The united pay system and its impact on employee performance in a Chinese estate company

The united pay system and its impact on employee

performance in a Chinese estate company

Master thesis, Msc of HRM, University of Groningen, Faculty of

Management and Organization

Chen Yang

Student nr: 1579746

Duindoorstraat 99

9741NP Groningen

Tel: 0624 534 695

e-mail:

chenyang5164312@hotmail.com

Tutor: Mr Hans van Polen

ACKNOWLEDGEMENT

How time pass by, my one-year master study in Netherlands comes to end. I thank all of my teachers in RuG very much; they provide me the ability of learning and enthusiasm of keeping learning. I am quite satisfied with what I have obtained within the past year in Netherlands, by which my experience is enriched and horizon is broadened. It will be one of my best memories in my whole life.

ABSTRACT

This study researches into the correlations among compensation systems, motivation and employee performance in a Chinese estate company which has just changed its pay system by adding skill-based pay as bonus into sales men’s pay components. The management wants to achieve better customer satisfaction by improving the quality of sales. The major variables of this study are compensation systems which includes three dimensions as job-based pay, skill-based pay and performance-based pay, and performance which includes output and attitude. Also the motivation is introduced as the third variable, which I think is the facilitator between compensation and performance. Data will be collected from sales men by scales and will be processed by means of correlation analysis and regression analysis. Finally the correlation among the variables and to what extent do they will be measured.

KEY WORDS

TABLE OF CONTENTS

3.3 Variables and their measuring...25

3.4 Respondents analysis and isolating of moderating effects...31

3.5 Statistic method...34

4. ANALYSIS AND DISCUSSION...35

4.1 Descriptive analysis...35

4.2 Correlation analysis...37

4.3 Regression analysis...39

4.4 Summary of statistic result...40

4.5 Discussion...42

5. CONCLUSIONS AND SUGGESTIONS...44

1. INTRODUCTION

1.1. Research Background

1.1.1 Estate business. After the reformation against the economical structure in the early 1980s, China had gradually stepped from the former planed economy onto the road of market economy. Everything was changed and something was created to suit the new system. Before 1980, house was never a problem for Chinese people, because house was a kind of welfare, after some time of seniority, everyone could get his or her own house always. However, after 1990, along with the maturity of market economy, everything that formerly was regarded as welfare had a price, such as college education, medical care, and house. You can never wait for these things from government; you can only buy them at the market. Under that context, many new things were born including Estate Company. I remember that it was not until 1995 that I had firstly heard of the term of Estate Company, but only 5 years later, my parents got their first house of commodity. So that is really a short period for the business of Estate Company from birth to flourish.

The business of estate has been playing an increasingly important role in Chinese booming economy in recent years (Chen & Zhou, 2005). I suppose that the flourish of estate business will persist for decades for the huge population of China, which is really a huge underpinning need. In 2004, the increase of investment in estate was 32.2% and that of sales was 29.5%. With regard to the high GDP increasing rate, estate is one of the strongest contributors.

indicator to the government of some regions, and a hot issue of society. The move of the price will affect anyone’s nerve. Please bear in mind that most of Chinese people have not got their own comfortable property yet, whereas some minority of riches occupy large amount of properties and expect for profit from the climbing of price. That is very harmful to the steady of society. So usually, policy makers propose some measures to stabilize the price and control the high temperature of estate after some risks happen, but those are all problem oriented, systematic changes needed here. On the other hand, estate business has a sudden huge profit among other business. The capital flow within this business is rather high; it is popular portfolio among investors. From the report of National Bureau of Statistic, the investment in estate business in the first half of 2005 was more than 600 billion Chinese Yuan.

The government has formulated many correspondent policies to regulate the market, not only the price, but also the land management, tax, credit management, risk management. In order for effective control, government urges the action of M&A and regroup among estate companies, in that way the small companies and bad performed ones will be eliminated out.

1.1.2 Tiancheng Estate Company. With regard to the estate company in which I researched, its name is Tiancheng, and was established in 1988 in Chengdu China. It has total equity of 2 billion Chinese Yuan and 30% of it is net equity. Tiancheng went on Shenzhen stock market on 1992. It focuses its attention on developing housing for residence and sometimes some commercial property also. Tiancheng has grown gradually and steady and in 1999, it entered into other cities outside Chengdu.

Estate Company before. Thirdly with the maturity of market, the customers are more reasonable and captious, and the market is much more segmented than before. Fourthly, government has played an increasingly important role and that makes the market more elusive and lead to the harder planning for future. In addition, situation that demand exceeds the supply dominates Chinese estate business for nearly two decades, in that way, there was completely no pressure on the marketing strategy. With only capital and land, you can easily make money. However, current situation is thoroughly reverse, the service you demonstrate to your customers is as important as the products you provide them. Confronted with the challenges, the top leaders of Tiancheng decided to embrace the change for the sake of sustainable development. From the long term, the management submitted three strategies, they are customer segmentation, vigilance and aggressiveness and service innovation from the angles market, development and service respectively. And a new slogan was put forward: One land, one lifestyle.

Standing on the short term, management made several concrete objectives and some of them had been or would be executed with the help of external consultancy. The first one and foremost one was to restructure operation process based on customer. The management eliminated the processes that have no value added and smooth the core processes by means of information technology. The second one was to broaden the way of land acquisition and capital attraction, and establishing correspondent risk management. The third one was to restructure the organizational structure and enhance the organizational capability by enhancing the human capital.

recruit sales men anywhere and any time if they need. The management do not take much attention on sales men despite the turnover of sales men is rather high. Also from the employee side, the sales men often feel the work as sales unchallenging and lacking of potential to make further promotion. Therefore, most of them choose to leave after several years of working as sales.

Specificly speaking, formerly the director of marketing department is responsible for all affairs including recruitment, pay system, and management of sales men. The systems against sales men were different with that against other employees in the company. Normally management regarded the sales men as external employment. However, with the ever-increasing fierce competition of Chinese estate market, mere rich capital and advanced designing could not ensure the success any more. The service and satisfaction of customers are more and more important. For the service work itself, it has the characteristic of intangibility, inseparability, heterogeneity; perish ability (Berry, 1985). The quality of the service depends on the quality of the frontline sales men. Confronted with the special trait of work of sales men, the management found that a new pay system might be a convenient way of developing the sales men. The management, with the help of external consultancy decided to add skill-based bonus into the component of sales men’s pay. In that way, the new ingredients of sales men’s pay consists of traditionally job-based salary and performance bonus plus the skill bonus. The former pay structure kept untouched, the sales men will receive extra bonus if they learned some skills that are certified by the company. By that way, the company hoped to reduce the turnover of sales men. For the salespersons themselves, after their acquisition of high-specialized skills especially some professional skills, they could have the competency for other positions, even some technique jobs in the company, what is more important is that sales men are expected to provide better and more comprehensive service to customer.

Every month, there will be a performance assessment against the sale of every one. And there will be a baseline of sale per month. If the sale of one person is below or equal to that baseline, he can not get bonus, the director will talk to him and show him how the good performer do. If one employee’s performance is lower that baseline for consecutive three months, he will be dismissed. Reversely, if his sale after one month is higher than that line, he could get some percentage of deduction as bonus; the percentage varies according to the extent of surplus and there is no upper limit. It is possible that one sales man could get a salary higher than CEO could if he produces perfect performance on that month. After the project, the skill bonus was added into sales men’s pay. Some suitable skill blocks were customized for sales men, and the corresponding training will be provided. Some courses will be provided externally, most of training sessions held inside organization. The skill blocks were separated into four levels differentiates in difficulty. The bottom levels are some basic skills such as communication and software use which are benefit to improve the efficiency and the satisfaction from customer. The top levels are some professional skills, not every one has the ability to master these skills. But if they achieved that, they can not only receive bonus but also have the chances to transfer to that job.

1.2. Research Objectives

the compensation vary, the performance of the sales men will be bond to change accordingly. Finally the relation between compensation systems and employee performance and to what extent do they will be examined in the study.

1.3. Research Process

Generally, the research process could be divided into two major parts, i.e. the preparation and the empirical analysis. Firstly, I decided the direction and the theme of thesis with my tutor. Then I reviewed some pertinent literature and go back to China making some field study. After that, I constructed my theoretical model according to the literature and the research questions were formulated. In order to test hypotheses I prepared the statistic method. Following comes the making of questionnaires and data collection. I spread the questionnaires under the approval of the director. Finally I analyzed the result and answered the research question. Here is a flow chart below.

FIGURE 1. The flow chart of research

process

Conclusion

2. LITERATURE REVIEW

2.1. Compensation

Companies trade the labor, intelligence with reward for them. Compensation means cost to organization but the same time a kind of tool to motivate employees. Employees will make their contributions to the organization only after they received acceptable reward from the organization (Lepak & Snell, 1998). The compensation does not mean only wages with which employees could meet their physical and mental needs, but also a kind of recognition and praise from organization. As Milkovich (1999) said, the major aim of compensation is to reward the employees with good and favorable performance, so that they could be motivated and make further devotion.

When you research into the organizations, you can never neglect the role of compensation that is the medium of the employee and organization. But before that, you should firstly make clear the series of basic principles of compensations as objectives, principles, and guidelines. In this way, step by step, the principles lead to institution, institution lead structure, and structure linked with strategy of organization.

classification.

People have many levels of need, some of them could be met with money, but some other could not, such as achievement, power, and self-fulfillment and so on. Those intrinsic rewards could motivate people, and the power may be stronger that extrinsic reward under some circumstances. Money also poses impact on those intrinsic needs. The relation among the two kinds of rewards and the extent of motivation is very complex.

2.1.2. Functions and objectives of compensation. Despite the increasing importance of the role of the intrinsic and uneconomical rewards, for most of employees themselves, money is still the paramount. Employees work for organizations for the sake of money return on which they live. After reviewing some relating literatures, I think two of them are worth mentioning, for they are tightly related to the core hypotheses of this research. 1. Factors of motivation. According to the theory of needs hierarchy proposed by Maslow (1954), that there are five hierarchies of needs of people, from low level to high

Decision Making, Challenging Work, Good Atmosphere in Work Place,

Learning and Promotion

Opportunities, Unemployment

Guarantee

None

Secretary, Cars, Nice Offices, High Position

Salary, Bonus, Allowance, Profit Share, Stock Option, Insurance, Medical Care, Housing Subsidy, Some other Welfare

Extrinsic Reward Intrinsic Reward

Econo mical Rewar ds Uneco nomic al Rewar ds

TABLE 1. Classification of Rewards

level are physiology, safety and security, social interaction, esteem and self actualization respectively. Everyone in the society is busy pursuing one of the needs. You may find an interesting phenomenon that is every single need of these five is associated with money. Yes, you can not fulfill any needs without money. So we can think like this, people hardly work for money to fulfill their further needs.

2. Learning incentives. With no doubt that change has become the most popular word within the domains of organizational management. Competitive advantage, sustainable advantage could only be achieved by constant change and optimization (Beer & Nohria, 2000). Also change management nowadays is much different from what it is used to be. We all realize that successful change is the emergent change from the bottom employees, not just the planned change articulated by top leaders before. But change could not happen spontaneously among frontline employees. You should give them opportunities and create them environment favorable for change, also motivation is necessary. For the first issue, we solve it by creating quality circle of TQM and empowering the employees to make decision by themselves. For the second issue, we decide to reward them to motivate them learning so as to making change. Skill based pay system is a very good example for systematically and comprehensively organizational learning. Valuable skills are learned by employees under the motivation of pay. This is also the reason why Tiancheng adds skill bonus to enhance the core capability of sales men.

combination?

Lawler (1970) classified the pay systems into three sorts. 1) job based. Evaluate the value of the job by means of job analysis and job evaluation, and ranked the assessed jobs into pay structure. 2) Performance based. Pay for the performance achieved by employees, such as dividend, piece rate and hourly wages. 3) Pay for competency. Pay for the skill, experience and capability demonstrated by employees in the workplace. Lots of scholars shed light on this domain. The three kinds of methods of pay have their own disadvantages and advantages based on some contingency. Also there may be not contradiction when they are combined together.

1. Job-based pay. Job-based pay is the most common pay system currently. The arising of job based pay could be traced back to the 1910s, when the emergence of scientific management. During that time, the highly specialized and clearly defined job could produce wonderful improvement in performance. Until now, it is still the major pay systems in most organizations especially companies in developing countries where the labor-intense manufacturing dominate. Job based pay is favorable for the internal equity and steady of organization. Also the cost is easy to control.

But the disadvantages of job-based pay are more and more obvious. It lack of flexibility, and it is regarded unreasonable to pay for job rather than pay for person. Under the job-based pay, people seems like machines, just do some routine job. They have no chance and discretion to make changes. That contradicts with the fast changing business environment. A highly specialized work structure plus tightly job-based pay system means chronic suicide to company especially those on scope of service. Gupta and Jenkins (1991) thought the job-based pay may led to low morale of employees and even high rate of turnover, because it had a high bureaucratic hierarchy.

2. Skill-based pay. Simply speaking, skill based pay is pay for the skills acquainted by employees. Two premises, firstly, the skills are valuable for the organization and have character of depth and broad. Secondly, the acquisition of skills should be certified by organization. I have looked through some empirical study talking about the effectiveness or the outcomes of skill-based pay. In 1996 among the Fortune Top 500 enterprises, more than half claim that they have implemented, or at least partly introduced the skill-based pay. From the strategic point of view, skill-based pay has two significant merits. Firstly, it will break through the bureaucratic hierarchy of organizational structure increasing the flexibility, which will to a large extent facilitate the emergent change. Secondly, skill-based pay stimulates the organizational learning, which will enhance the organizational capability which is the core competitive competence for future (MIlkovich & Newman, 1999). Besides, on the micro level, many scholars boast that skill-based pay is benefit to the low turnover rate, product quality, aggregate compensation cost and so on (Silva, 1998; Milanowski, 2002; Shaw & Gupta& Mitra& Ledford Jr, 2005; Murray& Gehart, 1998). They did their study in various kinds of organizations, such as manufacturing, service, even school and government.

So before you decide to embrace the skill-based pay, you’d better to check your organization, the culture, structure and jobs, are they really support the new pay system. From the result of some empirical studies, they all alleged that the restructuring of organization and redesigning of jobs were indispensable. The compensation structure should have broader band and fewer grades. Every job is redesigned to have a broader and deeper skill blocks. It seems like the job enlargement and job enrichment we have usually mentioned. And the jobs are no longer distributed based on the matching of employee profile and job description, but according to the skills demonstrated by employees. That is why most of the pilot companies embracing the skill-based pay are manufacturing factories. They have the features to suit with skill blocks.

3. Performance-based pay. Performance pay is often regarded with performance bonus or variable pay. This kind of pay is linked with the actual performance of employees; it has little relation with job itself, nor with the skills acquired. Usually, performance bonus is united with other kind of base pay when it is administrate to employees. I have no seen one company only use the performance bonus as the whole reward giving to employees. The proportion bonus occupy in the whole reward depends on the kind of work and kind of business. It is long ago since the performance was created and used on employees. Even though nowadays, performance bonus is extensively used on the positions such as sales men, top managers, rarely on common assemble line workers. Because people think that the performance of leaders and sales men has a great range. That means the performance with motivation will differ greatly from that without motivation. But with regard to workers working on tightly specialized jobs, we think variation is little, bonus is unnecessary. With the development of service economy, the factors influencing the amount of bonus are not just quality, output and revenue. There are a lot of other factors organization should take into account, such as the flexibility, customer satisfaction and innovation. So coverage of performance bonus is much wider.

motivation in the later part. Also there are many guidelines for performance-based pay; I think the one of them worth mentioning here. It is performance based, so the premise performance appraisal is very important. Without effective and accurate performance appraisal system, the equity of reward can not be achieved. In that way, the encouraging effect for employees is impossible. Table 2 will make a conclusion of the three pay systems 
         
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2.2. Motivation

Motivation is the employees’ respond according to their perception towards the reward and recognition from organizations and (Henderson, 1989). Employees will constantly weigh the effort they make for organization against the benefit they received from organization. If the reward can not catch the deed, the motivation will be impaired. Listen to some other scholars, Davis (1999) thinks that motivation is the intention which employee has to make extra efforts when their specific needs are met.

Most scholars who are good at psychology and organizational behavior have made some articles within the domain of motivation as is shown in table 3.

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The performance of the sales men is the third dimension of variable of this study. Simply speaking, performance is the assessed working behaviors and results. Employee performance or organizational performance is the most common dependent variables of many organizational studies including this study (Barret, 1991. Becker & Gerhart, 1996. Churchill & Ford, 1985. John & Weitz 1989).

2.3.1. Performance contributors. In this study, I define the performance as employee performance. What factors could influent the performance of employees? This question will relate to the construction of model of this study.

As formula shows, multiply the individual ability and motivation and opportunities equate to performance. We have talk a lot in the former part about the motivation. That is

Individual performance = Ability * Motivation * Opportunities

Source from: Osborn (1994)

performance within the organization, maybe together with some other peers. The management, colleagues and even customers could impact the performance of certain employee to a large extent. You can not be independent from the environment, unless you employ your own. For a sales man, his performance to a large degree depends on the taste and attitude of customers. So that is very important with no doubt. The third dependent variable in the formula is the ability. Ability is the quality of being able to do something, the physical, mental, financial, or legal power to perform (I quote this concept from dictionary). It is a kind of abstract concept. It has two dimensions; on the surface of the iceberg is the knowledge and skills. We can feel and sense people’s knowledge and skills. We can measure them accurately, at least less difficult than to measure the ability directly. The submerging side of the iceberg is the ability. It is abstract that we can not measure it directly by tools. We can only test it through the demonstration of some skills and knowledge. A knowledgeable man is not always a clever man. In this formula, the capability and knowledge are called by joint name i.e. ability. But I think the formula is not perfect. From the human side, the EQ is attracting more and more people’s attention. Most HR department regard the personality test as a major test for the selection. The term EQ is not just the same with the term ability (IQ). It is external formation is the initiative, involvement and optimism. Among the four variables which affect the performance. I will only choose the motivation as the medium variable between compensation and performance since only the motivation could be moved by compensation. In order to make the study more precise, I will try to isolate the effects of other variables on performance.

respectively. Outcomes mean the wildly known amount of production, the gross revenue and so on. But for some kind of employees, for instance the service employees. They do not produce anything, nor do they directly sale anything, what is their performance? So we need to include the behavior and attitude into the indexes of individual performance. Schiffman and Kanuk (1994) define the attitude as a state of mind and feeling, which will influence words and deeds of people. Further more, Larsen and Bastiansen (1991) thought that the good service attitude should include the skills, courtesy, enthusiasm, initiative, smile, customization, flexibility, trust and keeping a long-term relationship. In this study I choose the outcome and attitude as the indicators to measure the performance of sales men. I will design the blanks according to the literature.

2.4 Theoretical conclusion

up and to meet their basic social needs. Under that circumstance, from the theory of need hierarchy by Maslow (1954), the sales men could firstly concentrate on their sales performance to gurantee their job and making money from performance-based pay system, and then could they contemplate their further career development by acquisiton of skills through skill-based pay. Also from two-factor theory by Herzberg (1950), the sales men could not be moved by skill-based scheme unless their basic needs are met through job-based pay and performance-based pay. Therefore, theoretically I think for sales men themselves, the job-based pay should generate strongest effect on employee performance, then comes the performance-based pay. After those two are soundly manipulated, skill-based pay could work finally.

3. METHODOLOGY

Through the theoretical review, research explores into the relation between compensation and performance by empirical study against Tiancheng’s new compensation system on its sales men. I want to reveal which is the most suitable pay component among them three.

3.1. Theoretical Model

But for the limitation of my ability and the time available, I can not handle so many variables by myself in this research. I could only research into the compensation systems, motivation and performance these three variables. But still, the side effects from the ability opportunities still exist, in order to get a precise result of correlation between compensation, motivation and performance, I will isolate the side effects in the later section.

Tiancheng uses a combination of compensation systems (united compensations system), it align skill-based pay, performance-based pay and skill-based pay together, where the job-based pay is the basic pay for sales men, the performance-based pay and skill-based pay act as variable bonus. I have explained the reason why the management of Tiancheng designed such a pay system in the former part. There is only one dimension of the motivation. Then I attach two dimensions to the performance, they are service attitude and outcome respectively. I think these two could accurately reflect the actual performance of sales men. Therefore, the actual research model is modified as figure 4.

Individual performance Personalities Opportunities (support) Motivation Ability (Capability, knowledge, skills Compensation system

3.2. Research Question:

As is widely known among scholars, if the compensation favorably varies at the interest of employee, the performance of employee could be improved accordingly. The hypotheses emerge from the conclusion of scholars, and I will test them under the particular circumstances of Tiancheng.

Management question: Do all the three pay components against sales men work? The management question describes the phenomenon from a general point of view. In order to examine the relations among several variables, some specific sub-research questions are needed here.

In the interest of management goal, firstly I will directly measure the effects of compensation imposing on performance. From the organizational behavior point of view, I think there should be mediating effects from motivation between compensation and performance. So in order to consolidate the answer to management question, I measure relation between compensation and performance in another path, that is examine whether motivation could act as mediator bridging the other two together?

Compensation systems Skill-based pay Performance-based pay Job-based pay Motivation Individual performance Sales outcome Service attitude

Research question 1: To what extent do the three basic pay systems contribute to the employee performance respectively?

Research question 2: To what extent do the three pay systems contribute to the employee motivation of employees respectively?

Research question 3: To what extent does the motivation impose impact on the employee performance?

3.3. Variables and Their Measuring

The valid variables relating to this study are compensation systems, motivation and performance. Among them, compensation has three dimensions of variation that are job-based pay, skill-based pay and performance-based pay respectively. Motivation and performance have variation of either good or bad.

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2. Skill-based pay system: pay for the skills and knowledge acquired and certified by employee. Scale is also from the same source. But the reliability is a little bit low, only 0.72. That may be attributed to the immaturity of skill-based pay compared with job-based pay. The way of scale is same with the former one.

Source from: Yan and Li (1999)

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3. Performance-based pay: pay for the performance achieved by employees, the same time assessed by some performance program. All the conditions are same with former

Source from: Yan and Li (1999)

two, except that the original reliability coefficient for this scale is 0.81.

I add the third item in this scale. As I stated in chapter 1, there is a baseline for every sales men’s performance. If actual performance is lower than that, the employee has some trouble, if higher, he could get deduction. So the baseline is very important in this context. It should be moderate, so that every one has the potential to achieve but not so easily.

3.3.2. Motivation. It reveals the mental state of employees when they received the pay from the pay systems. The scale is from the same source as upper ones. I modified a little by deleting one item which I think it is useless under this circumstances. The reliability tested by the author is 0.75. One of the items labeled R in the back means it will be calculated reversely. qrsutstv"wx yv"wxut zXw|{}r~}{}v s y„†}{{‚wvw1¤vƒ˜r”~Œm€1t…„u—1wU€Ÿy r‹1—‚}w1“w‰v—wŽw¤‡w‚‹ vw ‡wƒ+‘"ŒƒxrU€‹wU§1r€ˆv—r1v„†}{{ ~1wŠrttwtt1w”xŒU€v—‚{s ªC—w”~Œm€1t‰}tuw1¤v"wƒ€r|{{s ‹ŒxŸ‡1w1v}v}“w qwƒ+‘"Œƒx‰r€1‹wž~rt1w ‡1r1s ªC—w”~1rtw{}€w”‡1wƒ+‘"ŒUƒ•xˆr€1‹w ‘˜Œƒv—wŸ~Œ€‚t‰}txŒ‚|wƒr1v˜w  U¡¢­

Source from: Yan and Li (1999)

yv"wxut zXw|{}r~}{}v s y ‘˜w‚w|{š}v"wˆtrv}t‘•}w„†}v˜—uv—1w ‹1‚ƒ•ƒw€vc‡1r1sutstv˜wxt‚§|y‚wv„u—r1vy €1w‚w‰‘•ƒ˜Œx®}v y„…Œ{”{}–w‰v ŒŽŒ”xusˆ~wtvU}€¨v•—1w „…Œƒ•– ¨s‹1‚ƒ•ƒw€v™Œ~Ž}t†ŒU€wŽŒ‘|v—wŸxuŒ‚tv }xŽ‡Œƒ"v"r€v‚v•—}€‰‘"Œƒmxˆw yrx¯„…Œƒƒ sur~1Œvv•—1wu‘•1vƒwŒ‘Uxus ‹‚ƒ•ƒw€v™˜Œ~Š°²±X³°²±X³°²±X³°²±X³ uŒv}“r1v•}ŒU€ yrx´}€t‡}ƒw”~sˆ~1Œv—¨v—1wŠ}€vƒ•}€t}‹ r€Šw1¤v•ƒ•}€t1}‹ƒ˜w„¨rƒ˜‰‘•ƒ˜Œxµ™˜Œ~  U¡«‚¶

3.3.3. Performance. With regard to the performance, I propose two indicators to measure the performance of sales men in an estate company. But they are not variables, I mean that is not the same way as the dimensions of compensation. In compensation, the three dimensions are independent variables; there is no obvious interaction among them. The three systems just function on their own purpose respectively. But when it comes to the attitude and outcome, I will not examine the relation between motivation and attitude, motivation and outcome respectively. Why I list them as sub-indicators is because I want

Source from: Yan and Li (1999)

to illustrate that the performance of sales men in Tiancheng is rated on two dimensions. But in this study, I will only measure them as unitary concept i.e. performance.

The construction of the scale for measuring the performance is more important and difficult than that for other variables as before. Needless to say, the questions about the performance of employees are very sensitive for tem to answer. Employees may be reluctant to answer the truth on the sheet of the questionnaires. So I try to modify the language (originated in Chinese) to a more mild style, so that they may feel better when they face such questions.

The template is also from the same source as former ones (Yan& Li, 1999). In the original version, the scale was also used on the service department of one telecom companies (sales included in service). So there were both indicators of outcome for sales and service attitude. But the reliability of them tested by author was different. Outcome had a reliability coefficient (Cronbach’s coefficient) of 0.80 whereas for service attitude, it was 0.84. I choose some of items from both sides into my scales. I estimate the reliability will be no lower than 0.75. Moreover, the way of point calculating is same too, ranging from totally disagree (point 1) to completely agree (point 5).

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3.4. Respondents Analysis and Isolating of Moderating Effects

In this study, I regard the sales men as my objective respondents. Actually there are lots of articles research into the compensation and organizational performance (Kahn, 1990. Lahti, 2000. Rynes, 2000), Only few of them shed light on the organizational behavior of employees (Gerhart & Murray 2000, Milkovich, 1994), which is to investigating into motivation as mediating factor between compensation and performance. Moreover, in an estate company, sales men are the part of employees that enjoy very high level of flexibility in their performance. So their performance may vary to large extent under different dependent variables. That facilitates the study. That is why I regard sales men as

the sample of the study.

The questionnaires administrated to the employees include five scales indicating respectively into pay system, motivation and performance. Additionally, I include some personal questions into the questionnaire. They are gender, age, educational level, positions, working experience as sales. The translation copy of the questionnaire is attached at the final page of this thesis (appendix).

Because the working schedule of some workers are flexible. It is difficult to find their physical presence. The director suggested distributing by e-mail. Under the help of my former director, I distributed questionnaires to all 178 registered sales of the company. 10 days later I got 168 respondents. Then I deleted 11 respondents which were filled incompletely or had obvious errors. I got 157 respondents left.

Now I want to talk about the isolating of moderating effects by the personal information in the questionnaires. I will process the data of the 5 variables in the next chapter. Before that, I will isolate the side effects that also contribute to the employee performance. I explain them one by one.

1. Age. The age is classified into six categories (appendix 1). From the filled questionnaires, most of sales aged between 24 and 33. Most of them are youth, only 4% of them are older than 40. I can imagine that. As I have described before, because the characteristic of flexibility of sales, most people tend to transfer to other jobs after they have accumulated some experience. I do not regard the age as the side effect. There is no theoretical evidence regarding to the age of sales men and their performance.

2. Gender. Female is a little bit more than male. I think female are commonly regarded as more kindly than male. They suit for service positions. Also no evidence could prove the impact of gender on the performance. I think that sort theories may be illegal because of discrimination. So gender is not the moderating factor.

them have bachelor degrees. Four people have only the degree of junior high school, but they are all aged above 34. They are experienced. I think the educational level should have some relation with the knowledge of employees whereas knowledge is a kind of moderator in the model. Thereby I will exclude all the samples who are not bachelors. 4. Positions. All positions of Tiancheng Estate Company are arranged by job grades in a pay structure of job-based pay system. With regard to the sales men, 13% of them are directors and deputy or assistant directors, left are sales. I think the employees with higher job grade must get more opportunities from organization that could facilitate their performance achieving. So the directors will be excluded.

5. Experience. From the surveys, the proportion of employees with more than three years of sales experience is 82%. And approximately 50% of them have the experience of working in another company as a sale before. Despite no mention in the model about the moderating effect of working experience. I think it works on final performance. So I decide to exclude the ones with less than three-year experience.

Finally, after exclusion by their distinctive educational level, positions and experience, there are only 96 samples left, which could be used for further research.

¾}€1r|{{s¨“r|{}|r1v"wŽtrxŠ‡{wt ¿ £

3.5. Statistical Method

Now it is the time to think about how to discover some interesting things among the valid variables. Before that I want to introduce briefly the statistical method I will utilize. The raw data gathered will be processed by the SPSS windows version.

I first depict the results of the variables briefly in a table. I will get a general impression about the distribution of data. In addition, I account out the average points and standard deviation to give a general recognition to the results of questionnaires.

Then I will use correlation analysis (Pearson r) to discuss the correlation among the several variables.

By means of regression analysis, I research into the impact that compensation and motivation impose on the performance. Concretely speaking, I firstly regard the three compensational dimensions as predictive variables, and the motivation as dependent variables. After regression analysis, I calculate the R-square of compensation on motivation and the F value, so as to examine to what extent they relate. Then regard motivation as predictive variables to examine to what extent motivation and performance relate in a similar way.

4. ANALYSIS AND DISCUSSION

After all the preparations aforementioned, I enter the stage of empirical analysis. In this part, I will process the data collected from result of the questionnaires, try to analyze and discuss the result of the statistic figures, under the theoretical framework proposed. Finally, I will answer the research questions.

In the section 1 of this part, I describe the result of variables in the research framework, so that you can understand the general information. In the section 2, I will use the correlation analysis to examine whether there is linear correlation among variables. In section 3, I use the regression analysis to judge to what extent the variables relate.

4.1. Descriptive Analysis

I will briefly depict the average point and the standard deviation of the variables according to the result questionnaires, so that you can have general view of the distribution of the variables in table 11.

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4.1.1. Compensation system. . As is shown in table above, the average points for all three compensation variables are above three but lower than four. The cognition against the performance-based pay is the highest whereas that against the skill-based pay is lowest. The result is consistent with my expectancy. For sales men, they definitely prefer performance bonus to the job-based pay. Skill-based bonus is relative strange for them so they can not accept it soon.

4.1.2. Motivation. The average motivation point is higher than midline. But few people only get 1.1 point. I am a little bit worry about their poor circumstances if they answer the truth on blanks.

4.2. Correlation Analysis

In this section, I will examine whether there is obvious linear correlation among the variables by means of the Pearson r. With the help of software, the coefficient will be calculated and there will be a xy-graph with lots of dots representing their correspondent positions of variables, from that you can have general impression of the correlation from the distribution of both variables. The result of analysis is shown in table 11.

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Seen from table 11, all the three pay systems have some more or less correlation with motivation. Among them, performance pay get a higher coefficient than two others, this result is within my anticipation. This result illustrates that all the three pay systems have positive correlation with motivation. And the performance bonus is still the most important pay component for sales men.

Concerning the correlation between compensation and performance, the coefficient of skill pay is a little bit lower than that of job pay. Formerly I considered the motivational factor from job-based pay might be the least of them three. Because from the literature review we know that the emphases of job-based pay is steady and control whereas emphases of skill-based pay and performance-based pay is motivation and capability escalating. Admittedly, the time for the employees to recognize and embrace the new pay system is short, you can see from the average point of both pay systems, job-based pay is 3.55 and skill-based pay is 3.49.

From the result, the motivation fail to relate to the performance, the coefficient is only 0.093. That means there is no obvious relation between the variables. If the result is true, the mediating effect of motivation between compensation and employees’ performance is inexistent. It seems that the theoretical model is problematic. However, from the literature review that this is impossible to imagine there is no relation between an employee’s motivation and his performance. I contribute this to the extent of validation about the scale of motivation administrated to employees. Maybe the blank can not reveal truly the motivation of the employees or employees did not take the scales serious.

compensation and performance.

4.3. Regression Analysis

After the correlation analysis in the former section, I know that there are linear correlations among several variables. I will go on revealing the statistic regulars among the linearly correlated variables by means of regression analysis. Because the premise of regression analysis is that there is linear correlation between variables. The relation between motivation and performance will not be examined in this section.

Firstly I regard the compensation systems as the independent variables and motivation as the dependent variable. In the process of regression analysis, I calculate the R-square and the F value to measure whether the explanatory power is evident.

From the model 1 in table 12, the R-square (motivation) for the compensation is 0.128; it is a little bit low but can still prove the explanatory power of compensation-motivation correlation is valid. On the pay dimensions, the result is similar from that of Pearson, job-based pay yield vague effect on motivation whereas performance-based pay still yields the strongest effect among three. In the former analysis, all three pay systems show linear correlation with motivation, but here skill-based pay fail to pass the regression analysis.

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4.4 Summary of statistic results

To sum up, after the Pearson correlation analysis, the foremost phenomenon is that the motivation failed to show linear correlation with performance. That may be attributed to the content of the scale; the validity and reliability in its original use are high but may decrease a lot in the situation of this study. The mediating factor between the compensation and performance is an important hypothesis of this study, but in the analysis, it failed to demonstrate its mediating effects. From the table 11, there are linear

correlations between compensation-motivation and compensation-performance. To make it easier to see, I conclude in table 13 and table 14.

We know now whether the variables are related linearly each other. After regression analysis, we know to what extent they do. Seeing from table 14, the rank of three pay systems’ effect on motivation and performance are respectively same. Performance-based pay is the strongest pay, producing most effect on both motivation and performance among three. Skill-based pay is the weakest pay, yielding least effect among three.

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TABLE 13. Conclusion of analysis (Pearson r)

œŒ~Ÿ‡1r1s © –}{{1‡rs qwƒ+‘"Œƒx‰r€1‹w ‡rs †Œv}“rv}ŒU€ ÊŒ1„ ÚXrƒ˜{s ˆ}{w qwƒ+‘"Œƒx‰r€1‹w ˆ}{w ÊŒ1„ © vƒ"Œ€1 Ë Œ 4.4. Discussion

main function of performance-based pay is to incentive employees so as to improve their performance. For job-based pay, in literatures its role is to shape the organization and make the organization steady, it emphasizes on control and safeguard. In empirical study, the results reflect that the effects of job-based pay imposing on motivation and performance are relatively low compared that of performance-based pay.

5. CONCLUSIONS AND SUGGESTIONS

5.1. Conclusions

In this section, I will conclude towards the research questions proposed in section 2 and results of analyses in former section.

Research question 1: To what extent do the pay systems contribute to the performance respectively? Pearson correlation analysis and regression analysis were used in respond to the research question. Statistically, on one hand, linear correlations exist within all three combinations (job pay and performance, skill pay and performance, performance pay and performance). On the other hand, the performance-based pay shows the strongest effect on employee performance, next comes job-based pay, whereas skill-based pay impose the weakest effects on performance from the results of regression analysis.

Research question 2: To what extent do the three pay systems contribute to the motivation of employees respectively? The theoretical model assumes that the power of compensation on performance could only be transferred by motivation of employees. That means compensational systems as independent variables, could influence level of motivation of employee and the moved employee will produce corresponding performance. That is why research question 2 and 3 are there. After analyses by two methods, I find that the linear correlations exist among them, and all systems produce positive impact on motivation. But the extent of the correlations do not reach initial expectancy, they are low. Among them performance-based pay is still the strongest and job-based pay is lower than performance-based pay whereas skill-based pay could hardly impose any effects on employee motivation.

between them is too low to prove a linear correlation. Concerning the reasons, I have concretely discussed in former section. But still, the conclusion to this question is there is no obvious correlation between employee motivation and employee performance under the contingences of this study.

5.2. Suggestions

In order to link the research to practical problems in Tiancheng, I will make some suggestions based on the results of analyses and literature review.

According to analyses, performance-based pay means the most important to sales men. For most Chinese employees, the only objective to become sales is making money. Sales is really money making career especially in the business of real estate. But few of them will regard sales as a long-term job in their life of career. Management should catch the thought of employees and make use of it to stimulate employees. So keep a high level of externally competitive performance bonus is paramount to Tiancheng.

Results in this research, along with other literatures suggest that the traditional job-based pay is becoming obstructive for organizations. When talking about job-based pay, you may associate with high bureaucratic hierarchy, departmentation, centralization, mechanic formalization such unfavorable terms. It is outmoded somehow; anyway, you cannot give up it. Despite sales men prefer the performance-based bonus, but there is still the risk of low profit. That means they may have problems making living if they cannot achieve the expected performance. Therefore, job-based basic pay still is the guarantee for them. I think a feasible way is to lower down the proportion in which job-based pay will take within a sale’s pay. That may stimulate the employees paying more attention to skill acquisition and self development.

make skill-based pay really work. In short-term, I think the HR should take the responsibility in sense making, which is to let employee know that the new system is benefit for both themselves and organization.

And from the surveys about employees’ performance, it seems that most people give high point to their service attitude. Actually I do not know exactly if there is improvement in the customer satisfaction until now. However, I can understand that situation, the behavior-oriented indicator (service attitude) is as important as outcome-oriented indicator (sale).

6. LIMITATIONS

This is my first formal research. Maybe the process of the study is not perfect, maybe the model is not so innovative and original, and maybe the conclusion is not so interesting. What I want to get by doing this research is to learn a way of conducting research by myself. I try best to comply tightly with business research methodology, which is my major fruit during my one-year study in Netherlands. Research methodology means very much important to me even outweigh the knowledge I have learned in the past few years. In modern society, the ability to learning knowledge and skills quickly is more important than knowledge and skills themselves, so do the research methodology. The knowledge will be outdated before long; nonetheless the methodology will help me for quite a long time.

Because of the limitation of my ability, time and experience, more of less, there is bond to be some errors within the whole research process, from the initial literature study to the conclusion. I have realized some major deviations which could lead to the inaccuracy of final conclusion.

With no doubt the result from a small sample capacity could not precisely reveal the underlying rule. And their answers on the questionnaires may not be their real thought for the informality of this project. Especially in the questionnaires administrated to measure the outcome and service attitude. Those are very sensitive questions for them to answer. Also the fail of the mediating variable in this research show that the content of scale has some problem. Besides, the sales men are very busy and their working time is flexible, without the help of my director who is the deputy manager of HR, I can not finish the investigation.

Concerning the isolating of moderating effects, in order to examine the effect of motivation on the performance, I try to isolate some effects from other factors. As has been described in chapter 3, the effect of the personality can not be isolated because I have not enough time to measure that. With regard to the other factors except for motivation and personality, I want to exclude the moderating effect from the difference of their age, salary, positions and so on. I make some substitute to the variables in the theoretical model, such as the ability, knowledge. I regard the salary they get as a index of their ability, the educational level as substitute of knowledge. That may not be so accurate, but I think it is better than to neglect the side effects.

2. The scales. I make the scales by means of some existing scales made by some scholars. I did not measure the reliability by myself. So some suitable scales were modified to suit the context in this study, nevertheless, the practical situation in my research will differ largely with that in their original uses. In addition, I realize that there should be power difference against each item in the scales, because some items are definitely more important than others are. A simply average point could not reflect the real feel of employees against proposed variables.

and translated some materials that may lead to some extent of inaccuracy.

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