Compensation for improving employee performance of ACB Bank Graduation internship report

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TABLE OF CONTENTS
TABLE OF CONTENTS ....................................................................................... i
LIST OF ABBREVIATIONS ..............................................................................iii
LIST OF TABLES AND FIGURES .................................................................... iv
INTRODUCTION ................................................................................................. 1
CHAPTER 1 LITERATURE REVIEW............................................................... 3
1.1.

Overview of Human Resource Management ............................................. 3

1.1.1. Definition of Human Resource Management.............................................. 3
1.1.2. Roles of human resources management ..................................................... 4
1.2.

Definition of performance management ................................................... 6

1.3.

Overview of Compensation ........................................................................ 7

1.3.1 Definition of compensation ......................................................................... 7
1.3.2 The role of compensation on employee performance ................................... 8
1.3.3 Structure of Compensation .......................................................................... 9
1.4.

Link between compensation, performance and business outcome .......... 20

CHAPTER 2 . THE SITUATION OF COMPENSATION AT ACB BANK ... 25
2.1.

Introduction of the company ................................................................... 25

2.1.1 Establishement and Development of ACB bank ......................................... 25
2.1.2 Business scope of ACB bank ..................................................................... 26
2.1.3 Business results of ACB bank in recent years ........................................... 27
2.1.4 Organizational structure of ACB bank ...................................................... 30
2.2.

Assessment of compensation policies in ACB Bank ................................ 36

2.2.1 Financial Compensation ........................................................................... 37
2.2.2 Non financial compensation ...................................................................... 42


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2.3.

The impact of compensation at ACB bank .............................................. 43

2.3.1 Strengths and weaknesses ......................................................................... 43
2.3.2 Opportunities and challenges.................................................................... 45
2.3.3 Analyzing the impact of compensation policies on employee’s performance .
................................................................................................................. 48
CHAPTER 3 DISCUSSION AND RECOMMENDATION FOR ACB Bank
Vietnam ................................................................................................................ 51
3.1.

Development plan of ACB bank .............................................................. 51

3.1.1 Business plan ............................................................................................ 51
3.1.2 Human resource plan................................................................................ 53
3.2.

Recommendations ................................................................................... 54

3.2.1 Improving employee satisfaction with Pay ................................................ 54
3.2.2 Diversifying forms of compensation .......................................................... 55
3.2.3 Improving employee satisfaction with Opportunities for promotion and
training ................................................................................................................. 56
3.2.4 Completing job description ....................................................................... 57
3.3.

Lesson learned from the development countries ..................................... 58

3.3.1 Lessons from the US ................................................................................. 58
3.3.2 Lessons from Japan: ................................................................................ 61
CONCLUSION .................................................................................................... 63
REFERENCES .................................................................................................... 64
APPENDIX 1 ....................................................................................................... 69
APPENDIX 2 ....................................................................................................... 70
APPENDIX 3 ....................................................................................................... 71


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LIST OF ABBREVIATIONS
ACB Vietnam

Vietnam Asia Commercial Joint Stock Bank

ACB Phan Chu

Vietnam Asia Commercial Joint Stock Bank – Phan Chu Trinh

Trinh

branch

BVPS

Book value of equity per share

CAGR

Compound Annual Growth Rate

CIR

Cost Income Ratio

DP

Department

FY

Fiscal year

HRM

Human resource management

HR

Human resource

NPL

Non-performing loan

P/B

Price to Book ratio

P/E

Price to Earnings ratio

ROA

Return on assets

ROE

Return on equity

USD

United States Dollar

VND

Vietnamese dong


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LIST OF TABLES AND FIGURES
Table 1.1:Basic approaches to performance measurement ....................................... 7
Table 1.2: Financial and non-financial compensation ........................................... 10
Table 2.1Business results of ACB bank in recent years ........................................ 28

Figure 1.1: Human resource management pratices ................................................... 5
Figure 1.2:Maslow's hierarchy of needs ................................................................. 16
Figure 1.3 : 3 components of Vroom‘s Expentancy theory .................................... 18
Figure 2.1: Organizational Chart ........................................................................... 30
Figure 2.2:Labor structure by gender ..................................................................... 34
Figure 2.3: Labor structure by qualifications ......................................................... 34
Figure 2.4:Labor structure by age .......................................................................... 35


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INTRODUCTION
This report is submitted as mandatory requirements for the graduate course. In
pursuit of deeper understanding about some situation of human resource
management in general, the author would like to investigate further into
compensation system in Asia Commercial Joint Stock Bank .

Human resource is one of the most important things which contribute to the
success of an organisation. An organisation cannot build a good team of working
professionals without good human resources. People are always the key to success
in any organization. It can only function effectively when its employees perform
their job well, constantly develop their ability to work and try their best for overall
development of the company. To have a high quality workforce, the organization
must ensure the implementation of good human resource management,
organizatinal strategy from reasonable recruitment, work assignment, performance
evaluation and remuneration policies.
The key functions of the Human Resources Management (HRM) department
include recruiting people, training them, performance appraisals, motivating
employees as well as workplace communication, workplace safety,etc. Besides this,
compensation plays an important role. How to evaluate the performance of the staff
depends on compensation policies and the way an enterprise motivates its
employees. An effective compensation is critical to company‘s business success.
Although businesses are conscious of the importance of corporate governance
and human resource development but not yet successfully conducted by improper
methods, no form, a lack of system and synchronism with related activities within
the organization.
In fact, many firms, especially state-owned companies, have not been fully
aware of the important role of human resource as well as compensation, which lead
to lack of effectiveness and efficiency in human resource management and lost of
talents. They do not go in the right direction or they are reluctant to change the
policies which is no longer appropriate. This issue inspires the author to choose the
topic: ―Compensation for improving employee performance of ACB Bank ‖


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This paper is broken down into three chapters, except the Introduction and

Conclusion, which are listed below:
CHAPTER 1 is the literature review about compensation, CHAPTER 2 focus
on the situation of compensation at ACB bank and CHAPTER 3 is the discussion
and recommendation for ACB bank . In this report, the writer want to tackle two big
problems. Firstly, the author will review general knowledge about some basic
definitions and theories of compensation to provide an overview for readers.
Secondly, this paper will focus on the case of ACB bank to describe and analyse
the policies of improving employee performance in this bank . After that, the author
hope to make a small contribution to find out some solutions for future development
of ACB bank .
Due some limitation of time and knowledge, mistakes and faults are inevitable
in my report. Consequently, the author is looking forward to any feedbacks to
develop the topic as well as pratical experience human resource management in the
future.
The author would like thank to my supervisor, Ms. Duong Thi Hoai Nhung,
MBA for her supervision for my dissertation. Without her valuable guidance and
advices, the writer would never have been able to complete this report. The author
would like to express the appreciation for the staff of ACB Bank - Phan Chu Trinh,
Hanoi branch, who gave me the opportunity to work with and offer me helpful
support during the last 10 weeks of my internship.


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CHAPTER 1 LITERATURE REVIEW
1.1. Overview of Human Resource Management
1.1.1. Definition of Human Resource Management
Until now, there are numerous perspectives of Human Resource Management.
However, people usually use four main definitions:
Human Resource Management as ―the policies, practices, and systems that

influence employees’ behavior, attitudes, performance. The material also denotes
that the concept of “Human Resource Management” implies that employees are
resources of the employers” (Raymond A.Noe, et al., 2010)
Human Resource Management is also described as ―designing management
system to ensure that human talent is used effectively and efficiently to accomplish
organizational goals‖ (Mathis and Jackson, 2008)
Besides that, Edwin Flippo, a famous personnel management author, defined
that Human Resource Management is ―planning, organizing, directing, controlling
of procurement, development, compensation, integration, maintenance and
separation of human resources to the end that individual, organizational and social
objectives are achieved‖.( Edwin B. Flippo, 1979)
According to Michael Amstrong, Human Resource Management is ―the
strategic and coherent approach to the management of an organization’s most
value asset – the people working there who individually and collectively contribute
to the achievement of the objective of the business”. (Armstrong, 2012)
In conclusion, the similarity between the four perspectives about Human
Resource Management is that how to use human resources most effectively in order
to reach organizational targets.


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1.1.2. Roles of human resources management
For years, HRM was not linked to corporate profit because organization only
focused on current performance and HR managers did not have a strategic
perspective. Executives categorized HRM in traditional manner, which focused on
short-term results, emphasized on controlling the rules, policies, and position
power.
Recognizing the importance of people has made HRM as a major player in
developing strategic plans. HRM strategies must reflect the organization‘s strategy

regarding people, profit and effectiveness.
HRM influences business effectiveness. It helps the organization reach goals
through

providing

trained,

motivated

employees,

employing

workforce

skills/abilities efficiently, increasing satisfaction, self-actualization, quality of work
life, communicating HRM policies to all employees, maintaining ethical policies,
socially responsible behavior, and managing change to the mutual advantage of
individuals, groups, the enterprise, and the public.
Many companies refer to HRM as involving ―people practices.‖ (Raymond
A.Noe et al., 2011). There are eight important HRM practices that are considered
the foundation for company performance: analyzing work and designing jobs,
human resource planning (determining how many employees with specific
knowledge and skills are needed), recruiting (attracting potential employees),
selection (choosing employees), training and development (teaching employee how
to performs their jobs and preparing them for the future), performance management
(evaluating their performance), compensation (rewarding employees), and
employee relations (creating a positive work environment).
To get things done through the subordinates, a manager must plan ahead.

Planning is necessary to determine the goals of the organisation and lay down
policies and procedures to reach the goals. For a human resource manager, planning
means the determination of personnel programs that will contribute to the goals of
the enterprise, i.e., anticipating vacancies, planning job requirements, job
descriptions and determination of the sources of recruitment. Once the human


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resource manager has established objectives and developed plans and programs to
reach them, he must design and develop organisation structure to carry out the
operations. In other words, the manager has to put the plan into reality. To
encourage people to work effectively, the manager should guide and motivate as
well as help them to solve conflicts. To make sure that subordinates go into right
way and comply with plans, the manager must keep his eyes on employees‘
performance to evaluate their results, give feedback and decide on performance
appraisal.
These practices which give support to organisation‘s stategy are given below:
Figure 1.1: Human resource management pratices

(Source: Raymond A.Noe, et al., 2011, p.2)

As depicted in the Figure 1.1, HRM should begin with analysing and
designing specific work to decide how many vacancies should be filled and which
specific skills and knowledge are needed (HR planning). After that, HR manager
thinks of the way to attract potential candidates (Recruiting) and build up criteria to
select right people (Selection). Then, employees are taught how to perform their
jobs well to reach organisation‘s goals. HR manager also consider the way to
mativate employees and manage their performance as well as create a good
relationship among employees, between employee and manager.

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1.2. Definition of performance management
Performance management is the systematic process by which an agency
involves its employees, as individuals and members of a group, in improving
organizational effectiveness in the accomplishment of agency mission and goals.
The Performance Management includes 3 stages which are Defining
performance, Measuring performance, and Feeding back performance information.
In the first stage, based on the job analysis, organizations specifies which aspects of
performance are relevant to the organization. Then in the next stage, they conduct
performance appraisals to measure relevant aspects of performance. Finally,
through performance feedback sessions, managers give employees information
about their performance so as they can adjust their behavior to meet the
organization‘s goal.
The Performance Management meets 3 broad purposes: Strategic purpose,
Administrative purpose, and Developmental purpose. Firstly, It is said that effective
performance management helps the organization achieve its business objective.
Beside that, effective performance management enables organization to take
corrective action to employees such as training, incentives or discipline. Secondly,
performance management provides information and support organization in making
decision related to salary, benefits, recognition programs, employee retention,
termination for poor behavior, and hiring or layoffs. Thirdly, performance
management helps organization to set up basis for developing employees‘
knowledge and skills.
To manage employees‘ performance effectively, organization should assess 5
following main criteria:
 Fit with strategy which means that organization ensure employee
behavior and attitudes in working support the organization‘s strategy, goals

and culture.
 Validity: this criterion refer to whether the appraisal measures all the
relevant aspect of performance and omits irrelevant aspects of performance.


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 Reliability: the organization should ensure the consistency of the
results when more than 1 person measures performance.
 Acceptability: a measure must meet the practical standard of being
acceptable to people who use it.
 Specific feedback: organization should give specific performance
assesment information to employees to help individuals to develop best.
People use 5 main methods to manage employees‘ performance. The table
below present assessment of each method based on criteria:
Table 1.1:Basic approaches to performance measurement

(Source: R.A. Noe, et al., 2011, p.275)

1.3.

Overview of Compensation
1.3.1

Definition of compensation

Beside the important role of recruitment and selection process, compensation is
another factor that should not be ignored if a company really want to attract and
retain their talented workforce. According to R. Wayne Mondy (2010),

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―compensation is the total of all rewards provided to employees in return for their
services‖. Compensation can be defined as the total amount of the monetary and
non-monetary pay provided to an employee by an organization in return for their
performance as required. Compensation scheme can be adjusted based on
employees contributions and accomplishments; the availability of employees with
required skills in the marketplace to decide whether they are scarcie or not; the
expectation of the organization to attract and retain a particular employee for the
value they receive from employee‘s contribution to reinforce

the employment

relationship, and the profitability of the company or the funds available in a nonprofit or public sector setting, and thus, the ability of an employer to pay marketrate compensation. The market research may be also reference for making decision
on what and how to compensate.

1.3.2

The role of compensation on employee performance

The purpose of compensation is primarily attract and keep skilled labor. It also
encourages staff to act in accordance with all stakeholders‘s desire and thus, reduce
conflicts of interests within organizations. The compensation packages a business
offers to employees affects the company‘s recruitment rate, retention rate and
employee satisfaction. Several federal laws affect the compensation that businesses
offer. A business owner should understand the importance of compensation and the
prevailing laws to remain competitive in the market.
The compensation packages that businesses offer to employees play an
important role in the company‘s ability to attract top talent as job candidates. Topperforming employees greatly impact the competitiveness and productivity of a

small business. The specific components of an attractive compensation package
vary per employee. A high base salary may attract a top job candidate that is 20something and single, while a job candidate with a family may consider a flexible
work schedule extremely important. Recruiters should research a job candidate's
current or prior salary and benefits to get an idea of what is important to the
candidate.


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Compensation often impacts an employee‘s motivation and job satisfaction,
although it is not the only factor. According to an article written by Mae Lon Ding
of Personnel Systems Associates, compensation systems positively impact a large
percentage of workers' performances. Many employees feel motivated to help their
companies succeed if the employer shares its profits with employees, such as with
bonuses or profit-sharing plans. The greatest impact of money on productivity and
performance is in jobs where performance is directly related to compensation. For
example, the knowledge of receiving a bonus after achieving a certain sales quota
will likely motivate a salesperson to increase productivity.
Retaining productive employees is critical to running a successful business.
Retaining employees saves companies money in training costs and helps maintain
an efficient and knowledgeable workforce. Health insurance and retirement
packages are benefits that many employees desire from their employers. Companies
that offer these benefits have a much better chance of retaining workers than
businesses that fail to offer benefit packages. Other ways to retain employees is
through regular promotions, which not only provide an employee with a higher base
salary, but also the ability to take on more responsibility in the workplace.
Certain laws regulate the compensation and wages small businesses must offer
employees. The Fair Labor Standards Act regulates the federal minimum wage,
child labor, overtime wages and equal pay. The Equal Pay Act prohibits employers
from basing compensation on an employee‘s gender. Under the Equal Pay Act, a

company may still base compensation on seniority or merit. Managers of small
businesses must keep their companies in compliance with all laws. Failing to
comply with compensation laws can result in a company facing penalties.
1.3.3

Structure of Compensation

In this section, the author will specify some categories that directly relate to the
term ―compensation‖: financial compensation, non-financial compensation and
work motivation. In financial compensation, the author will cover two smaller
categories: direct financial compensation and indirect financial compensation. The


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following table will show out some kinds of compensation included in financial
compensation and non-financial compensation:

Table 1.2: Financial and non-financial compensation
FINANCIAL
DIRECT

NON-FINANCIAL
INDIRECT

THE

JOB WORK

POSITION

Equitable wages
and Salaries

Insurance Plans:

Interesting Duties

Life,Supplementary and Responsibilities
Health, Dental,

Market

Vision, Disability

Adjustments or

Coverage,….

Cost of Living
Increases

ENVIRONMENT
Fair and Consistent
Practices and
Policies

Challenges
Competent
Authority

Supervision

Autonomy

Fun and Effective

Social Security
Benefits:

Merit Increases

Retirement plans,

Co-workers

or Performance

Employment

Opportunity for

Bonuses

insurance, Worker

Recognition

Compensation,

Comfortable and

Safe Working

Fair

Educational

Feeling of

Commissions

services, Employee

Achievement

services….

Environment

Flexible Scheduling

Paid Absences:

Advancement

Vacations,

Opportunity

Alternative

Holidays, Sick

Working

Leave, Educational

Arrangements

Leave, Jury Duty,
Compassionate

Modified

Leave

Retirement

Source: HR Council, 2015


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1.3.3.1. Financial compensation
 Direct financial compensation
The most well-recognized form of compensation, and probably the first type of
compensation that most workers look forward to, is direct compensation. Direct
compensation is the money directly paid to employees in exchange for their labor.
Direct compensation includes wages, salaries, bonuses, tips and commissions
provided at regular and consistent intervals (Shawn Grimsley, 2014).
For many people who want to support their family or satisfy their needs of

accomodation, vehicles or some necessities of life, the first reason why they work is
salary. Salary is a fixed amount of money or compensation paid to an employee by
an employer in exchange for their work performance. The salary system is included
in pay structure which can have several grades or levels, career bands, or job
families with each having a minimum or maximum salary associated. In Viet Nam,
there are some methods for calculating the salary. For example, if the salary is
based on working days, the general formula is:
Salary = (Base pay + allowances)/total workdays of a month x number of real working
days
One of the most common ways to motivate employees is changing the base
pay. Base pay is a fixed regular payment made to an employee in exchange for
performance of the duties and responsibilities of their role (Shawn Grimsley, 2014).
When an employee receives an increase to their base pay, it is considered a pay
increase. There are various reasons and methods for determining an increase, but
the common factor is that the increase changes the level of ongoing base pay. When
the cost of living increases, the company intends to increase the base pay by a set of
percentage which accounts for this increase as a motivator for its employees.
Moreover, the change in pay structure can derive from a market adjustment
following a compensation review against pre-established criteria. Market
adjustments are typically made following the receipt of market survey data. This
data is usually received and evaluated towards the end of either your fiscal or
calendar year. Organizations will evaluate their salaries against market data and, if
required, adjust base salaries for roles that are below the market. Or when a


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company decides on advancement of an employee to a higher position, then it is
called a promotional increase. Promotion is usually based on availability of
opportunities and preparedness of employees to advance. The increase in base pay

can result from a merit increase which are awarded to recognize employees‘
contribution and to compensate them for their high level of performance.
A direct financial compensation can take the form of bonus pay which is
compensation over and above the amount of pay specified as wages or salary and it
is only distributed as the organization is able to pay or as outlined in an employment
contract. Bonus pay is used by many organizations to improve employee morale,
motivation, and productivity or as a thank you to employees who achieve a
significant goal (HR Council for the Nonprofit Sector).
When compensation is based on volume or some form of performance, this is
known as commission based remuneration. Other terms used include piecework or
piecemeal. Many industries used this type of remuneration to get a minimum
standard of production in exchange for compensation. It is used to shift risk from
the employer to the employee. There are two methods to calculate commission.
One is based on volume of services and the other is based on sales.
 Indirect Financial Compensation
Another tool available to a company is indirect financial compensation. Indirect
compensation is a benefit given to an employee that has financial value, but is not a
direct monetary payment (R. Wayne Mondy, 2010). It is often referred to as a
noncash benefit. In certain circumstances, these noncash benefits may be more
valuable to an employee than a high salary or wage. Indirect financial compensation
including all financial rewards that are not included in direct compensation and can
be understood to form part of the social contract between the employer and
employee such as benefits, leaves, retirement plans, education, and employee
services. Such benefits may include Insurance plans, which may in turn include
Life, Supplementary Health, Vision, Dental, etc., Indirect financial compensation
can also include Social Security benefits, Retirement Plans, Employee Insurance
Workers compensations, and can also include paid absence like vacations, sick
leaves, holiday leaves, educational leave.

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Medical insurance coverage is often a coveted benefit. Employer-sponsored
medical insurance may be the only way an employee with a sick spouse can afford
health insurance and offers quite an inducement to come aboard and stay with the
company (ibid).
Retirement plans can also offer an attractive incentive. If a company offers a
defined benefit plan, it's promising to pay a certain amount of retirement benefits to
an employee upon the employee's retirement. You can think of it like a privatesector social security payment - a set amount each month for life (Shawn Grimsley,
2014).
Stock options and profit sharing programs are not only an incentive for
employees to stay but also provide an incentive for employees to be more
productive because employees share in the gains. An employee stock option is the
right to buy company stock at a certain price during a certain period of time (ibid).

1.3.3.2. Non-financial compensation
The compensation scheme of a company not only cover monetary rewards. In
fact, to gain employees‘ satisfaction and inspire them to greater efforts, an
organization need to use some intangible motivators rather than pay base.
According to the McKinsey Journal, for individuals who are relatively satisfied with
their salary, it is the non-financial rewards that tend to be more effective in
contributing to long-term employee engagement. Non-financial rewards refer to
career development and advancement opportunities, opportunities for recognition,
as well as work environment and conditions. When the competition for talents
becomes tougher, the emphasis on non-financial rewards should be reinforced. An
organization should find new ways to encourage its employees and retain them at
work. Effective non-financial incentives for employees reach out and touch the
emotions to make the employee feel welcomed, appreciated, and valued. Winning a
praise from boss helps an employee to realize his important role in organization
which results in better performance and loyalty

Non-financial rewards can have an even more substantial impact on employee
satisfaction and motivation than traditional financial rewards. An employee can


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choose a company for high salary but he can leave it for other reasons such as work
climate, career development, recognition and other non-financial issues. Even wellcompensated employees may leave a company if dissatisfied with these aspects.
Companies with excellent non-financial incentives can attract, motivate and retain
talented people (Joanne Sammer, 2011).
When a company find it difficult to increase base pay to mativate its employees,
it will consider non-financial rewards effective tools to retain its employees. The
importance of these issues to employees suggests that non-financial rewards should
be a part of any company's plan regardless of the economic situation

1.3.3.3. Motivation at work
Every person has different motivations for working. The reasons for working
are as individual as the person. But, we all work because we obtain something that
we need from work. Some people work for love, others work for personal
fulfillment. Others like to accomplish goals and feel as if they are contributing to
something larger than themselves, something important. As defined by Jennifer and
Gareth, work mativation is the psychological forces within a person that determine
the direction of a person‘s behavior in an organization, a person‘s level of effort,
and a person‘s level of persistence in the face of obstacles. In this section, the author
would like to review some typical theories directly related to work motivation,
including intrinsic versus extrinsic motivators, Maslow‘s Hierarchy of Needs and
Equity theory.
 Intrinsic versus extrinsic motivators:
For any business, motivating employees is an important factor, because it
derives the inner force that creates the difference between failure and success. That

means, what motivates one person in business won‘t necessarily work for the
other.(Schacter et al., 2011). Motivation is the methodology that leads to a win-win
situation between the organization and the employees.
Motivation can derive from external or internal factors, which results in
intrinsic and extrinsic motivators (Joseph J. Martocchio, 2013).


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Intrinsic motivation is something that you have to offer yourself and is driven
by personal interest or enjoyment in the work itself
Because intrinsic motivation exists within the individual, achieving it does not
depend on others. Some people believe that the most powerful rewards come from
inside a person. In fact, Frederick Herzberg, who is one of the leading theorists
of workplace motivation, found intrinsic rewards to be much stronger than financial
rewards in increasing employee motivation. It does not mean that employees think
little of monetary rewards, it just means they need something rather than money to
push themselves. Intrinsic rewards include things such as: personal achievement,
professional growth, sense of pleasure and accomplishment. To support employees
with intrinsic motivators, an organization should provide employees with
meaningful works, allow them to make choices through a high level of autonomy,
provide opportunities for employees to show their competence in areas of expertise,
offer them more opportunities to reward themselves or help them to feel like their
contribution matter.
Unlike intrinsic motivation that is self-administered, extrinsic motivation
external to individual and is typically offered by a manager who has power and
authority to give rewards. Extrinsic motivation which comes from outside an
individual is based on tangible rewards. Extrinsic rewards are usually financial in
nature such as a raise in salary, a bonus for good performance or a verbal praise.
These material rewards can be motivating to employees because pay, time off,

advancement and recognition are important to most workers. Providing employees
with extrinsic rewards is relatively straightforward and usually built into
performance review or individual projects. They are particularly useful in shortterm for motivating employees to work toward one specific goal (Kenneth Thomas,
2009)
 Maslow’s Hierarchy of Needs:
Abraham Maslow, organized five major type of human needs into a hierarchy.
The need hierarchy illustrates Maslow‘s conception of people satisfying their needs
in a specific order from bottom to top. The needs, in ascendingorder are elaborated
in the table below:


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Figure 1.2:Maslow's hierarchy of needs

Source: Maslow, 1943-1954
The lowest levels of the pyramid are made up of the most basic needs, while the
more complex needs are located at the top of the pyramid. Needs at the bottom of
the pyramid are basic physical requirements including the need for food, water,
sleep, and warmth. Once these lower-level needs have been met, people can move
on to the next level of needs
Douglas McGregor (1960) indicates that ―Man is a wanting animal-as soon as
one of his need is satisfied, another appears in its place. This process is unending
continue from birth to death‖. Human needs are organized in a series of levels – a
hierarchy of importance. A satisfied is not a motivator of behavior. When man‘s
physiological needs are satisfied and he is no longer fearful about his physical
welfare, his social needs become important motivator of behavior.
According to Herzberg (1959), satisfaction was caused by what he called
"motivators". These factors included achievement, recognition, work itself,

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responsibility, advancement, and growth. On the contrary, dissatisfaction was
caused by problems with factors that Herzberg called "hygiene factors". These
factors included company policy and administration, supervision, relationship with
supervisor, work conditions, salary, relationships with peers, personal life,
relationships with subordinates, status, and security. Herzberg also reported that the
absence of motivators will not lead to dissatisfaction. On the other hand, job
satisfaction can't be improved by improving any of the hygiene factors, but by
improving motivators.
Generally, a person beginning his career will be very concerned with
physiological needs such as adequate wages and stable income and security needs
such as benefits and a safe working environment. When these basic needs have
already been satisfied, the organization should motivate its employees with higher
levels like self-esteem and self-actualization which are tied to an employee‘s image
of himself and his desire for the respect and recognition of others as well as
opportunities for individual growth and development. Employee needs change with
time. This means that managers must continually adapt to employees‘ changing
needs if they want to keep their workforce motivated.
 Expectancy theory:
"Expectancy theory proposes that work motivation is dependent upon the
perceived association between performance and outcomes and individuals modify
their behavior based on their calculation of anticipated outcomes" (Chen & Fang,
2008). This has a practical and positive benefit of improving motivation because it
can, and has, helped leaders create motivational programs in the workplace.
Expectancy theory is classified as a process theory of motivation because it
emphasizes individual perceptions of the environment and subsequent interactions
arising as a consequence of personal expectations.
The Expectancy Theory of Motivation was suggested by Victor H. Vroom, an

international expert on leadership and decision making. He was named to the
original board of officers of the Yale School of Management when it was founded
in 1976. Vroom has focused much of his research on dealing with motivation and
leadership within an organization.


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Vroom theorized that the source of motivation in Expectancy Theory is a
"multiplicative function of valence, instrumentality and expectancy." (Stecher &
Rosse, 2007). He suggested that "people consciously chose a particular course of
action, based upon perceptions, attitudes, and beliefs as a consequence of their
desires to enhance pleasure and avoid pain" (Vroom, 1964).
Expectancy Theory is based on an employee‘s beliefs:
-

Valence - refers to emotional orientations which people hold with respect to
outcomes (rewards) – the value the person attaches to first and second order
outcomes

-

Expectancy – refers to employees‘ different expectations and levels of
confidence about what they are capable of doing – the belief that effort will
lead to first order outcomes

-

Instrumentality – refers to the perception of employees whether they will
actually receive what they desire, even if it has been promised by a manager

– the perceived link between first order and second order outcomes"

Vroom concludes that the force of motivation in an employee can be calculated
using the formula: Motivation = Valence*Expectancy*Instrumentality
Figure 1.3 : Three components of Vroom’s Expentancy theory

Source: Sousa., n.d.
 Equity theory:
First developed in the early 1960s by behavioural psychologist John S. Adams,
equity theory is concerned with defining and measuring the relational satisfaction of
employees. Adams suggested that employees try to maintain a balance between


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what they give to an organisation against what they receive, and base satisfaction
with their own balance on perceptions of the same balance in colleagues. Equity
theory is based on a principle that peoples' actions and motivations are guided by
fairness and that discrepancies in this fairness in the workplace will spur them to try
and redress it. According to Carrell and Dittrich (1978), p202-210, ―employees
who perceive inequity will seek to reduce it, either by distorting inputs and/or
outcomes in their own minds ("cognitive distortion"), directly altering inputs and/or
outcomes, or leaving the organization.‖
Equity Theory proposes that a person's motivation is based on what he or she
considers to be fair when compared to others (Redmond, 2010). When applied to
the workplace, Equity Theory focuses on an employee's work-compensation
relationship or "exchange relationship" as well as that employee's attempt to
minimize any sense of unfairness that might result. The equity theory goes on to
evaluate the outcome-to-input ratio comparison process and the cognitive and
behavioral mechanisms to restore perceptions of equity (Stecher & Rosse, 2007).

There is evidence that supports the theory's prediction that people respond to
inequity by reducing work effort or increase effort to match the outcome (Stecher &
Rosse, 2007). Over time, employees will be fed up with their job and they will quit
it sooner or later.
Therefore, equity in workplace plays an important role in retaining talents as
well as attracting people outside company. In fact, many enterprises are not aware
of what equity really means. It seems that they try to compensate for people in the
same position and the same job with the same amount of salary, bonus or
allowance. This does not really mean equity. The compensation should be based on
contribution of each employee, how they perform their tasks and which level of
effort they put into their job. The equity will be assured when companies have a
clear scriteria system to control and evaluate employees‘ performance. The author
has chosen this theory as an useful tool for retaining the talents due to the fact that
inequity is one of the most obvious reasons for which the talents decide to quit their
job and seek for other companies. Applying this theory also helps the author


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evaluate the compensation scheme of ACB bank and suggest some practical
solutions for future development of this branch.
1.3.3.4. Corporate culture
In today‘s economy, creating and maintaining a great company culture is
necessary (Laurie Holsman, 2015). Having a good image on people‘s mind will not
only help you to keep current employees, but it will also bring new employees to
your organization. A job seeker not only expect a good position with high salary,
but he also look for a company with good brand as well as distinguished culture.
Company culture includes everything from the mission and values, to goals and
expectations, to the work environment itself. It may also incorporate fun things,
such as social events and free food. Ultimately, the core of the culture should shine

through and reflect the true meaning of what the company stands for.
Characteristics of businesses with strong company cultures include open
communication, mutual respect, integrity, positive energy, work/life balance, strong
leadership, customer-focused attitude and a strong sense of trust. These are things
that will retain employees and draw new ones to your workforce ( David Crisp &
Joanne Reid, 2007).

1.4.

Link between compensation, performance and business outcome
Today, the value of a company‘s products or services is derived mainly from
knowledge-based activities such as good design, good workmanship, technological
development, customer service, and logistics. Thus, it is imperative to do everything
possible to preserve and enhance the source and key to knowledge: the individuals
who possess it. Recruiting and retention are interconnected. When a company is
trying to ―retain‖ talent, it is in fact ―attracting‖ talent as well.
Organisations with higher revenues relative to their human capital investment
(i.e. people productivity) and experiencing higher rates of revenue growth versus
their competitors are better at talent attraction – they invest more in recruiting, and
display better performance. In terms of talent management, organisations with
lower rates of employee absenteeism and turnover, together with a greater
performance-related component in their reward display stronger revenue


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productivity relative to human capital investment and grow their revenues more
quickly over time than competitors.
To get the most out of employees-paid-well, firms need to link firm-level
performance goals with job descriptions. Increasingly, job descriptions emphasize

competencies or skills rather than tasks, duties and responsibilities. That is old hat
to accounting, which views the CPA certification as fundamental. The meaning of
skills has widened, though. Accounting educators increasingly emphasize
competencies such as interpersonal skills. (G. L. Sundem, 1998.)
Once jobs are linked to performance goals through job analysis, the problem
becomes employee selection and motivation. Selection techniques include ability
tests, work samples and job tryouts along with more frequently used unstructured
interview methods. Motivation techniques include goal setting, incentives, job
design and organizational culture. Compensation in the form of promotions and
merit pay is widely used and other kinds of incentives also might prove useful.
Most firms think in terms of senior employee pay based on incentive formulas that
integrate billable hours, business developed and clients serviced, but Rosenberg
points out that the trend has been toward judgmental, merit-based approaches. This
is understandable if formulas fail to capture important dimensions that require
compensation. But equity or fairness benefits from objective measures that
are content valid, that is, that express an irrefutable link between performance and
results.
Precisely a century ago, Frederick Winslow Taylor developed his scientific
management system, which included factors like employee selection, training and
incentives in the form of his differential piece-rate plan.
Taylor (1911) emphasized the importance of a "mental revolution" that aligns
employees' and managements' goals. Taylor applied his scientific management
system to manufacturing firms. Yet in modified form, it has been foundational to
the management of all kinds of work. (F.W. Taylor, 1911).
Taylor omitted three dimensions of analysis: