Personnel Review

Emerald Article: Retaining and motivating employees: Compensation

preferences in Hong Kong and China
Randy K. Chiu, Vivienne Wai-Mei Luk, Thomas Li-Ping Tang

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To cite this document: Randy K. Chiu, Vivienne Wai-Mei Luk, Thomas Li-Ping Tang, (2002),"Retaining and motivating employees:
Compensation preferences in Hong Kong and China", Personnel Review, Vol. 31 Iss: 4 pp. 402 - 431
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Personnel
Review Retaining and motivating
31,4 employees
Compensation preferences in
402 Hong Kong and China
Randy K. Chiu and Vivienne Wai-Mei Luk
Department of Management, School of Business, Hong Kong Baptist
University, Kowloon Tong, Hong Kong, and
Thomas Li-Ping Tang
Department of Management and Marketing, Jennings A. Jones College
of Business, Middle Tennessee State University, Murfreesboro,
Tennessee, USA
Keywords Compensation, Retention, Motivation, Employees, Hong Kong,
People's Republic of China
Abstract This paper reports two studies involving data collected from 583 participants in Hong
Kong and 121 participants in the People's Republic of China (PRC), and examines the most
popular compensation components offered by organizations to employees and participants'
perceptions regarding the five most important compensation components to retain and motivate
people in Hong Kong and PRC, respectively. Results suggested that in Hong Kong, base salary,
merit pay, year-end bonus, annual leave, mortgage loan, and profit sharing were the most
important factors to retain and motivate employees. In China, base salary, merit pay, year-end
bonus, housing provision, cash allowance, overtime allowance, and individual bonus were the
most important factors to retain and motivate employees. Results are discussed in light of
economic, geographic, and culture-related factors.
For the last several decades, the growing integration of the world economy into
a single, huge marketplace has increased the intensity of competition in the
world market to cut costs and increase profits in a wide range of manufacturing
and service industries (Hill, 1994). Only the most efficient and best-managed
organizations can survive. Money, benefits, and many different forms of
compensation have been used to attract, retain, and motivate employees and
achieve organizational goals in the USA and around the world (Barber and
Bretz, 2000; Chiu et al., 2001; Lazear, 1998; Milkovich and Newman, 1999; Rynes
and Gerhart, 2000; Tang et al., 1998, 2000a,b).
Organizations' reward systems involve monetary compensation and non-
monetary rewards. Further, under monetary compensation, there are direct
compensation and indirect compensation (benefits). In this study, we focus on
Portions of this paper were presented at the Inaugural Conference of the Asia Academy of
Management, Hong Kong, December 28-30, 1998. Correspondence concerning this article should
Personnel Review, be addressed to Thomas Li-Ping Tang, P.O. Box 516, Department of Management and
Vol. 31 No. 4, 2002, pp. 402-431.
# MCB UP Limited, 0048-3486
Marketing, Jennings A. Jones College of Business, Middle Tennessee State University,
DOI 10.1108/00483480210430346 Murfreesboro, TN, 37132 (HK-PRCPAY.PR.rtf: 7/25/2001).
monetary compensation in organizations. First, pay level is related to two Retaining and
objectives in compensation: motivating
(1) controlling labor costs; and employees
(2) attracting, retaining, and motivating employees.
Other things being equal, the higher the pay level, the higher the labor costs.
Organizations with a high pay level may attract and retain a qualified work- 403
force (Williams and Dreher, 1992), and reduce training or recruiting costs
(Holzer, 1990). Further, higher labor rates may lead to lower labor costs due to
employees' higher quality and/or quantity of performance (Pfeffer, 1998). The
organization size, location, and the type of industry may influence the pay
levels (Tang et al., 2000a,c). Second, employee benefit costs have jumped from
25 percent of payroll in 1959 to just over 41 percent in 1993 (US Chamber of
Commerce, 1994). Organizations also need to strike the balance between wages
and benefits in order to satisfy employees' needs and stay competitive.
Money is the instrument of commerce and the measure of value. ``Money
isn't everything, but it is the best metric'' (Lazear, 1998, p. 379). It has been
suggested by researchers that money is a motivator (e.g. Lawler, 1973). Others
argue that money is not a motivator (i.e. a hygiene factor) (e.g. Cameron and
Pierce, 1994; Herzberg, 1987a, b; Kohn, 1993, 1998; Pearce, 1987; Pfeffer, 1998).
Money does improve performance quantity and does not erode intrinsic
motivation (Gupta and Shaw, 1998). However, the jury is still out regarding the
impact of financial incentives on performance quality.
The meaning of money is ``in the eye of the beholder'' and can be perceived as
their ``frame of reference'' in which they examine their everyday lives (Tang et
al., 2000a, p. 217). On the one hand, it is possible to simply pay higher wages
and lower benefits to satisfy employees' needs. On the other hand, some
benefits are quite important to employees. The same benefit does not suit every
worker. Workers do differ in their valuation of various benefits. Thus, a
cafeteria plan, for example, which gives a worker more flexibility in benefit
choices, can provide the most value to the worker for a given amount of
expenditure. Researchers and managers of human resources and compensation
need to identify the most important compensation components and satisfy
employees' needs.
A good match between resources (supply) and demands from both the
organizational and the individual perspectives will lead to a high level of need
satisfaction and job performance (Porter et al., 1975). Numerous researchers
have suggested that human need structures are virtually universal among
individuals (culture-free, etic) (e.g. Alderfer, 1969; Herzberg, 1987a, b; Maslow,
1970). Others have argued that need structures are culturally bound (culture-
specific, emit) (Ali and Ali-Shakhis, 1985; Bhagat and McQuaid, 1982; Hofstede,
1980; Nevis, 1983; Slocum, 1971; Smith et al., 1995; Tang and Ibrahim, 1998;
Tang and West, 1997). Thus, we cannot assume that all employees have
identical preferences for compensation components in organizations.
Personnel Many studies have investigated the relationships between compensation
Review components and attraction, retention, and motivation of US employees (e.g.
31,4 Barber and Bretz, 2000; Gerhart and Milkovich, 1990; Kahn and Sherer, 1990).
Very little research, however, has investigated the various compensation
components in retaining and motivating people in the Chinese context,
employees in the People's Republic of China (PRC) including Hong Kong, a
404 Special Administrative Region of the PRC, in particular (cf. Roy et al., 2001).
The major purpose of this study is to achieve the following two-fold
objective:
(1) Identify compensation components currently being offered to
employees.
(2) Identify employees' perceptions of the most important compensation
components in retaining and motivating employees.
We will review economic, geographic, and culture-related factors and present
results based on participants in Hong Kong (Study 1) and in the People's
Republic of China (Study 2).

Study 1: Hong Kong

Employee preferences
Many ``different lists'' of preferences have been examined in the literature. In a
study of 57,000 job applicants in a 30-year period using a list of ten items,
Jurgensen (1978) has found that job security, advancement, and type of work
are most important to men, whereas type of work, company, and security are
most important to women. For men, pay is ranked fifth and benefits eighth. For
women, pay is ranked seventh and benefits tenth. Employees have a
significantly higher concern for pay than job applicants. Participants consider
pay as ``the most important factor'' for ``the other person'', a commonly held
belief by most managers. In a survey of young people in the former Soviet
Union, the most important factors to people between the ages of 16 and 19 are
interesting work, work in a friendly place, and good pay (in that order) (Phillips
and Benson, 1983). Money is not always ranked as the most important factor on
the list. In this paper, we will use a different list and examine employees'
perceptions of 36 compensation components.

The economic condition of the USA, Southeast Asia, and Hong Kong
In the single world economy, manufacturing and service organizations in many
countries compete for the same customers in the market. When the economy in
one region (e.g. the USA, Japan, or western Europe) sneezes, the economy in
other regions catches cold. The unemployment rate in the USA has reached an
all time low in 30 years in the late 1990s and in 2000, although it has increased
to about 4.1 percent in May 2001. With a low unemployment rate, employers
may experience difficulty in finding additional employees for their
organizations, whereas employees may find it relatively easy to find better
jobs. The currency and stock market turmoil in the later part of 1997 rocked the
Southeast Asia region. However, long-term growth prospects remain bright. Retaining and
Some researchers predict a healthy and non-inflationary growth that will motivating
continue in the twenty-first century. The People's Republic of China (PRC) employees
remains the most popular choice for steady growth in 2001 and beyond. Hong
Kong has grown into a center of international trade and finance and has great
value for the Chinese economy. It is in the best interest of China to keep Hong
Kong as prosperous as it was before the takeover in July 1997. Before the 405
takeover, people in Hong Kong also faced uncertainty about the future.

Geographic factors
Hong Kong has over 7.1 million people on a piece of land that is about 400
square miles. The majority of them live in the urban area and are Chinese.
Great Britain gained control of Hong Kong Island in 1842, Kowloon in 1860,
and the New Territories in 1898 (a 99-year lease). All were retuned back to
China in July 1997.
Hong Kong has maintained a strong western influence and economic system
for more than a century. Most wealthy people live in luxury apartment
buildings and in beautiful houses with gardens, while middle- and low-income
citizens occupy crowded high-rise apartment buildings. Due to high demand, it
is extremely expensive for people to own a flat (an apartment/condominium).
The average property price for domestic premises (about 1,440 sq.ft) on Hong
Kong Island is around HK$3,491/sq.ft (i.e. US$452/sq.ft) (Hong Kong
Government, 1995a). (That is, the average apartment cost was about
US$650,880.) The prices reached a peak in 1997 (close to US$1,000/sq.ft in some
areas). According to Ming Pao (2000, p. D1), the average property price dropped
to HK$3,032/sq.ft (US$389/sq.ft) and in some areas to HK$2,500/sq.ft (US$320/
sq.ft). Properties, bought in June to October 1997, dropped it value by more
than 50 percent (Ming Pao, 2000). This shows the volatility of property value in
Hong Kong.
Further, it is also tough for people to buy any property due to high mortgage
interest rates and high down payment demands (30 percent of the purchase
price). Some employers offer low-interest mortgage benefits and even 100
percent of their mortgage for employees in the banking industry (White et al.,
1998). Thus, low-interest mortgage loans do attract and retain many talented
individuals. In return, the employers enjoy a rather stable and loyal workforce.
This reflects the unique condition in Hong Kong. We predict that for Hong
Kong employees, low-interest mortgage loan will have a strong impact on
``retaining'' employees but not ``motivating'' them because satisfied needs are
not motivators, according to Maslow (1970).

Industrial relations, human resource management, and culture-related factors

It is beyond the scope of this study to review all the literature regarding
industrial relations and human resource management in Hong Kong (for a
review, see Chiu et al., 2001; England, 1989; Everett et al., 1987; Moore and
Jinnings, 1995; Redding, 1990). Despite the technological sophistication and
Personnel apparent westernization of Hong Kong society, Hong Kong remains
Review overwhelmingly a Chinese one in language, both public and private social
31,4 habit, and the social consciousness of the people. In consideration of Chinese
cultural norms, family and kin ties and family loyalties are the key. We will
review issues directly examined in the present study.
The refugee mentality. For the past several generations, many people moved
406 to Hong Kong from different parts of China (e.g. Shanghai) and adjacent
regions (Guangdong province) in order to avoid wars and/or natural and
human disasters. A large number of Chinese fled to Hong Kong to escape
Communist rule since 1949. According to the first 1961 Census, 33 percent of
the working population entered Hong Kong after 1949, 13 percent had lived in
Hong Kong for five years or less, and only 47.7 percent of the total population
claimed Hong Kong as their place of birth (England, 1989). Although many
residents have lived there for a long period of time, some do not consider Hong
Kong to be their permanent home. The workforce has been heterogeneous and
transitory.
In recent years, with the anticipation of China's control of Hong Kong, many
people have fled to the West coast of the USA (e.g. Los Angeles), Canada (e.g.
Vancouver), and Australia. Some, in fact, have returned since the changeover in
1997. Due to the uncertainty and insecurity in the region, people tend to have a
short-term perspective and have a low level of trust, commitment, and
confidence in the company, the system, or any government. They do not put
their roots deeply into the Hong Kong soil. Money is important and also allows
them to have autonomy and freedom (Tang, 1992). This refugee mentality leads
to their cash mentality.
The cash mentality. ``The cash mentality'' has been used in Hong Kong to
describe work and money-related attitudes. The money-mindedness of the
overseas Chinese people is considered a virtue in the Chinese value system
(Redding, 1990). For Hong Kong workers, pay is the most important aspect of a
job (England, 1989). Cash remains king in Hong Kong among all other
compensation components (Carr, 1973; Chiu et al., 2001; Hong Kong Staff,
1995a, b; Ward, 1972; The Wyatt Company (HK) Ltd, 1995), similar to their US
counterparts (e.g. Campion, 1991; Tang et al., 2000a). There is a Chinese saying:
``Money can subdue even gods''. It is the income (not job satisfaction) that keeps
Hong Kong employees at work (Mitchell, 1983). What they like the most about
work is their income (England and Rear, 1975), i.e. ``the cash mentality''. We
predict that cash-related compensation will be important in retaining and
motivating employees.

Components of compensation
Efficiency wage theory asserts that above-market pay can increase efficiency
and reduce unit labor costs (i.e. attract high-quality applicants, reduce turnover,
``shirking'', and supervision and increase effort) (Campbell, 1993; Cappelli and
Chauvin, 1991). High pay influences employees' decisions in employment
acceptance and intention to leave (Armstrong and Murlis, 1994; Judge, 1993;
Lawler, 1986; Lawler and Jenkins, 1992; Mobley, 1982). The most important Retaining and
reason for voluntary turnover is higher wages and career opportunity motivating
(Campion, 1991). College students are more likely to pursue jobs that offer high employees
pay levels and jobs with individual-based, fixed, job-based pay and flexible
benefits (Cable and Judge, 1994).
Employers use benefits to attract and retain good people; employees rely on
benefits (e.g. medical subsidies, vacations, and retirement) to secure their 407
financial wellbeing. By linking benefits (e.g. pension and holidays) to seniority,
workers will be reluctant to change jobs (Gerhart and Milkovich, 1992).
Generous rewards tend to retain people because high reward levels lead to high
satisfaction, commitment, and loyalty:
H1. Hong Kong employees will view cash payments (such as base salary,
year-end bonus, and merit pay) important components of their
compensation.
H2. Hong Kong employees will consider housing provision important in
retaining employees but not in motivating employees.

Method
Participants
Questionnaires were sent to participants, randomly selected from members of
the Chartered Institute of Bankers, the Hong Kong Management Association,
and Hong Kong Industrial Relations Association, as well as MBA students of
various universities in Hong Kong in 1996. They participated in this study
voluntarily and their confidentiality was assured. We obtained 583 usable
surveys. No follow-up surveys and reminders were used due to anonymity and
the large sample. A recent study shows that Hong Kong has the lowest
response rate among 22 countries (7.1 percent) (Harzing, 1997). Our response
rate (9.7 percent) was slightly higher than that reported by Harzing (1997).
Demographic variables of the participants are presented in Table I.

Measures
We modified the questionnaire designed by White et al. (1998) that consists of
three sections:
(1) The demographic information of the participants (Table I).
(2) A total of 35 compensation components that were grouped into six
major categories: basic and variable payment, pensions, insurance,
leave, allowances, and social benefits (see Table II).
(3) Benefits offered to them at the time of the survey.
Participants ranked the five most important items using the 35 components for
retaining and motivating employees. Retaining employees is defined as one's
desire to stay with the organization. Motivating employees is defined as one's
desire to work harder and have higher work performance in the organization.
Personnel Variable Category Frequency Percentage
Review
31,4 Type of industry Banking/finance 103 17.5
Manufacturing 92 15.8
Food and beverage 38 6.5
Garment and textiles 35 6.0
Import/export 48 8.2
408 Engineering/construction 34 5.8
Transportation 39 6.7
Retail/services 66 11.3
Others 125 21.4
Gender Male 259 44.4
Female 324 55.6
Age (years) < 25 59 10.1
25-34 360 61.7
35-44 144 24.7
45-55 14 2.4
> 55 4 0.7
Marital status Single 335 57.5
Married 244 41.9
Others 3 0.3
Working experience <5 106 18.2
(years) 5-10 191 32.8
10-15 160 27.4
> 15 124 21.3
Position level Senior management 37 6.3
Middle management 177 30.4
Supervisory 177 30.4
Clerical/secretarial 138 23.7
Others 53 9.1
Educational level Matriculated 198 34.0
Undergraduate degree 114 19.6
Postgraduate degree 114 19.6
Others 153 26.3
Individual monthly < 1,900 135 23.2
income (US$) 1,901-3,800 294 50.4
3,801-6,400 116 19.9
6,401-8,900 24 4.1
8,901-11,500 5 0.9
> 11,500 5 0.9
Type of housing Company provided 9 1.5
Privately owned/mortgaged 387 66.4
Rental 68 11.7
Public estate 100 17.2
Others 18 3.1
Intention to leave Next three months 42 7.2
Next six months 52 8.9
Next 12 months 99 17.0
No intention 390 66.9
Reasons for leaving Salary 19 3.3
Benefit 5 0.9
Career opportunity 95 16.3
Job satisfaction 28 4.8
Human relations 8 1.4
Table I. Migration 15 2.6
Profile of participants Others 16 2.7
Results Retaining and
Popular components offered to respondents motivating
Table II shows that, based on frequency data, the participants were offered employees
base salary (97.3 percent), annual leave (97.1 percent), paid sick leave (78.7
percent), year-end bonus (73.6 percent), maternity leave (63.6 percent),

Components Percentage 409

Basic and various payment
01. Basic salary 97.3
02. Merit pay/bonus (performance related) 40.1
03. Year-end bonus 73.6
04. Profit sharing/share ownership scheme 11.0
05. Investment/saving scheme 9.9
Pension
06. Contributory provident fund 50.6
07. Non-contributory fund 31.4
8. Pension scheme: lump sum payment 14.6
09. Widow's/widower's pension 1.4
Low interest loan
10. Personal loan 22.1
11. Car loan 12.9
12. Mortgage loan 46.7
Insurance
13. Life 42.9
14. Health 56.8
15. Disability 26.6
16. Accident 46.5
17. Travel 17.0
Leave
18. Annual leave 97.1
19. Maternity leave 63.6
20. Paid sick leave 78.7
21. Paid compensation leave 36.9
22. Wedding leave 58.8
23. Paid casual leave 17.3
Allowances
24. Overtime allowance 55.4
25. Responsibility allowance (shift, special assignment, etc.) 26.5
26. Housing provision (rental or quarters) 19.4
27. Expense reimbursement/hospitality allowance/entertainment expense 45.3
28. Subsidised travel/transportation allowance 36.7
29. Education allowance for training initiated by employee 60.4
30. Club/professional association subscription 18.0
31. Children's education subsidy 18.4
32. Childcare facility/subsidy 5.5
33. Subsidised meal/staff cafeteria 33.6
Others
34. Employee discounts 28.5 Table II.
35. Company car 12.2 Compensation
components offered to
Note: n = 583 respondents
Personnel educational allowance (60.4 percent), wedding leave (58.8 percent), health
Review protection (56.8 percent), overtime allowance (55.4 percent), and contributory
provident fund (50.6 percent). The least popular components were investment/
31,4 saving scheme (9.9 percent), childcare facility (5.5 percent), and widow's/
widower's pension (1.4 percent).

410 The five most important components

Basic salary, merit pay, year-end bonus, annual leave, and mortgage loan were
the most important factors to retain employees, whereas basic salary, merit
pay, year-end bonus, profit sharing, and annual leave were the most important
factors to motivate employees (Table III). The top three items were exactly the
same in retaining and motivating employees. ``Take home cash'' (base salary,
merit pay/bonus, and year-end bonus) was ranked consistently high, which
reflected Hong Kong employees' ``cash mentality''. Mortgage loan was highly
important and desirable for attracting employees but not for motivating
employees. H1 and H2 were supported.

Discussion
The five most popular compensation components offered to employees are:
base salary, annual leave, paid sick leave, year-end bonus, and maternity leave.
The five most important factors in retaining employees are:
(1) base salary;
(2) merit pay;
(3) year-end bonus;
(4) annual leave; and
(5) mortgage loan.
There are some discrepancies between what the employees are being offered
and what the employees are looking for in an employment situation. Employees
consider merit pay, mortgage loan, and profit sharing as more important than
paid sick leave and maternity leave. This is not to say that paid sick leave and
maternity leave are not important and can be eliminated from the
compensation package. To these Hong Kong employees, merit pay, mortgage
loan, and profit sharing have higher cash value and are more valuable than

Rank Retention Motivation

1 Base salary Base salary

2 Merit pay Merit pay
3 Year-end bonus Year-end bonus
Table III. 4 Annual leave Profit sharing
Rank order of retention 5 Mortgage loan Annual leave
and motivation of
Hong Kong employees Note: n = 583
paid sick leave and maternity leave in retaining and motivating employees. We Retaining and
will discuss our findings in more detail. motivating
employees
Base salary and year-end bonus
Base salary and year-end bonus were the first and the third most important
components in retaining and motivating Hong Kong employees. Both are in the
form of cash. Base salary is one of the main determinants that employees use 411
when they make an employment decision (Gerhart and Milkovich, 1992). Bonus
is not related to individual performance but organizational performance. Most
Hong Kong workers are entitled to an annual bonus equivalent to one month's
salary in the private sector.

Merit pay
Merit pay is widely used to reward good work performance (Lawler et al., 1989;
O'Dell, 1987). In this study, merit pay was considered as the second most
effective component in retaining and motivating people. Respondents
appreciate performance-related rewards for two reasons:
(1) Hong Kong workers' positive work attitude and high work ethic (Chiu
and Kosinski, 1995); and
(2) Chinese workers' belief in the relationship between performance and
reward (i.e. the expectancy theory (Lawler, 1973) and the cause-and-
effect concept in the Chinese culture (Koller, 1985)).
To retain good employees, employers must make sure that their workers are
treated equitably and that procedural and distributive justice exist.

Low-interest mortgage loan

Low-interest mortgage loan creates loyal Hong Kong employees. Employees
enjoying a low interest rate on their mortgage are not likely to leave the
institution unless they can find another employer who could offer the same or
better benefit. The mortgage interest rate offered to the employees is usually
lower than the local prime rate. Some Hong Kong employers offer 3 percent to 6
percent per annum, while the standard rate is about 9 percent to 10.75 percent
per annum (White et al., 1998). According to the Census and Statistics
Department of Hong Kong Government, the best lending rate for 1998 (period
average) was 9.94 percent per annum; for 1999, it was 8.49 percent. The prime
rate in 2000 was 9.5 percent. Further, about 66.4 percent (387) of the
respondents reported living in a self-owned property, as opposed to 11.7
percent in rented accommodation. This figure (66.4 percent) was much higher
than the average of the general population (12 percent) in Hong Kong (Hong
Kong Government, 1994).
Respondents in rented or public housing tend to be younger, not yet married,
in junior positions (20.2 percent) and/or earn less than US$3,000 per month (23.4
percent), relatively speaking. They are members of the sandwich class (those
who are too wealthy to be qualified to live in public housing and yet too poor to
Personnel purchase their own property). They neither need a property of their own nor are
Review entitled to the low-interest mortgage loan benefit offered by their employers.
31,4 They do not have enough savings to pay for the down payment of the property
they wish to buy. It is interesting to note that a low-interest mortgage loan is
important in retaining employees, but is not important in motivating
employees. Our results support the notion that satisfied need is no longer
412 important in motivating Hong Kong employees (Maslow, 1970).

Annual leave
Almost all Hong Kong employers offer annual leave to employees. Just like
basic pay and year-end bonus, annual leave for employees is stipulated in the
Hong Kong Employment Ordinances; therefore, by law, employers should
provide such a benefit. Hong Kong people are hard working individuals, they
may consider play as important as work. People enjoy a well-deserved vacation
every year.

Profit sharing
Profit sharing ranked quite high in the ``motivation'' dimension and not in the
retention dimension. Long-term reward (profit sharing) is important to
motivate employees. Profit sharing motivates employees to become better
performers and links with organizational performance (Weitzman and Kruse,
1990). It educates employees about the financial performance of the business,
increases their interest in learning about profits and organizational
effectiveness (Foulkes, 1991), motivates employees to act in the best interest
of the organization, helps employees identify with the organization,
encourages employees to think like owners, and taps on organizational
performance, and adjusts them based on the organization's ability to pay
(Weitzman, 1984).
Our present findings show that Hong Kong employees are highly motivated
by the ``cash mentality''. Among all other compensation components, cash
remains the king in Hong Kong. Their keen appreciation of cash compensation
(Carr, 1973; Hong Kong Staff, 1995a, b; The Wyatt Company (HK) Ltd, 1995) is
similar to that of people in the USA (e.g. Campion, 1991). Other ``typical fringe
benefits'' such as leave, allowances, and employee discounts, etc. are not
considered as important as cash in this study. It is possible that employees are
not very knowledgeable about and less interested in benefits than cash
(Tangand et al., 2001). Everybody in the organization may have the same or
similar benefits that are common within a labor market (Heneman and Schwab,
1979).
There are three possible explanations for the prevalence of this cash
mentality. First, we collected our data in 1996. Due to the changeover of Hong
Kong to China in 1997, ordinary people may have experienced some free-
floating anxiety and fear. In the era of uncertainty, having money in the bank
may increase one's feeling of security and allows one to ``buy'' more alternatives
in times of difficulty. They can migrate to another country if the political
atmosphere in the territories turns sour. Second, in the Chinese culture, adults Retaining and
are brought up to be self-reliant, ahead of others, financially independent, motivating
socially successful, and to save face (Bond and Hwang, 1986; Chiu and employees
Kosinski, 1994; Lau and Kuan, 1988). Even though ancient Chinese values do
not condone the thinking that being rich will take care all of the above, in social
reality it usually is the case. Finally, people living in international metropolitan
cities like Hong Kong can be very materialistic, capitalistic, individualistic, and
413
egoistic (Chiu and Kosinski, 1995; Hofstede, 1980).
Moreover, many Hong Kong people do not consider Hong Kong as their
permanent home. In 1984, when the relationship between the UK and PRC was
at the bottom, many people considered leaving the territories. Right after 1989,
there was another major flux of emigration. A survey, reported in the Hong
Kong Standard on May 19, 2000, showed that Hong Kong people's intention
to leave was at an all time high again due to their dissatisfaction over the
current situation in Hong Kong. Hong Kong Baptist University's Transition
Project Director Dr Michael DeGolyer described it as ``a shocking increase''.
These facts help us understand the ``refugee mentality'' and the ``cash
mentality'' of Hong Kong people.
Hong Kong employees have been considered as loyal and hard working for
many years. A recent government survey has found that, in 1999, nearly 40
percent of companies cut bonuses. Only 25 percent of companies increased
bonuses. The Secretary for the Civil Service, Mr W.K. Lam, announced on May
30, 2000 that civil service pay should again be frozen in 2000-2001 (Hong Kong
Government, 2000). So the largest employer in Hong Kong, the Hong Kong
Government, will continue to freeze pay two years in a row. These changes
may cause some morale problems in Hong Kong. Hong Kong employees' work-
related satisfaction is also at an all time low, since base pay and year-end bonus
are important to them. In a recent article, Bowman (2000) has reported that
Hong Kong workers are among the least loyal in Asia, suggesting an urgent
need for bosses to boost staff morale. These data indirectly support the notion
that compensation and pay will attract, retain, and motivate employees and
that pay will have a significant impact on employee behavior, performance, and
effectiveness in organizations.
Compared to the 1997 HKIRA pay survey, the 1999 HKIRA survey showed
that many employers began to make good use of the variable pay system (e.g.
irregular bonus, incentives, and commissions). Furthermore, foreign companies
tend to use the variable pay system more than the local companies. It appears
that after 1998, Hong Kong employers began to reduce their manpower
expenditure by controlling base pay. Nowadays, organizations try to motivate
employees to work harder by using pay for performance practices (White et al.,
2000). Thus, employers do consider strategic compensation approaches to
reduce costs and increase productivity and profits.
Personnel Study 2: China
Review People's Republic of China (PRC)
31,4 For several decades since 1949, China's state-owned enterprises (SOEs) have
employed 57.4 percent of the entire urban labor force and possessed 52.2
percent of total investment in industrial fixed assets. However, SOEs' share in
China's total industrial output has declined from 77.6 percent in 1978 to 28.8
414 percent in 1996. More than 45 percent of the SOEs in China have lost money in
1996. The ``iron rice bowl'' (tie fan wan) (a lifetime employment regardless of
performance) is fading away (Tang and Tang, 2001). Since 1978, the People's
Republic of China has abandoned the socialist economic model in favor of a
capitalist market economy. In order to attract more foreign investment and
strengthen economic collaborations with other countries, the PRC established
special economic zones at Shenzhen, Zhuhai, Shatou, and Xiamen in 1980,
along with 14 other coastal cities (Hannan, 1995), and opened to foreign
companies and sparked economic development.
Industrial relations and human resource management. There are several
landmark studies and books on industrial relations and human resource
management in China. It is beyond the scope of the present study to review
the literature (for a review, see Child, 1994; Hui and Tan, 1996; Lindholm,
1999; Naughton, 1995; Wang, 1990; Warner, 1995). We will summarize the
key points below. During the post-1949 ``iron rice bowl'' employment policy
era, Chinese people have developed their own industrial relation system
based on a combination of the Soviet model and the direct urban labor
allocation. The system was intended to protect skilled workers. ``Any
discussion of China's dramatic changes since the death of Mao Zedong in
1976 must also take into account Deng Xiaoping's policies of the `Open
Door' to the West (and Japan) and the `Four Modernisations' (of Agriculture,
Industry, Science, and Technology, as well as Defence) which first got off
the ground in 1978-1979'' (Warner, 1996a, p. 196). Dengist reform was to
introduce greater efficiency into the system by the use of market
mechanisms. Naughton (1995) also has explained the Chinese approach to
economic transition that is based on maintaining elements of the planned
economy while concentrating economic growth in the market-oriented
segments of the economy, outside the government plan. The Chinese
experience shows that gradual change away from a command economy
is feasible.
From 1979 to 1983, the transfer of self-government to enterprises marked the
first stage. Material rewards have become more predominant. The second
phase was from 1983 to 1986. The focus was to create fair competition among
enterprises. In 1986, the third phase of responsibility system reform started. By
1987, about 80 percent of ``China's enterprises had adopted the Director
Responsibility System and their output value had risen by 13 percent and
profits and taxes by 16 percent'' (Wang, 1990, p. 196). Since the 1992 enterprise
reforms, this approach has been further extended to selected SOEs and by 1995
to all large and medium-sized ones (Warner, 1996a, b).
 In the 1990s, the most popular wage systems in China were the rank fixed Retaining and
wage for enterprise employees and the structured wage system based on motivating
positions for employees at universities and government organizations employees
(Wang, 1990). The equalitarianism in wage management systems has been
maintained. In 1995, pay in foreign firms was about 33 percent above that in
SOEs and more than double that in township firms. The average financial
compensation in international joint ventures (IJVs) is considerably higher 415
than that in local firms (Lu and Bjorkman, 1998). Chinese regulations
stipulate that the wage level of a joint venture is to be set at 120-150 percent
of that of state enterprises in the same line of business and same locality
(Tsang, 1994). The complete wage package consists of the basic wage,
bonuses and subsidies. Take home pay (basic wage and bonuses) amounts
to about 75 percent of the package.
Many urban Chinese employees receive bonuses (tied to productivity or
profitability) that account for as much as 40 percent of their pay package.
Many regard bonus as one of the strongest motivators in the PRC. Unfair
distribution of rewards and bonuses has been also considered as the
paramount factor that dampens employees' work motivation. Only 4
percent of the participants in one study preferred an equal distribution of
rewards (Yu, 1992). Chinese people also prefer to distribute rewards equally
(egalitarian) when the amount to be allocated is perceived as unlimited, but
prefer to distribute rewards based on contribution (merit) when a constant
sum is to be divided (Hui et al., 1991). Based on these findings, it is
reasonable to expect that Chinese people value bonus, individual bonus, and
merit pay.
Economic changes for the past three decades. The amount of foreign direct
investment (FDI) increased from US$1.12 billion in 1978 (Chi and Kao, 1995) to
US$4.37 billion in 1991, and to US$90.30 billion in 1995 (Mulrenon, 1997). The
total foreign capital inflow has increased from under 11 percent to over 38
percent between 1978 and 1991 (Chi and Kao, 1995). There were over 2,000,000
foreign invested or joint venture agreements and the foreign invested firms in
1994 grew by 95.6 percent each year (Warner, 1996a,b) and 37,011 approved
contract agreements (with 20,455 joint ventures, 4,787 contractual joint ventures,
and others) in 1995. According to China Monthly Statistics published in October
1998, from January to June 1998, there were 3,732 contract agreements involving
US$8.33 billion of foreign capital (China Statistical Information Consulting
Center, 1998). GDP grew in real terms at 11.6 percent and the industrial growth
rose by an annual average of 19.9 percent from 1990 to 1994, peaking at 27.7
percent in 1993 (Warner, 1996a, b). According to the Almanac of China's Foreign
Economic Relations and Trade (1999), the number of direct investment projects
from Hong Kong was 7,830 (accounting for 39.5 percent of the total number of
foreign investment projects of the mainland in the same period) in 1998.
Hong Kong has long been China's window to the world and the third largest
trading partner (behind Japan and the USA) of the PRC. Hong Kong handled
26.7 percent of China's exports in 1994 and 24.1 percent in 1995. Hong Kong
Personnel accounted for 15.9 percent of the PRC's national total trading in 1995 and 14
Review percent in 1997 (China's Customs Statistics, 1996). In 1995, 58.2 percent of the
31,4 PRC's foreign investment came from Hong Kong, and about 80 percent of Hong
Kong manufacturers have set up production facilities in the PRC (Almanac of
China's Foreign Economic Relations and Trade, 1995).
Hong Kong accounted for 56.8 percent (US$46.9 billion) of the direct
416 foreign investments, 51.8 percent (US$24.6 billion) of the foreign investment
projects, and 45.9 percent (US$19.8 billion) of the utilized capital of the
country (Almanac of China's Foreign Economic Relations and Trade, 1995).
Hong Kong accounted for 53.5 percent (US$20 billion) of the direct foreign
investments, 22.2 percent (US$1.7 billion) of the foreign investment projects,
and 42.4 percent (US$2.0 billion) of the utilized capital of the country.
According to the Almanac of China's Foreign Economic Relations and Trade
(1999), the total import and export trade volume between China's mainland
and Hong Kong reached US$45.412 billion in 1998. For the first four months
in 1999, the re-exports by main origin from the USA reached US$18.310
billion, while the re-exports by main destination to the USA reached
US$92.865 billion (Hong Kong Government, 1999). In 1993, Hong Kong
firms, including only those operated in the southern part of the country,
employed more than three million workers (Farh et al., 1995). In 1994, there
were over 118,000 Hong Kong invested enterprises in China, accounting for
two-thirds of the foreign-funded enterprises in China (Hong Kong
Government, 1995b).
Due to this massive influx of foreign investment from Hong Kong as well as
other countries, western management philosophy and practices have been
brought into China, compensation systems in particular. Fixed wages are
replaced by reward systems in a market economy (Chow, 1992). These changes
attempt to provide incentives that may lead to higher productivity and allow
``some people to get rich first'' (Chow, 1992, p. 43). Other changes of the reward
systems include:
. higher wage differentials;
. a new wage system including base wages, position wages, floating
wages, and subsidies (Shenkar and Chow, 1989);
. a performance-based pay; and
. other benefits such as cash bonuses, promotion opportunities, paid
vacations, and priority claims on welfare benefits.

The cash mentality

Tang et al. (2000) have argued that due to the economic growth and higher
income, people in developing countries are becoming more materialistic in a
``developing economy''. Very little research has been done on the changes in
payment systems in China (see Takahara, 1992; Child, 1995) and employee
attitudes towards pay (Chow, 1992). For Hong Kong employees, what they like
the most about their work is their pay (England and Rear, 1975).
Housing Retaining and
Housing provision appears important to the local Chinese for several reasons: motivating
First, there is a serous housing shortage in all parts of China. In the past, China employees
has employed a very strict system in that each person is registered at a specific
address. People did not have the freedom to move away from the registered
address. Housing is simply not available. Now, China allows people to have
limited freedom to move in specific areas of China. Employees coming from 417
other provinces need a place to stay. Second, overseas companies provide better
housing facilities than state-owned companies (Greene, 1991). Third, some
companies allow local employees to own their apartments when they reach a
certain seniority level. Finally, employees in general cannot afford the ever-
increasing real estate prices.
The importance of housing provision can be best explained by the
following example. Alan Hornish, HR Director of Johnson Wax, stated: ``We
hired a secretary at 2,000 RMB (renminbi) per month (i.e. US$240/month).
Now, two years later, she was earning 17,000 RMB per month as a manager.
To keep her, we have just bought her a house'' (Johnson, 1998, p. 51). The
value of the house was ``250,000 RMB (US$31,250)'' (Johnson, 1998, p. 53).
Landry (1997, p. 9) has also stated, in Harvard Business Review, that in PRC,
``employee benefits such as housing allowances have won favor at many
companies''.
In Study 2, we will examine pay and benefits packages offered by overseas
companies operating in China and the most important compensation
components in retaining and motivating supervisors and workers in China. We
predict that the cash mentality (Luk and Chiu, 1998) and housing provision will
also be very important for people in China.
H3. Chinese employees will view cash payments such as base salary,
year-end bonus, and merit pay as very important components of their
compensation.
H4. Chinese employees will consider housing provision as highly
important and desirable for retaining employees but not for
motivating employees.

Method
Participants
Survey questionnaires were mailed to Hong Kong-owned and foreign-owned
companies that have either manufacturing or retailing operations in the
PRC and were randomly selected from employer organizations and business
directories such as Hong Kong Industrial Relations Association (HKIRA),
Hong Kong Manufacturers Association, and Hong Kong Chinese Chamber
of Commerce in 1996. The general manager (or human resources manager)
completed the survey. They participated in this study voluntarily and their
confidentiality was assured. Completed surveys from 121 companies
(representing 233 operational locations) were obtained. Most Chinese
managers have never completed mailed survey questionnaires, surveys sent
Personnel to them from Hong Kong, in particular. This was a brand new experience for
Review them. The return rate was relatively low (6.37 percent), but not atypical.
31,4 Table IV shows the operational locations of these companies. For
example, 48 factories/offices are operated in Dongguan. Most of the
investors set up their establishments in southern China, supporting
previous findings (HKIRA, 1999; The Wyatt Company (HK) Ltd, 1996).
418
Table V presents the type of business, years of operation, and form/option
of investment in the PRC (n = 121). Among the 121 companies, 53.7 percent
were in the manufacturing sector and 66.9 percent were less than eight
years old. A large number of these foreign companies went into China after
1985 for its cheap labor, land, and transportation costs. Regarding the forms
of investment, 29.8 percent and 37.2 percent of the participating companies
were wholly foreign-owned enterprises and equity joint ventures,
respectively.

Measures
A similar survey questionnaire used in Study 1 was also used in Study 2. It has
three sections:
(1) The demographic information of the participating companies (e.g.
operational locations, type of business, years of operation, form of
investment in PRC, the number of employees, and percentage of benefits
provision, job tenure, and turnover rate for managers, supervisors, and
workers).
(2) A total of 37 compensation (remuneration) components offered to their
respective employees in three different levels: managers, supervisors,
and workers.
(3) The top five items in terms of their perceived effectiveness in retaining
and motivating supervisors and employees, respectively.

Location Frequency Percentage

Beijing 18 7.7
Shanghai 23 9.9
Tianjin 5 2.1
Dongguan 48 20.6
Guangzhou 33 14.2
Shenzhen 46 19.7
Zhuhai 8 3.4
Wuhan 5 2.1
Guangdong Province (except Dongguan and Guangzhou) 26 11.2
Table IV. Others 21 9.0
Operational locations of
respondents Note: n = 233
Variable Category Frequency Percentage Retaining and
motivating
Type of business Industrial material and products 2 1.7 employees
Construction 2 1.7
Computers and electronics 1 0.8
Textile and clothing 15 12.4
Real estate 2 1.7
Professional services 1 0.8
419
Manufacturing 65 53.7
Retail 4 3.3
Restaurant/food services/catering 5 4.1
Sales and marketing 13 10.7
Others 11 9.1
Years of operation < 4 years 35 28.9
4-8 years 46 38.0
8-12 years 30 24.8
> 12 years 10 8.3
Form/option of Wholly Hong Kong-owned capital 23 19.0
investment Wholly foreign-owned capital 36 29.8
Equity joint venture 45 37.2
Processing supplied materials and 17 14.0 Table V.
assembling supplied parts Profile of the
participating
Note: n = 121 companies

Results
Table VI shows the mean and standard deviation of the number of
employees, years of service, turnover rate, and percentage of benefits
provision for managers, supervisors, and workers. These 121 companies, on
average, had about five managers, 18 supervisors, and 990 employees.
Managers had 3.68 years of service, while supervisors and workers had 3.40
and 2.34 years, respectively. Almost 30 percent of the participating
companies had less than four years of history in China. The respective
turnover rates for managers, supervisors, and workers were 4.49 percent,
9.86 percent, and 31.11 percent. Labor mobility was high, especially in
southern China. Many workers are free to change jobs. These results
seem to support previous findings (i.e., turnover rate of 27.2 percent,
(HKIRA, 1996); 23.6 percent (HKIRA, 1999)). Popular reasons for turnover
included personal reasons, unfavorable working conditions, unsatisfactory

Managers Supervisors Workers

Number of employees 4.63 (7.86) 18.47 (28.41) 989.89 (2,675.21) Table VI.
Years of service 3.68 (2.67) 3.40 (2.06) 2.34 (1.46) Mean and standard
Turnover rate (%) 4.49 (11.64) 9.86 (12.68) 31.11 (70.81) deviation of number of
Percentage of benefits provision (%) 26.41 (52.25) 23.60 (35.83) 27.76 (31.68) employees, years of
service, turnover rate
Note: n = 121 and benefits provision
Personnel compensation, and poor health (HKIRA, 1996, 1999). There was no obvious
Review difference in the proportion of benefits coverage among the three levels
31,4 of employees (i.e. 26.4 percent for managers, 23.6 percent for supervisors,
and 27.7 percent for workers). Employers consider take home cash
as the most essential factor for local employees regardless of level of
position.
420 Table VII reveals that about 88.4 percent of the respondents thought that
their reward policy was related to their corporate strategy. The main
criteria of their compensation management strategy, in descending order,
were motivating employees (71.9 percent), retention of staff (56.2 percent),
recruitment of potential employees (53.7 percent), and the company's ability
to pay (50.4 percent). The most important factors considered for base salary
increases, in descending order, were individual performance and
contribution, market comparison, cost of living, and company performance.
These findings are identical to the results of HKIRA (1996, 1999).

Components offered by responding companies

Table VIII shows the percentage for each of the 37 compensation components
being offered to the local Chinese managers, supervisors, and workers. The
most popular items included base salary, year-end bonus, annual leave, meal
subsidies, overtime allowance, and housing provision. The least essential

Variable Response option Frequency %

Compensation system Yes 107 88.4

related to corporate strategy No 12 9.9
Determinants of the reward Recruitment 65 53.7
management strategy Retention 68 56.2
Motivation 87 71.9
Organizational financial condition 61 50.4
Organizational image 16 13.2
Others 5 4.1
Determinants of base Cost of living 69 57.0
salary increases Profitability and company performance 62 51.2
Individual performance and
contribution 106 87.6
Work group performance and
contribution 22 18.2
Comparisons with competing
organizations 71 58.7
Pressure from employee organizations 4 3.3
Table VII. Seniority 43 35.5
Reward management Frequency of salary review Once a year 90 74.4
philosophy and Twice a year 24 19.8
practices of the Others 7 5.8
participating
companies Note: n = 121
Components Manager Supervisor Worker Retaining and
motivating
Basic and variables payment employees
01. Base salary 86.8 95.0 95.0
02. Merit pay (performance related) 44.6 54.0 57.9
03. Year-end bonus 83.5 90.9 71.9
04. Individual bonus 30.6 32.2 38.0 421
05. Group-based bonus 5.0 14.0 22.3
06. Cash allowance 47.1 46.3 40.5
Pensions
07. Contributory provident fund 19.8 20.7 15.7
08. Non-contributory provident fund 11.6 9.9 6.6
09. Contributory pension scheme 15.7 15.7 14.9
10. Widow's/widower's pension 0.8 0.0 0.0
Insurance
11. Life 9.1 9.9 8.3
12. Health 40.5 43.0 39.7
13. Accident 48.8 54.5 55.4
14. Disability 27.3 32.2 32.2
15. Medical clinic 25.6 28.9 27.3
16. Hospitalization 25.6 28.1 24.8
Leave
17. Annual leave 79.3 86.0 78.5
18. Paid maternity leave 55.4 56.2 45.5
19. Paid sick leave 63.6 61.2 47.9
20. Paid compassionate leave 40.5 42.1 35.5
21. Paid wedding leave 53.7 52.9 41.3
22. Paid rest days 35.5 37.2 28.1
23. Paid visiting relative leave 26.4 24.8 14.9
Allowances
24. Overtime allowance 28.9 64.5 90.1
25. Responsibility allowance (shift, special assignment) 13.2 24.8 39.7
26. Sickness allowance 19.0 23.1 21.5
27. Transportation allowance 38.0 38.8 30.6
28. Clothing allowance 6.6 7.4 10.7
29. Laundry allowance 2.5 3.3 3.3
30. Showers allowance 2.5 2.5 3.3
Social benefits
31. Housing provision (rental or quarters) 64.5 70.2 72.7
32. Childcare facility/subsidy 4.1 2.5 2.5
33. Subsidized meals/staff cafeteria 78.5 86.8 88.4
34. School for workers' children 5.8 2.5 1.7 Table VIII.
35. Provision for holiday/entertainment facilities 39.7 44.6 45.5 Compensation system
36. Provision of medical center 21.5 24.8 26.4 for local Chinese
37. Unemployment compensation/severance payment 24.8 25.6 24.0 workers

components were widow's/widower's pension, non-contributory provident

fund, laundry allowance, clothing allowance, showers allowance, childcare
facility, and school for workers' children.
Personnel Relative importance of various compensation components
Review Managers indicated the top five most important factors of the 37 compensation
31,4 components in retaining and motivating local Chinese supervisors and
employees. Table IX indicates that base salary, merit pay, and year-end bonus
were the three most significant factors in retaining and motivating supervisors
and workers. The fourth and fifth places were related to different factors for
422 retaining and motivating supervisors and workers. For retention, housing
provision and cash allowance were important to supervisors, whereas housing
provision and individual bonus were critical to workers. To motivate
employees, individual bonus and housing provision were important to
supervisors, while overtime allowance and individual bonus had played an
important role for workers. H3 was supported. H4 was partially supported.

Discussion
Our results suggest that base salary, merit pay, and year-end bonus are the
most important compensation components in retaining and motivating
supervisors and employees. Base salary, merit pay, year-end bonus, individual
bonus, cash allowance, and overtime allowance all are cash-based
compensation. There is one exception: housing provision. These findings reveal
that cash compensation has a substantial impact on retaining and motivating
employees in China. We will discuss this briefly.

Cash mentality
Cash-based compensation components (base salary, merit pay, year-end bonus,
and individual bonus) are the most important factors in retaining and
motivating the local Chinese employees. Money is perceived to be very
important in the minds of Chinese people (Chiu and Kosinski, 1995). Annual
pay increases for employees across the board do not offer motivational forces
for employees. As the traditional egalitarian approach of compensation is being
challenged, local Chinese employees also prefer employers to make

Rank Retention Motivation

Supervisor
1 Base salary Base salary
2 Merit pay Merit pay
3 Year-end bonus Year-end bonus
4 Housing provision Individual bonus
5 Cash allowance Housing provision
Worker
1 Base salary Base salary
Table IX. 2 Merit pay Merit pay
Rank order of retention 3 Year-end bonus Year-end bonus
and motivation of PRC 4 Housing provision Overtime allowance
employees 5 Individual bonus Individual bonus
compensation decisions based on equity rather than seniority and/or equality Retaining and
(Becker and Yang, 1989; Fan, 1995). This is quite similar to American people. motivating
Merit pay is one of the most widely used methods to reward outstanding employees
individual performance (Gerhart and Milkovich, 1992). Chinese people in
Taiwan tend to endorse the Protestant work ethic (Tang and Baumeister, 1984;
Tang et al., 2000) and think money represents their achievement and money is
inherently good (Tang and Gilbert, 1995). Males, white-collar employees, high 423
performers, achievement-oriented employees, and those who already work
under a merit plan tend to favor merit pay or the ``equity'' approach (Heneman,
1992). Thus, the Chinese in this study seem to reflect these values.
Year-end bonus is a traditional/popular form of compensation, especially in
the manufacturing and retailing sectors. In urban areas of China, many
employees receive bonuses up to 40 percent of their pay. Individual bonus is
quite popular in motivating supervisors and workers and retaining them. The
majority of Chinese employees prefer a bonus system that is based on
individual performance (Chow, 1992).

Housing
Our results clearly support the notion that housing provision is important to
retain Chinese supervisors and workers. Housing provision is important to
motivate Chinese supervisors but not workers. It is possible that Chinese
supervisors are more motivated to move up to larger and bigger houses than
workers. In PRC, ``housing allowances have won favor at many companies''
(Landry, 1997, p. 9).

The economic perspective

In the past, rewards and benefits have been distributed equally to maintain
work relationships and societal harmony (Becker and Yang, 1989; Child, 1994,
1995). In the market economy, the ``iron rice bowl'' began to fade away (Chow,
1992). In a developing country such as China, the ``newness of having money''
results in obtaining ``respect'' in the community that is lost after one becomes
accustomed to having money in a developed country (Tang et al., 2000). With
recent exposure to the western fashion of capitalism and consumerism, the
Chinese are disenchanted with ideological ``moral'' incentives and are
increasingly interested in money (Child, 1994, 1995).
As a result of the fast-growing market economy, the soaring consumer price
and the inflation rate in China reached over 24 percent in 1994. Both local
employers and employees in the PRC are very concerned about their take home
cash since the purchasing power of the Chinese dollar (RMB) is consistently
going down. The real picture is much worse as government officials fail to put
their fingers on the figures accurately. As the recent economic development
that sparked the entrepreneurial spirit, the amount of money one gets not only
reflects the ability of the person at work, but also his or her economic and social
status. Money is how they keep score in China.
Personnel The cultural perspective
Review According to traditional Chinese culture, one is successful in life when one is
31,4 financially independent (Chiu and Kosinski, 1995; Redding, 1990). Money
represents one's success and achievement in life (Tang, 1992). The head of a
family has to provide food, shelter, as well as other psychological needs to his/
her family members. Money can satisfy many different needs. It would be
424 shameful if one could not provide the material needs for one's family (Chow and
Luk, 1996; Luk and Chiu, 1998). Chinese people are known to be low on
uncertainty avoidance (Hofstede, 1980) and on trust (Fukuyama, 1995). They
try to make and save as much money as possible due to the uncertainty of the
future. They do not trust the government, employers, business partners, and
people outside of their immediate family because of corruption. Thus, Chinese
employees are less interested in indirect benefits, such as life insurance,
education subsidy, and vacation leave as well as long-term benefits such as
provident fund and severance pay.
Keeping high quality employees is a major issue encountered by manufacturers
in China today. The turnover problem is quite serious for production workers.
Finding ways to retain good workers are some of the major tasks PRC human
resources professionals are facing today. A strategic compensation system,
designed appropriately to the local labor environment, will achieve human
resources and organizational goals (Armstrong and Murlis, 1994). Cash appears to
be the most effective element in attracting, retaining, and motivating the local
Chinese employees, the existence of ``the cash mentality''.
Since pay for performance is well received by the local employees in the
PRC, managers may want to incorporate performance-based monetary
incentives (merit pay and bonuses) to attract, retain, and motivate employees.
However, the struggle for financial performance and performance-based
programs may lead to unethical behaviors (e.g. Sears, Roebuck & Co., Beech-
Nut Nutrition Corporation, etc.) and lower cooperation among team members in
an organization. Thus, caution is warranted for these programs. Our results
reflect the general trends of the compensation systems employed by foreign
companies, mostly in the manufacturing sector, operating in the PRC. Research
shows that compensation practices are slightly different from one location to
another across the country (HKIRA, 1996, 1999; The Wyatt Company (HK) Ltd,
1996, 1999). Future research may focus on companies in different locations in
China and examine possible regional differences.
In 1997, the GDP per capita for the USA, Hong Kong, and China was $30,054,
$26,160, and $736, respectively. Hong Kong employees have more money than
those in China, relatively speaking, and the former are more likely to consider
other non-cash related needs (e.g. ``annual leave'') as an important factor to
motivate them than the latter. Chinese employees, on the other hand, still value
compensation items that will satisfy their basic needs (e.g. cash and housing)
and do not seem to value non-cash related needs (e.g. annual leave). Now the
leisure industry is a big three trillion dollar business in the USA. For example,
the National Golf Foundation claims that 26.5 million Americans played golf in
1997. Due to Tiger Woods or other forces, total golf equipment sales rose nearly Retaining and
10 percent to an estimated $3.92 billion in 1997. Apparel and shoe sales rose 2.7 motivating
percent to an estimated $1.89 billion in 1997 (Maguire, 1999). Other developed employees
and developing countries will soon follow. Thus, ``high pay alone will not lead
to job (or life) satisfaction'' (Work in America, 1973, p. xvi) and quality of life
may become more important when basic needs are satisfied. More research is
needed in this area. 425
Conclusion
We reported two studies that are not completely comparable in this paper. In
this paper, we offer useful new empirical data and analysis: employees in Hong
Kong and the People's Republic of China do have a cash mentality. These
findings are different from previous findings (e.g. Jurgensen, 1978; Phillips and
Benson, 1983) but support other studies (Mitchell, 1983; Redding, 1990).
Mortgage loan (Hong Kong) and housing provision (PRC) are important to
retain people and satisfy their basic safety and security needs. In order to
motivate people, profit sharing and annual leave are important to people in
Hong Kong, whereas individual bonus, housing provision, and overtime
allowance are the main concerns of people in China. Human needs are not
exactly the same across cultures and countries. These differences show the
economic and cultural conditions of Hong Kong and China. Money obviously
can satisfy many needs. People in Hong Kong have more money than those in
China. Hong Kong employees do consider ``annual leave'' more important than
Chinese employees. People's needs and preferences do change over time as their
income changes (Tang and Ibrahim, 1998). As they have more money, they
may also turn their attention to leisure, play, consumption, and the satisfaction
of higher-order needs in society (Tang and Baumeister, 1984; Tang and West,
1997).
There are some limitations. First, although the sample size for these two
samples is reasonably large, the return rate is quite low. Future researchers
may want to identify ways to increase return rate in studies using survey
questionnaires. Second, the participants are limited to certain specific
industries examined in this study. A caution is warranted when generalizing
the present findings to Chinese in other regions and industries.
Some researchers suggest that extrinsic reward may undermine intrinsic
motivation on a task (Deci and Ryan, 1985). Money may motivate people to work
harder, to some extent. Beyond that point, money may be a hygiene factor. People
do want to become the masters of money rather than the slaves of money. The
turnover rate for Chinese workers is high. Researchers and managers of human
resources management need to focus on strategic pay policies to ensure internal
equity, external competitiveness, and individual equity in order to retain and
motivate key employees and stay competitive in the market. Future research may
focus on the effects of Chinese employees' cash mentality and money ethic
endorsement (cf. Tang, 1992; Tang et al., 2000a) on their turnover, life satisfaction,
job satisfaction, and intrinsic motivation.
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