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Over the past three (3) years the productivity measures at Trinidad Cement Limited have shown declines in spite of increases in compensation in the form of wages/salaries and benefits. The company's employees are represented by the Oilfields Workers' Trade Union (OWTU) at the Hourly Rated Weekly Paid (HRWP), Junior Staff, Confidential Secretaries and Senior Staff levels, and employees receive, what many in the industry and company consider, a competitive wage.
The tables 1.1 to 1.4 seek to compare the compensation packages within the industry and country with those received by TCL employees. In each case the lowest point in each category was taken for TCL. Included in the calculation were only basic salary/wages and basic allowances.
Table 1.1 - TCL's Compensation Changes 2006-2008
Type of Compensation
Middle Mgt./Senior Staff
Table 1.2 - Comparison of TCL's Compensation with other Businesses
All Sectors of Business Activity
Table 1.3 - TCL's Compensation Comparison with the Manufacturing Sector
Type of Compensation
Specific Sector - Manufacturing
% Difference as Sector
Middle Mgt./Senior Staff
Table 1.4 - TCL's Compensation Comparison by Size of Firm
Type of Compensation
% Difference by Size
Middle Mgt./Senior Staff
There is a perception in the minds of the Management and some stakeholders alike of the inverse relationship between compensation and productivity. Is this a true picture of the company's performance? Is productivity being positively impacted?
How have the productivity/profitability indices looked for the past three years? In 2007 a total performance review of the TCL plant was undertaken by the Whitehopleman group, in the areas of safety, manpower productivity, energy efficiency, equipment productivity, equipment reliability and emission controls. Overall the plant gained a 2 star rating on a scale of 0 to 5 (5 being best practice in class). While the bulk of the report will not engage the attention in this present study, the manpower productivity area will be examined a bit closer.
The index chosen for comparing plants across the globe is tonnes per man year. Best demonstrated practice in the industry with extensive automation is 10,000, while the high end of the scale for non-automated plants is 5,448. TCL's Manpower productivity number is 3,123 tonnes per man year, which falls below the median value for plants of the size 0.5 to 1 Million metric tonnes per year. TCL produces 902,000 MT cement/year. Further details are shown in Table 1.5 below:
Table 1.5 - Comparison of TCL productivity with global cement operations
Single production line plants
Multiple production line plants
Labour corrected values
Corrected for administration, and maintenance
Highest in class
TCL Productivity value
Lowest in class
The TCL share price and profitability measured by net profits for the period 2007 to 2009 is shown in tabular and graphical form below:
Figure 1.1 - TCL Share Price 2007-2009
Table 1.6 - TCL profits for 2007-2009
NET PROFIT AFTER TAX
Anthony et al. (2006) have indicated that
'â€¦ the creative use of compensation plans can work to maximise human
resource productivity and contribute significantly to the achievement of
human resource and organisational objectives.'
Bergmann and Scarpello (2002) posit the view of compensation being a part of an integrated human resource planning process, and having an impact on an organisation's ability to attract, retain and motivate employees. In the end what results is value for stakeholders including customers.
When looking at the issue of productivity, employee morale and motivation is often discussed as a probable cause for any deficiencies. Motivation here is examined through the lenses of the equity, expectancy and /or reinforcement theories. These theories will be expanded later.
TCL can be considered to be an Analyser type organisation based on the typology of Mills and Snow with the associated fixed and variable compensation schemes. TCL can be seen to be pursuing a Broad Differentiation strategy, (Thomson et al. 2007). Compensation therefore cannot operate in a vacuum but in a dynamic system of customer needs, the job market, internal/ external equity and the 'ability to pay'.
The present study seeks to examine productivity levels and compensation changes over time in order to identify any correlations between the two. It would draw on the theories of motivation, need, wage fund and subsistence which are intimately bound with compensation to see the impact on departmental and organisational productivity. The Operations department, which employs over 45% of the total workforce, will be the specific target of the present study.
STATEMENT OF PROBLEM
Is the compensation philosophy of TCL giving maximum efficiencies?
Has the productivity levels been positively impacted by increased compensation?
If so, how can it be sustained? If not, what can be changed to improve productivity?
The desired outcome of this practicum study is an assessment of the actual productivity levels at TCL against what is desirable and benchmarking with the 'best in class.' The impact compensation has had and is having on productivity will be explored together with possible changes to the compensation philosophy, organisational and HR strategies, systems, policies and procedures in existence.
3.0 CONCEPTUAL FRAMEWORK
In order for organisations to gain and maintain a competitive advantage in the marketplace a number of strategies are employed. These must be congruent and synergistic. One model which looks at this concept is illustrated by Milkovich and Newman (2008) and illustrated in the adapted diagram below:
Figure 3.1 - Strategic Choices for Organisations
Social, regulatory and competitive environment
Employee Behaviours and Attitudes
Business Unit Strategies
Corporate Objectives, Strategic plans
Strategic Compensation Decisions
One of the main goals of any organisation/department is to be productive. Some organisations successfully reach this goal whereas others fail. Anthony et al. (2002)
Frederick Herzberg, framer of the famous Herzberg Two Factor theory, quoted by Thomson and Strickland (2007), posits that 'If you want people to do a good job, give them a good job to do'. This is related to Task Significance as examined by the Hackman Oldham Job Characteristics Model which examines the impact of critical psychological states and core job characteristics on work and personal outcomes.
If it were as simple as giving someone a good/significant job to do and performance would result, productivity levels in all organisations would be increasing continuously. This is clearly not the case, and begs for a deeper look at what are the productivity drivers. It might well be that non-compensation issues (autonomy, skill variety and rotation, timely performance feedback) are at the core of the productivity debate and not salaries and wages only.
Figure 3.2 - Hackman-Oldham Model
Two things are said to influence whether employees are performing well or not; attitude and ability (aptitude). That is, if the person wants to (his attitude) or is able to (aptitude from training and experience). Both can be influenced by the organisation through training and a well-designed compensation, promotion and career development. Anthony et al. (2002)
The above sentiments are echoed by Bergman and Scapello (2002):
' It would be easy to infer that labour's productivity varies with different abilities and differences in motivation levels among workers...'
Trinidad Cement Limited employs 412 employees of which approximately 60% are hourly rated production workers. The Operations Department accounts for approximately 45% of the total staff. Over the last years there has been a rapid increase in wages and benefits including gain sharing, profit sharing, productivity bonuses, incentive pay, increased leave entitlements and medical benefits.
At the same time the Employee Morale Survey results show a dismal 58 % satisfaction and the net profit has also been on the decline. Clearly this is not a comfortable position. Within the organisation there is the feeling that 'something' is missing from the equation which would push productivity levels up. Precisely what this 'something' is, must be determined.
Could that 'something' be what was said by Frederick Taylor as quoted in the Industrial Engineer of September 2007? He stated that:
"Hardly a competent workman can be found who does not devote a considerable amount of time to studying just how slowly he can work and still convince his employer that he is going at a good pace."
The questions one may want to ask include: Is productivity affected by employee age? Educational level? Compensation packages? Motivation levels? These and other questions form the basis of the present study. Kirkland (2009) described employees to be '..a strategic investment, not an overhead expense', and also '.. one of your most valuable assets.' Obviously then, efforts must be made to get the best, treat them well and find ways to keep them productive. Various authors have alluded to a variety of factors which influence employee behaviour and ultimately productivity. Appreciation for a job well done was cited by Grandy (2008) as being more important than money at some stage in one's career. This has been echoed by Anderson (2007) who gave a reason for employees leaving organisations as being due to lack of recognition.
One of the challenges to the productivity debate appears to be how to measure productivity in the first place. Bernstein (2003) states:
' metrics and measurement represent one of the biggest challenges to be overcome in examining industry productivity.'
Productivity as defined by Anthony et al. (2006) Pg 433 is output per hour. It can also be the change in unit labour costs or how much each item costs to produce.
Measuring productivity is, and can be, as varied as the various manufacturing and service industries in which it is measured. Thompson (2007) posits the view that how productivity is measured, what drives it and how it impacts on the allocation of resources is what Industrial Engineering is about. He further indicates that using the productivity levels change over time or an average productivity, is better for monitoring purposes.
The Industry Week edition of August 2004 shows how some firms measure productivity. At La-Z-Boy for example productivity is measured by equivalent units produced per day per employee, while New Balance monitors pairs of shoes manufactured per employee and at Bridgestone/Firestone it is the pounds per production man hour or the pounds per total number of employees.
For TCL the productivity indicators which can be used to gauge productivity include cost per tonne of clinker, cost per tonne of cement in silo, tonnes of cement manufactured per man year, asset turnover ratio, net profit, tonnes of clinker per hour per employee or tonnes of cement produced by hour per employee. Measuring these accurately may be challenging given the number of variables which must be factored into the cost of production. The net profit may become the measure which is used as an indicator of internal productivity with predetermined assumptions.
The next issue to be dealt with in the productivity debate is the impact of compensation on motivation and productivity. If one were to examine the quotation earlier by Frederick Taylor then it would not matter what was paid if the intent was to work as slowly as possible. Thomson and Strickland (2007) state that
" the use of incentives and rewards is the single most powerful tool management has to win strong employee commitment to diligent, competent strategy execution and operating excellence."
A Gallup report done by Wagner and Harter (2008) hastens to caution that "Higher pay does not guarantee greater engagement." The report continues by adding that incentives can and do backfire at times. This can lead to decreased employee motivation and reduced productivity.
Pay plays an important part in an individual's economic and social well-being. Milkovich and Newman (2008). It is a common way of satisfying employees in organisations. Poornima (200). Compensation is the sum total of one's basic wage or salary, employee benefits, bonuses and other incentives awards and non-pecuniary benefits. These non-pecuniary benefits are non-economic and include working with one's peers, the company's reputation and a sense of accomplishment in one's job. Bergmann and Scapello (2002). Non-monetary compensation practices can be grouped into four (4) main categories;
the job itself by way of responsibility and variety,
the organisational climate with respect to flexitime telecommuting and work space design,
career prospects through continuous learning internally and externally
the social environment with "get togethers" and friendly daily greetings.
Motivation plays a huge role in almost everything we do as humans. In the workplace it is very important since individuals spend a lot of time at work. Without motivated employees no one would try to go to work and efficiency of organisations would suffer. Hägglund and Palmqvist (2006). Generally the theories pay attention to human needs, but self-actualisation and job satisfaction are the dominant reasons people are motivated to work.
In examining the various theories of motivation the framework in Figure 3.3 can be examined. Here one can identify the genesis of the theories from FW Taylor and Scientific Management. The theories can be divided into Content Theories which focus on what motivates and the Process Theories that examine the actual how of motivation.
Figure 3.3 - Motivation Theories Overview (adapted from Mullins 2007)
Three theories of need fulfilment (the what of motivation) which impact motivation can be examined that attempt to explain why people attitudes to work; Maslow's Hierarchy of Needs, Alderfer's Need Theory and Herzberg Two factor theory. The major components of these are illustrated in Figures 3.4 and 3.5 below.
Figure 3.4 - Alderfer's Need Theory Superimposed on Maslow's Hierarchy (adapted from Bergmann and Scapello (2002)
MASLOW'S NEEDS HIERARCHY ALDERFER'S NEEDS
Maslow postulated that people are by nature 'wanting' beings and always want more. What they want however would depend on what they already have with the needs arranged in a hierarchy of importance. At the bottom of the pyramid is desire to satisfy hunger and thirst, material items and sensory pleasures. As lower order needs are satisfied it no longer acts as a strong motivator, hence the next level becomes the motivating factor. As Maslow would put it ' a satisfied need is no longer a motivator. Mullins (2007). The theory while holding true in the general sense may differ for different age groups, cultures, job types and gender. Maslow does recognise that self- actualisation cannot be achieved through work. Bergmann and Scapello (2002)
Alderfer's theory bears great similarity with that of Maslow except that the needs are classified into three and not five levels (see figure 3.3). Alderfer recognises that individuals do not completely satisfy some needs before moving on to others, and is not as rigid as is Maslow where this is concerned. Scapello and Newman (2002) and Mullins (2007). Needs are seen as a continuum rather than rigid steps. Mullins (2007).
Figure 3.5 - Herzberg Two Factor Theory (adapted from Bergmann and Scapello 2002)
MOTIVATION OR SATISFACTION FACTORS
The job/work itself
Through research, Herzberg categorised two sets of factors which impact workers and their motivation; hygiene/maintenance factors and satisfaction/motivators/growth factors. Mullins (2007) and Scapello and Newman (2002). The former are those factors related to the job itself and which if absent will lead to dissatisfaction. The motivation factors cause individuals to perform with superior effort, and affect whether the worker is satisfied or not satisfied. Motivators relate to what persons are allowed to do at work and the quality of the work environment. Herzberg's theory has found uses in industry in offering employees cafeteria type benefits plans, based on what they see as important to them
Compensation plans affect employee behaviour more directly than most other HR practices. Belcourt and McBey (2006). The goal of compensation should therefore be to motivate persons to join the organisation, stay and perform. A study showed that employees viewed benefits as impacting the amount of effort exerted on the job. Bergmann and Scapello (2002). Persons should not only be content to come to work (the noun) but also be will to work (the verb), in order to meet the organisation's objectives.
What drives persons to work? Is it need? Is it the so called hygienic factors as espoused by Herzberg or is it the Motivation factors? When an individual accepts a job, he enters into a multiple exchange relationship with the organisation which can be one of four perspectives; an economic exchange of labour for wages, a sociological exchange where the job brings status and recognition, a political exchange where the Trade Unions and other organisations exert power to alter the relationship or a more informal psychological exchange where he sees himself as better off in the relationship. Bergmann and Scapello (2002).
Another view with direct reference to compensation posited by Milkovich and Newman (2008), speaks of employees' views of compensation as a return in their exchange of labour with their employer, as an entitlement for being an employee or as a reward for a job well done.
Employees can often feel that they deserve benefits like others in the organisation since they also contribute to the bottom line. This type of behaviour where comparisons are made with others is in line with the Equity theory as outlined by Anthony et al. (2006).
In its simplest form the Equity Theory states that an individual's assessment of equity is based on comparison with another party. The input/outcome equation is compared with another person/other persons, not on an absolute standard. The inputs would be effort, and work behaviours with the output being pay. This theory is one along the lines of distributive justice as postulated by Adam. Bergmann and Scapello (2002). Milkovich and Newman (2008).
If an employee feels that he is not being equitably treated by the organisation he has a number of options available as outlined by Bergmann and Scapello (2002):
Alter his input of work and attitude
Alter his output with the hope of a raise or promotion
Try to persuade his peers to change their output
Compare oneself with someone else in the organisation
Rationalise the disparity in compensation
Withdraw by asking for a transfer or leaving the organisation altogether
Internal equity is believed to be of greater concern than external equity. Belcourt and McBey (2006).
Some of the other theories which can be used to try to explain the work behaviours are the Expectancy and Reinforcement theories. Expectancy theory is based on a perceived likelihood that a particular behaviour will lead to success by way of monetary rewards and promotion/recognition. Put another way, it is the probability that increased effort will yield increased job performance. An employee would believe that an action brings a reward, he can achieve the action that brings the reward, and in the end he gets the reward.
The Reinforcement Theory looks at the continuum related to repeated actions by workers. Edward Thorndikes's law of effect is the foundation of this theory; a person's actions in a situation interact with the environment to influence future reactions. Anthony et al. (2006). The theory is based on the premise that rewards reinforce performance through motivation and sustenance. Milkovich and Newman (2008).
The steps are Stimulus àResponse àReinforcement.
Compensation can be a stimulus which is supposed to make the employee respond by working diligently which can lead to continued employment and bonus/incentive payments. Reinforcement is neither straightforward nor positive only. It can be positive (reward given for good work), negative (stress from peers or supervisor to change behaviour), extinction (lose the benefit previously enjoyed) or in the form of punishment (lost pay, warning letter).
In rewarding employees therefore the right behaviours must be reinforced. For this reason behaviours which are desirable should be rewarded in a timely manner and also in an appropriate way. If this is done there is a high probability that the behaviour will be repeated. Bergmann and Scapello (2002). Rewards do not have to always be monetary but can be recognition or a simple 'thank you'. Anthony et al. (2006).
Goal setting Theory is predicated on giving challenging performance goals in order to foster greater intensity and longevity in employee performance. Attainment of these goals is a feedback mechanism on employee performance. Motivation can come as employees are rewarded for their achievement, as for the Reinforcement Theory. Milkovich and Newman (2008).
When looking at the determination of wages and salaries, a number of wage theories come into play. Only a few will be briefly examined as having significance to the present problem at hand.
The Agency Theory assumes that the owners or principals of firms and the employees or agents have different goals. While the owners want to maximise profits, the employees may have their own personal career and financial goals. The theory suggests two types of incentives to motivate agents to focus on the organisation's goals; the desire to perform in the present organisation to improve their future employment options and compensation. The latter is more effective since there is more control from the principal and for some occupations the labour market prospects are not great. This theory also suggests that the fairness of the rules used to allocate compensation determines the fairness of the resulting compensation and motivates the employee actions towards the desired output of the owner. Bergmann and Scapello (2002).
Bargaining Power Theory makes the actual wage paid a function of the bargaining power of the parties in the employment relationship/exchange. Power is determined by the economy's prosperity, the size and quality of the labour market, social and political attitudes. The upper wage limit is determined by the amount of competition present, the productivity of the labour and the management's ability to substitute the labour with machinery. The lower limit is usually a function of existing legislation, (such as the Minimum Wages Act in Trinidad and Tobago), the subsistence wage as determined by state agencies (such as the Central Bank in Trinidad and Tobago), and the workers' knowledge of what others are being paid. Bergmann and Scapello (2002)
An interesting theory of wage determination which is proposed is the Wage Fund Theory, which is based on the premise that the wage level is a function of the number of employees required to deliver a stated set of good and services and the money put aside for labour costs. As the labour becomes more productive, the theory states, the funds have to be distributed over fewer persons and therefore each would get an increase. The converse is also true; if the number of workers increases, the money will need to be spread over more employees and as such there would be an overall decrease in wages for each employee. Bergmann and Scapello (2002). It is the observation of the author that the staff at Trinidad Cement Limited has increased by fifty eight (58) persons over the last four (4) years, no significant changes have been made to the plant, while compensation has increased and there has not been any apparent concomitant increase in productivity.
Compensation package design then should be a mix as recommended by Anderson (2007).The objective for any compensation system must be the motivation of individuals for optimal performance. Bergman and Scarpello (2002) go on further to say that 'the component parts of the system must tie the rewards to the organisations overall goals.' This is in sync with the Figure 3.1 which shows linkages of compensation to all the areas of the organisation.
Leaders and their own behaviours has been touted as influencing performance levels of workers. Yet other writers indicate that the way jobs are designed can impact performance levels. These and other non-compensation factors impacting productivity will be explored to some extent via the employee questionnaire.
Some of the ways which have been suggested to improve productivity include innovations in concepts, tools and methods Bernstein (2003),implementing lean manufacturing approaches, technology implementation - (industry week August 2004).
Suggestions which have been proposed for rewarding employees: (Kirkland 2009)
Expression of appreciation
Thank the employees' spouses for their support
Where practical, allow for flexible work schedules
Encourage employees to have personal goals
Pay special attention to loyal employees
Recognise and reward positive behaviours, attitude and teamwork
Have a comprehensive wellness program
Give employees a chance to be heard by management
Do what you say you will do- it builds respect and trust
This study will interface with the three main stakeholders in the productivity equation; management, the Recognised Majority Trade Union, employees and their contribution towards achieving this goal.
The philosophy for the research adopts a positivist stance, with the author collecting data as objectively as possible and using known theories to evaluate this data. The data, when collected, will be used to test the validity of the hypotheses developed for the research. The author although a part of the organisation under study, will remain independent and not impact, or be impacted by, the data.
This research is one which will look at substantive theories being applicable to Trinidad Cement Limited using the grounded research of theorists such as Maslow and Herzberg. No attempt will be made to develop any 'new' theories, though some anomalies may show up in the population under study. It will follow a deductive approach where data, primary and secondary will be examined, in order to make inferences about the impact of compensation on productivity. The data will be in the form of survey instruments such as questionnaires, archival research for secondary data.
The research essentially attempts to answer questions related to 'what' and 'how' In order to collect the relevant data to be used for the study a number of techniques/methodologies would be employed. All data will be held in the strictest confidence and this information will be communicated with all persons surveyed or interviewed. Mostly quantitative data will be collected or the study but in the analysis there will be a combination of quantitative and qualitative mechanisms for evaluating it.
The methods for primary data collection include:
Survey questionnaires - these will be distributed to 100 % of the Operations employees including Casuals/Temporary. It is hoped that from these at least 75% would complete and return them, so that adequate data can be collected for analysis.
Group Interviews/Focus groups of approximately 30% of the Operations Department workforce will be conducted. The targeted size of each group would be ten (10) persons randomly selected..
One-on -one structured interviews with Managers.
Secondary data sources will be examined including:
The Morale Surveys for 2006, 2008
Town Hall Meeting Feedback by way of the company's Intranet
Compensation survey information from a reputable HR firm.
A timetable for the various activities of the practicum was developed using the guide in Chapter 1 of Saunders et al. (2007). It is attached below for reference:
Table 4.0 - Project Time Line for Practicum
Meet with Practicum Advisor
Start literature review
Develop and test questionnaire
Obtain organisational permission to do survey
Administering of Questionnaire
Interviews with Managers
Write up Literature review
Conduct Focus groups
Collection of secondary data
Analysis of data
Write up of findings
Start September 2010
Implementation of intervention
Monitoring of intervention
Completion of typing of project
Revision of Draft version by Advisor
Mid October 2010
Submission of practicum to ALJ
5.0 RESOURCES UTILISED
Compensation and productivity data at TCL
Collective Agreements for the various Bargaining Units at TCL
Price Waterhouse Coopers Compensation Survey
Online UWI Library Resources
Printing and copying facilities
Computer statistical software
6.0 DATA COLLECTION
One of the main tools used to collect the information was a questionnaire designed using the Herzberg Two factor theory and the Hackman-Oldham model. The intent was a focus on as many of the factors affecting motivation (and productivity) in as few questions as possible. A test was done with a randomly selected cross section of fifteen (15) employees. Based on the responses given and the request for clarity from some on certain questions, the questionnaire was modified before administering to the employees within the Operations Department. A copy of the questionnaire is attached in Appendix I.
A total of 215 questionnaires were distributed as hard copies to employees with a return of 183 sheets, an 85% response rate. Hard copies were chosen over soft copies due to accessibility to PC's and the level of computer literacy skills of some plant personnel. Additionally the issue of confidentiality as a part of the process would have been lost using the internal systems. A sample questionnaire has been included in Appendix I, with a summary sheet of the results in section 7.0
All Senior Managers were interviewed using a structured format with mostly open ended questions. A sample of the questionnaire is given in Appendix II.
Two (2) Focus Groups were conducted with 12 employees in each session. Responses to the following three questions were solicited;
In your view, is the plant running at maximum efficiency?
Why do you think this is so?
What suggestions can you give to make a difference?