Effects Of Pay And Work Environment On Employee Retention .
International Journal of Scientific and Research Publications, Volume 5, Issue 4, April 2015ISSN 2250-31531Effects of Pay and Work Environment on EmployeeRetention: A Study of Hotel Industry in MombasaCountyDavid Mwakidimi Msengeti*, Dr. Joseph Obwogi***School of Human Resource Development, Jomo Kenyatta University of Agriculture and Technology,**Registrar – AP, Technical University of MombasaAbstract- Travel and Tourism Industry is one of the fastestgrowing industry in the world contributing a colossal US 6trillion dollars in 2011 and creating 5 million new jobs (Traveland Tourism Economic Impact Report, 2012). Hospitality sectoris one of the main pillars of this industry in Kenya which hasgenerally continued to experience phenomenal growth both interms of revenues generated and infrastructure to support theindustry. Its phenomenal growth has come along with fiercecompetition among the players in the industry for the limitedhuman resource available. Increased ability to retain their currentemployees has therefore become a very important objective formost employers in this sector. This study seeked to identify theeffects of the pay and work environment on the retention ofemployees in the Hotel Industry in Mombasa County. Findingsrevealed that pay had a weak influence on employee retentionwhile work environment had the strongest influence which wassignificant at (p .005) 2-tailed. While it was evident from theresults that work environment plays a major role in employeeretention, to remain competitive it was recommended thatemployers in the industry also need to re-evaluate the currentweaknesses associated with pay.Index Terms- Employee Retention, Employee Rewards, Pay,Work EnvironmentI. INTRODUCTIONThe Hotel Industry plays an important and crucial role in thedevelopment of Kenya. By the year 2006, it was contributingKshs. 87 billion to the revenues of Kenya representing 5.2% ofthe country’s Gross Domestic Product, (Ministry of TourismPlan 2006). The growth of this industry in Kenya is closelylinked to the growth of Tourism in general in the Country. In the1960’s to the late 1980’s respectable growth in this industry wasrecorded thanks to the tremendous foreign investment and theattraction into Kenya of a lot of tourists during this period. The90’s was however a period of heavy decline in the hotel industrydue to the decline in tourism as a result of a combination of socio– political issues that negatively impacted on the image of thecountry and its attractiveness as an investment destination.Since the year 2003, the industry has however experienced aturnaround of fortunes with growth and expansion being realized.This is largely due to the active role and deliberate effortsspearheaded by the Administration of His Excellence PresidentMwai Kibaki, the former president of the republic of Kenya, whotook over power in the year 2003.Employee RetentionEmployee retention could be described as the efforts by anybusiness or organization to develop strategies and initiatives thatsupport current staff into remaining with the organization.Retention is “the ability to hold onto those employees you wouldwant to keep for longer than your competition” (Johnson, 2000).Success or otherwise of an organization in retaining itsemployee’s is measured in terms of Employee Retention Rate(ERR) or through assessment of the Employee Turnover Rate(ETR).High employee retention rate means that employeeturnover rate has been low and vice versa. All organizationswill therefore always seek and strive to maintain high rates ofemployee retention (ER)-especially of their key talents, thusmaintaining low levels of staff turnover.Ability of an organization to retain its employees has twofold implications. Organizations that retain their high performersare bound to be successful in performance and at the same timeavoid expenses that are incurred in advertisement of vacantpositions, recruitment and selection, induction and training newemployees that follow and employee lost (Okioga, 2012). Fromstudies conducted it is suggested that the cost of employeeturnover often ranges from 50% to 200% of an employee’sannual salary based on the type and level of job he/she holds,(World atWork,2012). In the hotel industry, low employeeretention rates have been observed to interfere and disrupt theinternalization of standards by the employees thus resulting tolower quality of service, reduced customer satisfaction andmaking an establishment less competitive.(Kimungu& Maringa,2010).II. STATEMENT OF THE PROBLEMThe Hotel Industry in Kenya has steadily recorded positiveexpansion in the last decade with the establishment of newfacilities as a result of increased investment from both local andinternational investors. This has been observed in the all thetraditional tourist areas of Nairobi, the game parks such as MasaiMara and also Mombasa. According to the Economic Survey of2007 and the Tourism Performance Review of 2010, hotelcapacity as defined by the bed nights available in a given yearhas been steadily increasing from 7.766 million bed nightsavailable in 2003 to 17.416 million bed nights available in 2011.www.ijsrp.org
International Journal of Scientific and Research Publications, Volume 5, Issue 4, April 2015ISSN 2250-3153This increase in capacity has been achieved through theconstruction of new hotel facilities and the re-opening offacilities which had been closed in the 1990’s and the early 2000.With this expansion in the hotel industry, Managements of mostfacilities are increasingly facing the challenge of increased staffturnover with new entrants in the industry constantly “poaching”employees from other already existing hotel facilities. In aresearch conducted by Kuria, et al in 2011, labour turnover ratesof 68% and 13% in three star and five star rated hotelsrespectively were observed in Nairobi. This challenge of highturnover is being experienced despite managements of hotelfacilities initiating and implementing various strategiesincluding: offering career advancements opportunities especiallyfor key talent among other initiatives in order to help retain theiremployees. While previous studies on employee retention in thehotel industry and which have presented rewards as playing acritical role in employee turnover have been conducted in otherindustries including the hotel industry in other areas, there is nosuch research conducted to appreciate the effect of the variouscomponents of reward on employee retention in the hotelindustry in Mombasa County Tourism area.III. OBJECTIVES OF THE STUDYGeneral ObjectiveThe general objective of this research therefore was toexamine the effects of pay and work environment on employeeretention of hotel workers in the Hotel Industry in MombasaCounty tourism area.Specific Objectives1. To examine the effect of Pay on employee retention inthe Hotel Industry in Mombasa County tourism area.2. To determine the effects of Work Environment onemployee retention in the Hotel Industry in MombasaCounty tourism area.Significance of the StudyThe findings of this research would be critical in shaping theHRM practice of hotels in the Mombasa County tourism area andspecifically with regard to the design and implementation ofreward strategies and systems.Scope of the StudyThe scope of the study involved all the hotels within theMombasa County. It was also limited in scope to investigatingthe effect of reward systems on employee retention in the hotelsin Mombasa CountIV. LITERATURE REVIEWPayPay consists of cash compensations which are directlyprovided by employers for the work performed by theemployees. Pay consists of two main elements i.e. the base paywhich is compensation given on the basis of some pre-definedrates e.g. amount of time spent on the job by the employee suchas hourly weekly rates and pay contingent on the employee’s2performance e.g. merit increases, incentive pay, bonus pay etc.Of this two, base pay forms the largest component of the totalreward package for most employees, (Green, 2010).Base PayBase pay may be expressed as an annual, weekly or hourlyrate. The hourly rate is sometimes called the time rate system ofpayment. Base pay is categorized into either job-based pay wherethe base is related entirely to the value of the job rather than theperson. On the other hand where the base pay is adjusted to takeinto account the levels of competency or skills it’s known asperson –based pay. (Armstrong, 2012).Job evaluation initiativesin determining base pay are intended to cater for internalrelativities in arriving at the base pay levels while market surveyand tracking of market rates are used for assessing externalrelativities that help in determining competitive base pay rates.Contingency PayContingent pay is a nimble instrument that allows employersto pay for results they want by giving money to those who arefully contributing to the business objectives (Zingheim&Schuster, 2007). Thus unlike base pay, contingent pay andaccompanying decisions are usually in line with the performancelevels or desired results/ aspect achieved or exhibited by theemployees. In contingency pay based on performance alsoreferred to as Performance Related Pay (PRP), the consolidatedpay increases or cash bonuses are based on the achievement ofsome agreed target by the employee (s) at the end of a stipulatedperiod. In competence- based contingency pay, the rewarddecisions are made based on the level of some desired andidentified competencies individual employees demonstrate whilecarrying out their roles. On the other hand in the contribution orskill based contingency pay both the levels of desiredcompetencies and skills, exhibited by individual employees andtheir respective performance form the basis of the pay increasedecisions to be made. In addition to the three approachesestablishment of contingent pay systems in organizations,teamwork, quality and quantity produced based contingent paysystems have been developed and successfully implementedespecially among organizations practicing high performancework systems (Ichniowski et al, 1997)Contingent pay systems and structures can be based at theindividual, team or organization level depending on theorganizational culture, the relationship of the contingent pay andother elements of reward and the objectives of the organizations.At the individual level, contingency pay is either included in thebase pay paid to the employees and as such the individual payprogresses within the established pay range or it can be a variablepay in the form of a cash bonus which is paid separately from thebase pay. At the team and organizational level contingent pay islinked to performance at these levels .This could take the form ofeither profits sharing whereby the employees get to share in theorganizational profits realized over a given period of time oracquisition of organization shares (stock sharing) wherebyemployees get to share in the successes and risks of theorganization (Al-Jarradi, 2011)Inclusion of the contingent pay element in total reward bymost employers is aimed at among other reasons to; elicit greaterwork effort (input) or output from workers, attract better qualitywww.ijsrp.org
International Journal of Scientific and Research Publications, Volume 5, Issue 4, April 2015ISSN 2250-3153employees to the organization, enhance employees commitmentto the employing organization, introducing a stronger element offairness into remuneration by rewarding those who work hardestor most effectively and to retain their workers. Organizations useone form of contingent pay system or the other so as to retainworkers when labour markets are tight (Oyer, 2004). Despite theadvantages of contingent pay, it has however been argued thatsuch pay systems could lead to negative effects includingincrease in conflicts between workers, pursuit of individual goalsby employees at the expense of organizational objectives and incases of group based contingent pay arrangements the risk of freeriders who despite their non or low performance get rewardedsimilar to their hardworking teammates.Work Place EnvironmentWorkplace environment includes not only the physicalelements around the work area of an employee but also all thingsthat form part of the employee’s involvement with the workitself. World at Work, the Total Reward Association definesworkplace environment as the total cluster of observablephysical, psychological and behavioural elements in theworkplace. A positive work environment is believed to makeemployees feel good about coming to work and provide thenecessary motivation to sustain them throughout the day. Thisobservation is echoed by Wells &Thellen (2002), who stress thatorganizations offering suitable levels of privacy and soundcontrols at the work place thereby improving levels of motivationand commitment in employees have an increased ability tosatisfy and retain employees. Heneman (2007), also does alludeto the fact that one of the most crucial element of anyorganizations total reward strategy is having a positive workenvironment.Employee RetentionOrganizations need individuals who perform well andchoose to remain as their employees. Retention is the ability of acompany to keep valued employees who contribute toorganizational success for as long as the relationship is mutuallyfavourable (Al- Jarradi, 2011). Employee retention is one of theelements which influence the general employee mobility oflabour in an organization, the other being employee turnoverwhich can be considered as the other side of the same coin(Okioga, 2012). Employee retention means the existence of anon-going employment relationship, while employee turnoverindicates the employee separation from a given employmentrelationships.Employee Retention is currently one of the critical issues inorganizations as a result of changing dynamics and turbulencebeing experienced in the general work environment as a result ofvarious phenomenon. Such phenomenon being experienced byorganizations across the globe include massive lay-offs as aresult of restructuring and business failures in certain sectors ofeconomies leading to low staff morale and commitment. At thesame time new jobs are being created in other sectors as newbusinesses are created leading to shortages in some professionsparticularly in the medical and services industries.Population demographic changes of decreasing new entrantsinto the workforce and gap between the highly educated andthose with very little education have also helped to propel the3employee retention issue to the level of being considered as astrategic business issue .This position is aptly captured byBarbara (2002) statement that, “In today’s turbulent workplace, astable workforce becomes a significant competitive advantageand that if an organization has unstable workforce conditions, it’sforced to invest thousands of dollars in recruiting, orienting,training, overtime and supervision which comes right off theorganizations bottom- line. When retention rates are low, extratime and money are spent on recruiting, selecting and trainingnew employees that could have been spent on other activities likeperformance improvement or career development of employees(Abbasi, 2000).Therefore given the critical importance of employeeretention to the performance and survival of organizations,human resource professionals are expected to regularly reevaluate their existing reward strategies and programmes toensure that they address the employees’ preferences for improvedmotivation and commitment. Providing jobs which are satisfying,clear career development opportunities, as much autonomy as ispracticable and above all competent line management are someof the factors that play significant role in employee retention(Torrington et al, 2008). Other strategies believed to enhanceemployee retention include reward professionals: makingcounter- offers, increasing new hire offers, offering morefrequent exceptions to reward policies and programmes andmaking attempts to “handcuff” key employees to theorganization by offering stock options and other programs thatmake it difficult to leave (Scott et al, 2012).In a recent survey by WorldatWork (2012), it is indicated that the5 (five) most frequently used methods to retain key talentinclude: identifying key employees who are essential to thebusiness (85%), discussing with key employees their futureopportunities within the organization (80%), paying employeesabove the labour market (75%), creating a succession plan toreplace individuals critical to success (74%) and developingemployee who may replace key employees who may leave(73%).V. THEORETICAL AND CONCEPTUALFRAMEWORKEmployers and employees associations are usually typifiedby both material and non-material interchange between theparties. Most of the material aspects of the association betweenthese two parties are usually agreed upon during the setting ofthe conventional relationship between the two parties.(Whitemener et al, 1998). The other non-material (intrinsic)aspects of the association between the employer and employeeare usually a product of a host of responsibilities that develop inthe course of interaction between the two parties.Herzberg’s TwoFactor theory on motivation and The Towers Perrin Model ofTotal Reward provides the theoretical background for this study.Armstrong &Murlis (2004), describe motivation as a goaldirected behaviour brought about by the perception that aparticular course of action is likely to lead to the attainment of agoal and a valued reward – one that satisfies their needs andwants.Fredrick Herzberg – Two factor theorywww.ijsrp.org
International Journal of Scientific and Research Publications, Volume 5, Issue 4, April 2015ISSN 2250-3153Fredrick Herzberg’s, two factor theory of motivationidentifies two sets of factors namely: hygiene or maintenancefactors and motivating factors which influence individual’sattitudes towards work, Herzberg (1959). According to Herzberg,hygiene factors which he termed as dissatisfiers usually do littlecontribution to provide job satisfaction as their presence onlyprevents dissatisfaction but is not motivating to individuals.These factors are extrinsic in nature and are related to thecondition under which a job is performed. Motivating factors onthe other hand also termed as satisfiers act as forces of jobsatisfaction. Job satisfaction/dissatisfaction has long beenrecognized as a predictor of employee retention. Thesemotivators according to Herzberg are intrinsic to the content ofthe job and are made up of elements including personal growthand development, design of the work itself, recognition andachievement among others.Towers Perrin Model of Total RewardAccording to Towers and Perrin (2001), this mix of bothmaterial and non-material interchange between employees andemployer developed in an employment relationship is aimed at4among others: averting employee exploitation of the employer,arousing some desired level of employee engagement andretaining productive employees. This mix of both material andnon-material rewards has been described as the new pay or totalrewards (Schuster &Zingheim, 1992). The structure of totalrewards has developed overtime, with different individualsidentifying different elements to make up total rewards.WorldatWork (2007), defines total rewards as consisting of theelements of compensation, benefits, work life, performance andrecognition, development and career opportunities. TowersPerrin (2001), identifies four elements of pay and bonus,benefits, learning and development and the work environmentwhich make up the Towers Perrin Model of Total Rewards.According to this model, these four components of reward aregrouped into two main categories of tangible (financial) elementsand relational (intangible or non-financial) elements of reward.For the purpose of this study the independent variables arepay and work environment components of reward while thedependent variable will be employee reten
effects of the pay and work environment on the retention of employees in the Hotel Industry in Mombasa County. Findings revealed that pay had a weak influence on employee retention while work environment had the strongest influence which was significant at (p .005) 2-tailed. While it was evident from the
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