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Importance of Compensation and Benefits on Performance of Public Water

Utilities in Tanzania

Article  in  African Journal of Business Management · January 2015

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 African Journal of Business and Management Vol 1 (1), ISSN: 2518-0312 Copyright: © 2015 AJBM
Open Access Online @ http://onlinesciencejournals.com/index.php/ajbmr

Importance of Compensation and Benefits on Performance of Public Water

Utilities in Tanzania

Adam Omar Karia1 and Stella Omari2

1
PhD Candidate, School of Business and Economics, Kisii University
P.O Box 408-40200, Kisii, Kenya
2
Senior Lecturer, School of Business and Economics, Kisii University, P.O Box 408-40200,
Kisii, Kenya
Corresponding Author email: adam_karia@yahoo.com

Abstract
This study was conducted to determine the importance of compensation and benefits on
performance of public water utilities in Tanzania. Probability and none probability
techniques was applied in this study and both correlation and descriptive research designs
were used. The study targeted a population of 1355 employees of the five selected public
water utilities. A sample size of 417 was obtained by the use of Krejcie and Morgan formula
(1970). Questionnaire, focus group discussion and interview instruments were used for data
collection. Data analyzed by descriptive and inferential statistics with the help of the SPSS
Version 20.0. The results revealed that there is a statistical significant relationship between
compensation and benefits with organizational performance. Correlation correlated at
r(370)= 0.505**, p<0.01 signified that compensation and benefits practices are positive
predictors of performance of the public water utilities . The study recommends that financial,
non-financial, tangible and intangible compensation should be effectively realized to the
public water utilities employees’ so as to enhance performance of both employees and
organization.

Key words: Compensation and Benefits; Public Water Utilities; Organizational

Performance; Non-Financial and Financial compensation

1.0 Introduction includes fringe benefits like free insurance,

Compensation and benefits are very important
to employees and organizational performance.
Compensation and benefits has been not paid a
great attention as a contributing factor to
performance of the public water utilities in
Tanzania. Bernadin (2007) pointed out that
compensation and benefits are all forms of
financial returns and tangible benefits that
employee receives as a part of employment
relationship. Employee compensation and
Benefits is one of the very useful and
important HRMP nowadays and it includes all
forms of pay and rewards received by
employees for the performance of their jobs
(Snell & Bohlander, 2007). Direct
compensation includes wages and salaries,
incentive-payments, bonuses and commissions
to employees. Indirect compensation
comprises many benefits supplied by
employers and non-financial compensation
subsidized lunch, intrinsic rewarding jobs, a
nice work environment and flexible work
hours to accommodate personal needs (Malik,
2013).
Some organizations are experiencing profound
managerial difficulties when attempting to use
compensation strategically and often reflecting
a poor fit for the organization, negative
outcomes of strategic compensation systems
which include high costs, a greater
administrative burden and industrial conflict
manifest in a de-motivated and disengaged
workforce (Trevor, 2008). It is on this note
that Public water utilities in Tanzania are
required effectively to address this matter in
line with organizational performance.
Kamaruzaman et al. (2008) observed that
the use of benefits coupled with salary has got
high stakes as he realized in his study that
fringe benefits have higher relationship with

1
 African Journal of Business and Management Vol 1 (1), ISSN: 2518-0312 Copyright: © 2015 AJBM
Open Access Online @ http://onlinesciencejournals.com/index.php/ajbmr
organizational commitment in comparison to
mandatory benefits. Further both mandatory
and fringe benefits possessed significant and
positive relationship with organizational
commitment.
Financial and non-financial compensation
are forms employed by banks to entice their
employees to remain in the banking sector
(Sopiah, 2013). She realized that employees’
job satisfaction is at a good level and there is
high performance level due to the facts that
employees are given non-financial
compensations. There is a positive relationship
between extrinsic and intrinsic rewards and
employees’ performance as observed by Aktar,
Sachu, & Ali, (2012) and Muguongo, Muguna,
& Muriithi (2015).
Some scholars argue that compensation
practice has no direct influence on improving
employee performance, but it might be able to
enhance motivation and therefore to strengthen
organizational commitment. Rizal et al. (2014)
in that context he further argued that
motivation and organizational commitment
can be influenced by compensation, but
compensation does not have significant effect
on employee performance.
Existence of the total compensation
strategy, strategic map, and salary structure
and job analysis methods Liza (2014)
motivates employees to commit their future to
an organization. Nawab & Bhatti (2011)
realized that better compensation to employees
will lead to effective commitment of
employees in the organization and hence it
will lead to increased organizational
performance.
Hameed et al. (2014) observed that
compensation has positive impact on
employee performance and so if well managed
it will result into organizational performance.
Further evidence shows that salary, rewards,
incentives and direct compensation have weak
or moderate positive relationship to each other.
Sadiq et al. (2015) found that tangible and
intangible rewards have positive correlation
and significant impact with organizational
commitment. Yamoah (2013); Osibanjo et al.
(2014); Ibojo & Asabi (2014) revealed that
compensation and employees’ productivity are
positively related.
2
2.0 Materials and Methods
2.1 Research Design
A correlation and descriptive research design
was used for this study. Correlation study
enabled the researcher to examine the
relationship between compensation and
benefits on performance of public water
utilities. Descriptive study design was used in
describing the working conditions of
employees in public water utilities. The
designs enabled the researcher to observe the
conditions as they are without changing their
environment and indicate the nature of the
relationship that exists.
2.2 Study Area
This study was conducted in the United
Republic of Tanzania. Tanzania is found in the
Eastern part of the Africa continent. The
country lies on 5.69440S and 36.32230E
latitude and longitude, and has total area of
945, 087 Square Kilometers.
The study selected five public Water Utilities
in the Tanzania Mainland. The selected five
public water utilities operate in the urban areas
of each respective region and City in the
Tanzania mainland. The involved regions in
the study were, Lindi, Mtwara, Morogoro,
Tanga and Dar es Salaam regions.
2.3 Target Population
The study population comprised of 1355
employees from the five selected Public Water
Utilities.
2.4 Sampling Method and Sample Size
The study employed simple random sampling,
stratified sampling, population proportional
sampling (PPS) and Purpose sampling
techniques to collect data. Stratified sampling
was used for the selection of the five public
Water utilities for the study. A population
proportionate sampling (PPS) technique was
used for the purpose of making equal ration of
sample distribution in the respective Public
Water Utilities. Simple random technique was
used to get hold of employee representation
from all departments of the five selected
public water utilities. Purposive sampling a
type of non-probability sampling was used to
sample managing directors and line managers.
A sample size of 417 employees was used in
the study which was obtained by adopting
Krejcie & Morgan (1970).
2.5 Data collection Methods:
The study used closed ended questionnaire
which had a 5 level likert scale: Strongly
agree. Agree, Neutral, Disagree, Strongly
 African Journal of Business and Management Vol 1 (1), ISSN: 2518-0312 Copyright: © 2015 AJBM
Open Access Online @ http://onlinesciencejournals.com/index.php/ajbmr

Disagree. The questionnaire had factors
measuring compensation and benefits facets.
Focus group discussion was conducted to all
line managers to seek to seek their opinion in
regards to human resource management
practices and performance of the public water
utilities. Also interview and focus group
discussion was used to seek clarification of the
objective of the study.
2.6 Data Analysis Procedures
Data collected and entered into excel
spreadsheet before being imported to IBM
SPSS version 20.0 for analysis. Both
descriptive and inferential statistics were
obtained. In the descriptive analysis,
frequencies and percentages were used and
correlation analysis was used in inferential
statistics.
3.0 Data Analysis, Discussions &
Presentation
3.1 Response Rate
A total of 392 questionnaires were distributed
to the targeted population and 20 line
managers participated in the focus group
discussion and 5 managing directors were
interviewed. Only 370 questionnaires returned
and with inclusion of interview and focus
group discussions the study accounted a
response rate of 94.7%.
3.2 Frequency distribution of Compensation
and Benefits Factors

Table 3.2: Frequency and Percentage Responses on Importance of Compensation and Benefits
Attributes Responses Mea SD
Strongly Agree Neutral Disagree Strongly n
Agree Disagree
F % F % F % f % f %
Compensation and 15 4.2 26 7.0 137 37.0 96 25.9 96 25.9 3.62 1.06
Benefits practice are
equal treated to
employees
Compensation and 18 4.9 35 9.5 86 23.2 139 37.6 92 24.9 3.68 1.09
Benefits practices
provides are
appropriate to retain
employees
In our organization 21 5.7 24 6.5 115 31.1 123 33.2 87 23.5 3.62 1.08
compensation and
benefits is provided
to improve employee
performance
Effectively operates 7 1.9 17 4.6 100 27. 0 138 37.3 108 29.2 3.87 0.95
Compensation and
Benefits Scheme
Adequate annual 29 7.8 37 10.0 101 27.3 114 30.8 89 24.1 3.53 1.18
budget allocation for
the compensation and
benefits
Employee - - 28 7.6 63 17.0 152 41.1 127 34.3 4.02 0.90
performance is
considered to better
Compensation and
Benefits
There is satisfaction 9 2.4 24 6.5 143 38.6 121 32.1 73 19.7 3.60 0.95
with Compensation
practice
There is satisfaction 10 2.7 23 6.2 92 24.9 140 37.8 105 28.4 3.82 0.99
with employee
Benefits practice

Compensation and 6 1.6 21 5.7 131 35.4 146 39.5 66 17.8 3.66 0.89
Benefits Practices are
the Strategic issue
Key: f – Frequency; SD – Standard Deviation
Source: Field Data (2015)

3
 African Journal of Business and Management Vol 1 (1), ISSN: 2518-0312 Copyright: © 2015 AJBM
Open Access Online @ http://onlinesciencejournals.com/index.php/ajbmr
Treatment of employees is the first factor that
measured the importance of Compensation and
Benefits on performance of the Public Water
Utilities Tanzania. A (37%) of all respondents
were responded neutral in “Compensation and
Benefits practice are equal treated to
employees”. Also, another factor was
compensation and benefits practices. In
addition, (39.5%) of all respondents were
disagreed with “Compensation and Benefits
Practices are the Strategic issue”. The
findings reveal a warring trend in that
employees remained adamant on their
response on the way they are compensated and
given benefits from employment also the
majority disagreed on the fact that
compensation and benefits. A strategic
compensation and benefits scheme that defines
the salaries of employees, incremental scheme
of salaries, the method of rewarding and
giving incentives, and other indirect
compensation schemes should be clearly
defined.
Moreover, in effective scheme operation
factor (37.5%) of all respondents was also
disagreed with “Effectively operates
Compensation and Benefits Scheme”.
Furthermore, employee performance factor
was measured and (41.1%) of all respondents
were disagreed with “Employee performance
is considered to better Compensation and
Benefits”, for the annual budget factor
indicates that (30.8%) of all respondents were
disagreed with “Adequate annual budget
allocation for the compensation and benefits.
The findings are a reflection of how
organizations are not running an effective
compensation and benefits scheme that caters
for all employees fairly. Also the budget
allocated to compensation and benefit should
be increased as a well compensated staff is
bound to be more motivated thus works
towards realization of the goals of an
organization.
In addition, satisfaction was another factor
that measured the importance of
Compensation and Benefits on performance of
the Public Water Utilities Tanzania. Table 3.2
indicates that while (38.6%) of all respondents
responded neutral in, “Satisfaction with
Compensation practice”, (37.8%) of all
respondents were disagreed with “Satisfaction
with Benefits practice”. Lastly in employees’
retention factor, indicates that (37.6%) of all
respondents were disagreed with,
4
“Compensation and Benefits practices
provides are appropriate to retain
employees”. Retention of staff is a very
important thing to any organization, amount
taken to train and develop the staff should be
replicated by retaining the trained, talented and
competent staffs who are working in an
organization. Staffs who are motivated are
likely to stay for long periods of time in an
organization unlike the demotivated staff that
are on high alert to move.
In the Public Water Utilities Tanzania,
compensation and benefits were not consider
as important issue this is due to fact that,
among of seven factors that measured
compensation and benefit in the Public Water
Utilities, six factors indicate low level of
satisfaction with it except one which indicates
very low level. Table 3.2 shows that
Treatment of employees scored a mean range
of 3.62 (Std. Deviation = 1.06), compensation
and benefits strategic issue scored a mean
range of 3.66 (Std. Deviation = 0.89),
Effective scheme operation scored a mean
range of 3.87 (Std. Deviation = 0.95),
improvement of employees performance factor
scored mean range 4.02 (Std. Deviation =
0.90), Annual budget factor scored a mean
range of 3.53 (Std. Deviation = 1.18),
satisfaction scored a mean range of 3.82 (Std.
Deviation = 0.99), and employees retention
scored a mean range of 3.68 (Std. Deviation =
1.09) .
3.3 Correlation analysis
The analysis sought to find the relationship
between Compensation and Benefits and
performance of the Public Water Utilities as
computed by using Pearson product-moment
correlation coefficient.
Table 3. 3: Correlation between
Compensation and Benefits on Performance
of Public Water Utilities
Compensation Organization
and Benefits Performance
Pearson Correlation 1 .505**
Compensat
ion and Sig. (2-tailed) .010
Benefits N 370 25
Organizati Pearson Correlation .505** 1
on Sig. (2-tailed) .010
Performan N 25 25
ce
**. Correlation is significant at the 0.01 level (2-tailed).
 African Journal of Business and Management Vol 1 (1), ISSN: 2518-0312 Copyright: © 2015 AJBM
Open Access Online @ http://onlinesciencejournals.com/index.php/ajbmr
In a Table 3.3, it can be noted that
compensation and benefits and performance of
public water utilities in Tanzania are positively
correlated r(370)= 0.505**, p<0.01. This
indicates a statistical significant positive
relationship between compensation and
benefits with organizational performance. An
organization that compensates her employee
with benefits yields highly. Thus a unit
improvement in compensation and benefits
causes a 50.5% increase in the organizational
performance.
The findings resemble those of Hameed et
al. (2014); Nawab & Bhatti (2011) who found
that there is positive relationship between
compensation and organizational performance.
Obasan (2012) also revealed that workers’
productivity is potential positively affected by
the compensation strategy and hence higher
productivity of an individual workers will lead
to overall organizational performance.
A higher pay guarantees the higher
productivity and vice-versa (Obasan, 2012).
Premalatha (2013) found that compensation
management has the direct impact on
employee performance and that monetary
rewards have to be supported with non-
monetary benefits to retain the talents in the
long run. Yamoah (2013) commented that
compensation and employees’ productivity
positive related.
4.0 Conclusion and Recommendations
4.1 Conclusion
Based on the research finding, the study
concludes that performance of the Public
Water Utilities depend more on utilization of
effective compensation and benefits. Despite
the fact that, majority of employees in the
public water utilities Tanzania claimed that
they experienced low level of compensation
and benefits utilization that may lead to poor
organizational performance. Consequently, a
positive significant relationship between
Compensation and Benefits and Performance
existed in the Public Water Utilities by (r =
0.505; sig. 0.010) the relationship is
statistically at 0.01 level of significance.
4.2 Recommendations
Compensation and Benefits plays a vital role
in the organizational performance. This study
revealed inadequate implementation of the
compensation and benefits in the public water
utilities; hence there may be a need for the
policy makers and management of the public
5
water utilities to pay attention on employees’
compensation and benefits aspects as the
contributors towards employee and
organizational performance.
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