Satisfying the payment system
Under what conditions does job satisfaction differ between fixed and
productivity based payment systems for employees in Western Europe?
Master Thesis
MSc Program of Human Resource Management University of Groningen, Faculty of Economics and Business
January, 2016
Noortje A. S. Akkermans Student number: 19 29 054
Top Naefflaan 88, 9721 VG Groningen, The Netherlands tel.: +31 (0)6-20301954
email: n.a.s.akkermans@student.rug.nl University of Groningen
Supervisor University Dr. P. H. van der Meer
TABLE OF CONTENTS Preface ...4 Abstract ...5 Keywords ...5 1. Introduction section ...6 1.1. Research questions ...8 2. Theoretical section ...9 2.1. Literature review ...9 2.2. Theoretical framework ...13 3. Method section ...15 3.1. Participant characteristics ...15
3.2. Sampling procedures and design ...15
3.3. Measurements ...16
3.4. Sample characteristics ...18
3.5. Analyses ...19
4. Result section ...20
4.1. Correlation ...20
4.2. Main effect of payment system on job satisfaction and job satisfaction determinants ...20
4.3. Moderating effect of income ...21
4.4. Moderating effect of sector ...23
4.5. Moderating effect of autonomy ...24
5. Discussion section ...25
5.1. Hypothesis one ...25
5.2. Hypothesis two ...25
5.3. Hypothesis three ...26
5.4. Hypothesis four ...26
5.5. Limitations and suggestions ...26
References ...29
Appendix A: Conceptual framework ...35
Appendix B: Item-total statistics and Cronbach’s alpha ...36
Appendix C: Descriptive statistics ‘control variables’ ...39
Appendix D: Correlations between ‘control variables’ ...40
PREFACE
This Master thesis is carried out in line with the rules and regulations of the University of Groningen. The supervision was in the capable hands of Doctor P. H. van der Meer and his feedback and
ABSTRACT
This Master thesis aspired to increase our understanding of the conditional relationship between payment systems and job satisfaction. More specific, we wanted to increase our understanding of the relation of fixed and performance related payment on the general job satisfaction and job satisfaction determinants. Next we wanted to investigate the moderating influence of autonomy, income and working sector in this relation.
Data from the fifth European Conditions Survey from Eurofound (2010) on European Working Conditions Survey (EWCS) is used. Linear regression is used to determine if the
independent variable is a statistically significant predictor of job satisfaction and the job satisfaction determinants. To analyse the moderation effects we will also use linear regression to determine if the interaction variables are statistically significant predictors of job satisfaction and the job satisfaction determinants above and beyond the main effects of payment system, income, autonomy and work sector.
The findings of this Master thesis show some main effects on job satisfaction and support for the moderating role of autonomy. But the results also suggest some caution with the interpretation of the results. Job satisfaction is relevant in increasing a more productive and committed workforce (Lyubomirsky, King & Diener, 2005) and creating a critical source of competitive advantage for organizations (Caudron, 1994).
1. INTRODUCTION SECTION
Employed people are significantly happier than unemployed people (Clark, Frijters & Shields, 2008). The loss of employment goes far beyond the external loss of income (Kahneman & Krueger, 2006). Lawler was one of the first to point out this importance trough the article ‘For a more effective organization – Match the job to the man’ that was published in 1974. He argued that ‘work can be a
more rewarding place to be and organizations can be made more effective if approaches to
organizational design treat people as individuals’. By treating people differently and placing them in
environment and work setting that fit their unique needs, skills and abilities this will have a positive, growth producing effect (Lawler & Finegold, 2000). This was the opposite from the more traditional, homogeneous view that was common in the time of mass production and standardization.
Nowadays, the individualization approach is as valid as it was then. Due to the globalization and technological innovations organizations are looking for ways to attract and retain high quality employees (Carr, 2000). This can be done in a number of different ways: by looking at payment systems, job designs, working conditions, working hours, type of contract, evaluation and leadership styles (Lawler & Finegold, 2000). This research focuses on payment systems. The reason for this is that globalization has led to another counteractive facet: the increasing focus on teams (Mathieu, Goodwin, Heffner, Salas & Cannon-Bowers, 2000) and group relations (Day, 2000). Different
payment systems are used to motivate performance and employees. Research on this topic is broad and this Master thesis will focus on a few types of payment systems that are more common in the
European workplace. Firstly there are the fixed, more traditional payment systems that are based on the amount of worked hours. Secondly there are productivity based payment systems that measure the productivity of the individual, and the productivity of the team or organization as a whole.
This is closely related to the term job satisfaction. A widely used definition of Locke (1976) defines job satisfaction as ‘a pleasurable or positive emotional state resulting from appraisal of one’s
job or job experiences’ (p. 1304). For individuals, job satisfaction reflects the degree of pleasure or
happiness that their job in general induces. Job satisfaction can be treated as a global concept by referring to general satisfaction and as a specific concept referring to various aspects of the work like payment (Cook, Hepworth, Wall & Warr, 1981). Furthermore, job satisfaction has positively been matched with self-esteem and negatively with neuroticism (Srivastava & Locke, 2006). Previous research has shown that the organizational justice has a positive influence on job satisfaction, but how these underlying mechanism works is yet to be explored (Totawar & Nambudiri, 2014).
The fairness of organizations, or organizational justice as it is called more common, consists of three components: distributive justice, procedural justice and interactional justice. Especially the procedural justice, defined as the fairness of the process by which outcomes are determined (Lind & Tyler, 1988), is especially prevalent when procedures embody a certain type of normative principle (Cohen-Charash & Spector, 2001). There is some interesting research done by McCausland, Pouliakas and Theodossiou (2005) that looked at job satisfaction between performance related pay and other compensation plans. Results showed that for high paid occupations performance related pay had a positive effect on job satisfaction, but for the low paid occupations performance related pay effected the job satisfaction negatively. This means that using performance based pay will have counteractive effects for low paid occupations in de United Kingdom. The researchers believe they can explain this negative effect because of lower levels of perceived autonomy in low paid occupations. The low paid employees with performance based pay feel more controlled, and because of this the job satisfaction will decrease.
1.1. Research questions
Research question 1: How do differences in fixed and productivity based payments relate to job satisfaction for Western Europe?
Research question 2: Does autonomy moderate the relationship between the payment systems and job satisfaction for Western Europe?
Research question 3: Does the type of profession moderate the relationship between the payment systems and job satisfaction for Western Europe?
This Master thesis aspires to increase our understanding of the conditional relationship between payment systems and job satisfaction, and the moderating influence of autonomy between these variables. This is important because the happier the employee, the more productive, creative and committed the employee is for the company (Lyubomirsky, King & Diener, 2005). This is especially relevant for high quality personnel, for they are a critical source of competitive advantage for
organizations (Caudron, 1994). Because differences exist between high and low paid employees, it is necessary to investigate the relation between payment based systems and job satisfaction in more detail. We hope to increase the knowledge in this field. Building on previous research and adding an explorative part, we believe that this piece fits within that field.
2. THEORETICAL SECTION
In this section we will elaborate, explain and justify the research questions with the existing and relevant literature. Used terminology is clarified, hypotheses will be formulated and a theoretical framework will be developed to outline the conditions of this research.
2.1. Literature review
Job satisfaction is a term that has extensively been researched (Adams, 1965; Dyer & Theriault, 1976; Goodman, 1974; Heneman, 1985; Patchen, 1961; Organ, 1977; Scarpello, Huber, & Vandenberg, 1988; Weiner, 1980; Koys, 2001). Firstly there are many definitions (Locke, 1969; Smith, Kendall &Hulin, 1969; Weiss, 2002; Judge Hulin & Dalai, 2009), but in general job satisfaction is described as an emotional evaluation of the multidimensional psychological response to one’s job and job
experiences. With the use of theories, models and surveys many determinants of job satisfaction are identified. Sousa-Poza and Sousa-Poza (2000) identified the levels of determinants of job satisfaction in a cross-national analysis. The results are presented in table 2.1. According to Sousa-Poza and Sousa-Poza (2000) an increase in (one of the) work-role outputs should, ceteris paribus, increase job satisfaction. An increase in work-role inputs should, ceteris paribus, decrease the job satisfaction. The corresponding variables are mostly based on subjective data/ self-report data. Only ‘education’ and ‘working time’ are objective measurements. It is important to point out that these subjective variables measure the determinants of job satisfaction better than do the objective variables.
Table 1
Cross-national analysis of the levels of the determinants of job satisfaction
__________________________________________________________________________________
Work-role inputs Work-role outputs
__________________________________________________________________________________
Education High-income ª
Working time Job security ª
Exhausting jobª Advancement opportunities ª
Physically demandingª Interesting job ª
Dangerous jobª Work independently ª
Help people ª Useful to society ª
Relationship with management ª Relationship with colleagues ª
__________________________________________________________________________________
Note. ª = self-perceived values.
The importance of these self-perceived values can be explained by an example of absolute and relative income differences. Easterlin (1974) had a psychological approach and showed that
that of those around them (Diener, Diener & Diener, 1995). The satisfaction with their income is partly based on this comparison (Clark & Oswald, 1996). This is only partly the case, because there are more pieces to the puzzle when it comes to the multifaceted concept of job satisfaction. There are situational factors of the job, as well as the contextual characteristics of the individual; all variables that influence job satisfaction (Kumar, 2006). In comparison, economic research shows a curve linear relation between income and well-being and a the relative high correlation with the subjective income of workers (Diener & Oishi, 2000).
Increased job satisfaction, will have a beneficial effect on their performance (Lyubomirsky, King & Diener, 2005), and thereby will be beneficial for the company in creating competitive advantage (Caudron, 1994). However, the most logical relationship that comes to mind, that job satisfaction will lead to higher performance, has contradictive results (see Organ, 1977 for elaboration about this). The actual influence of job satisfaction is not as straightforward as one might think. Traditionally industrial and organizational psychological theories are based on this relationship. When organizations are able to increase moral and happiness for their employees, they will make employees more productive (Strauss, 1968; Landy, 1989). However, empirical studies have produced conflicting viewpoints on the relation between job satisfaction and job performance. Some found a strong
correlation (Diener & Selligman, 2004), some found a weak correlation (Cummins, 2000; Suh, Diener, Oishi & Triandis, 1998) or even no significant relation (Keaveney & Nelson, 1993) between job satisfaction and job performance. Furthermore, although the Gross National Product (GNP) more than doubled in the last 50 years, satisfaction levels have remained constant for Europeans (Diener & Oishi, 2000). Other research of Siegel and Bowen (1971) suggested that job performance leads to job
satisfaction, but not the reverse.
Going back to the research of Sousa-Poza and Sousa-Poza (2000), one of the work-role outputs that positively influenced job satisfaction is income. Numerous studies have addressed the positive influence of income height on satisfaction (Gerhart, Milkovich & Murray, 1992; Cable & Judge, 1994). Meta-analysis shows that pay level is only marginal related to satisfaction (Judge, Piccolo, Podsakoff, Shaw & Rich, 2010). This is against popular belief. The positive relation between income and job satisfaction is however stronger for individuals with an extrinsic motivation (Malka & Chatman, 2003). When people are extrinsically motivated, this implies that they are primarily
motivated by something apart from the work itself. Examples are rewards like recognition or rewards like (performance based) payment. Motivation is mostly a thinking pattern that stimulates an
individual’s behaviour (Malone & Lepper, 1987). Organizations have long recognized the importance of extrinsic motivators and used this in their own advantage in means of salary, benefits and
Some of the differences can be explained when looking at differences in payment systems. The performance related payment schemes have increasingly found favour in many organizations in advanced countries. First only in the private sector, but more and more performance based payments are used in the public sector as well. For example, the government of the United Kingdom is using explicit incentives to enhance the provision of the public sector services (Burgess & Ratto, 2003). But not all situations are suited for performance based pay. The introduction of performance related payment schemes might lead to non-optimal responses. The workers will focus their effort towards the subset of tasks that are directly rewarded, derogating other equally valuable tasks for the organization. If the performance related payment is measured incorrectly or incompletely, the opportunity exists to manipulate the compensation system to the workers advantage. The literature refers to this as
‘multitasking’ (Baker, 1992; Holmstrom & Milgrom, 1991). Not every job is suited to measure the job characteristics in an individual base and in an objective, holistic way.
Research of Kohn (1993) also shows some concerns with the use of performance related pay. Firstly there is the potential problem of the undermining effect of financial incentives on the
collaboration and teamwork. The individual based performance comes before the team performance because this is being judged and rewarded. This will in turn lead to an inhibiting effect on workers willingness to cooperate and work as a team. Secondly it can enlarge the distance between the
management and the workforce within an organization. When the workforce has a performance related pay scheme, this builds pressure to produce more. This is especially true whenever there are
management fees included. This will make managers more eager to reach targets and indirectly builds on extra pressure. And thirdly it can reduce risk taking, creativity and innovation. Whenever
individuals (partly) shift from a fixed salary to productivity based salary, this will create less security in salary. This makes people more reluctant to take chances and stay in their comfortable, familiar way of doing things. One of the key ingredients for creative and innovative thinking is thinking and
looking in a different way.
Other concerns of performance related payment schemes where introduced by psychological research. It states that extrinsic incentives may undermine the intrinsic motivation and job satisfaction (Deci, 1971). In the long term it has been shown that this will have counterproductive effects on the productivity and profitability of the organization (Lepper, Greene & Nisbett, 1973). Economic research, however, shows no evidence for these claims (Frey & Jegen, 2001). As mentioned in the introduction section there is much research that shows positive effect of productivity based payment schemes on the productivity of the employee (Lazear, 2000). McCausland, Pouliakas and Theodossiou (2005) suggest an integrating idea. They suggest that the economists have identified the short term benefits of performance related payment schemes, and any long term negative effects on motivation and job satisfaction are witnessed in the data of the psychologists.
between performance related paid workers and non-performance related workers. It is assumed that the workforce will be sorted into jobs that have performance related payment schemes and jobs with a fixed payment scheme. Reasons are the current technological production possibilities and the strategy choices of organizations in getting the optimal weight of costs and benefits. McCausland, Pouliakas and Theodossiou (2005) took the research to the next level by looking at differences in job satisfaction between individuals receiving performance related payment and those with alternative compensation payments in the United Kingdom. In general workers with performance related pay had lower levels of job satisfaction. A closer inspection showed that in the performance related payment group the low paid workers had low levels of job satisfaction and the high paid workers had high levels of job satisfaction. This is not in line with the evidence that states that low paid workers in the United Kingdom are not less satisfied with their jobs compared with the high payed workers (Leontaridi & Sloane, 2001; Pouliakas & Theodossiou, 2005). The researchers suggested a moderating influence of autonomy; the lower paid workers felt more controlled, whereas the high paid workers derived a utility benefit from the performance based payment scheme. This suggestion has yet to be researched.
The relation of perceived autonomy and job satisfaction in the workplace is well grounded in the literature (Deci, Connell & Ryan, 1989; Deci & Ryan, 2002; Chang, Leach & Anderman, 2015). Autonomy is a social-contextual factor and refers to the amount of freedom that people perceive during their work. Autonomy can increase the motivation of the worker and facilitate effective functioning (Vansteenkiste, Niemiec & Soenens, 2010). Research from Deci, Connell and Ryan (1989) in a general work environment across different fields showed that employee satisfaction is positively associated with autonomy perceptions. When there is more perceived autonomy within the job, this will relate to a higher job satisfaction (Harter, Schmidt & Hayes, 2002). Because the
perceived ability to control relates to higher job satisfaction, the researchers suggest a moderating effect of autonomy on the relation between the payment system and job satisfaction of the employee. More studies show support for the moderating influence of autonomy on job satisfaction (Riketta, 2002; Aube, Rousseau & Morin, 2007). It is important to mention that the studies use different independent variables to measure autonomy.
The ambiguity between the effect of autonomy on job satisfaction increases when we look within the different job occupations. The nursing jobs are probably the most researched of all occupations. There are many factors contributing job satisfaction, but in general the nursing literate includes job autonomy, job related stress and collaboration within multidisciplinary teams (Wells, Roberts & Medlin, 2002; Ferrand, Lemaire, Regnier, Kuteifan, Badet, Asfar, et al., 2003;
Brunetto & Farr-Wharton, 2012). The relationship between management and job satisfaction was significantly influenced by job satisfaction and patient role clarity. The private sector nurses reported higher autonomy perceptions and more job satisfaction than the public sector nurses.
Mathieu and Zajac (1990) mentioned the importance of exploring the differences in the private and public sector in terms of organizational commitment and satisfaction. Baldwin (1987) indicated differences between the public and private sector. The public sector is more ambiguous in their goals and objectives. That is because they have fewer indicators of demand and less performance
measurements. Furthermore, the public sector has a relative job and pay security compared with the private sector. The degree to which employees consider autonomy, job clarity and security as important differs between these sectors (Flynn & Tannenbaum, 1993). Only in the private sector a positive relation was found between autonomy and commitment to the organization. How these relations influence job satisfaction has never been explored.
2.2. Theoretical framework
The aim of this Master thesis is to examine how differences in fixed and performance related payment affect the job satisfaction for employees in Western Europe. To do so we will follow the practice of an ever-increasing number of researches that use questionnaires that collect data on job satisfaction. This will be done using the Fifth European survey of Eurofound (2010) on working condition for the Western European countries.
Firstly we want to investigate whether significant differences exist in job satisfaction between performance related payment and fixed payment schemes. Building on previous discussed literature we expect that fixed payment is relatively stable and that performance based payment is more varied. This is because there are more pieces to the puzzle when it comes to the multifaceted concept of job satisfaction. There are situational factors of the job, as well as the contextual characteristics of the individual; all variables that influence job satisfaction, besides the differences in payment systems (Sharma & Ghosh, 2006). Although research shows some mixed results, in general the meta-analysis see a marginal positive effect of performance based pay on job satisfaction (Judge, Piccolo, Podsakoff, Shaw & Rich, 2010). So in conclusion, we believe that performance related pay has a positive effect on job satisfaction compared with the fixed pay.
Hypothesis 1: The performance related payment group will have significantly higher job satisfaction than the fixed payment group.
Farr-Wharton, 2012). In meta-analysis high levels of control and autonomy are associated with high levels of job satisfaction (Spector, 1986; Fried, 1991), but some suggest a moderating influence instead of a direct one. We want to see if higher scores on autonomy in the job moderate differences in the payment system and job satisfaction.
Hypothesis 2: In the performance based payment group, the difference in job satisfaction, between the workers that perceive high autonomy and the workers that perceive low autonomy, will be significantly larger in comparison to the fixed payment group. Higher levels of autonomy will relate to higher levels of job satisfaction for both payment groups. In the literature section the research of McCausland, Pouliakas and Theodossiou (2005) is discussed. They showed that in the performance based payment group differences in job satisfaction exist for high and low paid workers In the United Kingdom. This contradicts the evidence that states that low paid workers are not less satisfied with their jobs compared with the high payed workers (Leontaridi & Sloane, 2001; Pouliakas & Theodossiou, 2005). We want to investigate if we can confirm the suggestion of McCausland, Pouliakas and Theodossiou (2005) that in the performance based payment group the low paid workers feel less autonomy (e.g. more controlled due to the payment system) and this will influence their job satisfaction negatively.
Hypothesis 3: In the performance based payment group, the difference in job satisfaction, between high paid workers and low paid workers, will be significantly larger in comparison to the fixed payment group. High payment will relate to higher levels of job satisfaction and low payment will relate to lower levels of job satisfaction.
This last part is similar to the previous part. It also investigates if the relation between the performance based payment systems and job satisfaction is moderated by feelings of autonomy. Only in this case we will explore differences in autonomy by looking at differences in working sectors. Baldwin (1987) indicated differences between the public and private sector. Only in the private sector a positive relation was found between autonomy and commitment to the organization (Flynn & Tannenbaum, 1993). In the performance based payment group, the sector that perceives higher levels of autonomy will have higher levels of job satisfaction. Consequently, in the performance based payment group the private sector will have higher levels of job satisfaction.
3.METHOD SECTION
In this section we will provide a detailed description of how the research was conducted. This will allow the reader to make their evaluation for the appropriateness of the used methods, and thereby the reliability and validity of the results in this Master thesis.
3.1. Participant characteristics
This study included 6065 participants, of which 52.3% female (N = 3175). From the original 34 countries only Belgium (N = 2986), Germany (N = 1627), Luxembourg (N = 751) and The
Netherlands (N = 701) were included into the analyses. All participants were between the age of 25 and 60 (M = 41.65, SD = 9.70). The largest group of participants had a secondary education degree (N = 3570), after that a tertiary education degree (N = 2299), and primary education (N = 178). The remaining 18 participants are not appointed to one of the groups because they forgot or refused to answer the questions.
Because this study investigates if the type of payment system influences job satisfaction, the participants are divided in two types of payment: workers that only receive a fixed payment (N = 4669) and workers that have a salary that is partly or a totally productivity based (N = 1163). The mean age of the ‘fixed payment group’ is 41.69 (SD = 9.75) and the mean age of the ‘performance related payment group’ is 41.20 (SD = 9.43). De remaining 233 participants are not assigned to one of the groups because they refused, forgotten or because they received another type of payment.
3.2. Sampling procedures and design
Participants were collected using the fifth European Conditions Survey of Eurofound (2010). The European Foundation for the Improvement of Living and Working Conditions Survey (EWCS) is an international representative survey that interviews a random sample of around 40.000 to 50.000 Europeans. Good quality and updated sampling frame (registers) were used. If this was not available for a certain country, the random route method was used for the selection of households. Theoretically there was a non-zero probability of inclusion in the sample for all members of the statistical
population. Furthermore, the number of eligible individuals in the household was recorded and used to correct within-household selection probabilities.
carried out in the winter and spring of 2010.
3.3. Measurements
The original data from the fifth European Conditions Survey was restricted in three ways to make it suitable for this study. Firstly, the Netherlands, Belgium, Luxemburg and Germany were the countries that were included for the research. The Benelux and Germany are very similar in terms of working conditions, legislation policies and law (Peteri & Project, 2010). Secondly, we restricted the analyses to people that are employed. This was done through an item which showed whether their main paid job was ‘self-employed without employees’, ‘self-employed with employees’, ‘employed’, ‘other’ and ‘refusal’. Only the ‘employed group’ was included in the research sample. And thirdly, the workforce was restricted to people between 25 and 60 years of age. By doing this we excluded the unemployed, self-employed, retired, full-time students, housewives, and other people that do not participate on the labour market. The total respondent after the three restrictions becomes a final sample of 6065 people.
The dependent variable job satisfaction is measured by two variables: the general job satisfaction and the job satisfaction determinants. The ‘general job satisfaction variable’ is measured with the question ‘On the whole, are you very satisfied, not satisfied, not very satisfied or not at all
satisfied with working conditions in your main paid job?’ on a four point Likert scale ranging from 1
very satisfied to 4, not satisfied.
The ‘job satisfaction determinants variable’ is the sum variable of the following statements that describe some aspects of the job: ‘I might lose my job in 6 months?’, ‘I am well paid for the work
I do?’, ‘My job offers good prospects?’, ‘I feel ‘at home’ in this organisation?’, ‘I have very good friends at work?’ and ‘The organisation I work for motivates me?’. The corrected item-total
correlation is used to determine if the questions regarding the ‘job satisfaction determinants’ correlate enough to accumulate them into a sum score. Ferketich (1991) writes that corrected item-total
correlations should range between .30 and .70 to produce a good scale. Negatively keyed items however, often fail to exhibit good psychometric characteristics and generally show corrected item-total correlations between .20 and .40.
The item analysis showed a negative corrected item-total correlation (-.094) for the question
‘If I were to lose or quit my current job, it would be easy for me to find a job of similar pay’. This
might be explained by the theory of migration (Lee, 1966). The negative corrected item-total
correlation is a ‘pull-factor’ that draws the workers into a new workplace. All the other job satisfaction questions are ‘push-factors’ that drives workers away from their workplace. Based on this negative correlation, the aforementioned item was deleted from the analysis. After this deletion, five of the remaining six questions showed corrected item-total correlations between .30 and .70, see appendix B. When we recode the question ‘I might lose my job in the next 6 months’ we get a Cronbach’s Alpha of .679 for the remaining six items (and .690 Cronbach’s Alpha based on standardized items). A
analyses used in this study (Tan, 2009).
The independent variable is the type of ‘payment system’, which is also mentioned in the participant characteristics. We created the variable using the question ‘Thinking about your earnings
from your main job, what do they include?’ The participants that only answered ‘basic fixed salary/wage’ are included in the ‘fixed payment group’. Respondents that choose ‘piece rate or productivity payments’, ‘Payments based on overall performance of the company (profit sharing scheme) where you work’, ‘income from shares in the company your work for’, a combination of the
three or in combination with the fixed payment are in the ‘performance related payment group’ which is labelled as PRP group.
Furthermore, three moderator variables are used in the analysis. The first moderator
‘autonomy’ is the sum variable of the ability of choose or change ‘the order of taks’, ‘the methods of
work’ and ‘the speed or rate of work’. The three questions all have corrected item-total correlations
that range between .60 and .70, see appendix B.This is well within the range to produce a good scale (Ferketich, 1991). The Cronbach’s Alpha is .765 for the three items is well within reliability standards. The second moderator ‘job sector’ is measured by the question ‘are you working in the private or
public sector’. This dichotomous variable is coded 0 for the private sector and 1 for the public sector.
The last moderator analysis looks at differences in income. This was measured by two questions: one that asked the monthly earnings from their main paid job, and if the respondent does not know the net monthly earnings they are asked to estimate it using show card EF11 that has 21 different options. The first question is also coded using these different options. Then these 21 different options are divided into five groups using the 20th, 40th, 60th and the 80th percentile; very low, low, moderate, high and very high. For this variable four dummy variables were created.
We used a large number of variables to control for the effect of the payment systems on job satisfaction. There are possibly significant effects of many of these variables (e.g. age and working hours), but because this somewhat dubious to interpret and distract from the most essential analysis. That is why we will focus exclusively on the relation between payment systems and job satisfaction, with all the other control variables to strengthen our tests of hypotheses.
Some general control variables are included. The ‘gender’ of the respondent, if they have a ‘spouse/partner’, and/or a ‘son/daughter’ are all dichotomously decoded. The ‘level of education’ is divided in seven groups and follows the standard educational category system, for which six dummy variables were created. The ‘age’ and ‘general health’ of the respondent are scale variables, where general health is a five point Likert Scale ranging from ‘very bad’ to ‘very good’.
‘organizational size’ variable was measured with eight different options for the amount of people that in total worked at their workplace ranging from ‘1’ to ‘500 and over’. For these eight options, seven dummy variables were created. The scale measured variable ‘years organization’ is the number of years that the participants worked at the company. Another dichotomous variable ‘supervision people’ was created to measure if the participant had people working under their supervision. And a scale based variable ‘work in free time’ measures the amount of hours that the participant worked in their free time in order to meet the work demands. ‘Job prospects’ is measured with the question ‘my job
offers good prospects for career advancement’ with ranged from a five point Likert scale that
‘strongly agreed’ to ‘strongly disagreed’. Lastly, the control variable ‘job pressure’ was measured using the sum score of the statements if the job of the respondent involved ‘working at a very high
speed’ and ‘working to tight deadlines’. The corrected item-total correlation is .615 (see appendix B)
and the Cronbach’s Alpha is .761, all are reasonably reliable (Tan, 2009).
3.4. Sample characteristics
A Shapiro-Wilk’s test (p < .000 for both groups) and a visual inspection of their histograms, normal Q-Q plots and box plots showed that the scores on the variable ‘job satisfaction’ were not
approximately normally distributed for both groups, with a skewness of -.556 (SE = .033) and a kurtosis of 1.035 (SE = .067) for the ‘fixed payment’ group and a skewness of -.607 (SE = .069) and a kurtosis of .878 (SE = .137) for the ‘PRP’ group. However, based on an inspection of the histograms, medians, variances, skewness and kurtosis of both groups for the variable ‘job satisfaction’ we can assume that the distributions are roughly the same (Cramer, 1998; Cramer & Howitt, 2004; Doane & Seward, 2011; Razali & Wah, 2011; Shapiro & Wilk, 1965).
A Shapiro-Wilk’s test (p < .000 for both groups) and a visual inspection of their histograms, normal Q-Q plots and box plots showed that the scores for the ‘job determinants scale’ sum score were not approximately normally distributed for both groups, with a skewness of -.595 (SE = .038) and a kurtosis of .574 (SE = .075) for the ‘fixed payment’ group and a skewness of -.591 (SE = .075) and a kurtosis of .878 (SE = .150) for the ‘PRP’ group. Based on an inspection of the histograms, medians, variances, skewness and kurtosis of both groups for the ‘job satisfaction scale’ sum score we can assume that the distributions are roughly the same (Cramer, 1998; Cramer & Howitt, 2004; Doane & Seward, 2011; Razali & Wah, 2011; Shapiro & Wilk, 1965).
analyses.
3.5. Analyses
4.RESULT SECTION
In this section the results from the data analysis will be presented. The analysing of the data is done in line with the described approach in the method section. The collected data is summarized and the analyses are performed on the relevant data.
4.1. Correlation
The means and standard deviations of the independent variables (job satisfaction and job satisfaction determinants), the dependent variable (payment system) and the moderator variables (sector,
autonomy and income) are presented in table 1, with their correlations presented in table 2. The results show a significant positive correlation between payment system and both of the dependent variables. This suggests that performance related payment is associated with higher job satisfaction/job
satisfaction determinants. The positive correlation between job satisfaction/job satisfaction
determinants and autonomy and higher income suggest that higher autonomy and higher income is associated with higher job satisfaction/job satisfaction determinants. Lastly, the correlations between de independent variable (payment system) and the moderator variables (sector, autonomy and income) suggest that performance related payment is associated with higher income, higher autonomy and the private sector. See appendix C for the means and standard deviations of the control variables.
Table 2
Means and standard deviations of the dependent variables, independent variable and the moderator variables
Mean SD
Job satisfaction 3,11 ,656
Job sat. determinants 21,45 3,957
Payment system ,20 ,400
Autonomy 2,04 1,154
Sector ,28 ,451
Very low income ,16 ,366
Low income ,11 ,311
Moderate income ,20 ,400
High income ,29 ,454
Very high income ,24 ,428
4.2 Main effect of payment system on job satisfaction and job satisfaction determinants
model is statistically significant and explains 22,4 percent of the total variability of job satisfaction and 49,2 percent of the total variability of job satisfaction determinants. The results do not support the hypothesis that the performance related payment group will have significantly higher job satisfaction than the fixed payment group. See appendix D for the correlations of the control variables.
Table 3
Correlations between job satisfaction, job satisfaction determinants, payment system, sector, autonomy and income (N = 6065)
Job satisfaction
Job sat. determinants
Payment
system Autonomy Sector Very low income Low income Moderate income High income Very high income Job satisfaction 1 ,529 ** ,054** ,177** ,024 -,050** -,051** -,048** ,027 ,097** Job sat. determinants 1 ,094 ** ,221** ,123** -,204** -,105** -,049** ,101** ,185** Payment system 1 ,024 -,173 ** -,099** -,049** -,062** ,020 ,157** Autonomy 1 ,081** -,078** -,058** -,073** ,023 ,153** Sector 1 -,073** -,056** ,005 ,009 ,090** Very low income 1 -,152 ** -,218** -,279** -,245** Low income 1 -,174** -,224** -,196** Moderate income 1 -,320 ** -,281** High income 1 -,361** Very high income 1
**. Correlation is significant at the 0.01 level (2-tailed).
4.3. Moderating effect of income
The test results of the moderating effect of income on the relationship between payment system and job satisfaction / job satisfaction determinants are presented in table 3. The results show that the four interaction terms (payment system * low income, payment system * moderate income, payment system * high income, payment system * very high income) are not statistically significant predictors of job satisfaction and job satisfaction determinants, above and beyond the main effects of the
Table 4
Effects of payment system, income, sector, autonomy, their moderating effects and the control variables on job satisfaction and job determinants (N = 6065)
Job satisfaction Sig. Job determinants B SD B SD Sig. (Constant) 1,927 ,173 ,000 11,782 ,901 ,000 Sector -,006 ,023 ,809 ,439 ,116 ,000* Autonomy ,057 ,009 ,000* ,277 ,043 ,000*
Very low income (reference category)
Low income -,022 ,040 ,577 ,202 ,202 ,318
Moderate income -,024 ,037 ,504 ,520 ,186 ,005*
High income ,010 ,037 ,787 1,181 ,187 ,000*
Very high income ,038 ,041 ,347 1,139 ,207 ,000*
Gender -,014 ,022 ,510 ,084 ,110 ,444
Age ,004 ,001 ,004* ,000 ,006 ,999
Type of contract ,129 ,032 ,000* 1,658 ,166 ,000*
Years at organization ,001 ,001 ,315 ,055 ,007 ,000*
Supervision of people ,002 ,026 ,924 -,433 ,130 ,001*
Fulltime or parttime job -,051 ,029 ,079 -,450 ,147 ,002*
Working in free time -,022 ,009 ,010* -,069 ,043 ,111
Job pressure -,025 ,003 ,000* -,107 ,014 ,000*
General health ,264 ,014 ,000* ,841 ,069 ,000*
Job prospects ,111 ,009 ,000* 1,839 ,043 ,000*
Partner ,027 ,023 ,224 ,138 ,114 ,226
Child/children -,004 ,021 ,855 ,012 ,103 ,904
Pre-primary education (reference category)
Primary education / first stage of basic education -,189 ,143 ,188 -,268 ,743 ,719 Lower secondary / second stage of basic
education -,219 ,132 ,096 -,986 ,683 ,149
(Upper) secondary education -,310 ,132 ,019* -1,135 ,684 ,097 Post-secondary non-tertiary education -,310 ,156 ,046* -1,233 ,795 ,121 First stage of tertiary education -,241 ,132 ,068 -1,196 ,685 ,081 Second stage of tertiary education -,309 ,168 ,066 -,117 ,872 ,893
Table 4 (continued)
Effects of payment system, income, sector, autonomy, their moderating effects and the control variables on job satisfaction and job determinants (N = 6065)
Job satisfaction Sig. Job sat. determinants B SD B SD Sig.
Organization size: 1 (reference category)
Organization size: 2-4 -,036 ,070 ,609 ,155 ,372 ,678 Organization size: 5-9 -,051 ,066 ,445 ,186 ,357 ,602 Organization size: 10-49 -,113 ,065 ,080 -,171 ,348 ,622 Organization size: 50-99 -,095 ,068 ,164 -,201 ,365 ,581 Organization size: 100-249 -,105 ,069 ,128 -,326 ,367 ,374 Organization size: 250-499 -,198 ,074 ,007* -,547 ,391 ,161
Organization size: 500 and over -,146 ,070 ,037* -,219 ,372 ,556
Payment system ,036 ,024 ,132 ,191 ,120 ,111
Payment system * Very low income (reference category)
Payment system * Low income -,095 ,112 ,397 ,000 ,566 ,999
Payment system * Moderate income ,067 ,095 ,483 -,050 ,483 ,917
Payment system * High income ,013 ,088 ,882 -,173 ,446 ,698
Payment system * Very high income -,031 ,088 ,727 -,821 ,446 ,066
Payment system * Sector ,124 ,066 ,059 ,586 ,331 ,077
Payment system * Autonomy ,025 ,020 ,220 -,199 ,100 ,048*
* Significant main- or interaction effect on job satisfaction or job determinants.
So no additional variability of both job satisfaction and job satisfaction determinants is explained by the interaction terms. The results do not support the hypothesis that in the performance based payment group, the difference in job satisfaction, between high paid workers and low paid workers, will be significantly larger in comparison to the fixed payment group, where high payment will relate to higher levels of job satisfaction and low payment will relate to lower levels of job satisfaction.
4.4. Moderating effect of sector
and autonomy variables. The results in table 4 show that this model is statistically significant and explains 22,4 percent of the total variability of job satisfaction and 49,2 percent of the total variability of job satisfaction determinants. So no additional variability of both job satisfaction and job
satisfaction determinants is explained by the interaction term. The results do not support the
hypothesis that in the performance based payment group, the difference in job satisfaction, between the private sector and the public sector, will be significantly larger in comparison to the fixed payment group, where the private sector will have higher levels of job satisfaction compared to the public sector.
4.5. Moderating effect of autonomy
The test results of the moderating effect of autonomy on the relationship between payment system and job satisfaction / job satisfaction determinants are presented in table 3. The results show that the interaction term (payment system * autonomy) is not a statistically significant predictor of job satisfaction, but is a statistically significant predictor of job satisfaction determinants, above and beyond the main effects of the payment system, income, sector and autonomy variables. The results in table 4 show that this model is statistically significant and explains 22,4 percent of the total variability of job satisfaction and 49,2 percent of the total variability of job satisfaction determinants. So no additional variability of both job satisfaction and job satisfaction determinants is explained by the interaction term. When we look at the job satisfaction determinants, the results support the hypothesis that in the performance based payment group, the difference in job satisfaction, between the workers that perceive high autonomy and the workers that perceive low autonomy, will be significantly larger in comparison to the fixed payment group, where higher levels of autonomy will relate to higher levels of job satisfaction for both payment groups. When we look at the general job satisfaction, the results do not support this hypothesis.
Table 5
Adjusted R-squared and F-values of the different models trying to predict job satisfaction and job satisfaction determinants
Job satisfaction Job sat. determinants Adj. R2 F Adj. R2 F
Payment system, moderator variables, control variables ,224 34,62* ,492 108,19* Payment system, moderator variables, payment
system*income, control variables ,224 30,87* ,492 96,55*
Payment system, moderator variables, payment
system*sector, control variables ,224 33,71* ,492 105,07*
Payment system, moderator variables, payment
system*autonomy, control variables ,224 33,63* ,492 105,12*
5.DISCUSSION SECTION
In this Master thesis we investigated if differences in fixed and performance related payment related to job satisfaction. Furthermore, three moderator variables were investigated. In this section we will examine, interpret, and qualify the results according to the four hypotheses that are described in the theory section.
5.1. Hypothesis one
According to the first hypothesis the performance related payment group has a significantly higher job satisfaction than the fixed payment group. The results show no support for this main effect of the payment groups on job satisfaction when we correct for the control variables. The mean scores of the performance related group is higher than the fixed group, but not enough to show significant
differences on job satisfaction. The results are similar for the general job satisfaction and job satisfaction determinants. This shows that there are more pieces to the puzzle when it comes to the multifaceted concept of job satisfaction.
5.2. Hypothesis two
The second hypothesis states that in the performance based payment group, the difference in job satisfaction, between the workers that perceive high autonomy and the workers that perceive low autonomy, will be significantly larger in comparison to the fixed payment group. Higher levels of autonomy will relate to higher levels of job satisfaction for both payment groups. The results show support for this relation for the dependent variable job satisfaction determinants. In the performance related payment group the workers that perceive high autonomy have higher levels on job satisfaction determinants than the workers that perceive low autonomy in the performance related payment group. The results in the fixed payment are relative stable and show no significant effect on the job
satisfaction determinants. Furthermore, no significant differences were found for the dependent variable general job satisfaction.
5.3. Hypothesis three
The third hypothesis states that in the performance based payment group, the difference in job satisfaction, between high paid workers and low paid workers, will be significantly larger in
comparison to the fixed payment group. High payment will relate to higher levels of job satisfaction and low payment will relate to lower levels of job satisfaction. The results show no support for this relation. Again the mean scores of the performance related payment group are higher than the mean scores of the fixed group, but this difference is too modest to show any significant differences in job satisfaction. A visual inspection shows that scores on one, three, four and five on the income variable have no differences between the slopes. Only a score of two (represents the low incomes) on the income variable has a slope that is somewhat steeper than the rest. Again, this does not support the hypothesis.
5.4. Hypothesis four
The fourth hypothesis states that in the performance based payment group, the difference in job satisfaction, between the private sector and the public sector, will be significantly larger in comparison to the fixed payment group. The private sector will have higher levels of job satisfaction compared to the public sector. The results show no support for this relation. Again the mean scores for the
performance related payment group are slightly higher than the mean scores of the fixed payment group, but this is too modest to show any significant results.
There is however a significant main effect of public sector on job satisfaction determinants. Because the job satisfaction variable is a sum variable that is made up out of six statements, with one statement that measures job security. It could be possible that workers in the public sector perceive more job security than workers in the private sector, and because of this the workers in the public sector score higher on job satisfaction determinants than workers in the private sector. This is in line with the research of Baldwin (1987) that indicated that the public sector has a relative job and pay security compared with the private sector. The degree to which employees consider autonomy, job clarity and security as important differs between these sectors (Flynn & Tannenbaum, 1993). It is important to realize that this explorative part does not support hypothesis four.
5.5. Limitations and suggestions
6.CONCLUSION SECTION
This Master thesis aimed to increase our understanding of the conditional relationship between payment systems and job satisfaction. More specific, we wanted to increase our understanding of the relation of fixed and performance related payment on the general job satisfaction and job satisfaction determinants. Next we wanted to investigate the moderating influence of autonomy, income and working sector in this relation. Especially the claim of McCausland, Pouliakas and Theodossiou (2005) was tested. This is important because the happier the employee, the more productive, creative and committed the employee is for the company (Lyubomirsky, King & Diener, 2005). This is especially relevant for high quality personnel, because they are a critical source of competitive advantage for organizations (Caudron, 1994).
The results showed different main effects, but the analyses of the interaction effects were more ambiguous. Several suggestions are mentioned. One was the large sample size of 6065 participants. This can make relative small effects statistically significant, due to the increased power. Secondly this study does not clarify the overlapping degree with the different variables. This can influence the analyses. Further research is needed to increase the knowledge the different variables that influence job satisfaction, and to what degree the influencing variables overlap or interact with one another.
In this study the complexity of job satisfaction is ones more shown. Research already emphasized the importance of further investigation to the relation that income has on job satisfaction (Diener, Diener & Diener, 1995). Sharma and Gosh already argued that job satisfaction is a
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APPENDIX B: Item-total statistics and Cronbach’s alpha
Table 6.a
Item-Total Statistics ‘job satisfaction determinants’ Scale Mean if Item Deleted Scale Variance if Item Deleted Corrected Item-Total Correlation Squared Multiple Correlation Cronbach's Alpha if Item Deleted q77a. I might lose my job in 6 months? 17,50 12,176 ,262 ,093 ,691 q77b. I am well paid for the work I do? 18,10 11,668 ,406 ,179 ,638 q77c. My job offers good prospects? 18,62 11,263 ,370 ,174 ,653 q77d. I feel ‘at home’ in this organisation? 17,56 11,063 ,591 ,399 ,582
q77e. I have very good friends at work? 17,64 12,041 ,381 ,205 ,646 q77g. The organisation I work for motivates me? 17,81 11,227 ,493 ,305 ,609 Table 6.b
Table 7.a
Item-Total Statistics ‘autonomy’
Scale Mean if Item Deleted Scale Variance if Item Deleted Corrected Item-Total Correlation Squared Multiple Correlation Cronbach's Alpha if Item Deleted
q50a. Are you able to choose or change your order of tasks? 1,38 ,650 ,598 ,360 ,684 q50b. Are you able to choose or change your methods of work? 1,35 ,657 ,613 ,376 ,667 q50c. Are you able to choose or change your speed or rate of work? 1,35 ,675 ,581 ,338 ,703 Table 7.b
Reliability Statistics ‘autonomy’
