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The banking sector is one fast of the growing sector in the world including Africa. For instance in Ghana the number of bank employees showed an increase of 62.68% (or 4,157) from6, 632 at end 2001 to 10,789 as at end 2007. While year 2002 exhibited the lowest growth (3.66%) in the number of persons employed by the industry, 2006 showed the highest growth (13.56%) in employment (Amediku, 2008).
The banking sector in Kenya operates in a relatively deregulated environment. Foreign bank entry was never a substantial issue in Kenya, as the banking system after independence consisted only of foreign-owned banks; their dominance has been eroded since then, but they still account for a substantial part of the system. A variety of reforms to the financial system were introduced in the early 1980s to the mid-1990s (Amediku, 2008).
Monetary policy reforms during the 1990s have entailed liberalizing interest rates and replacing direct controls on lending with open market operations.
The efforts to enhance the efficiency of intermediation were also undermined by the presence of large, weak government-owned banks, which accounted for most of the banking system's nonperforming loans (NPLs). The National Bank of Kenya (NBK, the sixth largest bank) has been insolvent for many years. The Kenya Commercial Bank (KCB, the second largest) has fared better, but also has suffered considerably from its bad loan portfolio. Brownbridge and Harvey (1998) find some evidence that the liberalization during the 1990s has lead to more vigorous competition among banks for deposits and in providing services.
However, it is not clear that the liberalization has improved the efficiency of credit allocation in the presence of widespread distortions elsewhere in the economy.
A government elected in December 2002 prepared an economic recovery strategy containing important structural measures for strengthening the financial sector, including through maintaining free competition among banks.
The civil disturbances in Uganda during the 1970s and 1980s led to a significant decline of financial intermediation, and financial services became concentrated only in few commercial banks in the capital. Aleem and Kasekende (2001) find that nonprofessional management became common in financial institutions and normal business discipline collapsed. Financial repression in the form of interest rate controls and directed credit contributed to disintermediation; parallel markets in foreign exchange, trade, and credit developed; and the use of credit instruments declined. By 1991 the volume of broad money (M2) stood at only 6 percent of GDP. In the early 1990s, the government started a comprehensive financial system liberalization program. The main objective of the program, as in Tanzania, was to enhance the efficiency of the financial sector and promote economic growth. The government decided to reduce its role in the financial sector and allow the market to play a more substantial role in resource allocation. Brownbridge and Harvey (1998) and Aleem and Kasekende (2001) provide detailed descriptions of the financial system reform in Uganda and its early results.
The first important financial reform measures were introduced in 1992 and included liberalization of interest rates, phasing out of subsidies and removal of directed credit, allowing entry (and exit) of banks (including foreign banks). These measures were complemented by the introduction of new legal and regulatory framework, efforts to strengthen banking supervision, and an upgrade of market infrastructure. The government gradually sold most of its shares in financial institutions. The number of banks increased from 9 in 1991 to 20 in 1996, when a two-year moratorium on banking licenses was imposed. While the reforms did improve the performance and depth of the financial system in Uganda, it is still small even by regional standards. Weak infrastructure, problematic legal and institutional environment, and weak credit culture continue to hamper financial sector development. The authorities have recently tried to address important financial sector issues. The banking system has been strengthened by preventive actions by the Bank of Uganda (BOU) in closing four banks in 1998-1999.
In Tanzania, poor performance of the state-owned financial sector in late 1980s forced the government to search for new policy directions. NPLs were above 65 percent of the loan portfolio, fiscal and financial operations were not separated, and an appropriate regulatory framework was missing. In 1990, a special presidential commission recommended: (i) increasing competition by encouraging entry of foreign banks; (ii) strengthening the existing financial institutions; (iii) developing management accountability; and (iv) recovering NPLs. Based on these, the government has issued a policy statement on financial sector reform with the aim of creating a market-based financial system, efficient in mobilizing and allocating resources and supporting long-term economic growth. With substantial donor support, the reform effort started in 1991 and has been ongoing since. Domestic financial intermediation has been substantially liberalized. A new regulatory framework has been introduced, organizational and financial restructuring of the two largest (formerly state-owned) banks, the National Bank of Commerce (NBC) and the Cooperative and Rural Development Bank, has been implemented, and the sector has been opened to the entry of financial services providers.8 The new Banking and Financial Institutions Act approved in the second half of 1991 allowed licensing of new banks, including subsidiaries of foreign banks. The liberalization that took place in Tanzania in the year 1992 has made the banking sector a key element to the provision of employment in the country. The first major foreign bank (Standard Chartered) started operations in 1992, with other international banks following--Stanbic (1993), Citibank (1995), and Barclays (2000). Several other smaller foreign banks set up their subsidiaries during 1995-2002. These major reforms have created a new market-based financial system and limited direct fiscal costs, but so far have not yielded an improved access to financial services by economic agents. The loss of convenient access to banking services, because of the closure of some loss-making
bank branches and through an initial increase in minimum balance requirements by some banks under new ownership reduced access to banking services, as witnessed by recent household budget survey data, which show a substantial decline of the number of household bank accounts and loans. The history of non-repayment explains banks' slow replacement of the stock of NPLs by new credit. Instead, as discussed in more detail below, banks have been accumulating extensive holdings of government paper and off-shore deposits in foreign exchange, limiting the amount of credit available to the private sector.
Having recognized the need to create an environment more conducive to lending and financial sector development overall, the authorities have recently introduced wide-ranging reforms in the areas of legal, judicial, and information infrastructure, including the Land Act 1999 and the Companies Act 2002. Judicial and court reform is one of the basic priorities to which increasing attention is being paid. However, comparatively little progress has been made, with training and facilities still remaining in need of special attention. Furthermore, land registries, company registries, and registries of mortgage interests are inefficient, and considerable improvements are needed before they will provide a useful information basis for credit decisions.
Banking has proven to be an important sector as it accounts for 12.1% of the GDP (TNBC, 2005). One of the major factors that contributed to this growth was human resource.
These days most banks do not have well established policies and practices relating to employees compensation. The problem is that most banks have not yet fully realize the importance of compensating their employees adequately. For this reason employees still tend to go on strike as evidenced that took place on 11th August 2007 (Mkonya, 2007). The result of going on strike is that employees lose their jobs as the employer is inclined to terminate them, but the outcome in the long run is that the organization is forced to recruit new employees; this results into incurring cost on training and development. The Former Minister for Labour, Employment and Youth Development, John Chiligati said "wages paid by private sector were not only disturbingly low but also a disincentive to workers." The Minister also said: "The Government would like to see employers and workers" (Mkonya, 2007 pg 1). From the Minister's statement it can be deduced that the private sector is not compensating its employees adequately.
Although the government of Tanzania has revised various labour laws in the country and has introduced new Act like the ELRA of 2004, yet most organizations do not properly compensate their employees. Inadequate compensation has led to various issues like lack of motivation, job dissatisfaction and employee turnover.
In this essay topics such as motivation, job satisfaction and employee compensation that were described in the Essay 1, will analyzed in terms of the Banking sector in Tanzania.
MOTIVATION AND THE BANKING SECTOR OF TANZANIA
As described in the first essay, motivation is a psychological process that exerts high level of effort to reach organizational goals conditioning by the efforts to some individuals (Prasad, 2001). The aspect of motivation has an imperative role in the way in which the employees perform in the organization. As discussed in essay one motivation has a direct relationship with performance. If people do not feel inclined to engage themselves in work behaviour they will put in necessary effort to perform well.
However individual performance also depends on other factors beside level of motivation. How motivation works with other factors in shown in the figure below.
Role of perception
Sense of competence
Source: (Robins, S 2004).
The aspect of compensation has been used as the main issue of motivating the employees.
With reference to the hierarchy of need by Abraham Maslow, People's needs differ from one country to another, depending on the level of development. If an employee is striving to meet the basic requirement such as food and shelter, the employer should provide adequate pay to enable his employee meet such needs. Some companies also provide insurance policy to their employees.
Taking Tanzania's banking sector, many multinational Banks such as Barclays bank, city bank and standard chartered bank are giving good pay to their employees; they also provide them with places to live and transportation facilities. These have made the banks highly performing and many people are interested in those banks than other banks. The Standard charted bank which is a foreign bank was nominated the best employer due to its good compensation to its employees. In societies where food and shelter is not a problem, employees may be motivated by higher levels of needs such as social esteem and self actualization. Social needs may be satisfied by providing recreational facilities and arranging parties and day out picnics. For example CRDB bank invited all its employees with their families a day out at Kunduchi Wet and Wild to celebrate family day. Most of the companies organize Christmas and New Year parties for the employees and their family. Rewarding employees through promotions, providing status symbols such as a well furnished office, luxury car will enhance the employees self esteem.
Self actualization needs may be satisfied by enriching the job and making it more challenging. Other methods include establishing a career path and encouraging employees to reach their full potential. In contrast to the above banks which have participated in the aspect of good compensation, employees in organizations that do not compensate well have had difficulties in their performances. A research conducted by Ali Hussein Parhan at the EXIM Bank in Tanzania concluded that the employees become motivated to do their work when they believe that they are being adequately compensated.
The study further observed that the employees who felt not adequately compensated were likely to leave the banking sector and move to other sectors which may be more lucrative for them. The aspect of compensation in the Tanzanian Banking sector is very significant as it has a major contribution in the way in which the employees operate. The essence of this is that fact that studies that have been conducted in similar business environments `have indicated that if employees are not adequately compensated they do not become satisfied. These include those studies conducted by Assy (2009) and Kimbori (2009) which showed that majority of the employees are not satisfied with their job due to inadequate compensation. A study by Amediku (2008) also showed that the major cause of labour turnover was inadequate compensation. A study conducted by Tahir (2008) in Pakistan which involved the Pakistan Banking sector concluded that compensation management had a direct relationship with employee motivation and performance.
Three Need Theory
In the beginning of 1950, David C. McClelland of Harvard University proposed the three needs theory, which says there are three needs that are major motives in work. This three need include: need for achievement (n Ach) which is the drive to excel, need for power (n Pow) which is a need to make others behave in a way they would not have behaved otherwise and the need for affiliation (n Aff).
One of the important things to note is that all the needs that McClelland proposed are all under secondary motives therefore these motives must be learned.
A person with high need for achievement will tend to be characterized as a person who wants to take personal responsibility for finding solutions to problems, is goal oriented, seeks challenges and establishes moderate, realistic and attainable goals.
A person who has high need to seek power in order to increase influence and power over others tend to be characterized as a person who is concerned with acquiring exercising or retaining power or influence over others , likes to compete with others in situations that allow him or her to dominate . According to McClelland there are to aspects of power, positive and negative. Positive use of power is essential if a manager is to accomplish results through the efforts of others. Negative aspect involves using power in order to seek personal benefits which may prove to detriment the organization.
A person who has need for affiliation will tend to be characterized as one who seeks to establish and maintain friendships and close emotional relationships with others.
Satisfaction of the above mentioned needs would motivate individuals to work. (Robins, S 2004).
This theory was developed by J. Stacey Adams. This theory views motivation as being based on equity or fairness. This theory tries to explain the fairness of financial incentive plans. According to theory of pay a person looks at relationship between what he/she puts into work and what he/she gets out of it in comparison with that of other workers. We can summarize this theory by looking at the figure below which shows equity theory relationships. Equity exists whenever the following equation is in balance.
Person A's Outcome = Other worker's Outcome
Person A's Input Other worker's Input
If one side of the equation is greater than the other equity would not exist and hence when the worker sees this situation he/she would want to reduce his or her feeling of equity. This theory predicts that once the employee feels he/she is overpaid on incentive plans therefore he/she will increase their inputs producing better but fewer items to reduce the equity. The opposite applies when an employee is under paid he/she will raise their input by producing more but lower quality item. (Robins, S 2004).
In the early 1960s, Victor Vroom applied concepts of behavioral research conducted in the 1930s by Kurt Lewin and Edward Tolman directly to work motivation. Basically, Vroom suggested that individuals choose work behaviors that they believe lead to outcomes they value.
The Expectancy Theory states as follows "an individual tends to act in a certain way based on the expectation that the act will followed by a given outcome and on the attractiveness of that outcome to the individual"
From the above theory three variables are identified and all the three has interrelationship to one another. These variables are:
Their Expectancy or effort performance linkage: meaning the degree to which they believe that putting forth effort will lead to a given level of performance.
Their Instrumentality or performance- reward linkage: meaning the degree to which they believe that a given level of performance will result in certain outcomes or rewards
Their Valence or attractiveness of reward: meaning the extent to which the expected outcomes are attractive or unattractive.
All three of these factors are expected to influence motivation, so that for an individual to be highly motivated, all three of the components of the expectancy model must be high. And, if even one of these is zero, the person will not have motivation for the task. Thus, managers should attempt, to the extent possible, to ensure that their employees believe that increased effort will improve performance and that performance will lead to valued rewards. (Robins, S 2004).
Herzberg's theory of motivation
For the case of Herzberg it is recognized that in order to prevent the recurrence of dissatisfaction, hygiene factors must rise continually. For example, a person who gets a pay rise of 100,000 Tsh a year and the following year a raise of 50,000 Tsh will dissatisfy the person with the second raise because it will almost amount to a pay cut.
An attempt to motivate workers through human relations, pleasant working conditions and improved benefits does not work. The only true way to motivate workers is to upgrade their jobs through promotions.
McGregor's theory Y is consistent with the actual business environment that employees will face in their daily operations. A manager who believes in this theory should create an atmosphere which will enable employees to achieve their personal skills as well as
organizational goals. He/she should not manipulate employees. Instead he/she should allow them to participate in matters relating to their jobs In order to achieve better results.
This theory shows the true nature of humans in that work is more than a way of getting money. Those people engaged in boring jobs will continue working so far as their basic needs are satisfied. Today's world contains worker who are more educated then their predecessors and they are interested in challenging jobs that provide opportunities for growth. Therefore managers should design jobs that are more challenging as this will help young generation in improve the career and gain useful experience.
It is not always true that only satisfied employees are the ones who perform better at work and live with their jobs with no intentions of moving out to another organization, but even the dissatisfied employees can be at the same level performance wise just like the satisfied employees can. The only difference is that the effort of the dis-satisfied employees might not last for a long term because once these employees have found a new potential job better than the one they hold then they will not hesitate to move out.
Although job satisfaction definitely has had an influence on work motivation, on the other hand when dissatisfied employees are performing just as good as satisfied/happy employees, the question therefore is what motivates the unsatisfied employees as they don't have any satisfactions to motivate them in performing responsibilities assigned to them? Some among the forces that stimulates the dissatisfied employees to perform and continue their stay in the banking sector of Tanzania might be the following:
High levels of unemployment and recession.
Organizations excessive control mechanisms.
Family/society pressure and personal values.
Absenteeism is a behaviour that the banking sector of Tanzania can never eliminate, but they can control and manage it. To do so, banking sector of Tanzania should not have absence policies that are so restrictive that they literally force workers to come to work even if they are ill. It is therefore necessary for the employees in the Tanzanian Banking sector to recognise that certain level of absence (perhaps from a high stress job) is indeed functional.
Tanzania is a tropical country this then implies there is high rate of malaria that every Tanzanian is a victim of and this has been the real cause behind most employees absenteeism from their organizations, therefore under situation like this that Tanzania is faced with it is clear that job satisfaction won't contribute to the reduction of absenteeism most of which is a result of malarial. No matter what employees feel about their jobs if they are attacked by malaria they cannot help it to be away from work and this can be more than one day absence depending on the malaria level and prescriptions one is using. This is evident from the this study's findings where a massive percentage (87.2%) of the respondents stated that their absence was caused by the natural factors which are not manmade and the main one is probably malaria. (Quick and Macilk 2004, Sharbrough et al 2006, and Pitt 2009).
Unlike absenteeism, turnover can be reduced by employees being happy/satisfied with the organizations they work for. However the willingness of employees to remain in their jobs is also affected by external factors to the organization and this is independent from job satisfaction. One of the most outstanding external factor that today affect the decisions of most employees as to whether they should stay or leave the banking sector when they are not satisfied with their jobs is the easiness or difficulty involved in finding another job and this is a function of the level of unemployment which is mainly caused by economic disaster that almost every country in the today's world is facing. Therefore the economic recessions can restrict employees from leaving when they know finding another job can turn out to be a nightmare as level of unemployment remains to be high.
As described in the first essay, compensation is a way of determining adequate and equitable remuneration to an employee for his/her contribution to the organization (Gupta, 2006). The different schemes that are exist and have been discussed in essay one included:
Piece Rate: Where workers are paid for each item they produce or for each task completed. This does have advantages in that workers will work as fast as they can to maximize their income, and payment is only made when work is completed.
Wages: These are paid on hourly bases, for example one may be paid 2000Tshs an hour. There is some security in being paid a wage and those who earn wages will probably be able to work overtime to increase incomes.
Salaries: salaries are paid at an annual rate. Salaried incomes are paid monthly, directly into a bank account.
Profit related pay: Profit related pay links part of an employee's income to the profits of a company.
Bonus schemes: There are a wide variety of bonus schemes available, each designed to be suitable for different employees doing different jobs. These schemes include:
Sales bonus: This is normally paid if a sales target has been reached. For sales people this may make up a significant part of their salary.
Performance bonus: This can be paid to an individual or on a group or factory wide basis, and is often paid for reaching targets of output and quality.
Christmas bonus: Often called a 13 month's salary, paid for loyalty to the business. In some countries such as Germany virtually all companies will pay a Christmas bonus.
Profit share: Some businesses will pay a percentage of profits to employees. The amount that they receive will normally depend on salary and length of service, so rewarding those that had been with the company longest, more.
Fringe Benefits: Other forms of financial motivation include company cars, pension schemes, sickness benefits, subsidized meals and travel, and staff discounts.
The Tanzanian banking sector has been embarking on the use of the few of the mentioned compensation schemes. The Banks that have used more of the schemes mentioned above are the ones that have performed better as compared top those that have used less.
As concluded in essay one, compensation is crucial to the well being of an organization. The latter is that fact that the adequate compensation plays a role in ensuring that employers work for the benefit of the organization, financial remuneration is key in motivation and the satisfaction of workers all of which increases the work performances in an organization. The benefits of compensating employees adequately include the following, adequate employee compensation enables the employees to be motivated thereby increasing their productivity. In a good compensation package is also important to retain employees in the organization thus avoiding cost in training and developing new employees. Studies have indicated that appropriate employee compensation is related to employee motivation, job satisfactions as well as employee retention. The relationship between adequate employee compensation, employee motivation, employee job satisfaction and employee retention have a positive relationship has been scaled to be positive and therefore imperative to be for the banking industry to realize the role of adequate employee compensation as it would directly lead to employee motivation, employee job satisfaction and employee retention in the organization. The banking sector will prosper if it analyses the methods that it uses for compensation the employees in the Tanzanian context.