The relationship between performance-related pay and employee motivation at Affiliated Computer ...

74 Pages·2013·0.79 MB·English

The relationship between performance-related pay and employee motivation at Affiliated Computer Services
(ACS), A Xerox Company in Montego Bay, Jamaica

Submitted by:

Sherie A. Brooks
069022403

Subject Area: OB, ER & HRM

Supervisor: Dr. Deborah Price

Submitted: November 23, 2012

Dissertation submitted to the University of Leicester in partial fulfilment of the
requirements of the degree of Master of Business Administration

CONFIDENTIAL
TABLE OF CONTENTS

Acknowledgements........................................................... ............................................................ 3
Executive Summary........................................................... ............................................................ 4

Chapter 1: Introduction

1.1 Background................................................................................................................ 5

1.2 Compensation as Strategy.......................................................................................... 6

1.3 Performance Related Pay & Motivation.....................................................................7

1.4 The ACS Link............................................................................................................. 7

1.5 The Approach................................................. ............................................................ 8
Chapter 2: Literature Review
2.0 The Role of PRP............................................. ............................................................ 10
2.1 PRP Key Success Factors............................... .............................................................1 1
2.2 Drawbacks of PRP......................................... ............................................................. 14

2.3 The Merits of PRP...................................................................................................... 16

2.4 Theories of Motivation............................................................................................... 19

2.4.1 Content Theories............................................................................................... 19

2.4.2 Process Theories............................................................................................... 20

2.4.3 The Final Analysis........................................................................................... 20

Chapter 3: Data and Methods

3.1 Research Method............................................ ........................................................... 22
3.2 Sample Population.......................................... ........................................................... 22
3.3 Research Instrument....................................... ........................................................... 22
3.4 Questionnaire Design..................................... ............................................................ 23
3.5 Pilot Test........................................................ ............................................................ 24

3.6 Ethical Considerations............................................................................................... 25

Chapter 4: Analysis and Results

4.1 Profile of Respondents............................................................................................... 26

4.2 Results for Research Question 1................................................................................ 29

4.3 Results for Research Question 2.................................................................................3 2

4.4 Results for Research Question 3.................... ............................................................ 40
Chapter 5: Discussion and Conclusions
5.1 Discussion...................................................... ............................................................ 47
5.2 Conclusions.................................................... ............................................................ 52
5.3 Theoretical Implications................................. ............................................................ 53
5.4 Recommendations.......................................... ............................................................ 53

5.5 Limitations................................................................................................................. 54

5.6 Reflections................................................................................................................. 54

References..................................................................................................................................... 56

Appendices:

Appendix 1 - Dissertation Proposal.......................................................................... 61

Appendix II - Participant Information Sheet........ ...................................................... 71
Appendix III - Questionnaire............................... .................................................... 72

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ACKNOWLEDGEMENTS

I would like to thank several persons who have provided invaluable support that aided in the completion of
this paper. Firstly, to my dear friends Nicholas and Alphanso who have always believed in me and never
stopped encouraging me to try and accomplish what I had started. They have been a constant source of
strength and support from the outset and have always had my best interests at heart. Also to my closest friend
Tracey-Ann who made regular checks on my progress, kept me on a timetable and made sure to encourage
me to follow the guidelines given, I am forever grateful.

To my dissertation tutor, Dr. Deborah Price, I have benefitted tremendously from your feedback, even when I
dreaded the fact that changes might be recommended and I would have to do more work, feedback was
always insightful, thorough and of course added more substance to this paper.

To my big brother who has always been my sounding board, to whom I can turn with every question for
which I had no answer and who proof read whatever I needed him to review in the midst of all his
professional and family obligations - you have always held a special place in my heart and my life and
continue to do so as you have been the father figure I wish I always had in my life.

To my mother, Mrs. G. Brooks who has always been my biggest and loudest cheerleader, though not much of
a talker; who has from day one driven home the fact that education was not a choice but an imperative and
who has been my shoulder to lean on when the going got tough, I am eternally in your debt.

I appreciate and thank you all wholeheartedly.

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EXECUTIVE SUMMARY

Performance related pay has been a topical issue within organizations for many years, perhaps as long as
businesses have had to compete for limited markets. It has become more of a hot topic in Jamaica recently, as
the Minister of Education proposes performance pay for teachers (McPherson, 2012) sparking much support
as well as controversy (Douglas, 2010) as the country looks at alternatives to traditional modes of operation
to compete globally as well as the prevalence of global companies choosing to set up operations here. With
recent pronouncements about implementing performance pay in the public sector, it seemed timely to explore
its current existence, albeit not in the public sector at this time, as very little is known about its prevalence in
the Jamaican context. This paper will explore the relationship between the practice of performance related
pay and its impact on the levels of employee motivation within ACS Jamaica Ltd., (ACS), a Xerox Company
in Montego Bay, Jamaica.

The literature review looks at the various forms that performance related pay can take to give a
comprehensive appreciation of its existence, prerequisites, challenges and benefits. The review also briefly
looks at the challenges of evaluating performance related pay (PRP) plans and gives an overview of several
theories of motivation to provide some background for the structure of the research instrument. A structured
questionnaire comprising 30 questions was then used to gather data from respondents. It was revealed that a
modest relationship exists between PRP and the level of motivation of employees at ACS which has
impacted how much effort employees are willing to put out in the completion of job functions. Is was also
revealed that this level of motivation has been impacted positively by the fact that the management had done
an admirable job of including employees in the development process and making sure targets and goals are
communicated clearly, impacting morale positively. From the study, it is also apparent that the performance
related pay review and feedback process has also impacted the views and motivation levels in a negative way
in addition to the fact that the pay-performance link is not as clear as it should be.

Further, the paper provides the practical limitations as well as suggesting possible areas of improvements and
actions to be taken by management to address the challenges revealed by the study in this under-researched
field of performance related pay within Jamaican businesses.

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CHAPTER 1

INTRODUCTION

1.1 Background

As businesses grow and change in order to compete within today’s global environment, many firms have had
to assess the way they operate in order to survive. Production, marketing and human resource strategies have
had to be revamped, re-defined and re-engineered in order to keep abreast of the constantly changing, volatile
environment characterizing the world of trade. Today’s firm must operate so that all its units function
flawlessly based on inter-dependencies and synergies among and within all its functional areas. Even though
there have been question marks about the relative importance of the human resource management (HRM)
function within organizations, (Massey, 1994), there are inherent risks if firms do not effectively manage the
functions that fall under the portfolio. The critical functions of HRM, as seen in figure 1 from (Massey, 1994)
can make the difference between success and failure in responding to continuous changes in the competitive
environment in terms of productivity, quality, efficiency and costs. The organization must therefore equip
itself with the highest quality human resource to have that advantage in responding to critical changes. Its
HRM practices therefore perform the absolutely critical functions of attracting, training and retaining these
assets.

Figure 1 – A Strategic Approach to Human Resource Management

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1.2 Compensation as Strategy

In recent times, new perspectives have been formed as organizations recognize that their financial
performance depends on the contribution of their employees, (Anon, 2004), and this has led to incentive
schemes, among other things, becoming intertwined with overall business strategy and objectives. It is
crucial that staffing, financial incentives and training systems are enmeshed with the strategic aims of the
firm as when utilized together, (Anon, 2004), these practices can set one company apart from the other.
Compensation, particularly, relating pay to performance, has therefore become a critical part of overall
strategic vision for many organizations, (Appelbaum and Shapiro, 1991) as a company’s human resource can
potentially create for it competitive advantage if the firm can carve out a reputation as being preferred
employer valuing high performance and effectively rewarding same, (Konrad and Deckop, 2001). The
importance of this resonates from 473 respondents to a SHRM Practices survey in 2000 (Konrad and
Deckop, 2001), for whom career opportunities, benefits offered elsewhere and compensation are the most
common reasons for employees leaving a company. Throughout literature, the compensation systems that
encompass any aspect of performance-based pay have been termed performance based or performance-
related (Belfield and Marsden, 2003); throughout this paper, the term performance-related pay or PRP will be
used to denote all instances where performance is linked to pay.

The development of alternative compensation systems has been linked to the existence of foreign ownership
of businesses and imported management practices,( Barth et. al., 2003) as suggested by studies done of
various companies, as multinationals have become important players in the global economy and increasingly
diverse cultures are impacting their HRM practices, (Konrad and Deckop, 2001). Globalization has meant the
free movement of people across the globe and HRM practices geared towards the management of people
across national boundaries, (Anon, 2004). It has also resulted in companies in the USA and other countries
now moving towards pay systems, such as competency-based and variable pay plans, that are flexible and a
better strategic fit for a complex and changing business environment, (Konrad and Deckop, 2001). Variable
pay plans seem to be the most significant trend that has developed recently, (Konrad and Deckop, 2001) and
include bonuses, profit sharing, gain sharing where salary increments are awarded based on individual or
company performance (Lewis, 1991) that are the result of objective or quantitative assessment. So pervasive
is this trend of PRP that it is now considered a standard element in a firm’s competitiveness, (Belfield and
Marsden, 2003) and the explanations behind its growth range from the need to increase employee motivation
and effort (Brough, 1994), to aligning corporate and individual goals.

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1.3 Performance Related Pay and Motivation

While there is evidence from traditional incentive schemes that suggests that money is an extremely powerful
motivator, (Brough, 1994) and so therefore it makes sense to link pay to performance, there are other writers
who have provided their own evidence to disprove the benefits of PRP though others believed that these pay
systems have been used as tools to motivate high performance in line with motivation theories, (Brody et. al.,
2001) as employees realize the direct relationship between pay and performance. Contradicting Brody,
(Appelbaum and Shapiro, 1991) suggested that basic job satisfaction, a challenging job or recognition by
one’s peers are stronger motivators for higher performance as incentives only motivate employees until the
reward is given, (Hanley and Nguyen, 2005). Complicating the PRP debate are other views that in order to
motivate, incentive amounts must be more than ten percent of base pay (Brough, 1994) and be implemented
under certain conditions only, or that its foundation within the organization must be based on fairness and
equity (Milkovich et. al, 1991) among other things. So much of the research gives conflicting reviews about
PRP that the only consensus appears to be the view that in theory, PRP is a good concept as few would argue
against those who work harder being rewarded for doing so and studies have found that the objective behind
it adoption within organizations is the goal of increasing motivation and rewarding good performance
(Randle, 1997). However, the question of its usefulness and impact has at best been problematic and it has
proven very difficult to determine whether it has achieved the purposes for which it was introduced (Randle,
1997); additionally, so prevalent are arguments both in support of and regaling the disadvantages of PRP and
so lacking are the objective evaluations of its operation to establish if declared objectives are being met
(Lewis, 1991) that they warrant further research about its usefulness and universal applicability.

1.4 ACS Link

Jamaica has long been very attractive to overseas investors based on its proximity to North America, robust
telecommunication system, strong infrastructure as well as incentives for multinationals to invest here. To
capitalize on the opportunities to be had from outside investment the country has created ‘free trade zones’
under the Jamaica Export Free Zones Act of 1986 (www.miic.gov.jm). Initially, these free zones encouraged
businesses involved in textile manufacturing to set up operations mainly in Kingston and Montego Bay.
Recently however, these overseas companies have evolved into Call Centres, Data Processing, Finance and
Accounting, Procurement and even Human Resource Management companies, signalling the growth of the
BPO (Business Process Outsourcing) in Jamaica. ACS has grown through a series of acquisitions since
1988, into one of the largest employers on the island with over four thousand (4000) employees in three
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different locations, undertaking all of the outsourced functions listed before on behalf of both local and
foreign companies. The company operates in a highly competitive and controversial environment dealing
with confidential matters for its clients across more than 100 countries, (www.acs-inc.com). Its
compensation practices are a part of its competitive strategy and are built on the principle of paying
employees at all levels of the organization based on performance. Further to this, the whole concept of PRP
has been much debated in Jamaica in recent years and these two factors combine to make this company a
prime target for a study on PRP.

1.5 The Approach

Based on the premise from literature that some link appears to exist, though this link seems very elusive,
between the practice of PRP and employee motivation, this research paper seeks to ascertain whether or not
this exists at ACS, Jamaica location and if so, to what extent and what type of relationship this is, whether
positive or negative. Since to the best of the researcher’s knowledge, no study of this nature has been done
locally, the goal is to add to the body of knowledge surrounding this practice, albeit its application may be
limited to similar companies carrying out similar functions. This empirical study walks through what is
known about why companies choose to employ compensation practices that are based on performance,
giving examples of those that have both successfully and unsuccessfully operated PRP plans. To set out the
parameters of this study, the research question and sub-questions have been developed as follows:

Research question:
Is there a relationship between performance-related pay and the level of employee motivation at ACS
Jamaica Ltd?

Sub-questions:
1. Are employees a part of the process of developing PRP targets?
2. Is there review or evaluation of compensation plans? Are there processes in place to facilitate this
evaluation or review? Are employees familiar with these processes?
3. To what extent does paying for performance affect the levels of employee motivation within the
organization?

Based on these questions, a review of the existing literature shows in greater detail the plethora of views
surrounding PRP which makes it difficult to form a concrete opinion on the subject and therefore lends itself
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to more studies; the paper breaks down the arguments in support of and those against the use of PRP across
organizations of various kinds and in different locations. Much of the literature points to the fact that PRP is
now an integral part of many labour market employment relationships but evidence about its effectiveness
are inconclusive.

The questionnaire developed is based on the main elements coming out of the literature review in order to
enable the researcher to draw informed conclusions at the end of the study. A quantitative method was
chosen and these figures from the study are presented in the following chapters with detailed analyses of
what respondents have indicated are their views on the questions asked. The researcher attempts to critically
analyze the findings so that an answer to the sub-questions, leading to a conclusion to the main question, can
be formulated. The paper concludes with discussion of the findings, conclusions, recommendations and an
overview of the entire research process.

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CHAPTER 2
LITERATURE REVIEW & THEORY

2.0 Role of PRP

This literature review focuses on studies that have been done on this topic over the last twenty years. Much
opinion abounds about PRP with (Wright and Brading, 1992), indicating that there is strong economic case
and that is logical that pay should be linked to those things associated with the success of the organization.
In fact, the very life of the organization may rest upon the company being prepared to link employee pay to
its success, (Wright and Brading, 1992). For many organizations to excel, relating individual performance to
pay is and always will be a sound principle, (Harrington, 1998), as winning organizations need to focus on
and reward individual excellence for its own survival. (Harrington, 1998:2) opined that “there is nothing
wrong with the performance planning, evaluation, and reward concept”, problems arise when there is
ineffective implementation of the concept, as in theory, most persons believe in the PRP philosophy,
(Appelbaum and Shapiro, 1991), but the challenge is in finding the right motivational forces to aid in
accomplishing corporate goals. So critical is finding these forces that (Thompson and Strickland, 2001) felt
that in garnering support and commitment to successfully executing its strategic goals, a company’s most
valuable tool is a properly designed compensation system. Additionally, ambitious employees who love
challenges and thrive in a performance-driven environment are critical to the success of a high performing
organization, (Thompson and Strickland, 2001) and the principal-agent problems in many organizations is
effectively addressed by PRP as a CEO with no personal stake in the success of the organization has no
incentive to maximize shareholder value (Mishra and Nielsen, 1999) and improve the firm’s bottom line
performance (Traichal et. al., 1999).

While PRP systems have now become very popular in their application to the point where few persons
question their validity, (Appelbaum & Shapiro, 1991), this concept is still a relatively new phenomenon but
there has been much growth and interest since the 1980s and this interest is likely to be maintained, (Lewis,
1991) drawing reference to a survey of 450 executives in 11 countries done in 1989 who indicated that PRP
was the most important HR issue to be addressed in their organization in years to come. Further to this,
Lewis explained, is that in order to motivate key employees, many organization have introduced PRP or
amended their current systems in response to changing objectives, citing in particular the Civil Service, local
governments among others, in an attempt to drive home the necessity of holding both managers and other
workers accountable for individual job performance against predetermined criteria. This has become more
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