Table Of ContentCE
GERS' COMPE ATIO PREFE
AND
THE EXIST G COMPE SATIO SCHEMES
(ACA E TUDYOFTHECO-OPERATI EB KOFKE A)
BY
/ KILIKA J.M.
A 'AGEME T RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILMENT
FOR THE REQ IREME TS OF THE DEGREE OF MASTERS IN BUSL ESS AND
ADMINISTRATIO FACULTY OF COMMERCE, TVERSITY OF 'A/ROB!.
OCTOBER 1999
DECL TO
This research project report is my original work and has not been presented for a degree in any
other uni ersity.
::::;;----
JA E MUTUKU KILIKA
DATE:
This research project report has been submitted for examination with my approval as university
Supervi or.
MR ..N .M. Z VE
(Research upervisor and enior Lecturer, Department of Business Administration)
ijr;/rr
D TE: /
i
DEDIC T 0
TOMYPARE T
A THE NY A AND TIL KILIKA
For their love for education. concern sacrifice and patience over my study period.
The crown for this work is a true realization of their long cherished dream.
0 L D T
l am gre<!~l ind bted to eral indi idual and parties or their contribution towards the ucce s of
this project
First of all, m special gratirude oe to my supe isor. Mr tephen zu e. for his commitment
and keennes in constructi e critici m from the proposal writing period through the research
proce s to the final r port v.Titing. I am also grateful for the ad ice gi en by Dr. Musyoka and
)
Mr. Mududa who served in m advisory committee Dr. Aosa.. Dr. Ogutu. the entire academic
board of the faculty of commerce and all my classmates of the 1999 MBA class.
I wish a1 o to appreciate the support obtained form the Cooperati e Bank of Kenya. 1 thank the
Managing Director for allowing this study to be conducted in his Bank Mr. arikae. Mrs. Welton
and her secretary for coordinating the research exer ise, and all tho e managers " ho filled the
questionnaires.
I also wish to acknowledge wich great appreciation the moral support obtained from Dr. Joe Kayo
my pastor. Rev. tephen Mulacya. Rev. Jonathan kilika, Titus Kilika and his wife Penina and my
friends Joyce and Carol for their rare gesture.
Finally 1 wish to thank Mr. joroge Kanyugi and Miss Lydiah Kanyugi for typing the scripts
during the proposal writing research process and the final copy.
iii
E F 0 T
T PI p
DECLARATI ··················· ·········· ....................................................................
!
DEDIC TIO .................................................................................................. .tt
C OWlEDGE T ................................................................................... iii
TABLE of CO TENT ...................................................................................... .I
LI T F TABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . lli
AB TRACT ................................................................................................... IX
HAPTER 0 E: INTROD 10 ...................................................................... 1
1.1 Background ....................................................................................... 1
1.2 tatement of the Problem ......................................................................2
1. Objectiv .......................................................................................... 4
1.-t Importance ofth tudy ......................................................................... 4
CHAPTER TWO: LITERAT REVIEW ............................................................ 5
2.1. Com pen ation .................................................................................... 5
_.1.1 Introduction ............................................................................5
2.1._ The ature motivation ................................................................5
2.1.3 Approaches to the stud of motivation .............................................. 7
2.1.4 Expectancy Theory ..................................................................... 9
2.1.5 The Human Resources perspecti es motivation .................................. 11
2 .1. 6 Motivational programs ............................................................... 13
2.2. The meaning of com pen ation ................................................................1 5
2.2.1 Compensation models ............................................................... 17
2.2.2 Contributions .......................................................................... 19
2.2.3 Incentives .............................................................................. 20
2.2.4 Rewards ................................................................................ 21
2.2.5 Compensation of managers .......................................................... 24
2.2.6 Compensation scheme ofmanagers ................................................ 26
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2. . omp n ti n pret reo .................................................................... 3
2."" .l The generation of pre eren es ....................................................... 32
r
_.)._ Preferen es from the motivation iew point. .......................................
2.3.3 Integrating preferences with compensation de ision .............................. 35
2.4 Pr vi u r earch in Ken a ...............................................................3
CHAPT RTHRE T TH DOLOGY ....................................................4 0
3.1 Populati n .........................................................................................4
3.2 amp ling design .................................................................................4 0
3.2.1 ample Size ........................................................................... 40
3.2.2 amp ling method .................................................................... .40
3.3 Data collection m tho d .............. ., ..........................................................4 0
3.3.1 The questionnaire .................................................................... .40
3.4 Data analy i techniqu ........................................................................ 42
CHAPTER FO : DATA ALY I AND PRE E TIO .................................. 45
4.1lntroduction ......................................................................................4 -
4.2Demographic compo ition of re pondent ................................................. .45
4.2.1 Respondents by Department. ........................................................ .45
4.2.2 Respondents by Management level ................................................ 46
4.3 Respondent cor ............................................................................4 6
4.3.1 Respondents scores on preferences ................................................ .46
4.3.2 Respondents scores on opinions .................................................... .47
4.4 tate me n core ................................................................................ 48
4.4.1 Preference statements scores by respondents ..................................... .48
4.4.2 Opinion statements scores b respondents ......................................... .49
4.- Initial factor cor ............................................................................5 0
4.5.1 The rewards: means and standard de iations ..................................... 50
v
4.-.2 The opinions to th r wards: Means and tandard de iations .................. 50
-'· Fact r anal ' · of the r' ard it m f: r th ampl ...................................... 0
-'· .1 he relation hip b t\ e n th . tra ted factor ............................... ~-
-'.1 hi- quare t t ................................................................................. ~5
.7.1 Testing for the Relationship bet een pre erences and ccupation .............. 55
4.7.2 Testing for the As ciation between preferences and seniority .................. 57
4. 7.3 Testing for the dependence between re p ndents opinions and their
occupations ............................................................................. 57
4.7 .4 Testing for the dependence of Respondents opinions and
Management le el .................................................................... 59
4.7.5 Testing for the Difference between preferences and the schemes .............. 59
4.8 Z- tatistic T ts .................... ., ......................................................... 60
4.8.1 Chi -square goodness of fit test for normal distribution of preferences ........ 60
4.8.2 Testing for the existence of preferences ............................................ 61
4.8.3 Testing for the uniformity of the preferences across
the items of compensation ......................................................... 63
4.8.4 Testing for the extent ofpreferen es met b the existing scheme ............... 64
HAPTER FIVE CO CL D RE 'OMMENDATIO ................................. 66
5.1 Introduction ..................................................................................... 66
5.2 The manager preferenc ................................................................... 66
5.3 TheE tent of prefer nee met ............................................................... 68
5.4 Implication of the finding ...................................................................6 9
5.5 Conclu ion ....................................................................................... 70
5.6 Recommendation ...............................................................................7 1
REFERE CE ...............................................................................................7 2
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APP D E
PE 1. Correlation matrix ............................................................... 77
2. Communalities, Eigen alues and e. ·rracted factors ......................... 81
3. The ten factor loading before rotation ....................................... 82
4. Rotated factor matrix ........................................................... 84
5. Factor transformation matrix ................................................... 86
6. Computation for the Chi-square alue for the relationship between
preferences and occupation ..................................................... 87
7. Computation for the Chi-square alue for the association between
preferences and seniority ........................................................ 88
8. Computation for the Chi-square value for the dependence of respondents
opinions and occupation ......................................................... 89
9. Computation for the Chi-square a1ue for the dependent between
respondents opinions and management le el ................................. 90
10. Computation for the Chi-square value for the difference betwe~n
preferences and the existing scheme ......................................... 91
11. Uni ersity of airobi introduction letter
I 2. Questionnaire introductory letter
13. Research questionnaire
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LIST OF' TABLES
T BLE p E
2.1.3 Marching incenti es with their respe ti e needs ................................................... 7
2.1.6 Theoretical match of the needs with the incenri e and the
appropriate moti ational programs ............................................................... 15
4._. f Respondents by departments ........................................................................ 45
.2.2 Respondent by management le el. ................................................................. .45
4.3.1 Respondents scores on opinions .................................................................... 46
4.3.2 Respondents scores on preferences ................................................................. .47
.4.1 Pre£; rences statements s ores .......................................................................4 8
4.4.2 Opinions statement scores .......................................................................... 49
4.5.1 The rewards: means and standard deviations ..................................................... 50
4.5._ The Opinions to the rewards: means and standard de iations ................................... 50
4.6.1Correlation matrix ...................................................................................... 77
4.6.2Communalities eigen alues and e tracted factors ............................................... 81
4.6.3The 10 factor loadings before rotation .............................................................. 82
4.6.4The 10 factors and their loadings after rotation ................................................... 84
4.6.5Factor transformation matrix ........................................................................ 86
4. 7. I Preferences and occupations ........................................................................ 55
4.7.2 Preferences and seniority ............................................................................ 57
4.7.3 Opinions and occupations ........................................................................... 57
4.7.4 Opinions and management level .................................................................... 59
4.7.5 Preferences and schemes ............................................................................. 59
4.8.1 Preference and their frequencies ...................................................................... 60
viii
B TRACT
In an att~~pt to determin managers' compensation pr fer nces and the rete an f th e isting
compensation schemes in the Banking Industry of Ken a. this study was de igned to take th
narure of a urvey and fo u on cas srud of the ooperati e Bank of en. a. The
condary data that guided in the conceptual frame work took a moti ation theory based approach
to the broad iew of compensation. Thi enabled the de elopment of the research instrument by
wa of the items of compensation of both intrinsic and extrinsic nature categorized into either
•
economic or non economic rewards and incentive . Out ofU1e 40 questionnaires gi en out. only 33
of them were responded to by an equi alent number of managers from the Bank. The were
required to respond to them by asserting their degre of importance of the items listed in a -- point
Liken scale as ell as their opinions towards the items of compensation . The instrument as found
to have high reliability and internal consistency of 0.77 measured by the Coefficient Alpha. The
fmdings of the study were analyzed using both parametric and non- parametric techniques of
Factor Anal si Z- statistic and chi- square statistic respecti ely.
The results of the srudy showed that the managers ha e significant compensation preferences
whi h are weakly a sociated with the demographic variables of occupation and s niority and
relati el different across the items of compensation. Ten factors were extract d as the most critical
issue of concern for compensating the managers in the Bank, some of which are highly
correlated. Those non-economic items were relatively more preferred to the economic ones. It was
aJ o found that the current compensation scheme of compensation is irrele ant with an expected
utility of zero with regard to the identified preferences of th managers. The irrelevance was
theoretically explained as no£ to be emanating from the items of the scheme per e but from
reasons that touch on structural and administrative issues of these rewards that are incongruent with
the postulates of motivation theory to compensation. Ho" ever the study concluded by noting that
the sample size drawn was too small to generalize these fmdings across the entire Banking
industry and the Kenyan Econom at large.
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