1 Background of the study

It is believed that remuneration strategy accounts for one of the greatest investments an organization makes. Although a fair wage is the cornerstone of the contractual and implied agreements between employees and employers, the underlying assumption is that money can directly influence behaviour. Many employees and managers believe that simply increasing what people are paid will make them more motivated, productive and loyal. The influence of remuneration strategy is an important ingredient in every organization and that employee performance is a critical issue for many businesses, because of the need to attract, motivate and retain the right talent pool for a business to succeed (Cohen et al, 1992). The need to attract, motivate, develop and retain employees is critical to any organization's prosperity today in terms of creating an environment in which employees feel truly engaged connected to the organization's goals and objectives and satisfied with their jobs has never been more crucial. The essential element in payment strategy is to ensure that employees retain a good performance level in the work environment as workers have to believe that the pay they earn is fair in relation to the work they do (Cohen et al, 1992). Furthermore, one of the strongest determinants of employee attitudes, motivation and behaviors is compensation (Wayne, 1992). However, the impact of pay on employee behaviors and attitudes has focused on how pay is administered. Consistent with reinforcement and expectancy theories, most of these research studies conclude that when high performance results in high pay increases, performance is reinforced and more likely to be repeated in the future. A single change in pay is often a function of many factors including overall health of the economy, financial ability of the firm to raise wages, union negotiations, the need to retain an important individual or class of employees, and relative performance of a particular employee. Furthermore, pay level across time communicates more to employees about their value to the

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firm than the information conveyed by a single change in pay which may be influenced by the above external factors (Wayne, 1992). It is also a reality that remuneration issues are core aspects of any organization’s personnel management function. It is an area of continual change and a minefield of complexities. The remuneration strategy provides a welcome insight into reward systems. It presents the techniques of job evaluation and remuneration thoroughly and describes the tools for evaluating jobs, constructing a salary structure and comparing salaries giving guidance on developing a job salary structure like for instance, setting up computerized systems; ranking jobs; integration performance-related pay; creating a flexible salary structure as well as implementing a pay policy. For example, (Hegewish, 1991) mentions that one employer laid great emphasis on the fact that he did not require his workers to clock in as he, as the owner-manager, could see at a glance if anyone was late, "Informal controls of this kind can be more effective than formal controls under which the individual can escape attention when they are only one of a large number" (Hegewish, 1991). Henceforth, Filippo (1994) also states that the expansion of the business is mainly determined by the willingness of the owner to delegate supervision and the organization of an increasing labour force. As employees increase in number and the organization becomes more formalized, the company will have increasingly sophisticated methods of motivating employees. For larger companies, profit sharing schemes have become one of the more popular means of rewarding employees. However, payment strategies for improved performance are widely used in companies as (Mills, 1994) states that the only way to increase productivity is through technological innovation but that in the absence of such progress firms `keep coming back to incentives' to improve productivity. This is especially likely in firms where labour makes up a large proportion of the total costs. The good thing about performance related to pay is that they provide employees with a means of additional income. Williams (1998) found that workers on incentive schemes earned more than eleven percent more than other employees, that profit sharing was not a substitute for other forms of pay, and that the use of profit sharing was associated with both higher productivity and improved performance and that goals must be accepted by the individual and participation and consultation in setting the target to be more effective in carrying out the strategy.
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1.2 Statement of the problem
The issue of remuneration is of particular importance considering that in all service industries, there is the inherent characteristic of simultaneity, where the customers and clients participate in service production. This ‘permeable boundary” between service organization employees and customers, in the form of observation and interaction, creates a situation where the employee’s experience at work is communicated to their clients and in turn reflects the overall service quality impression of the organization (Williams, 1998). Thus improvement gained from having a good remuneration policy can lead to increased profitability, coming from an improvement in service standards through happy and committed staff. Further, the supply of remuneration and benefits to staff could be viewed as a control mechanism in which remuneration strategies used can contribute to the commitment, flexibility and quality of staff within an organization. In this respect, compensation programs can be of strategic benefit to a business. However a number of factors such as ability to pay and the philosophy of management can impact on the strategic use of compensation. Owing to the reluctance of many organizations to investigate alternative compensation strategies, a source of added commitment by employees to the organization has been potentially misplaced (Merricks & Jones, 1987). The overall objective of establishing Kenya Revenue Authourity (KRA) was to provide operational autonomy in revenue administration and enable its evolution into a modern, flexible and integrated revenue collection agency. This actuated the Revenue Administration Reform and Modernisation Program (RARMP) which commenced in 2004/05 with the objective of transforming KRA into a modern, fully integrated and client-focused organization (KRA, 2008). Key Performance Indicators to evaluate the performance of the reform programme are; improved tax compliance; enhanced revenue collection; stabilizing the cost of collection; improved quality of service to stakeholders; improved public perception of KRA; competitive terms and conditions of service for employees; reduction in corruption/bribery index; number of KRA functions fully integrated; number of IT business solutions successfully implemented; and increased motivation, commitment and cooperation of KRA staff (KRA, 2008). Clearly, it is rather obvious that the human resource factor (particularly remuneration) lies at the very heart of
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iv.3 Objectives of the study employee performance at KRA. The study will provide insights to the management and staff at KRA on what needs to be done to enhance employee performance via remuneration strategies and also provide a basis on which future planning can be guided. 1.the reform program.4 Research questions The current study is guided by the following questions. To what extent does KRA’s staff welfare scheme facilitate employee performance? 1. the study seeks to accomplish the following. iii. To this end. Page 4 of 36 . It can also be used as a basis for further academic research on the topic. the need arises to undertake an empirical study to determine the relationship between remuneration policies and employees performance at Kenya Revenue Authority. ii. i.5 Justification of the study The study will add to the body of knowledge that already exists on the relationship between remuneration and employee performance. ii. Determine the impact of KRA’s monthly allowances on enhancing employee performance. Determine the extent to which KRA’s staff welfare scheme facilitates employee performance. What is the effect of KRA’s base pay practices on employee performance? How does KRA’s bonus structure affect its employee’s performance? iii. Subsequently. What is the impact of KRA’s monthly allowances in enhancing employee performance? iv. Determine whether KRA’s bonus structure affects employee performance. The overall objective of the current study is to determine the effect of remuneration practices on i. 1. Determine the effect of KRA’s base pay practices on employee performance.

Salary refers to the weekly or monthly rates paid to clerical. 1. or a contribution made towards the accomplishment of organizational goals. Page 5 of 36 . monthly allowances. wage or salary given by an organization to persons or a group of persons in return to a work done. maintenance and separation of human resources to the end that individual. Specifically.7 Definition of key terms Human resource management (HRM) is the planning. reward. development compensation. and staff welfare schemes. Wage: means any economic compensation paid by the employer under some contract to his workers for the services rendered by them. Mombasa and will involve both staff and management teams. Incentive: An incentive scheme is a plan or programs to motivate industries or group performance. Salary is determined by mutual agreement between the individual and the employer. Salary: Salary is influenced by the size of a company by the specific industry. Compensation is recompense. and in part by the contribution of the incumbent to the process of decision-making. organizing.6 Scope of study The current study will entail an evaluation of the effect of remuneration factors on employee performance at KRA. administrative and professional employees. integration. base pay.1.monetary rewards or prizes. services rendered. but may also include a variety of non. . administrative and professional employees. organizational and societal objectives are accomplished. bonuses. Usually refer to the hourly rate paid to such groups as production and maintenance employees Salary: refers to the weekly or monthly rates paid to clerical. directing and controlling of the procurement. the variables used to denote remuneration practices are. An incentive program is most frequently built on monetary.

Benefits & services: Chandra (2007) lucidly describes fringe benefits provided by the employers to their employees under the statutory provision or on a voluntary basis. cash assistance. clubs. dependent allowance and contribution toward pension and gratuity claims. (2010) Page 6 of 36 . company housing. transport facilities and conveyance allowances.1 showing conceptual framework Remuneration strategies . other facilities enjoyed by the workers include medical and health care. maternity benefits. They include. cooperative credit societies and consumer stores. provident funds. Research study. retrenchment compensation. employment injury compensation. pension.Staff welfare schemes Human resource management Effective employee performance Input (independent variables) Process Output (dependent variable) Source.Base pay .8 Conceptual framework Figure 1. restaurants. In addition. Recreational and cultural services. gratuity. 1. Some employers also provide education. house rent allowance. employees’ state insurance (ESI) schemes.Bonuses .Monthly allowances .

Empirical research findings from previous related studies are also presented to give a picture of remuneration practices in different industries. government legislation and top management philosophy regarding pay and benefits"." HRM strives to achieve organizational goals and the goals of employees through effective personnel programs policies and procedures. organizing. development compensation.CHAPTER TWO LITERATURE REVIEW 2. basic components of remuneration.2. The personnel practitioners however are challenged more today than at any time in the history by a changing and more demanding labor force that has high expectation about the work place. and literature on internal and external factors influencing employee performance through good remuneration practices. and indirect payments in the form of employee benefits and incentives to motivate employees to strive for higher levels of productivity is a critical component of the employment relationship”. integration. collective bargaining. Specifically. 1998). According to Cascio (2003) "compensation which includes direct cash payment.1 Remuneration Strategies Filippo (2005) states that "human resource management (HRM) is the planning. At the same time.2 Theoretical Literature 2. maintenance and separation of human resources to the end that individual. He added that compensation is affected by forces as diverse as labor market factors. It is thus more critical and more difficult to maintain a work environment that motivates and satisfies human resources (Luthern. the chapter contains meaning and definitions of key terms. economies and research settings. organizational and societal objectives are accomplished. Successful performances of the personnel function can greatly enhance the bottom line of any organization. 2. directing and controlling of the procurement. rapidly advancing technologies and outside influences are changing the nature of modern jobs. Page 7 of 36 .1 Introduction This chapter reviews literature on remuneration strategies and organisational performance to act as the frame of reference for the study.

the primary responsibility of the HR manager is to ensure that the company's employees are well paid. qualifications and relevant experience. executive's pay is of special interest. organization philosophy such as to be leader or pay prevailing rates. Stockholder view: To stockholder. wage or salary given by an organization to persons or a group of persons in return to a work done. bonus and other allowance are examples of monetary compensation. services rendered. He offers the following alternative perspectives on compensation.e. reward. A good compensation package is a good motivator. It implies an exchange.Other definitions offer that compensation is recompense. performance/productivity/responsibilities of individual. Mills (1994) argues that compensation translates into different meaning among countries and even overtime. and to make up for. to attract capable applicants. Page 8 of 36 . ensure equity. Society view: perception of compensation differs within countries as well. Some in society may see pay difference as a measure of justice. and facilitate easy understanding by all i. Wage. etc. children education. Hence. wage paid to collar workers or salaries paid to white collar employee can be classified as compensation. compensation in the industry and availability of special competent personnel. employees operating manager and HR personnel (Strauss & Leonard. prevailing pay and benefits in the industry. come under nonmonetary compensation.e. According to Mills (1994) the following factors influence compensation: the organization's capacity to pay. 1980). offset. kind of competencies and abilities in managers. flexibility. Other objectives of compensation include. subsidized ration of essential commodities. In listed companies stock options are commonly believed to tie pay of executives to the financing performance of the company. motivate employees for better performance. i. reward desired behavior. In short. and stability of employment and advancement opportunities. retain current employee so that they don't quit. Compensation literally means to counterbalance. control cost. or a contribution made towards the accomplishment of organizational goals. transport facilities. while good accommodation.

and employee benefits and services. First it is a major expense competitive pressure both internationally and domestically. their focus on customer needs. health insurance. Base wage is the basic cash compensation that an employer pays for the work performed. merit pay. to suggest innovation and improvement. Periodic adjustments to base wages may be made on the basis of change in the overall cost of living or inflation. Managers: Managers also have a stake in compensation: it directly influences their success in two ways. Page 9 of 36 . and their willingness to be flexible and learn new skills. a manager also treats compensation as a possible influence on employee work attitude and behavior and their organization performance.g. changes in what other employers are paying for the same work. Total compensation includes pay received directly as cash (e. forces managers to consider the affordability of their compensation decisions. Some pay systems set base wage as a function of the skill or education an employee possesses. or the return for the education training they have acquired. and a single employer typically uses more than one program. The pay individual receive for the work they perform is usually the major source of personal income and financial security and hence a vital determinants of an individual economic and social well being. Programs that distribute compensation to employees can be designed in an unlimited number of ways. base wage. Base wage tends to reflect the value of the work or skills and generally ignores difference attributable to individual employees.g. this is common for engineers and scientists.. In addition to treating pay as an expense. merit increases. or changes in experience/ performance/ skills of employees.. such as service or public employment. pensions. Studies show that many enterprises labor costs account for more than 50% of total costs. The major categories of compensation include base wage. Among some industries. and cost of living adjustment) or indirectly through benefits and services (e. and even their interest in union or legal action against their employer. this figure is even higher. The way the people are paid affects the quality of their work.Employees: Employee may see compensation as an exchange of service rendered or as a reward for a job well done. short and long term incentives. paid time off). incentives. Compensation to some reflects the value for their personal skills and abilities.

return on net assets and the like. c) The wage structure should be rationalized on the basis of job evaluation before devising an incentive plan. teamed unit. typically is not communicated beforehand. which is most suitable to accomplish them. Benefits & services: The fringe benefit systems purported to develop a climate for healthy employer-employee relationship. quality standards met. market share. These companies believe that having a stake in the company supports a culture of ownership. The distinction is a matter of timing. merit pay on the other hand. Microsoft. Mills (1994) lucidly describes Page 10 of 36 . According to Robbins (1982). Wal-Mart and Proctor & Gamble offer stock options to all their employees. Top managers or professionals are often offered stock ownership or bonuses to focus on long-term organizational objectives such return on investments. Performance objectives may be defined as cost savings. there are several prerequisites to the effective installation and operation of payment system: a. minimize excessive labor turnover costs and provide a feeling of individual security against hazards and problems of life with a view to eventually enhancing employee loyalty to the company and improving productivity. incentives may be long or short term. the possibilities are endless. an attempt should be made to select a scheme. combination of individuals. Incentives systems are offered prior to the actual performance. volume produced. Although both may influence performance. Sometimes referred to as variable compensation. a total business unit. Pepsi. return on investments or increased profits. revenues. incentives do so by offering pay to influence future behavior. Coca-Cola grants shares of stock to selected "key contributors" who make outstanding contribution to the firm's success. d) The objective to be accomplished through incentives should be defined and accordingly. Merit on the other hand. a team of employees.Incentives also tie pay directly to performance. Long-term incentives are intended to focus employee efforts on multi-year result. recognizes outstanding past performance. and can be tied to the performance of an individual employee. team of employees. Incentives and merit pay differs. Employees will behave like owners. b) Work-study precedes the installation of incentive programs.) It should be developed and introduced with the involvement of the workers concerned in a harmonious climate of industrial relations. or some combination of individuals.

pension. house rent allowance. protective equipment's. employment injury compensation. In addition. 1991). The remuneration strategy success is very much linked with corporate responsibility.fringe benefits provided by the employers to their employees under the statutory provision or on a voluntary basis. cash assistance. department and individual objectives and targets in order to remuneration and bonus schemes. rest shelters. Social security system provides benefits such as provident fund. storage or lockers. 1994) The implantation of remuneration strategies for business organizations adheres to their corporate governance structure and provides a framework for implementing the strategies. (Lockwood. policies and procedures that have their roots in the statement of business principles such as the way organizations do their business that will positively motivate employees to do better in work and perform beyond standards and expectations that are expected of them in the diverse workforce as of the present. retrenchment compensation. maternity benefits. community investment and the environment (Hegewish. 1948. (Lockwood. financial and risk performance and carries out annual strategic reviews on specific areas such as human resources. employees’ state insurance (ESI) scheme. clubs. year-end profit sharing. bathing and washing facilities and appointment of welfare officers. effective employers will enable to determine the overarching objectives and overall strategic direction of the workers payment value and its systems as they reviews operating. Other benefits include festival. other facilities enjoyed by the workers include medical and health care. He argued that the employer (senior management) is Page 11 of 36 . 1994). free supply of food items on concessional rates. etc. Employers and designated managers should apply and realize useful objectives and targets that are linked to the workers pay and performance that implies effective performance management system connecting the achievement of workers group. restaurants. dependent allowance and contribution toward pension and gratuity claims. transport facilities and conveyance allowance (Williams. company housing. devising and implementing successful payment strategies. attendance and production bonuses. cooperative credit societies and consumer stores. sitting arrangement. Recreational and cultural services. Thus. Some employers also provide education. 1998). The social services provided under the Britain’s Factories Act. in the manufacturing industries include canteen. gratuity.

there is a breakdown of different remuneration strategies in form of salaries/wages. 1978). The workers are basically motivated by external factors as they will work better or be more committed if they receive significant material gains. Thus. For example. While some people are motivated by the potential to earn rewards. such as a large paycheque or more holiday time and that employees are often motivated as a result of internal factors (Goldstein. In spite of its fact. it should be straightforward and easily explainable so that it is understood by respected managers/supervisors.responsible for managing its pay schemes in accordance with the policies and standards set out in its business plan as agreed by the organization’s business policy. They argued that this plan need not be complex. the following steps could be used by the organizations (Hegewish (1991): Page 12 of 36 . However. there may be subsidiary staff responsible for devising payment strategy designed for every business division supporting the overall business workers strategy integrating a range of corporate committees that will examine the implementation of the different strands of payment as well as business responsibility strategy (Lockwood. pay will become more important when employees are short of money or when unfairness is perceived. Rather. employers and organizations must remember that such rewards complement each other. Moreover. It takes time and good listening skills to determine how to best motivate each employee. In order to start up a formal pay plan. paying employees in accordance with a formal system will help business increase the ease of payroll and avoid mistakes. benefits and perks and reliable remuneration administration will include the necessary payroll processes and plans in helping business organizations using different payment scenarios. The employees’ pride in workmanship or their ability to help customers is often much more of a motivating factor than money or self-interest. and that one is not sufficient without the other. In addition. Each becomes an issue when it is insufficient or unfair. Hegewish (1991) pointed out that an employer already has some sort of pay plan in place – whether he realize it or not. others are motivated primarily by their desire to avoid unpleasant consequences. 1994). time consuming or costly. organizations must also remember that everyone is different when it comes to motivation.

there needs a calculation of average rate for each job such as deciding to use such averages as the midpoints in pay level ranges Step 4.Install the plan. promotions. the in-charge may decide to write personal letters to each employee and follow-up with meetings to explain the plan and answer questions. increases for time spent with the company.Communicate the plan to employees. Rank job difficulty and responsibility and cluster those that are similar in scope into the same pay range.Step 1. Clearly.Price the jobs according to the going rates for similar working area as it is ranked and grouped jobs into pay levels.Evaluate the jobs by comparing job descriptions against one another. or general increases to compensate for changing economic factors/cost of living and to remain competitive Step 5.Define the jobs and prepare a job description for each position so that you may compare them for pay purposes Step 2. The organization may want to use performance-based increases. Arrange groups into pay levels like from highest to lowest Step 3. honestly and openly describe how the plan works so that expectations are defined as it will help build goodwill and good relations with every employees Step 6. keeping in mind how it will be administered to provide for individual pay increases.Appraise employee performance under the payment plan through explaining how employees’ efforts relate to pay and provide feedback to help them better understand job responsibilities and expectations Page 13 of 36 .

1 – Design & implementation of an effective remuneration strategy plan Source: Beardwell & Holden (1994). Page 14 of 36 .The above integrated system (model) is represented graphically below. Figure 2.

financial considerations). some of which are not under the control of the individual employee (e. The system should not be bureaucratic. the tender document). position or role in an organization which they argue.g. there are some key questions: Does the documentation give a full. but it has to be perceived as fair. it is the act itself (e. lack of appropriate tools or resources.2.g. stress that performance is thus more than simply behaviour. Campbell et al. however.’ A similar definition of performance is provided by Campbell et al. comprehensive description of each position? Is the evaluation system used soundly based and rigorously applied? Is consideration given to market competitiveness in setting the remuneration range? Is the performance appraisal system well designed and accepted by all employees? Is the review process conducted fairly and within agreed time limits? As well as checking goal achievement. Campbell (1990) is adamant. preparing a tender document). 1994). 2. can be differentiated from the outcomes of performance. It also has to be actually administered fairly. The consequences of performance may not ultimately reflect the unique contributions of one particular employee (e.2. it is behaviour imbued with significance and value by an organization because of what it leads to. that performance is a process of behaving that can be assessed independently Page 15 of 36 . Assessing Performance in Organizations Schneider and Schmitt (1986) define performance criteria as ‘those behaviors and outcomes at work that competent observers can agree constitute necessary standards of excellence to be achieved in order for the individual and the organization to both accomplish their goals. appear problematic since the act of performing may not necessarily be observable (e. Performance is not the consequence or result of job behaviour.In implementing the model. in many respects. Many factors influence performance outcomes. Performance occurs in the context of a job. does the review reconsider the job and changes that may have occurred? Are nonfinancial rewards considered along with financial rewards? (Beardwell & Holden.g. (1990) as indicative of the value attributed to particular behaviours by an organization that leads to the attainment of important organizational goals. The distinction between performance and performance outcomes may. informationprocessing and decision-making) and thus may only be evident in its effects.g.

e. Page 16 of 36 . decision-making processes can be operationalized independently of the final decision and also the outcome of that decision. Campbell (1990) also differentiates performance from effectiveness and productivity. They cite examples such as a typist's typing speed (number of words typed per minute). absence can be voluntary or involuntary. time spent on the call itself. via the appraisal process. he says. and time spent out of the system for breaks. i.e. (1994) report that objective measures of performance/effectiveness are commonly regarded as the most useful.g. These data may be collected and collated by computer. Effectiveness. These differences in definition illustrate the various difficulties inherent in assessing performance and performance outcomes in organizations. in the call-centre industry. the criterion used to evaluate performance. For example. to telephone agents themselves. performance (Brewerton and Millward.2. 2001).1 Individual performance Dipboye et al. information can be collected on the amount of time a telephone agent spends at different stages of the calling process. are fed back to management and. three problems beset absenteeism measures: Criterion contamination: e. as well as overall.of its outcomes. refers to an ‘evaluation of the results of performance’. Thus. since an individual's behaviour at each stage of the job task can be objectively assessed and built up into a picture of specific. and the least contaminated by error. irrespective of whether it is directly observable. a forester's speed of felling trees (number of trees felled per hour) and a salesperson's financial sales per unit time as examples of ‘objective’ outcome measures of performance. These include absenteeism and sales criteria. In Information Technology led industries. It could be argued that the collection of such rich and complex data represents true assessment of the ‘process’ of performance. there is now an increasing use of technology to collect objective individual-level performance outcome data routinely. etc. time spent writing up notes on the call. Certain objective performance/effectiveness criteria are fairly commonly used. whilst productivity is defined as ‘the ratio of effectiveness to the cost of achieving that level of effectiveness’.g. According to Hammer and Landau (1981). however. 2.2.

Sales criteria are outcome measures with much appeal. as will be shown. including. organizational factors can influence absence rates differently for different employees with the result that absence measures are highly unreliable. are also open to a wide range of contaminants. amongst others. these are inherently subjective measures and. Clearly.. again throwing into question the reliability of this source of performance data. Sales success is a function of both individual skill and environmental factors. for example) have a marked effect on the criterion (Brewerton and Millward. Crites (1969) reported that 60% of organizations used rating systems to assess individual employee effectiveness. For instance. social desirability (most employees want to present themselves in the most positive light possible and may therefore underestimate their true absence rate) and memory (participants may not be able to recall their absence rates accurately over a 6. Indeed. particularly in terms of its reliability and validity (does a measure of absence assess effectiveness and effectiveness alone. However. crossreferencing a project participant's confidential responses to a questionnaire with his/her personnel files) can be overcome by asking participants to self-report their absence levels over a given time period.e. organizations often rely heavily on appraisal ratings in order to assess the performance and effectiveness of their employees (Dipboye et al. then. geographical location – comparing sales representatives operating in London and the far south-west of England. suggesting their unreliability as outcome measures. As noted earlier.Instability: i. The problem of anonymity (i. there are a number of criteria that can be used to assess the Page 17 of 36 . Skewing of distributions: e. 2001).g. 1994). there are often many employees with no absences or only a few absences across the year resulting in reduced the power for significance tests. Because of this.or 12month period). this introduces a number of additional sources of error. absenteeism as a measure of performance effectiveness is problematic. Graphic rating scales represent the most common usage of ratings for supervisory or managerial appraisals.g. but are again open to a number of contaminants. it may be very difficult to compare sales achieved across individuals if external factors (e. or are other factors involved?).e. however. Because of the problems outlined above as regards objective measures.

‘organization’. Central tendency. ‘knowledge’. ‘enthusiasm’. which permit more reliable. that similar ratings on all criteria may represent a true appraisal of performance/effectiveness. as noted by Cooper (1981). Each criterion (e. Context – this source of error refers to differences in individual ratings of employees when alone. ‘responding to questions’.effectiveness of a trainer. objective and fair judgements of employees’ performance and effectiveness to be made using rating scales. A number of ‘rating effects’ exist which limit the utility of rating scales unless used with great care. validity and ability to discriminate. There are methods available. This leads to reduced objectivity. For example. if two individuals receive moderate-good appraisals when appraised alone. etc. valid. which can undermine their objectivity. This source of error also influences the capacity of the scale to discriminate between employees if raters are restricting their judgements to only a narrow range of ratings.g. this effect represents an error on the part of the rater in generalizing from a certain level of performance/effectiveness on one criterion to the remainder. or when in a group setting. Brewerton and Millward (2001) offer the following rating effects: Halo – occurs when the rater tends to give the same level of rating across all criteria (the same rating would be given across ‘enthusiasm’. since ratings cannot be argued to measure criteria in the same way regardless of who is doing the measurement. For example. A number of significant drawbacks exist in the use of such graphic rating scales. etc. while others restrict themselves to the more positive ratings (leniency) or to the more negative ratings (severity). severity and leniency – it is often the case that a rater will use only part of a rating scale due to personal preference.) may be rated by the appraiser according to the 5-point scale (which ranges from ‘Poor’ to ‘Outstanding’). and this requires a distinction to be made between ‘true halo’ and ‘halo error’. however. some raters may tend to use the central portion of a scale (central tendency). reliability. It may be. In many cases. contrast effects could influence the rating attributed to an individual employee.). Depending on the relative performance/effectiveness of the group. placing one in a poorlyperforming group and the other in a high-performing group may result in the rater contrasting Page 18 of 36 . ‘encouragement’.

and Return on investment. etc. or who attended the same educational institutions. To some degree. Whilst managers are keen to address ‘soft’ people issues by introducing intervention programmes such as personal and career development. etc.2. Page 19 of 36 . participative management.those individuals with the rest of the group and reporting inaccurately high or low group-level appraisals respectively for these employees. e. these areas may only be regarded as worthy of attention if they can be shown to make a significant and measurable difference to the performance of the organization itself. this interest reflects contemporary workplace focuses on people and performance.2. These indicators have included: Staff turnover. It is widely agreed that organizational performance may manifest itself in a number of ways. bankers and investors. While it is true that commercial or fiscal measures are the most commonly used indices of performance for financiers. 2. sociological and applied psychological research on organizational culture. team-building. accountants. Market share. There is a distinction here between commercial and ‘people’ measures at the organizational level of analysis. reporting more positive judgements of those employees with similar backgrounds or political beliefs. Volume of sales/product. many organizational and management specialists have conducted research to address the question of the link between organizational culture and performance. involve the rater making judgements as to the similarity or dissimilarity of the ratee to him/herself and allowing these comparisons to affect judgement of performance or effectiveness. This effect may undermine the reliability (and also validity) of the rating process.g. Organizational culture has gained much management and research interest in the past 20 years. Similar-to-me – these effects. Staff absenteeism. which impact on the reliability and objectivity of rating scales. staff measures also provide a useful indication of the state of the workforce and may flag up possible problems looming on the horizon. As a result.. Profit. dependent on the organization/industry of interest.2 Linking organizational culture to performance The various issues surrounding the conceptualization and measurement of performance and effectiveness at the corporate or organizational level are well illustrated with reference to management.

More recent research has questioned this typological approach and has focused increasingly on the multi-dimensional nature of organizations’ cultures. Achievement culture. Ernest argued that there is no single cultural ‘type’ which leads to success. Harrison (1972). values and practices within the organization. when taken together. Marcoulides and Heck (1993). This apparently straightforward relationship was questioned by Ernest (1985). but that organizational plans are often ineffective because of the incompatibility of those plans with organizational culture(s). suggesting that there must be a ‘fit’ between planning and the beliefs. Harrison (1972). Peters and Waterman. Power culture. examined a number of elements of over 30 US organizations’ cultures. as noted by Furnham and Gunter (1993). and how separate ‘dimensions’ of culture may be related to organizational performance. including product and service organizations of various sizes. Schein (1985). They found that. from both public and private sectors. Many studies undertaken in the 1970s and early 1980s were keen to develop taxonomies of culture ‘types’ to describe the components present within companies in the hope of linking those components with organizational outcomes such as performance. who stated that effective business planning requires an understanding of not only the external competitive environment but also the internal corporate culture. However. resource types (capital or labour intensive). Process culture. Work hard/play hard culture. 1982). these posited cultural systems have proved little more than interpretative intuitions which have yet to be validated. Deal and Kennedy (1982) and Schein (1985) all produced interesting accounts of culture types. the cultural dimensions listed below measured at organizational level could Page 20 of 36 . 1982. Role culture. for example. and Support culture. with appealing descriptions of the types of behaviour associated with each: Deal and Kennedy (1982): Tough-guy macho culture. Bet-yourcompany culture. Specific companies have been held up as prime examples of ‘successful’ and ‘high-achieving’ organizational cultures.Some researchers have attempted to frame organizational culture in terms of ‘cultural types’ when considering performance in the marketplace (Deal and Kennedy.

000 hours to 24. Commonly selected criteria include turnover. due to the high cost of replacing and Page 21 of 36 . 2. limited sample sizes. participation and communications training across the company. Extent to which staff believe management involve them in decisions. As with all measures of performance.000 hours (32% reduction). Turnover Staff turnover.000 (27% reduction). s/he must be satisfied that the criterion is objective. The cultural dimensions together predicting these elements of performance included: Propriety of criteria for. Some commonly used measures of performance (together with their advantages and disadvantages) are introduced below. Degree of communication flow across the organization.and postintervention. despite a 4% increase in the number of employees (311 to 322). supervision. initially at least. if the researcher is to draw on a particular criterion. absence. Pressure imposed on staff.3 Measuring performance at organizational level The above example of organizational culture and performance illustrates some of the means used to operationalize performance at the organizational level.predict over 50% of the following performance indicators: Volume (gross revenue: product value).2. Profit (revenue: costs). and Return (profit: assets and equity invested). and valid. morale. and distribution of. Zamanou and Glaser (1994) measured six dimensions of organizational culture (teamwork. Share (extent of penetration into potential customer base). as did the following: sick leave reduced from 35. reliable.000 to $254.2. before and after a 2-year intervention to improve teamwork. and Means for evaluating employee performance. Managers taking an interest in employee welfare and performance. remuneration. involvement. associated cost of absenteeism reduced from $349. profit and market share. The principal problems of analysing organizational performance stem from poor reliability (the influence of external factors on the criterion). sales. information flow and meetings). appears to be an important and potentially useful criterion against which to judge organizational effectiveness or performance. Attitudes of staff towards loyalty and commitment. and the associated problem of limited comparability of organizations. They found that all six dimensional scores improved significantly pre.

this throws into question the reliability of staff turnover as a criterion unaffected by external factors. as noted by Cannella and Hambrick (1993).training new personnel. can be disruptive at the organizational level. Since many employees are becoming increasingly focused on managing their own careers in the absence of a ‘job for life’. Clearly. the loss of less-effective employees will have a lessdamaging effect on overall organizational effectiveness than the loss of high-performing and also more senior staff. and so restricts the validity of turnover as a criterion measuring much more than cost associated with recruitment and training. Contemporary workplace – it could be argued that in today's workplace. Moreover. with the changes in perceived expectations of employees and employers. turnover may become less salient and valid as an indicator of organizational performance. Identity of leavers – the identity of those leaving an organization will have a varied impact on the overall effectiveness of the firm. The loss of senior staff can have a significant disruptive effect on the organization's operation. Clearly. the researcher needs to be aware of the various factors at work when considering staff turnover as a possible criterion of organizational effectiveness: External job market – this varies over time. This should be identified prior to analysis of organizational performance data to ensure comparability of data. Differences in reporting turnover – the researcher should also be aware of the variations in how turnover is reported depending on the policy of the organization. with a knock-on effect felt from top to bottom of the organization. The relative availability of other positions in particular industrial sectors will impact on the extent to which staff leave a particular company over a given time period. Page 22 of 36 . particularly of key people. natural turnover is likely to increase. This does not preclude employees who intend to leave the company from performing highly effectively during their tenure. becoming more or less buoyant in line with other economic factors. turnover. However.

‘the leading indicators of business performance cannot be found in financial data alone. Clearly. for example.’ (appearing in Eccles. maternity and compassionate leave. when aggregated to organizational level. rates of exchange. making them problematic as ‘pure’ indicators of organizational effectiveness. by making statistical adjustments for differences in end-of-year dates. 1998).g. However. as with staff turnover. they are unable to contribute to the performance of the organization. It is important that the researcher is confident of the comparability of such data in order to include them as indicators of performance or effectiveness. can all impact enormously on the ‘bottom-line’ financial performance of an organization. however. absence data may well be able to provide the researcher with a valuable index of organizational effectiveness as long as care is taken in ensuring that reporting systems (and organizations themselves) are comparable. As Eccles (1991) states. etc. Page 23 of 36 . to control for some of these external factors by ensuring that financial data are directly comparable from organization to organization (e. return on investment. differences in recording absence rates can reduce reliability of the measure (whether or not an organization takes into account sickness. financial turnover of organizations. 1985).). ensuring that accounting procedures are comparable. competition in different sectors. as can differences in the historical attitudes and ‘culture’ of organizations in their relative levels of acceptance of a certain amount of unauthorized absence from work (as discussed in depth by Nicholson and Johns. However. can tell the researcher something about the effectiveness of the organization in retaining a certain level of staff resource over time. Fiscal indicators Profit.Absence Absence rates. market share.) are clearly open to an enormous range of external factors. omitting data on major acquisitions. if staff are absent from work. making absence rates a fairly valid indicator of effectiveness. It may be possible. and training when assessing absence rates). Differences in economic conditions. and accounting procedures. etc. mergers and acquisitions.g. and other fiscal indicators (e.

1996) to assessing performance at the organizational level of analysis. at least within management research. as well as more subjective criteria such as perceptions of customers/shareholders of service quality. reliability. the researcher must remain vigilant for evidence of objectivity. Once again. Venkatraman and Ramanujam. senior management). that performance at the organizational level should take in a variety of disparate indicators in order that a comprehensive understanding of an organization's behaviour and success may be obtained. if this information can be obtained from a trusted and reliable source (e. Employees were compensated Page 24 of 36 . Previously the organization compensated employees on the basis of piece-meal work.g. Karlsson and Åhlström (1995) investigated the role of remuneration systems towards attaining lean manufacturing at a manufacturing concern in Sweden. Chakravarthy (1986). including ‘bottom-line’ indicators such as return on investment or market share. 1984. This suggests that it may be possible to obtain subjective perceptual data on corporate effectiveness with some confidence. being used in combination to provide a broad overview of organizational effectiveness.Perceptions of corporate performance Various writers (Dess and Robinson. 2. validity and ability to discriminate fairly in criteria obtained within a balanced scorecard framework. Management realized that this system had to change for them to attain a lean manufacturing system.3 Empirical Literature There are various studies that have been carried out in the fields of employee remuneration and performance. 1987) have found that perceptions of corporate performance by top management teams are highly correlated with actual financial performance data. Such approaches see a variety of measures. Dess and Robinson (1984) and Eccles (1991) all concur with this view. The ‘balanced scorecard’ It is becoming increasingly widely accepted. the new remuneration system contained both fixed and variable elements. which has been described as the ‘balanced scorecard’ approach (Kaplan and Norton. the breadth of such an approach should in no way detract from the rigour required to assess the utility of available criteria. Of course. employee views of the culture of the company and ratings of the effectiveness of organizational processes. Consequently.

The bonus part was measured on the basis of productivity. 1995). There needs to be greater emphasis on intrinsic motivational factors such as achievement. the teams’ flexibility also increased. First. It is perhaps better to seek an alternative such as comprehensive training and innovative development programs. and time accuracy. workers no longer tolerated missing parts. Hanley and Nguyen (2005) surveyed trade union perspectives on performance-related pay (PRP). transparency and equality (Hanley and Nguyen. quality. To minimise problems in shaping PRP schemes. since workers in the flow-lines are keener on learning new jobs than before. recognition. while variable pay depended on the achievements of the team to which the individual belongs. Workers no longer tolerated defective parts and tried to take measures to correct the parts which were defective. the unions advocated the integration of a social dimension. the individual’s performance was focused on productivity before switching to flowlines and the accompanying change in the remuneration system. It has been observed that this new focus results in peer pressure on those who do not adhere to the groups’ standards (Karlsson and Åhlström. 2005). Secondly. job satisfaction and job fulfillment (Hanley and Nguyen. Now the focus is on team performance. responsibility and personal growth. Another recommendation of the study is that trade unions should be Page 25 of 36 . They argued that using merit pay to link important outcomes to desired behaviours may not be sufficient. Furthermore. Furthermore.depending on the individual achievements (ability to perform five different tasks and the individual’s team skills). since this made it impossible for them to deliver products on time. 2005). There were several results of implementing these changes. Another important finding was that accepted of performance-related pay was higher in white-collar unions’ agreements suggest than in the blue-collar unions’ agreements which prefer to restrict pay increases to a job classification structure. the interest in quality issues increased. Such an approach could also alleviate the problems that arise from PRP initiatives by offering long-term intrinsic rewards such as employee empowerment. Document analysis of collective bargaining agreements in their study revealed that performance appraisal and performance-related pay clauses range from mere stipulation of existence to detailed processes and principles of design and implementation.

impossible to ascertain. as they would exert a beneficial influence on management practice by enhancing the transparency and consistency of Performance Appraisal and Performance Related Pay systems. per se. However. has had in affecting output in the desired direction is. manipulation and even counter-productivity have been uncovered. Indeed. 2. 2000). Lastly. The exact role the remuneration system. a key objective of the reforms program at KRA is to improve service delivery. potential opportunities exist for PA to focus on one or more negative aspects of an employee’s recent job performance and in effect.e. First. is the difficulty of determining which factors have influenced the output of the system i. Moreover. staff motivation and commitment through competitive remuneration strategies. inaccurately reflect the actual job performance (Nelson. employee performance. problems of inaccuracy. Consequently.4 Research Gaps From a review of both theoretical and empirical literature it is clear that a number of knowledge gaps are abound. the outcome of this objective is still unclear. Secondly. of course. the current study will serve to bridge these knowledge gaps.actively involved through a mutual decision-making process. researchers and practitioners alike recognise that appraising an employee’s performance is difficult. Page 26 of 36 .

Page 27 of 36 . The population will be divided by department and a random sample taken from each department. Survey research is therefore a self report study which requires the collection of quantifiable information from the sample.CHAPTER THREE RESEARCH METHODOLOGY 3. a descriptive survey is an attempt to collect data from members of a population in order to determine the current status of that population to respect to one or more variables.2 Research design The research design to be used in the current study is the descriptive survey method. 3. This technique was selected as it was the most economical method for the researcher to collect data. The study will target both staff and the management team at Kenya Revenue Authority – Southern Region.3 Study population The entire population at the KRA. Sampling will be done randomly to achieve a total sample size of thirty respondents from all five departments of the corporation. This effort is expected to produce a sample size of 30 respondents.125 per cent of the total population.4 Sample design & procedures For an equal chance of interviewing respondents stratified sampling methods will be used. 3. 3.1 Introduction The current study will use a descriptive survey design to evaluate the effect of remuneration practices on employee performance. According to Cooper and Emory (1996).Southern Region totals 960 employees distributed across five departments as follows. Close-ended questionnaires will then be used to gather data and thereafter analyzed and presented using Microsoft Excel and SPSS. or 3.

uniformity and completeness and analyzed with the results presented in tables.03125 0. hand delivery.6 Data analysis Descriptive statistical measures such as percentages and frequencies will be used to analyze closed ended questions/statements. mean scores and standard deviation measures by use of SPSS computer software application (Statistical Package for Social Sciences). percentages. 3.1 Sample Distribution Table Department Customs Services Domestic Taxes Large Taxpayers Road Transport Support Services Total Population Size 433 236 45 105 141 960 Sample proportion 0. bar charts and pie charts. Thereafter the scores were totalled to measure the respondents’ responses.5 Data collection instruments and procedures Primary data will be collected using structured questionnaires.03125 0. consistency. and “face-to-face interview” methods. Specifically. These techniques are usually able to employ factual information about a situation to provide an understanding of performance levels.03125 0.03125 0.03125 0.03125 Sample size 14 7 2 3 4 30 3.Table 3. by means of email. Respondents will be asked to agree or disagree with statements pertaining to the variables under study with each response given a numerical score to reflect its degree of attitudinal favourableness. Page 28 of 36 . a Likert-style rating scale was used to collect opinion data as it is the most frequent used variation of the summated rating scale. Cross-tabulation analysis will also be applied to derive any relationships between the dependent and independent variables. The data collected will be edited for accuracy. Thereafter tabulated and analyzed using frequencies.

Boston: Irwin. Beardwell. R. Cohen. An integrated and innovative approach to catering management. “The decentralization of pay bargaining: Europe comparisons”. I.. S.. B. (6th edition). Human Resource Management: A Contemporary Perspective. A.L. B. (Ed). (1987). Team Management – Leadership and Consensus. (1994). London: Cassel. pp 311-330. Page 29 of 36 . Personnel Management. London: Methuen. New Jersey: Oxford. Willits. C. (1992). London: Cassel Filippo. Crispin.20 3. Goldstein. 6. Vol. S. Modern Personnel Management.. & Josefowitz N. Delhi: Surjeet. 28-35. Jones. W. The Employment Crisis in Africa: Issues in human resources development policy. A. Performance and Control Strategies. D. (1994). (1991). Ohio: Merrill.). Jonathan. (1990).. Guditus. The Management of Food service Operations. E. (1994). Keeping Good Company. Balu & Schoenher. Applying Psychology in Organizations. (1984). Industrial Relations Journal. S. & Shimmin. London: Pitman. E. New York: McGraw. P. Fink. (1978). Effective Behaviour in Organizations (5th Ed. F.). Personnel Review. G. (2nd ed. (1984). (1971).REFERENCES Adams. H.. “Employee Share-Ownership and Motivation”. Hegewish.. & Holden. Godon. & Adelaide G. L. In Blackler. R.

Performance Management: Perspectives on employee performance. & Jones. Q. The Management of Food Service Operations: An integrated and innovative approach to catering management. G.). (1987). & Merricks. New Yord: Van Nustrand. & Leonard. Organizational Behaviour. D. (1982). F. London: Cassel. S. P.S. (1998). The Human Problem of Management.. R. The Management of Human Resources. (1992). London: Cassel. P.. P. P. London: Thomson. Williams. The Management of Catering Operations. F. (2nd ed. In Jones. Wayne. Merricks.). U.S. Robbins. R.). (1994).Lockwood. Luthern. (5th ed. C. Costing Human Resources.. New Jersey: Prentice. S. P. Mills.A: McGraw. (8th Ed.). A. (1994). (Eds. Providing service excellence. Page 30 of 36 . London: Prentice. New York: McGraw. (1980). Strauss. Labour Management Relations. (1998).

APPENDIX I: QUESTIONNAIRE QUESTIONNAIRE: REMUNERATION AND EMPLOYEE PERFORMANCE: THE CASE OF KENYA REVENUE AUTHORITY Introduction .Middle-level manager 2. The survey results will be reported in general terms and will not identify individuals. Years of service at KRA 7. Gender: Male Primary level University 6.Senior manager .Road Transport . Your support in completing this questionnaire objectively is greatly appreciated. A.The current study seeks to establish the effect of remuneration on employee performance.Support Services 3. Please tick your response where appropriate.Domestic Taxes . Job category .Customs Services .Large Taxpayers . Education level: 30 > 40 years 40 > 50 years Over 50 years Supervisor Staff Page 31 of 36 . GENERAL INFORMATION 1. Age of respondent: < 30 years 4. Department . Employment type Permanent Contract Casual _______________________________ Female Secondary level Tertiary level 5.

Annually .Entertainment Overtime pay Page 32 of 36 .80. qualification & experience .Paid leave . Monthly allowance . Other allowances .Transport 4. Welfare .Housing .Based on position.Subsidized meals Annual staff party Loan for emergencies .Medical scheme .90% of monthly income .Based on market rate 2.Based on length of service . basic salary and benefits.Family and adjustment allowance 3.B.Education .Fixed monthly income . EMPLOYEE REMUNERATION What type of remuneration.Based on KRAs performance 5. Base pay (salary) . Bonus .Retirement plan .Biannually .10-20% of monthly income . and annual pay adjustment are provided to you by KRA? Please tick against the most appropriate choice 1.

Bonus .10-20% of monthly income .EMPLOYEE REMUNERATION & PERFORMANCE On a scale of 1 – 5.Based on KRAs performance 1 2 3 4 5 Page 33 of 36 .Entertainment 1 2 3 4 5 1 2 3 4 5 2 3 4 5 4. Monthly allowance . how would you rate the following remuneration aspects in terms of their likely effect on your job performance? Please use the scale provided below.Family and adjustment allowance .Fixed monthly income . 1 1. qualification & experience .Based on length of service . Other allowances . 3 = Neither important nor unimportant.Education . 5 = Extremely important.Overtime pay 3. 4 = Somewhat important. 2 = Somewhat unimportant.Transport .Housing .Based on position.Based on market rate 2.80.Annually .90% of monthly income . 1 = Not at all important.Biannually . Base pay (salary) .

Are there any other aspects of remuneration that may have an effect on your performance? _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ ________________________________________________ 7.Medical scheme .Paid vacations .Subsidized meals . Do you have any other comments or suggestions that you think can be useful to this survey? _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ ________________________________________________ Page 34 of 36 .Annual party . Welfare .Retirement plan .Loan for emergencies 1 2 3 4 5 6.5.

APPENDIX II – WORK PLAN Activity Proposal writing and questionnaire design Data Collection Data analysis Report adjustment Report Writing & Compilation Oct 1 – Dec Jan Feb March Nov 30 APPENDIX III: RESEARCH BUDGET The budget for carrying out this research study is as follows: Page 35 of 36 .

000. Miscellaneous TOTAL 10.000.ACTIVITY Kenya Shillings Typing.00 10.00 45.00 10.00 Page 36 of 36 . photocopying and binding (3 hard cover copies) 4.000.00 5.000.00 6.00 of the research report.000.000.000. Questionnaire distribution and collection Data coding and analysis Printing and photocopying of research report drafts Travelling expenses.

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