AN INVESTIGATION ON THE INFLUENCE OF FINANCIAL COMPENSATION ON EMPLOYEES’ PERFORMANCE IN RETAIL OUTLETS.

A survey of selected supermarkets in Meru Town

By

BUS-1-0622-2/2010

A Research project Submitted in Partial Fulfillment for the Requirement of a Degree in Business Administration of Kenya Methodist University.

AUGUST, 2012

DECLARATION

I hereby declare that this is my original work and has not been presented for any examination purposes in any university or institution for the award of a degree, diploma or certificate.

SIGN……………..

NAME: MARY NGUGI

DATE………………………………..

This research project has been submitted with the approval of the University Supervisor;

SIGN………………

SUPERVISOR: MS. ROSELYN KINYAMU

DATE…………………………….

DEDICATION

I wish to dedicate this to my parents Mr. and Mrs. Muriuki, my siblings George and Christine and to my friends for the great support they have given from the beginning and to the supervisor who was supportive and very encouraging. May God bless them.

ACKNOWLEDGEMENT

Special Thanks to the Almighty God for giving me wisdom, endless favors and the ability to do this proposal successfully.

I would like to recognize the contribution of my supervisor, Ms Roselyn Kinyamu, for her time, help and guidance throughout the proposal. I extend my sincere gratitude and appreciations to my family for their moral and financial support and to everyone who has contributed in making this proposal a success.

DEFINATION OF KEY TERMS

The following definitions were adopted for the research.

• Compensation

The word compensation may be defined as all forms of financial returns, tangible services and benefits that an employee receives in his/her tenure of employment.

• Performance (Dharma, 1991)

He stated that performance is something that is done or the products / services produced or provided by any person or group of people.

• Employee performance (Byars and Suhartini, 1995)

They stated that employee performance is a combined result of effort, ability, and perception of tasks.

• Retail outlets

Retail outlets are comprised of companies involved in the selling of products to end user consumers.

Table of Contents
DECLARATION 2
DEDICATION 3
ACKNOWLEDGEMENT 4
DEFINATION OF KEY TERMS 5
ABSTRACT 8
CHAPTER ONE: INTRODUCTION 9 1.1 Background of the Study 9

1.2 Statement of the problem 11

1.3 General objective 11

1.4 Specific objectives 11 1.5 Research questions 12

1.6 Importance of the study 12

1.7 Limitations of the study 12

1.8 Scope of the study 12

1.9 Assumptions of the study 12

CHAPTER TWO:LITERATURE REVIEW 13 2.1 Introduction 13

2.2 Theoretical review 13

2.2.1 Equity theory 14

2.2.2 Reinforcement and Expectancy Theories 14

2.2.3 Agency Theory 15

2.2.4 Bonuses influence on employee performance 16

2.2.5 Commissions influence on employee performance 17

2.2.6 Salary influence on employee performance 18

2.2.7 Benefits influence on employee performance 19

2.2.8 Financial compensation and employee performance 20

2.3 Empirical review 20

2.4 Study gap 23

2.5 Conceptual Frame work 23

2.6 Operational Framework 24

CHAPTER THREE: RESEARCH DESIGN AND METHODOLOGY 25 3.1 Introduction 25

3.2 Research design 25

3.3 Target population 25

3.4 Sampling frame and Sample Size 26

3.5 Data collection methods and instruments 26

3.6 Test of Validity and reliability 27

3.7 Data statistics and presentation 27

3.8 Ethical considerations 27

CHAPTER FOUR: DATA ANALYSIS, PRESENTATION AND INTERPRETATION 28 4.0 Introduction 28

4.1 Presentation and Findings 28

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS 37 5.0 Introduction 37

5.1 Summary of Findings 37

5.2 Conclusion 38

5.2 Recommendation of the Study 38

5.3 Recommendation for Further Studies 38

REFERENCES 39

APPENDIX 1: INTRODUCTION LETTER 42
APPENDIX II: QUESTIONNAIRE: 43

ABSTRACT

Financial compensation plays an important role in determining an employees’ performance. Performance is determined in terms of profitability, market share and sales volume. The main objective of this project was to investigate the influence of bonuses on employee’s performance and establish whether commissions influence employee’s performance in supermarkets in Meru town. It also aimed at determining whether salaries and benefits have influence over the employee’s performance in supermarkets in Meru town. The financial compensation variable which includes bonuses, commissions, salary and benefits leads to differences in employees’ performance. The research was aimed at assessing the influence of financial compensation on employees’ performance in selected supermarkets in Meru town. It showed that employee’s performance in supermarkets in Meru town highly depend on the financial compensation. The study was based on a survey of 3 supermarkets in Meru town. The results show whether financial compensation influences the performance of employees in the supermarkets. The study adopted descriptive research design, in order to evaluate the influence of financial compensation on employees’ performance in selected supermarkets in Meru town. The population comprised of 3 managers, 23 supervisors and 85 low level employees in the supermarkets. Questionnaires were the main data collection tool. The study applied purposive sampling method to pick the sample size. The study findings indicate whether the selected supermarkets in Meru town applied the theories of compensation and evaluate how financial compensation influence employees’ performance.

CHAPTER ONE: INTRODUCTION

In this chapter an introduction of the research study is provided. This chapter contains the background of the study, statement of the problem, objectives of the study, significance of the study, limitation of the study, scope of the study and assumptions.

1.1 Background of the Study

Job performance is influenced by many factors. According to Kreitner and Kinicki (2007), performance management is continuous cycle of improving job performance with goal setting, feedback and coaching, and rewards and positive reinforcement. In this study the focus is given to financial compensation. An investigation will be conducted at supermarkets in Meru town to see how financial compensation affects job performance of the employees. The question that has prompted this investigation is what degrees at which the salary, bonuses, benefits and commissions collectively or individually have influence on employee performance?

Job performance is a measure of compensation but it is only one part of it. Compensation generally is a key factor in productivity, organizational effectiveness as well as in the well being of people. The way people are compensated is an aspect of the organizations in different parts of the world; manage the disjuncture between life at work and life outside work. Financial compensation schemes based on pay are often developed in individualistic cultures, where the relationship with employees is seen as instrumental and contractual. This may be based on the achievement motive perspective ( McClelland, 1985). More sophisticated human resource management systems in many western countries emphasize a wider spectrum of incentives based on the design of jobs, levels of involvement and participation, promotion opportunities, working conditions as well as pay.

Although there is some evidence of the introduction of financial compensation schemes globally especially in countries that are assumed to have a collectivist culture. For instance in Japan a more inclusive concept of compensation is employed which is based on instilling good performance in the organization. This may provide an explanation of why work commitment and productivity are high (Jackson and Bak, 1998).

The boom in the retail sector in India and its corresponding spike in demand for talent has under scored the need for effective HR systems. The function of human resources has special significance in retail as the employees operate in a unique environment. In any retail organisation, the people who deal with the customers at a one to one level are considered to be the face of the organisation. According to a recent study conducted by Wharton (2007) at a Canadian consulting firm on retail customer dissatisfaction, it was found that disinterested, ill-prepared and unwelcoming salespeople lead to more lost business and word-of-mouth than any other management challenge. Thus, there is utmost need for effective HR systems to encourage and develop employees, manage performance, reward recognition which helps to increase the opportunity for employee advancement and to retain engaged employees.

In Africa the biggest challenge is ensuring employees contribution to business results and figuring out what kind of reward and recognition program to implement. Compensation consists of direct financial compensation and indirect financial compensation. Direct financial compensation consists of salary, wages, bonuses, and commissions. The indirect financial compensations are also called benefits, which are all financial compensations not covered by the direct compensations. The non financial compensations consist of employee satisfaction, such as responsibility, opportunities for recognition, the chance of promotion, or from psychological and physical environment in which the employee works, such as a pleasant work environment, sound policies, a cafeteria, work sharing, compressed work week and the free time It should be fair to both the retailers and its employees (Mondy & Noe, 1993). For example, Pick n Pay in South Africa experienced a turnover of 5.9% in 2011 which was contributed by the national labour strike. Despite the dramatic fall in food inflation and many price decreases customer turnover still remained high due to employees strike. At Pick n Pay, management is increasingly investing in employee satisfaction surveys, which (Mr. Wynne, 2011) the company had not employed much previously which led to the strike which affected performance.

The Kenyan retail sector is undergoing dramatic changes in competition and higher customer expectations by providing new goods and services and conducting promotional campaigns. Employee motivation is a continual challenge where failing back could mean the death of the retail sector, lack of extrinsic motivators like financial compensation will affect employees’ performance which has been established to be directly related to employees’ motivation. This assertion was collaborated by different management theories since the work of Fredrick Taylor (Oyedele, 2010). Supermarkets play a crucial role in the social economic development of Kenya, therefore, better motivated more efficient and effective employees in this sector would contribute to the country’s growth and development (Siku, 2010).

In Meru town the major retail outlets are the supermarkets with a total of four supermarkets namely Nakumatt, Uchumi, Budget. Nakumatt is the largest supermarket in Meru and on February, 2010 it was awarded the Super Brand Status by Super Brands East Africa. Never before, perhaps, has an engaged workforce been so important in helping retailers stay afloat in a slumping economy. Retailers that can keep their workforce focused on delivering high-quality customer service will be well positioned to grab market share when the economy rebounds (Siku, 2010). Therefore retail outlets should focus on quality compensation to improve their performance. The study was focussed on investigation of financial compensation dimensions on the performance of supermarkets in Meru town.

1.2 Statement of the problem

Chapman and Torrington (1987), maintained that an employer believes that employees should be paid a fair amount in relation to the skilled and effort that have been exercised. Employees on their part believe that there is a reasonable level of payment that can be expected for the contribution made, so that if the pay is low they get dissatisfied leading to poor performance. The focus of the employee compensation literature has been on understanding why organizations differ on determinants, and assessing whether such differences have consequences for employee attitudes and behaviors. Over the past years, many organizations have been experiencing challenges on the issue of compensation of employees. These issues are caused by various problems which include the organizations’ failure to understand the effective and most satisfying criteria of compensating employees either financial or non financial (Gerhart, Milkovich, & Murray, 1992).

The study was to determine whether theoretically the variables of compensation are applicable in Kenyan retail outlets among supermarkets in Meru Town.

1.3 General objective

The studies main objective was to determine the influence of financial compensation on employees’ performance in retail outlets.

1.4 Specific objectives

1. To investigate the influence of bonuses on employees’ performance in supermarkets in Meru town.

2. To establish whether commissions influences employee performance in supermarkets in Meru town.

3. To determine whether salaries influence employee performance of supermarkets in Meru town.

4. To find out whether benefits influences employee performance in supermarkets in Meru town.

1.5 Research questions

1. Could bonuses have any influence on employee performance in supermarkets in Meru town?

2. Could salary be a contributing factor in employees’ performance of supermarkets in Meru Town?

3. Is there a relation between commission and employee performance in supermarkets in Meru Town?

4. How do benefits influence employee performance in supermarkets in Meru Town?

1.6 Importance of the study

The recommendations from the research findings will help business organizations, to advance employee compensation to enable more productivity and competitiveness. The government also will get significant information to help in review and affirmation of the labor laws Act, so as to protect employees’ compensation in business organizations.

The study will also be useful to human resource students and academicians who are interested in this field. The supermarkets’ managers will be able to understand how to ensure they achieve their objectives through financial compensation dimension.

The findings of the study will also establish how good compensation dimensions play a vital role in the performance of retail outlets hence their growth. With the growth of retail outlets, the country will be geared towards economic prosperity.

1.7 Limitations of the study

Some of the information accessed was very sensitive but to eliminate any fear from the respondent i assured them that the study will ensure confidentiality and will be used only for academic purpose.

1.8 Scope of the study

This study was carried out in Meru Town. It was based on 3 selected supermarkets and focussed on whether financial compensation had an impact in employees’ performance. The focus was managers and permanent employees who have a strategic understanding about what financial compensation is all about.

1.9 Assumptions of the study

The study assumed that the information provided by the respondents was true. It also assumed that the data collection sources are valid and current.

CHAPTER TWO:LITERATURE REVIEW

2.1 Introduction

The purpose of the chapter is to enable the researcher to identify the variables influencing financial compensation extent on performance of retail outlets as suggested by various authors who have carried out studies on the same. This chapter addresses the researcher objectives through analysis of the theoretical and empirical review.

2.2 Theoretical review

Retail stores are not static entities but are active, cycling organizations that evolve through time and are influenced by and in turn influence a variety of other variables. The study of retailing is complex with many interconnecting variables and influences. Although retail evolution has been extensively studied in Western retailing, little is known about retail and its evolution in African countries ( Kim & Kincade,2006).

Retail sales have changed over the years by becoming more comforting to shoppers by introducing their own credit cards for preferred shoppers, special hours for shoppers to come in and receive early bird incentives and also restaurants and day care centers built right into the stores. Many retailers also offer a hand on approach to their retail items, allowing customers to try out items before they buy them right at the store. In this kind of environment the customers always deal with employees. When these employees are dissatisfied they tend to react negatively towards customers leading to poor performance of the organization (Larwood et al, 1988).

Over the years, a considerable amount of literature has been developed, which seeks to improve understanding in compensation systems and the extent to which they can influence the levels of employees’ commitment, motivation and eventually, job satisfaction. According to Lawler (1971), compensation systems are one of the most widely researches and written subjects in the field of management and organizational behavior, yet it remains one of the less understood topics.

Financial Compensation refers to returns to the services rendered by employees as part of employment relationships; they may include bonuses, commissions, wages and salary. Compensation is a form of rewards that flow to employees arising from their employment (Dessler (1995). Performance is defined as the achieved results of operations with the capabilities of the employee who acts in certain situations. According to Byars (1995) employee performance is a combined result of effort, ability, and perception of tasks. High performance is a step towards the achievement of organizational goals. Therefore, efforts are needed to improve employee performance which includes good compensation of the employees. To sum up Financial compensation satisfies the subordinates by providing those rewards in terms of salary, wages, bonuses, and commissions. These have been recognized as a chief source of satisfying the needs of people. Finances are also helpful to satisfy the social needs by possessing various material items. Therefore, financial compensation not only satisfies psychological needs but also the security and social needs. Therefore, there is need to introduce various wage plans and bonus schemes to motivate and stimulate employees’ performance.

2.2.1 Equity theory

Adams (1965) equity theory as presented in Spector (2008) posit that employees seek to maintain equity between the input that they bring into a job (e.g. education, time, experience, commitment, effort) and the outcome they receive from it (e.g. promotion, recognition, increased pay) against the perceived inputs and outcomes of other employees. Equity theory proposes that individuals who perceive themselves as either under-rewarded or over-rewarded will experience distress, and that this leads to efforts to restore equity within the organization. Failing to find any, Hellriegel, Jackson, Slocum, Staude, Amos, Klopper, Louw and Oosthuizen (2008:276) argue that they may behave in ways that harm the organization. For example, dissatisfied employees may react by withholding effort in order to restrict output or lower quality, or embark on deliberate sabotage of equipment. This may also put the organization at competitive disadvantage. An under-rewarded employee tend to show feelings of hostility to the organization and perhaps their co-employees which may lead to reduced productivity and this may impair the overall performance of the organization especially when high performing employees are involved.

2.2.2 Reinforcement and Expectancy Theories

Reinforcement theory states that a response followed by a reward is more likely to recur in the future (Thorndike’s law of effect). The implication for compensation management is that high employee performance followed by a monetary reward will make future high performance more likely. By the same token, high performance not followed by a reward will make it less likely in the future. The theory emphasizes on the importance of a person actually experiencing the reward.

Expectancy theory (Vroom, 1964) focuses on the process by which people are motivated and not by the content of the specific goals. Under this theory people’s efforts are geared towards a reward and ability to achieve them. Employees usually determine in advance what their behavior may accomplish and outcomes.

If an organization does not acknowledge its employee there can be a breakdown in motivation. This theory could also be thought as a process in which individuals calculate first whether there is a connection between effort and reward and then the probability would follow form high performance. The motivation force of a job can therefore be calculated.

Expectancy theory states that motivation will be high when people know what they have to do to get a reward, expect that they will be able to get the reward and expect that the reward will be worthwhile. The concept of expectancy was originally contained in the valence-instrumentality-expectancy (VIE) theory formulated by Vroom (1964). Valency stands for value, instrumentality is the belief that if we do one thing it will lead to another and expectancy is the probability that action or effort will lead to an outcome.

The strength of expectations may be based on past experiences (reinforcement) but individuals are frequently presented with new situations-change in job, payment system, or working conditions imposed by management- where past experiences is an inadequate guide to the implications of the change. In these circumstances, motivation may be reduced.

2.2.3 Agency Theory

Agency theory, until recently best known in the economics, finance, and law literatures, focuses on the divergent interests and goals of the organization's stakeholders, and the ways that employee compensation can be used to align these interests and goals (Eisenhardt, 1989;
Fama & Jensen, 1983). Ownership and management (or control) are typically separate in the modern corporation, unlike the days when the owner and manager were often the same person.
With most stockholders far removed from day-to-day operations, so-called agency costs (i.e. costs that arise from the interests of the principals/owners and their agents/managers not converging are created. What is best for the agent/manager may not be best for the owner.

Examples of agency costs include management spending money on perquisites (e.g. "superfluous" corporate jets) or "empire building" (acquisitions that do not add value to the company but may enhance the manager's prestige or pay) rather than seeking to maximize shareholder wealth (Lambert & Larcker, 1989). In addition, the fact that managers and shareholders may differ in their attitudes toward risk gives rise to agency costs. Shareholders can diversify their investments (and thus their risks) more easily than managers can diversify risk in their pay. As a consequence, managers may prefer relatively little risk in their pay (e.g, high emphasis on base salary,-low emphasis on uncertain bonuses or incentives). Indeed, research shows that managerial compensation in manager-controlled firths is more often designed in this manner (Tosi & Gomez-Mejia, 1989). Agency costs also stem from differences in decision-making horizons. Especially where managers expect to spend little time in the job or with the organization, they may be more inclined to maximize short-run performance (and pay), perhaps at the expense of long-term success.
Agency theory is also of value in the analysis and design of non-managers' compensation. In this case, the divergence of interests may exist between managers and their employees who take on the role of agents. In designing either managerial or non-managerial compensation, the key question is, "How can such agency costs be minimized?" Agency theory says that the principal must choose a contracting scheme that helps align the interests of the agent with the principal's own interests i.e., reduces agency costs. These contracts can be classified as either behavior oriented e.g., merit pay or outcome oriented e.g., stock options, profit sharing, commissions.

At first blush, outcome-oriented contracts seem to be the obvious solution. If profits are high, compensation goes up. If profits go down, compensation goes down. The interests of "the firm" and employees are aligned. An important drawback, however, is that such contracts increase the amount of risk borne by the agent. Furthermore, because agents are averse to risk, they may require higher pay (a compensating wage differential) to make up for it.
Behavior-based contracts, on the other hand, do not transfer risk to the agent, and thus do not require a compensating wage differential. However, the principal must be able to monitor with little cost what the agent has done. Otherwise, the principal must either invest in monitoring information or structure the contract so that pay is linked at least partly to outcomes.

Mondy & Noe (1993) states that compensation can be divided into two types, namely financial compensation and non-financial compensation. Financial compensation consists of direct financial compensation and indirect financial compensation. Direct financial compensation consists of salary, wages, bonuses, and commissions. The indirect financial compensations are also called benefits, which are all financial compensations not covered by the direct compensations. The non financial compensations consist of employee satisfaction, such as responsibility, opportunities for recognition, the chance of promotion, or from psychological and physical environment in which the employee works, such as a pleasant work environment, sound policies, a cafeteria, work sharing, compressed work week and the free time. In this study the main focus is on financial compensation and how it influences employees’ performance.

2.2.4 Bonuses influence on employee performance

Bonus is a sum of money paid to an employee over and above his standard compensation and is usually performance based. Bonus plans can improve employee performance according to Frederic Skinner, the most influential psychologist of the 20th century. Using the concept of Operant Conditioning, Skinner claimed that an organism (animal, human being) is shaping his/her voluntary behavior based on its extrinsic environmental consequences i.e. reinforcement or punishment. Bonuses may include; Sign-on bonus which is a cash bonus given at the beginning of a service period, usually for accepting an employment offer. Spot bonus which is a type of informal recognition that is delivered in cash, spontaneously or “on the spot and retention bonus which is given to an employee for the completion of an important project (Noe, Hollenbeck, Gerhart & Wright, 1994).
Sign-on bonuses have become commonplace. Their usage now extends to nearly all level of employees in all walks of life, especially when unemployment is low and top talent is hard to find. Sign on bonus is given to new employees who have just joined the company, this award serves the purpose of establishing a goodwill and to buy out any compensation "left on the table" from a previous employer (Miller et al., 2001).
Some companies reward employees on the spot for achievements that deserve special recognition. Spot bonus awards are typically $50 and up and can be made by your immediate supervisor and any higher-level person or peer in your company. You can get these for just being extra helpful (Miller et al., 2001). The math is in employees' favor: companies with spot bonus programs offer approximately 1 percent of payroll and expect to give out such bonuses to 25 percent of the employees eligible for them, allowing them to earn more than one instant bonus in a year.
Retention bonuses are given to employees in unusual circumstances, such as a merger or acquisition, or when an important project needs to be completed. These bonuses are designed to provide continuity when there is potential uncertainty about an employee's continued employment at the company. The bonus lets employees know their employer wants them to complete the project or, in the case of a merger, to stay until a specified date so that critical activities can continue without disruption. Retention bonuses are usually about 10 to 15 percent of salary (Spector, 1997).
Bonuses highly influence employee performance For instance, when one comes up with the Employee of the Month award and with some small financial value, it Creates competitions at work that would yield a great financial result as a company, and the employee would benefit from that as a financial reward as well. Bonuses especially related to performance and sometimes to events will surely have a great impact on employees. How many times I’ve heard my friends speaking of this company or that company that gives away so and so bonuses.

2.2.5 Commissions influence on employee performance

A commission method of compensation is based on determining compensation as a percentage of net sales. This method is a great motivator as it provides a direct relation between results and rewards for example profit sharing, group sales and individual sales.
Profit sharing is paying apportion of company profits to employees separate from base pay, cost of living adjustments or permanent merit pay increases. There two basic kinds of profit sharing, they include current profit sharing and deferred profit sharing. Current profit sharing involves awarding cash to employees typically on a quarterly or annual basis while deferred profit sharing involves placing cash awards in trust accounts for employees. These trusts are set aside on employees’ behalf as a source of retirement income. Current profit sharing provides cash to employees as part of their regular core compensation thus these payments are subject to taxation when they are earned. Deferred profit sharing is not taxed until the employee starts to make withdrawals (Joseph j. Martocchio, 2003). The purpose of profit sharing is to encourage employees to understand how their work affects the company's performance and to improve the company's profitability. Learn how your company makes money and how your position can help it make more (Skinner, 1969). The annual report and other statements will give you an idea of how the company is performing. It will also make you look good to your manager if you show an interest in the company's performance.
Group sales are when employees are compensated according to the overall sales of the group. The members of the whole group are compensated equally despite the contribution of each individual to the sales of the group. Individual sales are when each individual is accounted for the amount of contribution to the overall sales. The individual is paid a certain percentage which they have agreed upon with the employer (Meyer and Allen (1991). Commissions highly influence employee performance especially in the case of positions low in salary and that highly rely on performance and goals, or even positions that bring key financial profit to the organization. This would be a key motivator for employees to keep on bringing in income to the organization.

2.2.6 Salary influence on employee performance

A salary is a form of periodic payment from an employer to an employee, which may be specified in an employment contract. It is contrasted with piece wages, where each job, hour or other unit is paid separately, rather than on a periodic basis Thomas Patton (1977). From the point of a business, salary can also be viewed as the cost of acquiring human resources for running operations, and is then termed personnel expense or salary expense. In accounting, salaries are recorded in payroll accounts (Gerhart & Milkovich, 1992). Types of salary may include allowances, expenditure and payment for overtime.
An allowance is a fixed monetary amount paid by the employer to the employee for meeting certain expenses, whether personal or for the performance of his duties. These allowances are generally taxable and are to be included in gross salary unless specific exemption is provided in respect of such allowance Spector (1997). Allowances may include house rent allowance, commuter allowance, medical allowance and entertainment allowance.
Expenditure is when the organization pays or spends a certain estimated amount on the expenses of the employees. For example, expenses on health and the use of power (Steiner, 1973). When an employee works for extra hours over and above his normal hours of duty, he is given overtime allowance as extra wages. It is fully taxable (Murray & Gerhart, 1994). It is customary for employees working more hours than are normal for the working week to be paid for those hours of an enhanced rate usually between ten and fifty percent more than that the normal rate according to how many hours are involved (Armstrong, 2006).
One cannot stress enough the importance of salary in relevance to employees, as essentially, no employee can sustain a life without a paying job. salary might be the first and last item agreed upon with a job candidate before he becomes an actual employee, to stress the importance of such an item for an employee. And as the employee grows and spends further time with the company, one of the expectations he builds is related to this salary, that it would grow with him as his value increases to the company Meyer and Allen, (1991).

2.2.7 Benefits influence on employee performance

Benefits are forms of value, other than payment, that are provided to the employee in return for their contribution to the organization, that is, for doing their job. Some benefits, such as unemployment and worker's compensation, are federally required. Worker's compensation is really a worker's right, rather than a benefit. An employee benefit typically refers to retirement plans, leave benefits and premium pay, Bassett-Jones and Lloyd (2005).

Retirement plans are when the organization deducts a certain amount of money from the employees’ salary which is paid back when the employee retires. It allows an employee to avoid an abrupt change in lifestyle and move gracefully into retirement. Some firms also provide modified retirement where older employees are permitted to work fewer than regular hours for a certain period of time preceding retirement Armstrong and Murlis (1998).

Leave benefits are designed to help employees balance their work and family responsibilities by allowing them to take reasonable paid leave for certain family and medical reasons. It also seeks to accommodate the legitimate interests of employers and promote equal employment opportunity for men and women. According to Armstrong, (2009) Leave benefits allow employees to take time off from work. The extent of the leave and whether it is paid in whole, in part, or not at all is generally a matter of agreement between an employer and an employee (or the employee's representative). Certain types of leave are required by law, whereas other types are voluntary incentives provided by employers.

Premium pay is compensation paid to employees for working long periods of time or working under dangerous or undesirable conditions. It may include hazard pay and shift differentials.
Hazard Pay is Pay provided to employees who work under extremely dangerous conditions while
Shift Differentials is Paid to employees for the inconvenience of working less desirable hours (Kreitner, 1969).
Benefits do play an important role in employee performance. When you give out lunch coupons, discounts of any sort, movie passes, fund out some service for employees, insurance and social security, all of this would be seen by the employee as a motivational value and adds up to their perception of their financial compensation and hence way and quality of life.

2.2.8 Financial compensation and employee performance

Performance is defined as the achieved results of operations with the capabilities of the employee who acts in certain situations. According to Byars (Suhartini, 1995) employee performance is a combined result of effort, ability, and perception of tasks. High performance is a step towards the achievement of organizational goals. Therefore, efforts are needed to improve employee performance. Dharma (1991) stated that performance is something that is done or the products / services produced or provided by any person or group of people. Swasto (1996) argued that employee performance is the actions or the execution of tasks that were completed by individuals within a certain time. While, Colquitt et.al (2011) noted that job performance is “the set of employee behaviors that contribute to organizational goal accomplishment”.

Although compensation is not the only factor affecting the performance, it is acknowledged that the compensation is a major factor for employee performance improvement. If employees feel that their effort is appreciated and the company offers a system of compensation in association with job evaluation, the employee’s motivation and enthusiasm will improve and hence their performance.
Robbins (2001) stated that when employees feel their efforts are appreciated and the company introduced a system of fair compensation and satisfaction, the company has optimized the motivation. By encouraging employee’s motivation to work there will be increased employee performance.

There has been an agreement between behavioral scientists and managers that the compensation can be used to motivate employees’ performance. This can be understood, that if compensation is intended to motivate good performance, the compensation shall be assessed by the individual and the compensation must relate to the level of performance to be motivated.

The theory of expectations by Victor Vroom, postulates that every behavior has a certain consequence, whether compensation or punishment. If he behaves in a certain way, then he will get certain results. This is the description of the expectation-achievement-acquisition, and each acquisition has a valence or value to the person concerned. Acquisitions can be either financial compensation or non-financial or other things that have different values to different people. If this is the compensation value is used to motivate, the employee will direct the effort to achieve a high level of performance.

2.3 Empirical review

Pfeffer (1994) argued that one of the elements of what effective firms do with people is the use of incentive pay. The design of compensation systems in terms of the form of financial compensation used is critical to the success of the organization. In fact, empirical evidence has found that pay mix is related to financial performance (Gerhart and Milkovich 1990). More specifically, in examining human resource practices, the use of financial compensation is positively related to organizational performance (Huselid 1995; Delaney and Huseli 1996). The theory suggests that using financial compensation better motivates individuals to perform than by simply relying on fixed rewards.

According to Manash R. Ray, Marshall A. Geiger, Narayan S. Umanath the view that compensation should be tied to performance is widespread throughout the organization literature. It is commonly believed that if one wants to motivate high performance, one should attach rewards to it (Eisenhardt, 1988; Fein, 1976; Lawler,1981; Pearce et al., 1985; Rubery, 1995).

Sohrab Ahmad and Khurram Shezad (2011) carried out a study on the impact of compensation, promotion and performance evaluation practices on the performance of university teachers of
Azad Jammu and Kashmir. Authors concluded that compensation has strong and positive impact on performance of university teachers of AJK. Compensation is the major element to influence teachers. The more teachers are compensated fairly the more they will perform better. On the other hand the performance evaluation and promotion practices were insignificant with the performance of university teachers of AJK. The reason for this is most promotion and performance evaluation procedures are vague and not properly practiced.

Baloch et al. (2010) carried out a study about the HRM practices in order to examine their relationship with the perceived performance of employees in private and public sector banks of NWFP. Compensation, promotion and performance evaluation practices were significantly found to be correlated with employee performance. Banks are encouraged to pay proper attention to these three practices

Tahir Masood Qureshi et al. (2010) carried out an empirical study on the impact of HRM practices on financial performance of banks which were selection, training, performance appraisal system, compensation system, career planning system and employee participation. All the practices were positively related to financial performance. But selection training, compensation and employee participation have stronger influence on financial performance of banks.

Muhammad Asif Khan (2010) empirically investigated the effects of HRM practices on organizational performance in oil and gas industry in Pakistan. He observed that recruitment and selection, training and development, performance appraisal, compensation and employee relations, all were associated with organizational performance and they do impact on organizational performance in oil and gas industry in Pakistan.

Md Zohural Islam and Sununta Siengthai (2010) investigated the impact of recruitment and selection, performance appraisal, unionization, training and development and compensation on firm performance in Dhaka export processing zone. Authors concluded that training and development, compensation and performance appraisal all are positively correlated with firm performance where as unionization was found to be insignificantly correlated with firm performance. Shezad et al (2008) carried out a study on impact HRM practices on perceived performance of university teachers of Pakistan. It was hypothesized that compensation, promotion and performance evaluation practices are significantly and positively related to perceived performance of university teachers of Pakistan. Compensation and promotion practices were found to be significantly correlated with perceived performance of university teachers of
Pakistan. Performance evaluation practice was found to be insignificantly correlated with the performance of university teachers of Pakistan.

A survey in 1992 conducted by Heneman (Eskew & Heneman, 1996) on the compensation of senior professionals at 72 firms aimed to test the effectiveness and success rate of pay based on performance in achieving organizational goals. The result showed that performance based pay was successful in influencing the attitude of workers (eg, pay satisfaction) and employee behaviors (eg performance). The result showed an increase of the level of effectiveness of performance based pay when compared with a similar survey 10 years before.

The survey results in 1996 conducted by McLean and Tanner (Hays, 1999) showed that 70% of CEOs (Chief Executive Officer) and 58% of human resource managers said that the company can implement compensation programs to improve performance or productivity of employees. Patton (1999) says "if you heard that money does not provide the motivation to do better or if the compensation in the form of money was ranked low, it is the result of a disability survey." Further, He said that it is funny if a person is not motivated to excel because of money. Because money is an important element, as long as there is a correlation with other elements that are expected of workers to be more appreciated.

Financial reward is one of the factors that produce job satisfaction as mentioned in need fulfillment model by Kreitner and Kinicki (2006). In the study of Khojasteh (1993 revealed that Pay and security were greater motivators for private than for public sectors Professional development opportunities and salary packages are of great importance that create job satisfaction factors (Grace & Khalsa, 2003). top most factors in producing job satisfaction include financial resources, faculty workload, and technology impact (Miller et al., 2001). Compensation systems may affect faculty’s job satisfaction and thus influence intentions to quite as well retention rates. Higher compensation level leads to higher job satisfaction and retention rates for faculty are also higher. An enhanced reward in organizations also enhances job satisfaction (Boyt et al., 2000).

Studies conducted by Opkara (2004) and Samad (2007) have concluded that if workforce is satisfied with their job as well as the organizational environment including its colleagues, compensation, and leadership they will be more committed with the committed with their organization as compared to when they are not satisfied. The importance of these two areas cannot be overlooked because they are the key factors that influence employee’s turnover, employee’s performance, and their productivity. Satisfied and committed workforce is usually are contributor and performer towards enhancing organizational productivity. On the basis of above given literature it is evident that employee compensation has some positive impact on the employee’s job satisfaction and organizational commitment. Organizations that have better compensation management system put a very positive impact on their employees. It is also logical that employees with better compensation will be more satisfied with their job and also committed with the organization.

While a majority of the literature generally advocates contingent pay systems, it is also recognized that under some conditions the implementation of such systems may be dysfunctional. For example, Lawler (1971, 1981) stated that performance contingent pay cannot be used when trust levels are low, when performance cannot be validly and inclusively measured, and when large pay rewards cannot be given to the best performers. Lawler (1971) also acknowledged that under certain circumstances, subjective judgments by superiors and objective performance data should be combined into a managerial performance measure on which pay could be based.

2.4 Study gap

There were no researches conducted on the influence of financial compensation on employees’ performance as all researchers focussed on the influence of human resource practices on employees’ performance. Therefore there was need for researchers to conduct more research on the influence of financial variables on employee performance.

2.5 Conceptual Frame work

Financial compensation

Bonuses

Commissions Employee performance in

Supermarkets in Meru Town

Salary

Dependent variable

Benefits

Independent variables Source: researcher (2012).

The frame work conceptualises independent variables of financial compensation indicated by bonuses, commissions, salary and benefits which influence the dependent variable employee performance of supermarkets in Meru Town.

2.6 Operational Framework

Bonuses sign on bonuses

Spot bonuses

Referral bonuses

Commission profit sharing Employee performance

Individual sales in selected supermarkets . in Meru town

Group sales = execution of tasks,

Organizational goal achievement

And individual production

Salary allowances

Expenditure

Overtime

Premium pay

Benefits Retirement benefits

Leave benefits

Source: Researcher (2012).

CHAPTER THREE: RESEARCH DESIGN AND METHODOLOGY

3.1 Introduction

This chapter highlights the research methodologies, the target population of the data, sampling design and sample size, the data collection technique, validity and reliability, data collection instruments and procedure and finally the data analysis.

3.2 Research design

The research design used in this study was descriptive survey; the study was aimed at collecting information from respondents on their opinions in relation to financial compensation in selected supermarkets in Meru town. A Kerlinger (1969) point out that descriptive study is not only restrictive to fact findings, but may often result in the formulation of important principles of knowledge and solution to significant problems.

Kothari (2008) suggests that a descriptive study is undertaken in order to ascertain and be able to describe the characteristics of the variable of interest in a situation. Mugenda and Mugenda (2008) describe a research design as a plan specifying the methods and procedure for collecting and analyzing data and the needed information. The design was flexible hence allowing the collection of the right data in both qualitative data which fully investigated the influence of financial compensation on employees’ performance in selected supermarkets in Meru town.

3.3 Target population

The research population consisted of 3 supermarkets in Meru Town. According to the data obtained from supermarkets in Meru the targeted population was 308. The sample size was 112 employees of retail outlets who will include 3 managers, 23 supervisors and 30 percent of low level employees. They assisted in identifying how financial compensation influences employee performance.

3.4 Sampling frame and Sample Size

The researcher used purposive sampling technique. The method was used to select the 308 employees in the selected supermarkets which included 128 employees in Nakumatt, 120 in Uchumi and 60 employees in budget supermarkets. 30% of the accessible population can represent the total population (Mugenda, 2006).

The sampling technique was conducted whereby the 3 managers, the 23 supervisors and 30% of the 282 employees among the retail outlets in Meru town formed the target population. See the sampling size below.

|SUPERMARKET |MANAGERS |SUPERVISORS |EMPOYEES |SAMPLE SIZE |
|UCHUMI |1 |12 |112 |47 |
|NAKUMATT |1 |7 |120 |44 |
|BUDGET |1 |4 |55 |21 |
|TOTAL |3 |23 |287 |112 |

Source: Researcher (2012).

3.5 Data collection methods and instruments

Primary sources of data collection were used. This was through questionnaires which were designed as an instrument to guide in gathering the data.

The main tool collection was self-administered questionnaires which assisted in collecting primary data from the respondents. Questionnaires were distributed to the management of the targeted supermarkets.

The researcher also used the “drop and pick” method. The researcher personally gave the questionnaires to the respondents and gave them a period of 12 days, after which the researcher picked them. An introductory letter was used to introduce the respondents to the researcher and also to assure them that the data collected will be handled with utmost confidentiality.

3.6 Test of Validity and reliability

The researcher carried out a pilot test on a sample with similar characteristics to the actual sample to test for validity and reliability. According to Mugenda reliability is a measure of the degree to which a research instruments yields consistent results or data after repeated trials whereas validity is the accuracy in meaningfulness of inferences which are based on the research results.

3.7 Data statistics and presentation

The data from the respondents was then obtained from the research instruments and was analyzed by use of descriptive statistics such as percentages, ranking, scales and averages. This results were then presented in the form of charts, tables, graphs and it is from this presentation conclusions were made.

3.8 Ethical considerations

This study adhered to ethics by getting consent from the respective management to conduct the study in their supermarkets. All the material that were obtained were strictly used for education purposes and were treated with confidentiality from respondents. The researcher will not disclose any names of the respondents. Ethics in research is all about ones conduct and serves as a guide to ones behaviour (Mugenda, 1999).

CHAPTER FOUR: DATA ANALYSIS, PRESENTATION AND INTERPRETATION

4.0 Introduction

The study had a purpose of investigating the influence of financial compensation on employees’ performance in retail outlets.

4.1 Presentation and Findings

Quantitative analysis: The analysis below is done with figures rounded to the nearest whole number.

Fig: 4.1 Response rates of the respondents

[pic]

Source: Author (2012)

From Fig 4.1 above, out of 112 questionnaires 102 (91%) were received back while 9 (9%) were never returned. Most of the employees willingly responded to the questionnaires though others failed to respond. This was due to lack of enough time while others were not allowed by the management to participate in the research.

Table: 4.2 Work Experience

|Years |Frequency |% |
|0 – 2 |30 |29 |
|3 – 5 |50 |49 |
|6 – 8 |22 |22 |
|9 – 11 |0 |0 |
|Above 11 |0 |0 |
|Total |102 |100 |

Source: Author (2012)

Table 4.2 shows that 30 (29%) of the respondents have been in service between 0 and 2 years, 50 (49%) between 3 and 5 years, 22 (22%) for between 6 and 8 years while none of those interviewed had been in service for 9 years and above. This research agrees with Vroom’s Expectancy theory that states that motivation will be high when people know what they have to do to get a reward, expect that they will be able to get the reward and expect that the reward will be worthwhile. Since employees in supermarkets in Meru town are not well motivated by being given rewards like bonuses and allowances they leave the organization after working for a few years. The research also found out that most employees that had worked for over 6 years are employees on top management who were well motivated.

Fig: 4.3 Bonuses at the beginning of service period

[pic]

Source: Author (2012)

In the Fig: 4.3 100% of those interviewed were not given any type of bonus at the beginning of the service period in the supermarkets they worked. The research find out disagreed with Fredrick Skinner who claimed that an organism (animal, human being) is shaping his/her voluntary behavior based on its extrinsic environmental consequences i.e. reinforcement or punishment. According to the research find out the employees’ did not receive any bonuses and yet they performed effectively and efficiently.

Fig: 4.4 Rewards on the spot for achievement

[pic]

Source: Author (2012)

From Fig: 4.4 100% of the respondents agreed that they are not rewarded on the spot for any achievement. This finding disagrees with Reinforcement theory states that a response followed by a reward is more likely to recur in the future (Thorndike’s law of effect). The implication for compensation management is that high employee performance followed by a monetary reward will make future high performance more likely. By the same token, high performance not followed by a reward will make it less likely in the future. The theory emphasizes on the importance of a person actually experiencing the reward. Despite the employees knowing they will not get on spot reward for achievement they still performed.

4.5 Compensation for completion of any important project

[pic]

Source: Author (2012)

In Fig 4.5, 97% of the respondents said that they not compensated for completion of any important project, while 3% stated that they were compensated for completion of important project within the supermarket. This finding does not agree with Reinforcement theory states that a response followed by a reward is more likely to recur in the future (Thorndike’s law of effect). The implication for compensation management is that high employee performance followed by a monetary reward will make future high performance more likely. By the same token, high performance not followed by a reward will make it less likely in the future. The theory emphasizes on the importance of a person actually experiencing the reward. Despite the retail outlets not compensating their employees for completion of important projects the employees still performed.

Fig: 4.6 Payment of any portion of the company’s profit

[pic]

Source: Author (2012)

From Fig 4.6, 102 (100%) of the respondents are not paid any portion of the company’s profit. The employees do not receive any portion of profit realized by their respective supermarkets. The purpose of profit sharing is to encourage employees to understand how their work affects the company's performance and to improve the company's profitability. Learn how your company makes money and how your position can help it make more (Skinner, 1969), but this does not happen in the supermarkets and can be seen from the findings.

Table: 4.7 Commissions paid according to sales of group or individual

|Category |Frequency |% |
|Group |0 |0 |
|Individual |0 |0 |
|No Commission |102 |100 |

Source: Author (2012)

In table 4.7, 100% of the respondents said that there are no commissions paid for overall sales of either group or individual sales. According to Meyer and Allen (1991) Commissions highly influence employee performance especially in the case of positions low in salary and that highly rely on performance and goals, or even positions that bring key financial profit to the organization. This would be a key motivator for employees to keep on bringing in income to the organization. This goes contrary to the findings since the supermarkets do not pay commissions either in groups of individually.
Fig: 4.8 Allowances

[pic]

Source: Author (2012)

Fig: 4.8, shows that 23 (23%) of the respondents are given some type of allowance while 79 (77%) are not given any form of allowance. Allowance plans can improve employee performance according to Frederic Skinner, the most influential psychologist of the 20th century. Using the concept of Operant Conditioning, Skinner claimed that an organism (animal, human being) is shaping his/her voluntary behavior based on its extrinsic environmental consequences i.e. reinforcement or punishment.

Fig: 4.9. Expenses e.g. Health

[pic]

Source: Author (2012)

Fig: 4.9, indicates that 92 (90%) of the respondents expenses for example health are paid for by the supermarket while 10 (10%) of the respondents expenses are not paid for.

Table: 4.10.1. Payments for extra hours above normal hours of duty

|Category |Frequency |% |
|Yes |9 |9 |
|No |93 |91 |
|Total |102 |100 |

Source: Author (2012)

In Table: 4.10.1, 9 (9%) of respondents are paid for working extra hours above the normal hours of duty while 93 (91%) are not paid for extra hours above their normal hours of duty. The theory of expectations by Victor Vroom, postulates that every behavior has a certain consequence, whether compensation or punishment. If he behaves in a certain way, then he will get certain results. This is the description of the expectation-achievement-acquisition, and each acquisition has a valence or value to the person concerned. Acquisitions can be either financial compensation or non-financial or other things that have different values to different people. If this is the compensation value is used to motivate, the employee will direct the effort to achieve a high level of performance. The employee with the supermarkets it was found out that they did not like working extra hours because they were not rewarded.

Fig: 4.10.2. Contribution to retirement plan

[pic]

Source: Author (2012)

In Fig: 4.10.2, 23 (23%) of the respondents agreed that they contribute to a retirement plan in their supermarket while 79 (77%) do not contribute to any retirement plan. This is not supported by the study of Khojasteh (1993) revealed that pay and security were greater motivators for private than for public sectors. Retirement plan is a form of security since employees can have something to fall back on after they leave the supermarkets.

Fig: 4.10.3: Paid Leave

[pic]

Source: Author (2012)

In Fig: 4.10.3, 92 (90%) of respondents are paid some money when going on leave while 10 (10%) of the respondents are not paid any money when going on leave. This agrees with Bassett-Jones (2005) Benefits are forms of value, other than payment, that are provided to the employee in return for their contribution to the organization, that is, for doing their job. Some benefits, such as unemployment and worker's compensation, are federally required. Worker's compensation is really a worker's right, rather than a benefit. An employee benefit typically refers to retirement plans, leave benefits and premium pay.

Table: 4.10.4: Compensation for working under dangerous or desirable conditions

|Category |Frequency |% |
|Yes |3 |3 |
|No |99 |97 |
|Total |102 |100 |

Source: Author (2012)

In Table: 4.10.4, 3 (3%) of respondents agreed that they are compensated for working under dangerous or desirable conditions while 99 (97%) are not paid for working under dangerous or desirable conditions therefore the employee were slow to complete the task. Pfeffer (1994) argued that one of the elements of what effective firms do with people is the use of incentive pay. The design of compensation systems in terms of the form of financial compensation used is critical to the success of the organization. In fact, empirical evidence has found that pay mix is related to financial performance (Gerhart and Milkovich 1990). More specifically, in examining human resource practices, the use of financial compensation is positively related to organizational performance (Huselid 1995; Delaney and Huseli 1996). The theory suggests that using financial compensation better motivates individuals to perform than by simply relying on fixed rewards. The supermarkets did not follow this theory thus those assigned such task were slow to complete them.

Table: 4.10.5. Financial Compensation improvement on performance

| |Yes % |No % |
|Completing tasks |82 |18 |
|Achieving individual goals |45 |55 |
|Achieving goals of the Supermarket |70 |30 |
|Increase sales of the supermarket |60 |40 |

Source: Author (2012)

In table: 4.10.4, 82% of the respondents agreed that financial compensation has improved their performance in completing their tasks while 18% indicated that financial compensation has not improved their performance in completing their tasks. 45% indicated that financial compensation factors have improved their performance in achieving their individual goals while 55% indicated it has not improved their in achieving their individual goals. 70% of the respondents agreed that financial compensation have improved their performance in achieving goals of the supermarket while 30% agreed it has not improved in achieving goals of the supermarket. 60% of the respondents indicated financial compensation factors improved their performance in increasing the sales of the supermarket while 40% of the respondents indicated that financial compensation did not improve the increase in sales of the supermarket. According to Manash R. Ray, Marshall A. Geiger, Narayan S. Umanath the view that compensation should be tied to performance is widespread throughout the organization literature. It is commonly believed that if one wants to motivate high performance, one should attach rewards to it (Eisenhardt, 1988; Fein, 1976; Lawler,1981; Pearce et al., 1985; Rubery, 1995).

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.0 Introduction

This chapter summarizes the major findings on major issues and giving recommendations. The conclusion of the study is made and suggestions for further studies in the field made.

5.1 Summary of Findings

From the research the researcher found out that financial compensation plays a vital role in the performance of the employees.

On bonuses the research revealed that all employees in the firms under study were not given any form of bonuses at the beginning of the service period. It was also noted that employees were not rewarded on the spot for achievement and not compensated for any important projects completed. It was noted that bonuses, not being rewarded on the spot for achievement and not being compensated for important project influenced the performance of employees as they did not put extra effort in their jobs.

On commissions the research showed that the employees were not paid any portion of the company’s profits and no commissions were paid either according to overall group sales or individual sales and this influenced the performance of the employees.

On the salaries the research revealed that apart from the monthly salary only a small section of employees that is those in higher ranks were paid any form of allowance and this motivated them while the others were not given any form of allowance. It was noted that the supermarkets paid for the expenses especially in health by contributing to National Hospital Insurance Fund. Most indicated that it gave them peace as they did not have to worry about hospital bills. The employees indicated they were not paid for working extra hours and this demotivated them.

On the benefits it was revealed that only a small section of the employees contributed to the retirement plan while the other did not and this demotivated them and would change jobs if an alternative arose. It was noted also that the employees were given paid leave and this enabled them take care of their families while on leave. On compensation for working under dangerous conditions it was found out that employees were not compensated and thus were slow to complete such assignments.

5.2 Conclusion

After carrying out the research the researcher found out that financial compensation factors such as bonuses, commissions, salaries and benefits play an important role in influencing the performance of employees. Therefore financial compensation influences performance of employees in retail outlets.

5.2 Recommendation of the Study

This study recommends that retail outlets should establish good compensation dimensions as they play a vital role in the performance of the employees hence influencing their growth.

There is also the need for organisations to properly align financial compensation factors with the needs and values of employees.

5.3 Recommendation for Further Studies

Given the dramatic changes in the retail sector in competition and higher customer expectations employee performance is very important. It is vital therefore that research be carried out in the area of financial compensation

When manager perfectly understand the best combination of financial compensation factors, it is then that a workable strategy can be devised to this cause. Stated differently, in order to respond to employee performance issues, it is necessary to understand what financial compensation factors have effect best on them. Finally it is envisaged, that this study will lead to increased awareness of financial compensation factors among employees and the need to further research in the subject area.

REFERENCES

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• http://www.zigonperf.com/resources/pmnews/rewards_virtual.html

• Adams, J.S. (1963). Toward an understanding of inequity. Journal of Abnormal Psychology, 67, 422-436.

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• Gerhart, B., & Milkovich, G.T. (1990). Organizational differences in managerial compensation and financial performance. Academy of-Management Journal, 33, 663-691.

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• Kothari, c. (2004), Research methodology, methods and techniques 2nd edition, (New Delhi: New age)

• Lawler, E.E. III. (1971). Pay for performance: A strategic analysis. In L.R. Gomez-Mejia (Ed.), Compensation and benefits. Washington, D.C.: Bureau of National Affairs.

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APPENDIX 1: INTRODUCTION LETTER

mary ngugi

Kenya Methodist University,

P.O Box 267- 60200

Meru.

Dear Respondent,

RE: TO WHOM IT MAY CONCERN

I am a student at Kenya Methodist University undertaking a bachelor’s degree in business administration human resource major. Am doing a research study on the influence of financial compensation on employees’ performance which is in partial fulfillment of the requirements of my bachelor’ degree. I kindly request you to fill in the questionnaire so as to assist me in carrying out the research. I promise to treat the information with a lot of confidentiality. Thank you in advance.

Yours sincerely

MARY NGUGI

APPENDIX II: QUESTIONNAIRE:

This questionnaire is designed to gather information on the influence of financial compensation on employees’ performance. Kindly provide information to all questionnaire items. For confidentiality, do not write your name on this questionnaire. You are hereby requested to avail the information by ticking the appropriate answers inside the provided boxes and/or giving the details required.

Section A

1. What is the name of your supermarket?

...............................................................................................................

2. What is your position at the supermarket?

.................................................................................................................

3. How long have you worked at the supermarket?

0-2 years [ ]

3-5years [ ]

6-8 years [ ]

9-11 years [ ]

Above 11 years [ ]

Section B: Bonuses and employee performance.

1. Are you given any type of bonuses at the beginning of the service period in your supermarket?

Yes No

Explain how it contributes to your performance ........................................................................................................................................................................................................................................................................................................................

2. Are you rewarded on the spot for any achievement?

Yes No

Explain how this contributes to the completion of your tasks

........................................................................................................................................................................................................................................................................................................................

3. Are you compensated for completion of any important projects?

Yes No

Explain how this affects your performance.

........................................................................................................................................................................................................................................................................................................................

Section C: Commission and employee performance.

4. Are you paid any portions of the company’s profit?

Yes No

Explain how this helps improve the company’s profitability.

........................................................................................................................................................................................................................................................................................................................

5. Are commissions paid according to the overall sales of the group or according to individual sales? Explain...................................................................................................................................................................................................................................................................................

Section D: Salary and employee performance.

6. Are you given any type of allowance?

Yes Now

Explain how it contributes to completion of your tasks.

........................................................................................................................................................................................................................................................................................................................

7. Does the supermarket pay for your expenses e.g. on health?

Yes No

Explain how this influences your performance in your supermarket.

........................................................................................................................................................................................................................................................................................................................

8. Are you paid when you work for extra hours above your normal hours of duty?

Yes No

Explain how this influences your value to the supermarket

........................................................................................................................................................................................................................................................................................................................

Section E: Benefits and employee performance.

9. Do you contribute to any retirement plan in your supermarket?

Yes No

Explain how this motivates your performance in the supermarket.

........................................................................................................................................................................................................................................................................................................................

10. Are you paid any amount of money when going on leave?

Yes No

Explain how this enables you to balance between your work and family.

.......................................................................................................................................................................................................................................................................................................................

11. Are you compensated for working under dangerous or desirable conditions?

Yes No

Explain how this contributes to your completion of your assignments.

........................................................................................................................................................................................................................................................................................................................

Section F

12. Have financial compensation factors improved your performance in your supermarket in:

a) Completing your tasks

..........................................................................................................................................................................................................................................................................................................................................................................................

b) Achieving your individual goals

........................................................................................................................................................................................................................................................................................................................................................................................

c) Achieving the goals of the supermarket

........................................................................................................................................................................................................................................................................................................................................................................................

d) Increase sales of your supermarket

.........................................................................................................................................................................................................................................................................................................................................................................................

THANK YOU FOR YOUR COOPERATION

GOD BLESS YOU