allowances paid for the employees, without considering their day to day performance, such as housing allowances, transportation allowances, coverage of medical expenses etc. When the financial or other economical benefits granted for employees are not related with their day to day performance, it is questionable whether they are motivated and devoted for their duties to the same extent as when the amount paid for them is calculated on the basis of working hours or work output. The salary structure of the MILCO PRIVATE LIMITED has not been reviewed for a long period such as 20 years and the employees were offered additional amount of money along with their salary package, without revising the basic salary structure. The salary was consisted with two major components, the basic salary with the amounts added time to time, and a variable cost of living allowance calculated on the Colombo Consumer Price Index (CCPI). The total salary package consisted with both parts and therefore the percentages for provident fund, employers trust fund as well the overtime work, were calculated considering the said total package. During the recent past, a major change in the salary structure was introduced, so that the cost of living allowance is no more a part of the salary. Therefore, all employees are paid an equal amount as the cost of living allowance while the payment for the work was calculated with the basic salary. The most dominant issue is that the amounts paid as basic salaries of the employees are very low when compared with the amount paid as cost of living allowance; such as one sixth of the allowance, and thus the employees may not caring the salary alone much. However, it is noted that the employees do not interested on overtime work and working on holidays, since of recent past. In contrast, the employer or the management expects that the employees shall be motivated with the higher amount paid as the cost of living allowance which was doubled with the introduction of the new salary system. MILCO PRIVATE LIMITED which is the successor to National Milk Board of Sri Lanka is a public enterprise engaged in milk processing industry. It is affiliated to the Ministry of Livestock and Rural Community Development of Sri Lanka as the line ministry, which is having four main processing factories located at Narahenpita in City of Colombo (Colombo Milk Factory),
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Research Proposal M.A.S. Munasinghe (2011/2013/79)

Rajawella in Kandy (Digana Milk Factory), Ambewela in NuwaraEliya (Ambewela Spray Dried Milk Factory) and Gallella in Polonnaruwa (Polonnaruwa Milk Factory) and a cattle feed plant in Karandana, Polgahawela. There is a mini plant processing Curd at Labuduwa, Galle. MILCO also has a network for milk collection and dairy development spread throughout the island except in the northern peninsula. The milk collection network consists of 79 milk chilling centres fed by over 2,000 Farmer Managed Societies.

1.a.

Problem statement

What is the effect of the financial benefits that are not directly related to the daily performance, on the commitment of employees on their job?

1.b.

Significance of the study

So far no study has been carried out to find out this phenomenon, especially when no such salary system is introduced in any organization. Yet, it is important to study the behaviour of the employees with the payment systems when revisions of the salary structures are done.

1.c.

Research objectives

(a) Overall research objectives To find out how the commitment of employees towards the organization can be improved. (b) Specific research objectives To find out, to what extent the employees commit to their duties irrespective of the instantaneous returns. To find out the effect of fringe benefits (financial) on the commitment of the employees to improve the performance of the organization.

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

2.
2.a.

Literature Review
Relevant concepts and definitions

Performance-related pay has become the primary device used to motivate people in the workplace. It is based on the idea that, if people are promised monetary rewards, they will work harder and act appropriately in order to obtain them. But is this argument always borne out in practice? What is the behavioural concept underlying the assumption that people will increase their efforts if they are provided with these incentives? Much research indicates that providing monetary incentives can increase outputs. However, some researchers argue that financial incentives may also reduce intrinsic motivation, or the internal drive to complete a task and the pleasure derived from the process. Others point to the possibility that monetary incentives may diminish ethical or other reasons for complying with workplace social norms such as fairness. As a consequence, the provision of incentives might result in a net reduction of motivation across a team or organisation, and actually have a negative impact on overall performance. Researchers have been working on the topic for years and have gathered valuable empirical insights. Executives and HR managers carry a large stock of experience relating to the benefits and pitfalls of incentive schemes in organisations.

2.b.

Theories

There are a number of different views as to what motivates workers. The most commonly held views or theories are discussed below and have been developed over the last 100 years or so. Unfortunately these theories do not all reach the same conclusions.
Taylor

Frederick Winslow Taylor (1856 1917) put forward the idea that workers are motivated mainly by pay. His Theory of Scientific Management argued the following: Workers do not naturally enjoy work and so need close supervision and control. Therefore managers should break down production into a series of small tasks. Workers should then be given appropriate training and tools so they can work as efficiently as possible on one set task. Workers are then paid according to the number of items they produce in a set period of timepiece-rate pay. As a result workers are encouraged to work hard and maximise their productivity. Taylors methods were widely adopted as businesses saw the benefits of increased productivity levels and lower unit costs. The most notably advocate was Henry Ford who used them to design the first ever production line, making Ford cars. This was the start of the era of mass production. Taylors approach has close links with the concept of an autocratic management style (managers take all the decisions and simply give orders to those below them) and Macgregors Theory X approach to workers (workers are viewed as lazy and wish to avoid responsibility). However workers soon came to dislike Taylors approach as they were only given boring, repetitive tasks to carry out and were being treated little better than human machines. Firms could also afford to lay off workers as productivity levels increased. This led to an increase in strikes and other forms of industrial action by dis-satisfied workers.
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Research Proposal M.A.S. Munasinghe (2011/2013/79)

Mayo

Elton Mayo (1880 1949) believed that workers are not just concerned with money but could be better motivated by having their social needs met whilst at work (something that Taylor ignored). He introduced the Human Relation School of thought, which focused on managers taking more of an interest in the workers, treating them as people who have worthwhile opinions and realising that workers enjoy interacting together. Mayo conducted a series of experiments at the Hawthorne factory of the Western Electric Company in Chicago. He isolated two groups of women workers and studied the effect on their productivity levels of changing factors such as lighting and working conditions. He expected to see productivity levels decline as lighting or other conditions became progressively worse. What he actually discovered surprised him: whatever the change in lighting or working conditions, the productivity levels of the workers improved or remained the same. From this Mayo concluded that workers are best motivated by: Better communication between managers and workers (Hawthorne workers were consulted over the experiments and also had the opportunity to give feedback). Greater manager involvement in employees working lives (Hawthorne workers responded to the increased level of attention they were receiving). Working in groups or teams. (Hawthorne workers did not previously regularly work in teams) In practice therefore businesses should re-organise production to encourage greater use of team working and introduce personnel departments to encourage greater manager involvement in looking after employees interests. His theory most closely fits in with a paternalistic style of management. Although some theorists like Herzberg believe that money is not a positive motivator (although lack of it can de-motivate), pay systems are designed to motivate employees. The scientific / Theory X approach, in particular, argues that workers respond to financial rewards. Getting employee pay right (often referred to as the remuneration package) is a crucial task for a business. Why is pay important? It is an important cost for a business (in some labour-intensive businesses, payroll costs are over 50% of total costs) People feel strongly about it. Pay helps to satisfy many needs (e.g. security, esteem needs, resources to pursue self-actualisation) Pay is the subject of much important business legislation (e.g. national minimum wage; equal opportunities legislation) It helps attract reliable employees with the skills the business needs for success Pay also helps retain employees rather than them leave and perhaps join a competitor For most employees, the remuneration package is the most important part of a job and certainly the most visible part of any job offer. There are many methods of financial reward
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Research Proposal M.A.S. Munasinghe (2011/2013/79)

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

Because pay is a complex issue, there are several ways in which businesses determine how much to pay, and which methods to use: Job evaluation / content; this is usually the most important factor. What is involved in the job being paid? How does it compare with similar jobs? Fairness pay needs to be perceived and be seen to match the level of work Negotiated pay rates the rate of pay may have been determined elsewhere and the business needs to ensure that it complies with these rates. Market rates another important influence particularly where there is a standard pattern of supply and demand in the relevant labour market. If a business tries to pay below the market rate then it will probably have difficulty in recruiting and retaining suitable staff Individual performance increasingly, businesses include an element of performance-related reward in their pay structures. However, it is important to remember that pay is only one element of motivation and will work best where management also give attention to: Developing good management and supervision; Designing jobs and organising work groups to make them as satisfying as possible; Providing feedback to staff about their performance and training and development; Making effective arrangements for communications and consultation.

2.c. 2.d.

Best practices Relevant research studies

To assess the impact of financial incentive on motivation in a project environment, consideration must be given to both potential extrinsic (external) and intrinsic (internal) drivers of motivation. Therefore, a big picture approach must be taken to identify and explore the various drivers within the project that promote or discourage motivation to determine the value of financial incentives in driving motivation and thus, performance. The unit of analysis is the construction
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Review of construction and general management contributions (Rose 2008) suggests that

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

project, which encompasses the project structure, team and dynamics. Given the lack of research into the impact of incentives on motivation and performance in construction (Bresnen and Marshall, 2000), the present article develops a conceptual framework, based on theoretical evidence, to explore the research question: What are the drivers of motivation on construction projects? Motivation is a mediating variable between core project activities and project performance. Core project activities give rise to various motivation drivers that influence the motivation of project participants. Five core activities are conceptualized and motivation is seen to impact performance through four key indicators. The current paper describes the drivers of this motivation, about which little is currently known in the context of a construction project. This is the gap in the literature addressed here. Mullins (1996) argues that performance is a product of motivation, ability and the environment. Similarly, Howard et al. (1997) argues a construction contractors (agents) output (or performance) is a function of factors within their control (ability and motivation) and external factors outside their control (environment). Although participant ability and factors external to the project (e.g. market prices) influence performance outcomes, these factors are beyond the scope of the research. The framework is based on insights from organizational management theory (Van Herpen, Van Praag, and Cools, 2005; Moers, 2000; Gibbons, 1998), psychological motivational theory (Locke and Latham, 2002; Colquitt, 2001; Hollenbeck and Klein, 1987; Bies and Moag, 1986), and economic agency and reciprocity theory (Fehr & Falk, 2002; Howard et al., 1997; Holmstom and Milgrom, 1991; Eisenhardt, 1989a; Jensen and Meckling, 1976). The framework is based on a set of four motivation indicators distilled from these theoretical sources, and interpreted in a project-based context. The four indicators represent distinct categories that cover key contributions in the literature. The motivation indicators developed from the combined theories are: 1. Goal Commitment, 2. Distributive Justice, 3. Procedural Justice and, 4. Interactional Justice. This is the first time that such a broad range of indicators has been conceptualized for application to a construction project environment. The indicators are used in this study to assess the relative impact of financial incentives and other project-based motivation drivers. Jim Riley (Last updated: Sunday 23 September, 2012) Managing People - Financial Methods of Motivation stated as below. Though there are many reasons why people work for a living, it is undeniable that money, or other financial rewards, play a key role in motivating people in the workplace. There is a wide variety of ways in which a business can offer money (or financial rewards) as part of the pay package, including: Salaries: fixed amounts per month or year for performing a role; these are common for most managerial positions (e.g. Accountant, Payroll Manager)
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Benefits in kind (fringe benefits) very common in businesses of all kinds; these include staff discounts, contributions to travel costs, staff uniforms etc Time-rate pay: pay based on time worked; very common in small businesses where employees are paid per hour. Piece-rate pay: pay per item produced becoming less common Commission: payment based on the value of sales achieved. Other performance-related pay: e.g. bonuses for achieving targets Shares and options: less common in small businesses, but popular in businesses whose shares are traded on stock markets Pensions becoming less common and generous. Small businesses tend not to offer pension benefits. In most cases, an employee might expect to have a mixture of the above in a pay package. How important is money as a motivator? It is widely accepted that poor or low pay acts as a de-motivator. Someone who feels undervalued or under-paid may soon leave to find better-paid employment. However, it is less clear that paying people more results in better motivation. Selfdetermination theory (SDT) is a macrotheory of human motivation, personality development, and wellbeing. The theory focuses especially on volitional or selfdetermined behaviour and the social and cultural conditions that promote it. SDT also postulates a set of basic and universal psychological needs, namely those for autonomy, competence and relatedness, the fulfilment of which is considered necessary and essential to vital, healthy human functioning regardless of culture or stage of development. Cognitive Evaluation Theory (CET) concerns how social contexts and interpersonal interaction either facilitate or undermine intrinsic motivation. Intrinsic motivation is defined as doing something for its own sake, and applies to activities such as play, sport, and leisure. CET stresses the importance of autonomy and competence to intrinsic motion, and argues that events that are perceived to detract from these will diminish intrinsic motivation. CET specifically addresses how factors such as rewards, deadlines, feedback and pressure affect feelings of autonomy and competence and thus enhance or undermine intrinsic motivation. For instance CET explains why some reward structures, for example, financial incentives, actually detract from subsequent motivation, a phenomenon that is often called the undermining effect of rewards (Deci, Koestner & Ryan, 1999).

2.e.

Conceptual frame work for the study

The research will be based on two stages
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Research Proposal M.A.S. Munasinghe (2011/2013/79)

The difference of the performance of employees under the two salary systems This will be obtained from the available records. The attitudes of employees on the performance, under the present salary system The dependent variable will be the performance, which is indicated by the output of the work measured by: (A.1) The rate of output (where measurable) (A.2) The number of effective hours worked. (B) Accuracy of work

Basic salary

Allowances Output rate / Hours of work per day

Rate of OT

Rate of days pay EPF / ETF Good quality work

Performance

Incentives for target achievements

2.f.

Research Hypotheses or research questions

Employees perform depending on the maximum benefits they obtain. Thus, if any benefit is received effortless, they do not wish to consider it as a pay.

3.
3.a.

Research design
Population/sample
The research population will be the employees of the organization affected with the problem (amounting to 1,500 approximately)

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

Sample will be selected to represent each category of employees and the number of members will be 5% the total of the category (totalling to 150).

3.b.

Data collecting Techniques (qualitative/quantitative)

This will be a quantitative study though the aspect is qualitative. Therefore, the attitudes of employees will be categorized in order to obtain quantitative data. Data collection will be with questionnaires. However, few interviews will be done to support the concepts developed after the research.

3.c.

Data Analysis techniques

Quantitative data will be analysed with the accepted empirical analysis methods (with SPSS package).

4.
4.a. 4.b. 4.c. 4.d.

Action Plan of the Study

Reviewing relevant literature Collection of data with questionnaires provided to employees selected as sample. Data analysis Interviews to confirm the conclusion of analysed data.

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