Dissertation jesca 3 draft revised version 1

IMPACT OF REWARD SYSTEMS ON THE ORGANIZATIONS PERFORMANCE IN TANZANIAN BANKING INDUSTRY: A CASE OF COMMERCIAL BANKS IN MWANZA CITY JESCA N. KIKOITO A DISSERTATION SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF HUMAN RESOURCE MANAGEMENT OF THE OPEN UNIVERSITY OF TANZANIA 2014 ii CERTIFICATION The undersigned certifies that, he has read and hereby recommends for acceptance by the Open University of Tanzania a dissertation titled: “Impact of Reward Systems on the Organizations Performance in Tanzanian Banking Industry: A Case of Commercial Banks in Mwanza City” in partial fulfillment of the requirements for the Degree of Master of Human Resource Management of the Open University of Tanzania.……………… Date iii COPYRIGHT No part of this dissertation may be reproduced, stored in any retrieval system, or transmitted in any form by any means, electronically, photocopying, recording or otherwise without prior permission of the author or The Open University of Tanzania in that behalf. iv DECLARATION I, Jesca N. Kikoito, do hereby declare that this dissertation is my own original work and that it has not been presented and will not be presented to any other university for a similar or any other degree award.…………………… Date v DEDICATION This work dedicated to my beloved mother, Mrs.

Verdiana Kikoito for her moral and spiritual support as well as prayers during my entire studies. vi ACKNOWLEDGEMENTS This Work has been a result of a collective Effort of a number of people. I would like to take this opportunity to thank the following individuals for their contribution in the successful completion of this dissertation. First, the management of CRDB BANK PLC, NMB BANK PLC and NBC BANK LTD where this study was conducted, for assisting me to do this study in their organizations.

Second, the management and staff of CRDB NYANZA BRANCH and my Branch manager Mr. Wambura Calystus for giving me the opportunity to study a degree in Masters of Human resource Management as well as their advice, encouragement and support. Third, my supervisor Dr. Gerry Batonda for his time and commitment to my success as well as for his guidance during proposal development, field work and report writing.

I also acknowledge my MHRM colleagues for their support in the challenging and yet rewarding two years together. Special thanks go to my close friends Susan Kimwaga and Sarah Tesha for their professional and technical advice in the whole work. Last but not least in importance, I offer my sincere appreciation to all of those persons who contributed so much in one way or another, during the compilation of this dissertation. Thank you all.

vii ABSTRACT Reward system is an important tool that management uses to channel employee’s motivation in desired ways such as better functionality and further improve company performance. The purpose of this study was to examine the impact of reward systems on organisational performance in commercial banks in Mwanza city, Tanzania. The study was guided by the following specific objectives:(i) to determine the reward systems currently used in commercial banks in Mwanza city, (ii) to determine employees’ view of reward system used by commercial banks in Mwanza city, (ii) to assess the effect of extrinsic rewards (remuneration, bonus, salary and promotion) in organization performance and (iv) to assess the effect of intrinsic rewards (praise and recognition) on organization performance in commercial banks of Mwanza city. The study used descriptive research design which incorporated both quantitative and qualitative approaches.

The study surveyed 65 employees from three commercial banks (CRDB, NBC and NMB) in Mwanza City, using self administered questionnaire. It also interviewed selected employees. The data was analyzed with use of descriptive statistics (SPSS and excel) and data presented as frequency distribution tables and histograms. The findings of this study showed that the three commercial banks in Mwanza city offer both extrinsic (salary, bonus and promotion) and intrinsic (praise, recognition and genuine appreciation) rewards to their employees.

However, the results found that employees were not satisfied with the current reward packages and salary level was viewed to be too low and did not reflect cost of living in Mwanza city. The study further indicated the intrinsic (non financial) rewards were not satisfactory to employees. viii TABLE OF CONTENTS CERTIFICATION.vii LIST OF TABLES.xii LIST OF FIGURES.xiv LIST OF APPENDICES. xv LIST OF ABBREVIATIONS.

xvi CHAPTER ONE.0 BACKGROUND TO THE STUDY.2 Background to the Study.3 Statement of the Problem.4 Objectives of the Study.6 Significance of the Study.7 Scope and Delimitation of the Study.8 Organization of the Dissertation.2 Types of Rewards.3 Reward and Government Policy.1 Definition of Organisation Performance.3 Theories and Models for Explaining Rewards System.1 Herzberg’s Two Factor Theory.4 Reward Systems and Organisation Performance.0 MATERIALS AND METHODS.7 Data Collection Instrument.9 Reliability and Validity.0 DATA ANALYSIS AND DISCUSSION OF FINDINGS.2 Respondents Background Information.1 Research Objective 1: To Determine the Reward System Currently Used in Commercial Banks in Mwanza City.2 Research Objective 2: To Determine Employees View of Reward System Used by Commercial Banks in Mwanza City.3 Research Objective 3: To Assess the Effect of Extrinsic Rewards (Salary, Bonus and Promotion) in Organization Performance.4 Research Objective 4: To Assess the Effect of Intrinsic Rewards (Praise and Recognition) on Organization Performance.4 Issues from Interviews.0 SUMMARY, CONCLUSION AND RECOMMENDATIONS.2 Summary and Conclusion.1 Research Objective 1: To Determine the Reward Systems Currently Used in Commercial Banks in Mwanza City.2 Research Objective 2: To Determine Employees’ View of Reward System Used by Commercial Banks in Mwanza City.3 Research Objective 3: To Assess the Effect of Extrinsic Rewards (Remuneration, Bonus, Salary and Promotion) in Organization Performance.4 Research Objective 4: To Assess the Effect of Intrinsic Rewards (Praise and Recognition) on Organization Performance in Commercial Banks of Mwanza City.5 Suggested Areas for Future Research.57 xii LIST OF TABLES Table 3.1: Categories of the Target Population.1: Gender of the Respondents.2: Respondents by level of education.3: Financial Reward Provided by Commercial Banks.4: Level of Employees’ Satisfaction with the Current Level of Financial Rewards.5: Non-Financial Rewards are used by Commercial Bank.6: Level of Satisfaction with the Current Level of Non-Financial Rewards34 Table 4.7: Employees’ View of Current Salary Level.8: Employees’ View of Current Level Compared Competitors.9: Employees’ Views of Commission Level Offered at Commercial Banks .10: Recognition is Given to Good Performance.11: Offering of Praise Word for Excellent Performance.12: Frequency of Salary Increase.13: Effect of Bonus on Job Performance.14: Effect of Promotion on Employees’ Performance During the Year.15: Effect of Praise for a Job Well Done by Supervisor on Workers’ Performance.16: Effect of Formal Recognition (Such as Certificate) on Job Performance41 Table 4.17: Effect of Family Day Outing to Bank Employees on their Performance During the Year.18: Effect of Informal Recognition on Workers’ Performance.43 LIST OF FIGURES xiv Figure 2.1: Age of the Respondents.31 LIST OF APPENDICES xv Appendix 1: Questionnaire (English Version).57 Appendix 2: Interview Guide –To Management.64 LIST OF ABBREVIATION xvi CRDB Community Rural Development Bank ER Extrinsic Reward HRD Human Resource Development HRM Human Resource Management ILO International Labour Organization IR Intrinsic Reward NBC National Bank of Commence NMB National Microfinance Bank OP Organization Performance SPSS Statistical Package for Social Science UK United Kingdom URT United Republic of Tanzania USA United State of America 1 CHAPTER ONE 1.0 BACKGROUND TO THE STUDY 1.1 Introduction This research investigates the effect of reward systems on the Organization Performance in commercial banks in Mwanza city, Tanzania. This chapter is an introduction chapter to the study. The chapter begins with background to the study, followed by statement of research problem and research objectives. It also presents the significance and justification of the research, scope and delimitation of the study.

Finally it gives key definitions used in this research and conceptual framework.2 Background to the Study Rewarding employees is associated with the motivation of the workforce of organization for better performance. However, what type and mix of rewarding tools to use is challenge for the organizations. Several studies have demonstrated rewards have positive impact on the employee’s health and work place safety. It is one of the factors that sought increase employees engagement in the work place, which is the key element in the work performance (Furtado, et al.

It is the concern of organizations all over the world on effective human capital strategies to enhance their productivity. It is clear that employee’s productivity in the expanding organization is a key factor in organization performance. Employees, technically known as human resources in modern organizations, are rightly considered as the most important assets for banking industry success (Ong and Teh, 2012). In developed countries such as USA, JAPAN, UK and Germany organizations 2 recognize employees as the important asset that needs high consideration in promotion (Lawler and Worley, 2006).

The rationale behind the use of rewards to employees is that motivated employees become satisfied in terms of fulfilling their wants, both financial and non financial. Failure to do so, employees will be tempted to leave the organization. On one hand, employees prefer receiving intrinsic rewards in terms of praise and recognition for certain work accomplishments, while other employees are happy with extrinsic reward in terms of salaries, bonus and incentive offered to employees (Lawler, 2008, Sajuyigbe, Bosede and Adeyemi, 2013). In developing countries such as China, India and Thailand also employees reward is one of highly demanded factors in commercial banking that thought for influencing organization performance.

One of the most important factors in rewarding employees for organization performance is through recognition and appreciation (Ajila and Abiloa, 2004). There is a need for managers to recognise employees in terms of reward increase motivation and better performance in the job assigned that is highly linked to the organization performance such as commercial banks (Jones and Culbertson 2011; Aktar, Sachu & Ali, 2012). It is evident, those workforces that being rewarded in a manner to meet a described standard are in position of performing better. Invariably rewards play an important role in a success of organization (Pulakos and Leary, 2011).

3 In Tanzania like any other country employees are motivated by rewards. There is a need for organization to reward its employees for creating a successful competitive environment. This is one of the essential for the organizations to achieve high work performance. Some employees are highly motivated by extrinsic rewards such as increase in pay, promotions and bonus, others employees are motivated with intrinsic rewards such as appreciation, praise and recognition on (Bana and Kessy, 2007).

However, which of the rewards motivate Tanzanian workforce higher organizational performance especially in commercial is not well understood and this will be the force of this study.3 Statement of the Problem There is increasingly a need for organization to be in a position of understanding appropriate rewarding system that motivates their employees for higher organization performance (Vance 2012). What appropriate rewards that should form the employment package is currently challenging commercial banking performance (Ajila and Abiola, 2004: Aktar, Sachu & Ali, 2012). In Tanzania various reward packages are used and these involve monetary (extrinsic) and non-monetary (intrinsic) rewards. For example, in the context of monetary reward salary increase is sought to be highly essential for employees’ satisfaction (URT, 2010).

However, little is known in Tanzania about the effect of other reward tools on employee and organisation performance. Several studies on reward systems and work/organisation performance have conducted, for example in Pakistan cement industry (Quresh, Zaman and Shah, 4 2010), Nigerian manufacturing industry (Sajuyigbe, Bosede and Adeyemi, 2013), Bangladesh commercial banks (Aktar, Sachu & Ali, 2012) and Malaysian universities (Jalaini et al. These studies indicated in today’s environment, employees including bank employees are motivated by both intrinsic (internal) and extrinsic (external) rewards for greater work/ organisation performance and that none of the two sets of reward systems should be overlooked by managers when motivating employees for higher performance. That is, in most of these studies, each tool /factor within both extrinsic and intrinsic reward was a highly significant factor which affects employees’ performance.

However, most of these studies were conducted outside Tanzania.