PERCEPTION OF REGULAR EMPLOYEES ON FINANCIAL INCENTIVES AS A

STRATEGY TO INCREASE EMPLOYEE RETENTION

A Thesis Proposal Presented to

the Graduate School Faculty
San Pedro College, Davao City

In Partial Fulfillment
of the Requirements for the Degree
Master of Arts in Nursing

By

RALPH GREGOR D. TAN, RN

September 2019
 CHAPTER I

INTRODUCTION

Retention issues impact organizations differently from one geographic region to

the next. According to Manhertz (2011), different organizations in the United States

reported that the highest percentage of turnover occurs within specific employee groups.

In Asian organizations, retention is an issue throughout all departments and divisions

while in Europe, respondents were more likely to report that retention is not an issue at

all (Manhertz, 2011).

While some countries face challenges due to the migration of domestically trained

health care workers, other countries have experienced a rapidly growing domestic market

for health care services due to “medical tourism”. Overall, World Health Organization

(WHO) estimates that there is a global shortage of about 4.3 million health care workers.

These shortages are aggravated by the migration of health care workers away from the

countries that most need them.

Florentine (2018) says that employees leave the organization to look for greener

pastures, practically speaking, look for a job that will sustain them financially. When

employees leave, productivity sinks, morale suffers and colleagues struggle with an

increased workload until a replacement is found (Florentine, 2018). Recruitment and

retention of employees is one of the major issues that the healthcare sector is facing

currently. According to Florentine, determining the primary reason why employees are

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leaving will help hospital management to plan for a strategy on how to increase employee

retention and that the best solution is to keep the workers happy so they don’t leave.

An adequate and effective health workforce is one of the foundations of a

successful health system. The health workforce includes medical practitioners, nurses,

midwives, allied health care professionals, health administrators as well as other public

health personnel. A country’s health workforce can be expensive to train and shortages

can be difficult to fill quickly, due to the lead time in recruiting and training new staff.

Over the past 25 years, international trade in skilled services has increased dramatically

This current issue in employee shortage prompted and influenced the inquiry to

explore deeper on how employees perceive the idea of financial incentives as a

motivation for them to remain in their jobs and to perform well. Likewise, this paper also

aims to investigate the differences in perceptions of employees in different levels

regarding financial incentives as the most significant strategy to retain employees.

Review of Related Literature

Retention of employees is a major concern of Human Resource (HR)

professionals and business executives. For many countries, one of the many challenges

they are facing is how to retain sufficient numbers of qualified employees to meet their

needs (WHO, 2008). According to a research report of Society for Human Resource

Management (SHRM, 2018) (Employee Job Satisfaction and Engagement: The Doors of

Opportunity are Open), one of the leading factors that contribute to job satisfaction of

employees is compensation or pay. Practices that contribute to retention arise in all areas

of Human Resource, and all roles within an organization will need to work together to

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develop and implement multifaceted retention strategies. One of the effective processes

that enables retention of employees is compensation and rewards (SHRM, 2018).

Retaining good workers is critical to the healthcare industry. If employers treat

their employees as valued contributors, the employees will stay. To this day, companies

train their employees, offer competitive compensation plans, and increase benefits to

secure their loyalty. However, despite these efforts, many organizations still experience

shortage and high turnover rates. Healthcare organizations spend considerable effort in

marketing their facilities to patients and even physicians. Likewise, the same type of

effort should be directed at attracting and retaining employees. In order to attract the

employees, an organization needs to be viewed as “the best place to work”. Because

employees want their personal and practical needs to be met, employers need to offer the

compensation, benefits, and scheduling that employees desire (Gering and Conner, 2002).

Motivation is a basic psychological process. Along with perception, personality,

attitudes, and learning, motivation is a very important element of behaviors. However, it

is not the only explanation for behavior. “Motivating is the management process of

influencing behavior based on the knowledge of what make people tick” (Luthans, 1998).

Motivation is the process of stimulating people to action and to achieve a desired task.

One way of stimulating people is to use an effective motivation, which makes workers

more satisfied with and committed to their jobs. However, Luthans (1998) says that

money is not the only motivator. According to him, there are other incentives which can

also serve as motivators.

Akintoye (2000) insists that money remains the most important and effective

motivational strategy. Money possesses significant motivating power in as much as it

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symbolizes insubstantial goals like security, power, prestige, and a feeling of

accomplishment and success.

Every reward system is based on the assumption that rewarding employees would

attract, retain and motivate workers (Krass, 2014). Becca Krass (2014) says that anything

that can attract an employee’s attention and motivate them to work can be called as an

incentive and this motivate behaviors. An incentive aims at improving the overall

performance of an organization and can be classified as either direct or indirect

compensation.

In a recent McKinsey Quarterly survey (2014), sixty percent of global employers

find financial incentives to be effective in motivating employees. When executed and

implemented well, giving financial incentives encourage workers to achieve the

organization’s goals and may serve as an important tool for employee retention. However,

it may also have a negative impact on the employees’ performance by causing them to

take shortcuts or become very focused on the incentivized targets (HCA, 2015).

Internationally, the main reason why employees leave is largely a result of unsatisfactory

compensation and benefits (Manhertz, 2011).

The term incentive entices or stimulates one to act in a desired direction. It has

the power to motivate and may be grouped into financial incentives, and non-financial

incentives (Chand, N.D)). Employee motivation comes in numerous forms, practically

speaking money is a motivator to maintain an increased level of productivity (Belcher,

2018). According to Manhertz (2011) there are four important strategies that employers

can implement to retain employees and one of these strategies is to offer competitive

salary, benefits and incentive packages.

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 Incentives or rewards are very important for an employees’ job satisfaction

because it fulfill their basic needs. Attractive compensation packages are an important

factor in retention because they fulfill financial and material desires as well as providing

the means of indicating an employee’s status and position of power in the organization.

An organization’s reward system can greatly affect employee performance and their

desire to remain employed. Financial incentives offer another form of indication of an

employee’s worth to an organization. Using financial incentives to retain highly skilled

workers is sometimes considered a key component of employee retention strategies

(Balkin and Gomez-Mejia, 1990).

Employers or business owners are interested in ways to grow and build a

profitable company. Increasing business revenue is a joint effort and often requires

hardworking and productive employees. Financial incentives have long been thought,

both theoretically and practically, to affect employee motivation and performance

(Jenkins et. al, 1998). The international interest in using financial incentives to improve

quality of care is growing. According to a report made by the US Institute of Medicine

“pay for performance should be introduced as a stimulus to foster comprehensive and

system-wide improvements in the quality of healthcare”. Financial incentives may,

however, have unpredicted effects on motivation and morale. Many professional

activities are naturally motivated which means they are carried out because the activity is

inherently satisfying and not because it carries an external reward, and there is evidence

that internal motivation can be undermined by externally imposed incentives (McDonald,

et.al, 2007).

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Theoretical Framework

Maslow and Herzberg’s Theory of Human Needs

Among various behavioral theories long generally believed and embraced by

American business are those of Frederick Herzberg and Abraham Maslow. Frederick

Herzberg, a psychologist, proposed a theory about job factors that motivate employees.

Maslow on the other hand, a behavioral scientist and contemporary of Herzberg’s,

developed a theory about the rank and satisfaction of various human needs and how

people pursue these needs (Gawel, 1997).

Maslow first published Motivation and Personality in 1954 which introduced his

theory about how people satisfy various personal needs in the context of their work. He

suggested, based on his observations as a humanistic psychologist, that there is a general

pattern of needs recognition and satisfaction that people follow in generally the same

sequence. He also theorized that a person could not recognize or pursue the next higher

need in the hierarchy until her or his currently recognized need was substantially or

completely satisfied a concept called prepotency (Gawel, 1997). Maslow’s hierarchy of

needs is the earliest and most widely known theory of motivation. Maslow’s theory

summarizes human needs into five basic categories beginning with the basic

psychological needs and continuing through safety, belonging and love, self-esteem and

self-actualization. In his theory, the lowest unsatisfied need becomes the dominant, or the

most powerful and significant need. The most dominant need activates an individual to

act to fulfill it. On the other hand, satisfied needs do not motivate. An individual pursues

to seek a higher need when lower needs are fulfilled. Maslow’s hierarchy of needs is

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often illustrated in the shape of a pyramid where the basic needs are at the bottom and the

most complex need at the top. Figure 1 illustrates Maslow’s Hierarchy of needs.

Maslow stated that people are motivated to achieve certain needs and that some

needs take precedence over the other. Our most basic need is for physical survival, and

this will be the first thing that motivates our behavior. Once the first level is fulfilled, the

next level is what motivates us and so on (McLeod, 2018).

Figure 1. Maslow’s Hierarchy of Needs (McLeod, 2018)

Physiological needs, the first level in Maslow’s pyramid, include the most basic

needs for humans to survive, such as air, water and food. Maslow emphasized that our

body and mind cannot function well if these requirements are not satisfied as these are

the most dominant needs of all. So if someone is missing everything in his/her life,

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probably the major motivation would be to fulfill his/her physiological needs rather than

any others. A person who is lacking food, safety, love and esteem, would most probably

hunger for food (and also for money, salary to buy food) than for anything else.

After having satisfied the first need, Safety needs are next in line. This refers to a

person’s desire for security or protection. Basically, everything looks less important than

safety and protection. This includes personal security, financial security, health and well-

being, safety mesh against accidents, illnesses and their adverse impacts.

The third on Maslow’s list of needs is the need to belong and to be accepted among

their social groups. The need for interpersonal relationships motivates behavior. People

need to love and be loved – both sexually and non-sexually by others. Depending on the

power and pressure of the peer group, this need for belonging may overbear the

physiological and security needs. When they are unsatisfied, a person will immediately

eliminate the lack of friends, peers and partner. Many people suffer from social

nervousness, loneliness, social isolation and also clinical depression because of the lack

of this love or belongingness factor.

Esteem means being valued, respected and appreciated by other. Maslow

classified this into two categories: (i) esteem for oneself which includes dignity,

achievement, and independence, and (ii) the desire for reputation or respect from others

such as status and prestige. Humans need to feel valued, such as being useful and

necessary in the world. In our society most people long for a stable and high valuation of

themselves. The most stable and the healthiest self-esteem is based on respect from

others.

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 Self-actualization reflects an individual’s desire to grow and develop to his/her

fullest potential. People like opportunities, choosing his/her own versions, challenging

positions or creative tasks. Maslow described this level as the “need to accomplish

everything that one can, to become the most that one can be”. Self-actualization is

realizing personal potential, self-fulfillment, seeking personal growth and peak

experiences.

Herzberg’s Theory of Motivation

Frederick Herzberg constructed a two-dimensional paradigm of factors affecting

people’s attitudes about work, also called the Motivation-Hygiene Theory or the dual-

factor theory. Herzberg developed the theory that people’s job satisfaction depends on

two kinds of factors. Factors for satisfaction (motivators/ satisfiers) and factors for

dissatisfaction (hygiene factors/ dissatisfiers) as shown on table 1 below. He concluded

that such factors as company policy, supervision, interpersonal relations, working

conditions, and salary are hygiene factors rather than motivators. Herzberg’s theory states

that the absence of hygiene factors can create job dissatisfaction, but their presence does

not motivate or create satisfaction (table 2). In contrast he determined from the data that

the motivators were elements that enriched a person’s job; he found five factors in

particular that were strong determiners of job satisfaction: achievement, recognition, the

work itself, responsibility, and advancement. These motivators (satisfiers) were

associated with long-term positive effects in job performance while the hygiene factors

(dissatisfiers) consistently produced only short-term changes in job attitudes and

performance, which quickly fell back to its previous level. Satisfiers describe a person’s

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relationship with what she or he does, many related to the tasks being performed.

Dissatisfiers, on the other hand, have to do with a person’s relationship to the context or

environment in which she or he performs the job. The satisfiers relate to what a person

does whole the dissatisfiers relate to the situation in which the person does what he or she

does (Gawel, 1997).

Dissatisfiers (Hygiene) Satisfiers (Motivators)

Company policy and administration Achievement

Supervision-Technical Recognition

Salary Work itself

Interpersonal relations-supervision Responsibility

Working conditions Advancement

Table 1: Dissatisfiers and Satisfiers on the Job (Scanlan and Keys, 1987).

Hygiene Motivational
If Not Present JOB DISSATISFACTION NO JOB SATISFACTION
If Present NO JOB SATISFACTION JOB SATISFACTION
Table 2: The Relationship of Hygiene and Motivational Factors (Scanlan and Keys,
1987).

Herzberg’s theory is closely related to Maslow’s hierarchy of needs. The hygiene

factors correspond to Maslow’s lower levels of need and must be dealt with if job

dissatisfaction does not cause difficulties. Once these needs are fulfilled, as in Maslow’s

theory, the job content factors become the motivators or the self-actuating factors.

Management cannot ignore factors such as salary or fringe benefits because a failure to

do so would result to disruptive dissatisfactions (Ozguner, Z. & Ozguner, M., 2014).

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Figure 2: Maslow and Herzberg Related (Ozguner, Z. & Ozguner, M., 2014)

Statement of the Problem

The study aims to determine the differences in perceptions of the regular employees

on different levels (rank and file, middle managers, senior managers, executives) of the

Davao Medical School Foundation Inc. Hospital about financial incentives as the primary

strategy to increase employee retention. Also, it aims to establish a relationship between

financial incentives and employee retention.

CHAPTER II

METHOD

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 This chapter presents the methods to be utilized by the researcher in data

gathering as well as descriptions on the research setting, the participants, measures, and

procedures to be used are also included.

Design

This study aims to determine the differences on the perceptions of employees

regarding financial incentives as well as to be able to establish a relationship between

retention of employees and financial incentives. An exploratory-correlational research

design will be applied in this study.

Setting

The research will be conducted in Davao Medical School Foundation Inc.

Hospital, a level 2 hospital with 154-bed capacity. It is one of the three clusters of the

Davao Medical School Foundation Inc. and has been existing since 2003.

Participants

Participants for this study are regular employees that belong to different levels

such as rank and file, middle managers, senior managers and executives, 10% from the

total number of regular employees from each level will be randomly selected.

Measures

Interview questionnaires will be formulated and based on Maslow’s Hierarchy of

Needs and Frederick Herzberg’s Two Factor Theory. Questionnaires is divided into two

parts. Part 1 will be answered whether or not their specific needs in each level of

Maslow’s needs are met or not met. The second part of the questionnaire will be based on

Herzberg’s theory and will be measured through Likert’s Scale.

Procedure
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 For this study, the researcher will seek permission and approval to obtain a

complete list of regular employees per employment level. Once the list is available, the

researcher will identify 10% of employees per level to be tested. Identified employees per

level of employment will be scheduled and invited to an assembly. Prior to distribution of

questionnaires, consent will be secured, brief introduction of the study will be presented

and specific instructions will be given. Questionnaires will then be distributed to the

participants and their answers will be handled with strict confidentiality. The participants

will have the option to write their names on the questionnaires however, they are required

to fill up identifiers such as age, sex, length of service, unit or department assigned.

Permission from the ethics committee of the Davao Medical School Foundation

will be obtained prior to the start of the study. Questionnaires will be personally

administered, collected and handled by the researcher to ensure privacy and

confidentiality.

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