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Motivating Employees Through Training and Development

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ABSTRACT The research focuses on the effect of different components of compensation on motivation of employees. Compensation is divided into three basic components, namely Fixed Pay, Flexible Pay and Benefits. Vroom’s Expectancy theory is selected for measuring motivation in this research. Two of the prestigious banks of the country were selected as the target for study namely; United Bank limited and Bank of Khyber Ltd. A 20 item questionnaire was developed for the testification of the hypothesis in the study. One of the objectives of the study was to check what component of Expectancy theory has an effect on the motivation level of employees; be it Effort-Performance, Performance-Outcome or Valence of Outcome and secondly to check what component of Compensation Based Pay is effecting motivation level of employees; Fixed Pay, Flexible Pay or Benefits. Validity of the Questionnaire was tested by using Cronbach’s Alpha. It was calculated to be 0.832, which by convention is greater than 0.7 and hence reliable.

Convenient Sampling was used to gather data from both the banks. A total of 95 Questionnaires were collected, 45 from United Bank Limited and 51 from Bank of Khyber. Regression and Chi-Square was applied to check the results. Regression established that there is a strong relationship of compensation with motivation; whereas, ChiSquare was used for individual relationships of each component (variable) with motivation (eg: Flexible pay with Valence). The result showed that employees are not motivated because of believe in their skills neither are they motivated when told that they would be rewarded on the other hand, they get motivated if rewarded by something they value Key words: Compensation, Motivation, Vroom’s Expectancy theory, Fixed Pay, Flexible Pay, Benefits, Expectancy, Performance Outcome, Valence 1. INTRODUCTION

Compensation is one of the primary reasons for employees to seek employment. They are rewarded for their services and efforts that they exert for their organizations. They can be compensated in many ways for example salaries, holidays, bonuses etc. There are two basic compensation models; performance based pay and components based pay. In the former paradigm, employee’s compensation is either tied to the way he performs; if he performs better he would be rewarded accordingly (performance based pay) and on the other hand, non performance based pay; where, employee’s performance is not tied to getting rewards, rather the employee is paid or rewarded even if its performance is not up to the mark e.g fixed pay and salaries etc. (Taylor, F.1911) see diagram-1. The first model works best in factories and production units where labor is cheap and performance is tied to the rewards directly. The second model is used for decades in corporate sector, in this model compensation is divided into three components namely;

Fixed Pay, Flexible Pay and Benefits (Beard, 1986). The model that would be used for this research study is Compensation Based Pay. Motivation is the drive of an individual to act and achieve. Psychology gives us different rationales regarding the nature of motivation. For this reason, there are many theories relating to motivation, as to what motivates human beings and how to manipulate that process for organizational needs. Major theories are Process, Content and Reinforcement motivation theories. The theory that is selected for this research is Expectancy motivation theory, which is a subtype of Process theory. The theory is about motivating employees based on three important factors, motivation due to self-belief, motivation due to outcome and motivation due to valence (Vroom, 1964). Simply, it can be said Motivation = Expectancy X Instrumentality X Valence. Expectancy means that employees will be motivated if they believe their effort will result in performance, in other words, if they believe in their skills they will be motivated. On the other hand, Instrumentality means that employees will be motivated if they believe their performance will yield rewards. This factor determines that trust of employee’s on management is very important for their motivation. Lastly, Valence means that employees will be motivated if they are rewarded with rewards they value and not just any reward.

2. LITERATURE REVIEW 2.1 Compensation Dessler, (2005) defines compensation as all forms of payments or rewards given to employees which arise from their employment. Compensation can be divided in to various parts. One way is to break it down into three parts namely, Fixed-Pay, Flexible Pay and Benefits (Beard, 1986). The other way is to divide Compensation in to two parts, Performance-based pay and Non-performance based pay (Taylor, F.1911). First approach of classification of compensation would be used in this research. In the first classification, Fixed pay is the compensation given to employees as their base salaries e.g promotions, merit increase and cost of living increase. These come under fixed pay because all of them become part of the employee’s base salary after its effect. Flexible pay consists of two components in it self, variable pay and deferred Income.

Variable pay relates to commissions, bonuses, gain sharing, goal-based pay etc: where, the amount of pay is variable or its distribution is not certain, which is given usually to salespeople. Deferred income is long-term organization pay schemes e.g. profit sharing, company savings plans employee stock ownerships etc. Finally we have Benefits, which include things like vacations, sick leave, company car, company house, severance pay, medical insurance, retirement benefits etc. Diagram- 1 Compensation Performance Based Pay Performance Based Pay (Based on new Management Paradigm) *Commissions *Bonuses *Salespeople *Pieace work plan Standard hour plan Merit Raise Flexible Pay Variable Pay *Commissions *Bonuses *Gain sharing Deffered Income *Employee *Stockownership *Profit Sharing Benefits *Vacations *Sick Leave *Company Car *Company house *Severance pay *Medical Insurance Benefits NonPerformance Based Pay (Based on old concept when compensation wasn’t tied to performance) *Monthly Salary *Weekly Wages

2.2 Motivation: Motivation is the drive of a person to carry out a task which he desires to do so. Some link motivation to human basic needs like food; clothing and shelter (Maslow 1943, Herzberg 1959) other focuses on higher end concepts like; motivation due to self-belief etc: (Vroom, 1964). However, one can say Motivation is the activation of goal-oriented behavior whether motivation is intrinsic or extrinsic. Intrinsic motivation is something that comes from within the person e.g challenging task motivates some people while thirst for recognition motivates others and extrinsic motivation is motivation caused by external factors e.g pay, bonuses etc. The Focus of this research is on extrinsic motivation. In the recent times, a lot of research is being done on what makes people motivated and how to motivate them by choosing the best option among many? At first employees were considered as a mere mechanical input to the organizational outputs (Taylor, 1911). But after the Hawthorne Studies, conducted by Elton Mayo from 1924 to 1932, this attitude changed and considered human values, dreams, aspirations and needs into account, (Dickinson, 1973). Following are motivational theories discussed briefly, followed by the theory used in this research; Vroom’s Expectancy theory.

Vroom’s theory is the most widely used theory for the purposes of compensation and motivation related work. (Kanfer, 1990) Expectancy theory and equity theory both comes under the Process Motivation theory. Process theory is commonly used form of scientific research study in which events are said to be the result of certain input leading to a certain outcome, following a set process. Although all of these theories provide great insight into behavior at organizations and how to motivate people but they lack research findings and are continued to be tested. However, Victor Vrooms Expectancy theory has a lot of research backing about its validity and its most used theoretical framework for work motivation related studies as compared to need, equity or goal setting theories. (Kanfer 1990), (Pinder, 1984) Vroom’s Expectancy theory says that people are motivated when they have a self-belief on their skills, belief in the promises of the management about getting the reward and the personal value they place on a specific reward (Vroom, 1964).

The self-belief on skills is called “Expectancy”, belief in getting the reward is “Instrumentality” and value on the reward is the “Valence”. It is important to define each term further in order to be able to understand the hypothesis and theoretical framework coming later on. Expectancy: when Employees have a better perception of their skills they are more likely to try out difficult objectives. If they don’t believe in their skills they won’t be motivated. For example some one believes in himself; going in front of huge audience and delivering a lecture so his motivation to actually do it, would be more. Instrumentality: if employee’s belief that they will be rewarded for their efforts they will be motivated to perform. Managers need to be honest and objective about what they can provide as a reward and to whom they can provide. Otherwise employees will be in state of confusion and won’t be motivated. Valence: Every one place a different value on a certain reward. To some pay is of more value than other rewards and to others more intrinsic rewards like recognition, achievement etc. are of more value. Employer should take a personal interest in his employees to know them better so that he can identify which reward he values most. Equation for Vroom’s theory is as follows;

Motivation = Expectancy X Instrumentality X Valence Expectancy theory remains the most widely used theoretical framework for empirical studies that concern motivation and compensation related research (Kanfer, 1990). That is why this model is chosen to measure the effect of compensation on Work Motivation as it is the most valid representation of the work-related attitudes (Pinder, 1984). Nadler & Lawler (1977), conducted a research on process of motivation in relation to compensation and says that motivation can be defined in terms of three independent variables: effort-performance expectancy, performance-outcome instrumentality and valence. Last two variables can be further divided into six more variables three each. i.e., performance fixed pay instrumentality, performance flexible pay instrumentality, performance benefits, and valence of fixed pay, valence of flexible pay and valence of benefits. Igalens & Roussel (1999) summed the work of previous researchers and came up with framework shown in diagram 2. The diagram shows relationship between total components of compensation (Fixed Pay, Flexible Pay, Benefits) with Vroom’s Expectancy Theory.

3. Research Frame Work A research design was developed to define the relationship of compensation with motivation. The Compensation Based Pay was incorporated in Expectancy theory. From this three hypotheses of the research were developed. First hypothesis was based on finding the relationship between Effort-Performance and Motivation due to Self-Belief. Second hypothesis was based on finding the relationship between PerformanceOutcome and Motivation due to Outcome. Both the variables were further divided into three components namely, Fixed Pay, Flexible Pay and Benefits. Finally, the third hypothesis was based on finding the relationship between Valence of Outcome with Motivation due to Outcome. Again, both the variables here were divided into three components of Fixed Pay, Flexible Pay and Benefits. See Diagram 3 for illustration of the constructed Research Frame Work. Diagram 3.Research Frame Work

Effort Performance Performance Outcome Performance Fixedpay Performance Flexiblepay Performance Benefits

Motivation due to Self-Belief Motivation due to Outcome Motivation due to Fixed Pay Motivation due to Flexible Pay Motivation due to Benefits


Valence of Outcome Valence Fixedpay

Motivation due to Valence Motivation due to Fixed Pay Motivation due to Flexible Pay Motivation due to Benefits

Valence Flexiblepay Valence Benefits

Vroom’s Theory: Motivation = Expectancy X Instrumentality X Valence Components of Compensation = Fixed Pay, Flexible Pay, Benefits Hypothesis-1; relates to the Expectancy part of Vroom’s theory. Hypothesis-2; relates to the Instrumentality part of Vroom’s theory. Hypothesis-3; relates to the Valence part of Vroom’s theory. In Hypothesis 2 and 3 Components of Compensation are incorporated to be able to measure the effect of individual components on motivation of employees.

Hypothesis 1: More the belief of an employee on his skills more will be his motivation level. There can be two variables in this hypothesis according to Vroom’s Expectancy theory. One is the independent variable of Effort Performance Expectancy and other is the dependent variable of Motivation due to Self-Belief. Effort Performance Expectancy  Motivation due to Self-Belief There are four items in the questionnaire related to Effort-Performance Expectancy and one item is related to Motivation due to Self-Belief. Their relationship is tested by Linear Regression. Hypothesis 2: More the employee’s trust on management’s promises to reward him more will be his motivation level. According to compensation components, reward can be of three types, fixed pay, flexible pay and benefits. Therefore, there is a need to have more variables to test this hypothesis. If the reward is fixed pay, it will motivate employees If the reward is flexible pay, it will motivate employees If the reward is benefits, it will motivate employees ‘Performance Outcome Instrumentality’ is the independent variable which is tested with the dependent variable ‘Motivation due to Outcome’.

Further, ‘Performance Outcome’ is divided into three components namely, Performance Fixed Pay, Performance Flexible Pay and Performance Benefits. ‘Motivation due to Outcome’ is similarly divided into three components namely, Motivation Fixed Pay, Motivation Flexible Pay and Motivation Benefits. The division is done to check the effect of individual components of compensation on motivation. Performance-Outcome Instrumentality  Motivation due to Outcome Performance-Fixed Pay Motivation due to Fixed Pay Performance-Flexible Pay Motivation due to Flexible Pay Performance-Benefits Motivation due to Benefits There are five items related to Performance Outcome including the components and four related to Motivation including the components. The relationship of Performance-Outcome with Motivation due to Outcome was tested by linear regression. The relationships of Components of Compensation with Motivation are tested with Chi square.

Hypothesis 3: If the employee is rewarded with something he values, more will be his motivation. For this hypothesis, there is a need of three components as well to test their individual effect on motivation. Therefore; If the reward is fixed pay, it will motivate the employee. If the reward is flexible pay, it will motivate the employee. If the reward is benefits, it will motivate the employee. There are two major variables. One is ‘Valence of Outcome’ which is independent variable and the other is ‘Motivation due to Valence’ which is the dependent variable. There are three variables for the components of compensation, namely Valence of Fixed Pay, Valence of Flexible Pay and Valence of Benefits. Similarly, ‘Motivation due to Valence’ is divided into three components namely, Motivation due to fixed pay, Motivation due flexible pay and Motivation due to benefits. Valence of Outcome  Motivation due to Valence Valence of Fixed Pay  Motivation due to Fixed Pay Valence of Flexible Pay  Motivation due to Flexible Pay Valence of Benefits  Motivation due to Benefits There are four items related to ‘Valence of Outcome’ in the questionnaire, including the items related to components and there are four items related to ‘Motivation due to Valence’, including the items related to components.

4. Scope of the Research: The impact of intrinsic factors such as effect of ‘job satisfaction’ or ‘organizational justice’ on employee’s motivation cannot be underestimated. However, the scope of this study is limited to measuring the effect of compensation (extrinsic factor) on motivation. The study uses ‘Expectancy’ theory of Motivation to develop the research design. It focuses on three components of Expectancy theory; Expectancy can also be called Effort-Performance and Instrumentality can be defined as Performance-Outcome and Valence. 5. MEASUREMENT AND METHODS Convenient Sampling method was used to collect the data from both the banks. There were total 100 questionnaires distributed in various branches of the banks in Peshawar, Out of which 95 were returned. 51 were taken from Bank of Khyber (BOK) and 45 were taken from United Bank Limited (UBL). The branches of BOK from which data was collected were Saddar Road Branch, University Road Branch, Khyber Bazar and City Branch.

The branches of UBL from which data was collected were University Road Branch, Saddar Road Branch, University Town Branch and Cantt Branch. A clear description and purpose of the questionnaire was attached with it to help out the employees in filling out the questionnaire. After data collection, SPSS software was used to analyze data, respondent’s demographics include; age, sex, education and tenure. Proper independent and dependent variables were made for each item in the questionnaire using five point Likert Scale. They were organized according to the questions asked from the respondents and all were tested using Linear Regression and Chi Square. First four questions were related to measuring Effort-Performance Expectancy. The Question that followed it was related to Motivation due to SelfBelief.

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