A COMPARATIVE STUDY ON THE EFFECT OF INCENTIVE PACKAGES ON EMPLOYEE PERFORMANCE: INCASE OF SELECTED BRANCHES OF MICRO-FINANCE INSTITUTIONS IN WOLAITA ZONE MBA THESIS ALEMAYEHU GALCHA WOLKITE UNIVERSITY MAY, 2020 WOLKITE, ETHIOPIA A COMPARATIVE STUDY ON THE EFFECT OF INCENTIVE PACKAGES ON EMPLOYEE PERFORMANCE: IN CASE OF SELECTED BRANCHES OF MICRO-FINANCE INSTITUTIONS IN WOLAITA ZONE ALEMAYEHU GALCHA A THESIS SUBMITTED TO THE DEPARTMENT OF MANAGEMENT WOLKITE COLLEGE OF BUSINESS AND ECONOMICS, SCHOOL OF GRADUATE STUDIES WOLKITE UNIVERSITY WOLKITE, ETHIOPIA IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ART IN BUSINESS ADMINISTRATION (MBA) MAY, 2020 i DECLARATION This thesis is my original work and has not been presented for a degree in any other college, institution or universities and that all sources of materials used for this thesis work have been duly acknowledged. Name: Alemayehu Galcha Signature --------------------------------------- Date: 05/09/202 0 Place of submission: Wolkite University, 05/09/ 2020 ii ADVISORS’ APPROVAL SHEET SCHOOL OF GRADUATE STUDIES WOLKITE UNIVERSITY ADVISORS’ APPROVAL SHEET As thesis research advisors, we hereby certify that we have read and evaluated this thesis prepared under our guidance by Alemayehu Galcha entitled "A Comparative Study on the effect of incentive packages on employee performance: In case of selected branches of Micro-finance institutions in Wolaita zone, South Ethiopia". We recommend that it be submitted as fulfilling the thesis requirement. AmdemichaelBerhanu (Ass. Professor) ____________ _________ Advisor Signature Date Berhanu Tereda _____________ __________ Co-advisor Signature Date iii SCHOOL OF GRADUATE STUDIES WOLKITE UNIVERSITY EXAMINERS’ APPROVAL SHEET =========================================================== We, the undersigned, members of the Board of Examiners of the final open defense by Alemayehu Galcha have read and evaluated his/her thesis entitled “A Comparative study on the effect of incentive Packages on employee performance: In case of selected branches of Micro-finance institutions in Wolaita zone”, and examined the candidate. This is, therefore, to certify that the thesis has been accepted as fulfilling the thesis requirements for the degree of Masters in Business Administration. ________________________ _______________ ______________ Chairperson Signature Date TasewShedaga (PhD Candidate) 17/09/2020 Internal Examiner Signature Date BushaTemesgen (PhD) 10/09/2020 External Examiner Signature Date ________________________ __________________ ------------------- SGS Approval Signature Date Final approval and acceptance of the thesis is contingent upon the submission of the final copy of the thesis to the School of Graduate Studies (SGS) through the Department/School Graduate Committee (DGC/SGC) of the candidate‟s department. Date: ______________ iv ACKNOWLEDGEMENT I would like to take this opportunity to extend my sincere gratitude to my almighty God and Lord Jesus Christ for his guidance and protection throughout my study for Master Degree. Firstly, I would like to express my sincere gratitude to my advisor Asst. Prof.AmdemichaelBerhanu and co-advisor BerhanuTereda for their professional contributions and advice, guidance and constructive comments, which have made thesis work possible. I also would like to thank staff at Micro-finance institutions who participated in completed the questionnaires, the institutions manager and deputy manager for overall positive feedbacks and comments. Finally, I must express my very profound gratitude to my dear wife Andinet, my children Ephrem and Klikidan, my family, my friends and Wolkite university office workers for understanding, support and continuous encouragement throughout my years of study and through the process of researching and writing this thesis. This accomplishment would not have been possible without them. Thank you v ABBREVIATION AROA----Adjusted Return on asset AROE ----Adjusted Return on equity CS---------- Customer satisfaction OMFI ----- Omo micro-finance institution OSS----------Operational self sufficiency PAR ---------Portfolio at risk PCNC-------percentage change in number of clients PCVS--------percentage change of voluntary saving PWB---------percentage of women borrower ROEL-------Ration of Operating Expense to Loan SNNPR-----South nation nationality peoples republic VFMFI –-- Vision Fund micro-finance institution vi TABLE OF CONTENTS Contents Page DECLARATION .............................................................................................................................. i ADVISORS"APPROVAL SHEET--------------------------------------------------------------------------ii EXAMINERS" APPROVAL SHEET----------------------------------------------------------------------iii ACKNOWLEDGEMENT ............................................................................................................. iiv ABBREVIATION .......................................................................................................................... iv TABLE OF CONTEMTS-----------------------------------------------------------------------------------VI LIST OF TABLES----------------------------------------------------------------------------------------------------X ABSTRACT ................................................................................................................................... xii CHAPTER ONE .............................................................................................................................. 1 INTRODUCTION............................................................................................................................ 1 1.1 Background of the Study ........................................................................................................ 1 1.2 Statement of the Problem ..................................................................................................... 3 1. 3 Objective of the Study ........................................................................................................... 6 1.3.1 General objective ............................................................................................................. 6 1.3.2 Specific objectives of the study ...................................................................................... 6 1.4 Significance of the Study...................................................................................................... 6 1.5 Scope of the Study ................................................................................................................. 6 1.6 Limitations of the Study. ...................................................................................................... 7 1.7 Organization of the Study ...................................................................................................... 7 CHAPTER TWO ............................................................................................................................. 7 LETIRATURE REVIEW-------------------------------------------------------------------------------------8 2.1. Introduction about the chapter and the topic ......................................................................... 8 2.2 Incentives ................................................................................................................................ 8 2.2.1 Financial incentive packages ........................................................................................... 9 2.2.1.1 Basic salary---------------------------------------------------------------------------------------10 . 2.2.1.2 Bonus incentive---------------------------------------------------------------------------------10 2.2.1.3 Profit snaring--------------------------------------------------------------------------------------10 vii 2.2.1.4 Perquisites-------------------------------------------------------------------------------------11 2. 2.2 Non-Financial Incentives .............................................................................................. 11 2.2.2.1 Statu------------------------------------------------------------------------------------------------------------11 2.2.2.2 Organizational climate------------------------------------------------------------------------12 2.2.2.3 Job security--------------------------------------------------------------------------------------12 2.2.2.4 Employee participation----------------------------------------------------------------------12 2.2 Importance of Incentive package.......................................................................................... 13 2. 3 Effects of Incentive package ............................................................................................... 13 2. 4. The concept of employee performance ............................................................................. 14 2. 5 Employee Perceptions ......................................................................................................... 15 2. 6 Ways of Measuring Employees‟ Performance .................................................................... 16 2. 7 Performance indicators ........................................................................................................ 16 2.7.1 Financial Perspective ..................................................................................................... 16 2.7.1.1 Adjusted return on asse-----------------------------------------------------------------------------------17 2.7.1.2 Adjusted return on equity--------------------------------------------------------------------------------17 2.7.1.3 Operating self-sufficiency----------------------------------------------------------------------17 2.7.1.4 Portfolio at risk greater than 30 days-------------------------------------------------------17 2.7.1.5 Ratio of operating expense to loan---------------------------------------------------------`17 2.7.2 Non-Financial Perspectives ........................................................................................... 18 2.7.2.1 Percentage change in number of clients -------------------------------------------------------------18 2.7.2.2 Percentage of women’s borrower------------------------------------------------------------18 2.72.3 Percentage change of voluntary saving-----------------------------------------------18 2.7.2.4 Customer satisfaction---------------------------------------------------------------------------19 2.8. Empirical Review Literature ............................................................................................... 19 2.9 Conceptual Framework ...................................................................................................... 21 CHAPTER THREE ........................................................................................................................ 24 RESEARCH METHODOLOGY ................................................................................................... 24 viii 3. 1 INTRODUCTION ............................................................................................................... 24 3.2 Description of the study area ................................................................................................ 24 3.3 Research Design ................................................................................................................... 25 3.4 Research approach ................................................................................................................ 25 3.5 Population and Sample ......................................................................................................... 26 3.5.1 Target Population .......................................................................................................... 26 3.5.2 Sample Size ................................................................................................................... 26 3.5.3 Sampling technique ....................................................................................................... 28 3.6. Source of Data ..................................................................................................................... 29 3.6.1 Primary Data .................................................................................................................. 29 3.6.2 Secondary Data .............................................................................................................. 29 3.7. Data Collection Instruments ................................................................................................ 29 3.8. Data Collection method ....................................................................................................... 30 3.9. Validity of the Instruments .................................................................................................. 30 3.10. Reliability of the Instruments ............................................................................................ 31 3.11. Method of Data Analysis ................................................................................................... 32 3.12. Ethical Consideration ........................................................................................................ 32 CHAPTER FOUR ......................................................................................................................... 32 DATA ANALYSIS, INTERPRETATION AND DISCUSSIONS .............................................. 33 4.1 Demic profiles of the respondents ....................................................................................... 33 4.2 Fairness and consisteny of incentive packages which distrbuted in micro-finance institutions- -----------------------------------------------------------------------------------------------------------------------------36 4.3 Descriptive Analysis ............................................................................................................ 38 4.3.1 Comparison of the effect of financial incentive packages on employees‟ performance between Omo and Vision Fund MFIs .................................................................................... 39 4.3.2 Comparison of the effect of non-financial incentive packages on employees‟ performance between Omo and Vision Fund MFIs .............................................................. 46 4.3.3 Comparison of employees‟ performance between Omo and Vision Fund MFIs ......... 52 4.4 Open ended questions results .............................................................................................. 57 4.5 Inferential Analysis ............................................................................................................. 59 4.5.1 Analysis of Correlation Coefficient .............................................................................. 60 ix 4.5.2 Multiple regression…………………………………………………………………....65 CHAPTER FIVE ............................................................................................................................ 76 SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS .......................... 76 5.1 Introduction .......................................................................................................................... 76 5.2 Summary of major Findings ................................................................................................. 76 5.3 Conclusions .......................................................................................................................... 79 5.4 Recommendations ................................................................................................................ 80 5.5. Further areas of Study ......................................................................................................... 81 References ...................................................................................................................................... 82 APPENDIX I ...................................................................................................................................... x List of table Table3.1 Sample Size of Omo Micro finance institution…………………………………………27 Table3.2 Sample size of Vision Fund micro-finance institutions…………………….…………..28 Table3.3 Reliability of the ResearchInstruments--------------------------------------------------------31 Table 4.1.Demographic distribution of respondents-----------------------------------------------------33 Table 4.2Fairness of incentive packages which distrbuted in micro-finance institutions----------36 Table 4.3 Comparison Bases of Mean Score-------------------------------------------------------------39 Table 4.4 Comparison of the effect of financial incentive packages on employees‟ performance between Omo and Vision Fund MFIs…………………………………………………………….39 Table 4.5 Summary of the effect of financial incentive packages on employees‟ performance between Omo and Vision Fund Micro Finance Institutions……………………………………...45 Table 4.6. Comparison of the effect of non-financial incentive packages on employees‟ performance between Omo and Vision Fund MFIs -----------------------------------------------------46 Table 4.7. Summary of the effect of non-financial incentive packages on employees‟performance between Omo and Vision Fund MFIs……………………………………………..……………...51 Table 4.8. Comparison of employees‟ performance between Omo and Vision Fund MFIs--------52 Table4.9. Summary of comparison on employees' performance between Omo and Vision Fund MFIs…………………………………….………………………………………….….56 Table 4.10 Comparisons of correlation between Financial incentive packages on employee performance on Vision Fund and omo MFIs-------------------------------------------------------------60 Table 4.11 Rule of Thumb for about the Strength of Correlation of Coefficients..........................61 Table 4.12 Comparisons of correlation between Non-Financial incentive packages on Vision Fund and Omo MFI------------------------------------------------------------------------------------------63 Table 4.13 Comparison of Model Summary between Vision Fund and Omo MFIs…………….65 4.14 Multiple regression results on financial and non-financial incentive packages in VFMFI---66 4.15.Multiple regression results on financial and non-financial incentive packages in OMFI----70 Table4.16. ANOVA (Analysis of Variance…………………………………………………….. 73 Table4.17. Coefficients‟ Table on Multiple Regression of the Research Model……………… 74 xi ABSTRACT Incentive packages are essential factor towards institutions’ achievements in terms of employee’s performance. The main purpose of this study was to examine and compare the effect of incentive package on the employee performance in selected branches of micro-finance institutions. The study employed descriptive and explanatory research design were gathering data from selected branches of micro finance institutions (MFIs) in Wolaita zone. The primary data were collected through questionnaire with likert 5 scales. Samples of 154 respondents were drawn from the population through proportional stratified random sampling technique. Descriptive statistics, Correlation of coefficients andmultipleregression models were used to analyze the collected data by using SPSS version 20. The findings show that, Vision Fund MFI financial incentive packages have strong (r=.776; p<0.01) relationship with employee’s performance and non-financial incentive packages have moderate (r=.413; p<0.01) relationship with employee’s performance. Whereas, OmoMFI financial incentive packages have weak (r=.385; p>0.01) relationship with employee performance and non-financial incentive packages have moderate (r=.465; p<0.01) relationship with employee performance. Findings showed amongst others that there is strong positive correlation between incentive and employee performance, majority of selected branches of OMFI employees are largely dissatisfied with the incentives offered by the institution and that incentive package is not the most important determinants ofemployee performance in selected branches of Omo MFI. Therefore to improve employee’s performance and satisfaction, the researcher recommended that the top management of MFIs especiallyOmo MFI should adopt both financial and non-financial incentive packages seek and obtain feedback on how employees perceive incentives and develop a sound retention and satisfaction mechanisms. Key Words: Incentives, Productivity, Effectiveness, Employee performance 1 CHAPTER ONE INTRODUCTION 1.1. Background of the Study The success or failure of an organization centered on the ability of employer‟s to attract, retain and reward appropriately, talented and competent employees. Employee‟s willingness to stay on job largely depends up on the incentive packages of an organization (Jacqueline Azari, 2009).Incentives are awards given out when predetermined objectives have been attained within an organization. It can also be regarded as variable payments made to employees on the basis of the amount of output or results achieved. In addition to that incentives are motivational factors have been used in the private sector and in the various line of business (Banjoko M and. Armstrong2009). Incentive packages are divided into two. These are financial incentive packages (basic salary, bonus, profit sharing and perquisites, etc.) and non-financial incentive packages (status, job securities, organizational climate and employee participation etc.) offered to employees to compel them, to exert more effort into any giving task. Lawler, (2009) In order to incentivize the employees, the factors that are changed (employee‟s performance, employer relationship, and other opportunity of development). Therefore employee‟s satisfaction and employee performance are largely influence by incentive packages or reward system put in place by the organization (Osibanjo, A.O. Abiodun, A.J.FadugbaL A.O. 2012). Employee‟s performance also depends on their internal satisfaction towards their job. If employees are satisfied from their jobs as well as the organization than they are more keenly interested to perform well towards organizational goal achievement (Harter et al, 2012). Performance incorporates the resulting outcomes of the performed actions of employees based on their expertise and skills. In organizational settings, employees‟ performance is the accumulate result of the skills, efforts and abilities of all the employees contributed in organizational improved productivity leading towards its goal achievement. Improved organizational performance indicates the efforts towards goal achievement while requiring more efforts in terms of improved employee performance (Ellinger et al, 2013). Therefore employee performance measured by productivity and quality, employee performance goals 2 and objectives, service delivery and punctuality, initiatives and innovation, customer complain to solve and clients feedback. (Cording, M. et. al. 2014) Employees performance based incentives, according to Lai (2009) refer to the force that encourages individuals to garner their objectives, however, an incentivized workforce is a lubricant to the engine of the organization and its benefits include, dedication, employee retention, loyalty and harmony. These factors according to the author are crucial to the growth of the organization. The positive results associated with incentive packages have lead organizations to continuously seek to motivate their employees and in tandem increase their performance. Lack of employee incentives can dictate the failure of an organization thus, it is imperative for organizations to devise new methods of employees‟ encouragement depending on employee‟s characteristics. If suitable arrangements are used, employee performance generally increases, and when different strategies are employed, negative results such as high employee turnover and low employee performances are witnessed (Deci and Ryan, 2014). There has been constant mobility of high skilled workers from Private sector to private sectors and this mobility has been tagged as “brain drain”. One of the factors that contribute to high employee turnover is dissatisfaction (Mosley, Pietri and Mosley Jnr, 2012).However, the critical is the fact that it had been established some of these talents hardly stay from long in such private sector before moving again. They have a growing consensus among managers and leaders about the significance of combining effective incentives to encourage good performance (Cole and Kelly, 2011). Employees are encouraged to work harder, if they are aware that their well-being is taken seriously by their employers, and that their career and self-development are also being rise and taken care of by their institutions. Employees are the engine of organization vehicles while incentive packages are the fuels. No organization can achieve its stated objectives without its employees (Sajuyigbe, et.al 2013). Therefore in the study area most of the studies mainly focused on banking sector but the provision of credit and saving service institution requires great attention in determining the effect of incentive package on employees‟ performance. With that in mind, the researcher decided to carry out research in micro-finance institutions. Micro-finance institution 3 operations are very sensitive businesses in our country and in the study area.MFIs play an important role in providing a large scale sustainable rural focused credit and saving services to poor society or community in order to overcome the financial constraints and Expand job and economic opportunity. Employee incentives affects productivity and a poorly incentivized labor force will be costly to the organization in terms of lower productivity and performance, excessive staff turnover, increased expenses, frequent absenteeism and a negative effect on the morale of colleagues According to the researcher observation employees turnover from institution to institutions and efforts is not taken seriously in MFIs, leads to grievance, dissatisfaction and poor employees „performance existed in MFIS, particularly in Omo MFI selected branches in wolaita zone, and because of this research is carried out. 1.2. Statement of the Problem The success or failure of any organization depends upon Human resources. Because other resources such as machines and equipment are inert factors, but Human resource is not. Humans think, conceive, perceive, plan and interpret; thus highly skilled, competent, reliable and experienced employees are a valuable asset for any organization. These workforces need to be treated with a great care and needs to be given a special managerial attention and time(Waweru and Deci, 2017) One of the most important tools at the hand of any business management to attract, motivate and retain competent workforce is administering effective incentive packages. Well design and implement incentive packages can significantly enhance employee performance through improving their morale, provision of job security, improving innovation, commitment and minimizing employee turnover among others (Holtmann, 2012).In the modern competitive world, business organizations are facing ever growing challenges regarding commitment, dissatisfaction, grievance, employee‟s turnover and poor performance (Stanley, 2012). Based on the observation of the researcher the incentive packages provided by the institution are not that match attractive relative to the other similar financial institutions. Cause of this problem many employees are not satisfied on their job especially in OMFI jobs below managerial level in addition to that these employees are either no commitment, grievance or turned over. One of the emerging institutions at Ethiopia South region in Wolaita zone MFIs suffering from voluntary employee turnover problems. According to the HR data 4 particularlyfromOmo micro-finance institution 28 employees resigned in 2009 E.C out off 113 employees with a turnover rate of 25 percent, in year 2010 E.C. 31 employees resigned from a total of 117 employees with turnover rate of 26.5 percent and finally in year 2011E.C until April 30., 40 employees resigned from the total number of 148 employees with turnover rate of 27% in six selected branches and such attrition the employee with low productivity, low effectiveness and efficiency to achieve organizational goal such as profitability and contributing towards countries‟ economy(Institution annual final meeting report paper from 2009 up to 2011 E.C). Therefore, studies like this are an invaluable workforce in helping organizations, identify and maximize on ways to encourage employees whilst mitigating employee turnover, grievance, dissatisfaction on their jobs and under-performance (Steers and Porter, 2011) Several studies have found that among employee surveyed, money was not the only important motivator, and in some instances managers have found money without non-monetary incentive packages to have a demotivating or negative effect on employees (Al-Nsour, Marwan, 2012). On the other hand,(Deci and Ryan, 2014) indicated that non-monetary types of incentive packages can be very meaningful to employees and very motivating for employee performance improvement. According to them, creative use of personalized non-monetary incentive packages reinforces positive behaviors and improves employee retention and performance. In the authors suggestion non-financial incentive packages have to be in to consideration like that of the financial one but the MFIs incentive packages practice is contradict to which means there is a gap between what those authors wrote and the institution incentive packages practice, this highly affect employees performance. Most of the time managers try to achieve the employees profitability through reduction of cost, hence one of the cause is dissatisfaction of employees‟ incentive packages management level may face difficulties. This practical problem is the reason that, the researcher was initiated to conduct on this topic. Thus many researchers on their studies give attention for only financial incentives. (Bilal et.al2017) which published by journal of European management business research their finding to give attention for financial incentives (merit pay, stock option, commission) and personal variables (work experience and ability of work) are positive relationship 5 withemployee‟s performance. Also, a research conducted by (Olaynka C.et.al .2017), on their finding to give attention for financial incentives such as wages, pension, commission and seniority pay are positive relationship with organizational performance, but not to give attention for non-financial incentive packages in addition to that they state in only one company or institutions . According to Surafel G/tsadik, (2017) on his study finding to give attention for financial incentive (performance based pay and fringe benefits) are positive relationship with employee‟s performance. But the researcher could not include non-financial incentive packages in his studies. Therefore, the aforementioned researches focused only on financial incentives (merit pay, bonus, commission, wages, pension and stock option and personal variables (employee experience and work ability). the researcher going to investigate on the gap of non-financial incentive packages and which financial incentive package dimensions had been not covered by other researchers. Thus there is a gap on the effect of non-financial incentive packages (status, organizational climate, employee participations and job security) on employee‟s performance and there is no research conducted at the study area in this topic. Therefore, the current researcher interested to investigate and compare the effect of incentive packages such as financial incentives (basic salary, bonus, profit sharing and perquisites) and non-financial incentive packages (status, job security‟s, organizational climate and employee participation) on employee‟s performance with reference of Omo and Vision Fund micro finance institutions in Wolaita zone. Based on the above stated problems the study attempts to address the following research questions: 1. How financial and non-financial incentive packages consistently distributed to all level employees in selected branches of micro-finance institutions in wolaita zone? 2. How does a financial incentive package affect the employee performance in selected branches of micro-finance institutions in wolaita zone? 3. How does a non-financial incentive package affect employee performance in selected branches of micro-finance institutions in wolaita zone? 6 1. 3. Objective of the Study 1.3.1. General objective The main objective of the study was to investigate and compare the effect of incentive packages on employee performance in selected branches of Micro- finance institutions (MFIs) at Wolaita zone. 1.3.2. Specific objectives of the study were 1. To determine the fairness and consistency of financial and non-financial incentive packages distributes to all level employeesinthe selected branches of MFIs in Wolaita Zone. 2. To examine the effect of financial incentive packages on employee performance in the selected branches of MFIs in Wolaita Zone. 3. To determine the effect of non-financial incentive packages on employee performance in the selected branches of MFIs in Wolaita Zone. 4. To provide alternative solution/recommendation/. 1.4. Significance of the Study The finding of this study was more significant to the business management, owners, and the private sectors. They were have an opportunity to measure the effect of incentive packages on employee performance and it also benefit to organizations weather private sectors to review their use of incentive packages on employee performance. On the other hand, the researcher, apart from being a compulsory research paper for fulfillment of Master Degree on Business administration is also vital to extend knowledge on finding solutions to various social, business, and private organization problems. In addition to that it is hoped that the study was provide important information and serve as secondary data for further research on the topic. 1.5. Scope of the Study The study was confined conceptually, geographically as well as methodologically. Conceptually; this study was only focused on comparatively investigate on the effect of incentive package on employee performance. Financial incentives (basic salary, bonus, profit sharing and Perquisites) and Non-financial incentives (status, organizational climate, employee participation and job security) are affects employee‟s performance. 7 Geographically, there are 15 branches of Omo micro-finance institution in the study area but this study confined only in six selected branches. Whereas, all six branches of Vision fund micro-finance institution were included in this study. Methodologically; this research is a descriptive survey and exploratory research i.e. based on the representative sample conclusion for the population was made. Additionally, the main source of this data could be questionnaire and secondary data. The questionnaire distributed to the employees‟ who work in the selected branches of micro-finance institutions. 1.6. Limitations of the Study. The mode of data collection was through drop and collect basis which was only expensive but also took long period of time. Most of the respondents were reluctant to participate in research and had to be really convinced by the human resource department to understand the essence of filling the questionnaire some of the respondents kept the questionnaire for too long and others failed to return at all while some could not fulfill the questionnaire that delaying data analysis. Also the given time span for the study was less to cover the whole area of share companies of the study effectively. Therefore there are many areas on which the study can be further worked upon. A study might be incorporating a range of additional incentive dimensions, which are related with financial and non-financial incentive package types, might have yielded a better understanding of its effect on employee performance. 1.7. Organization of the Study The study paper was organized in five chapters. Chapter one presents Introduction which includes, the background of the study, statement of the problem, research objectives, the hypothesis of the study, significance, scope of the study, and limitation of the study, Chapter two presents the literature review related to the topic under study it further presents the theoretical concepts, empirical literature studies and the conceptual framework of the study. Chapter three consists with the research methodology, which includes description of the study area, research approach, design, population, sample technique and sample size, data collection instruments, and data analysis method. Chapter four discusses the empirical findings of the study that includes data presentation, analysis and interpretation. Based on the findings of the study, the fifth chapter presents summary, conclusion and recommendation of the study. 8 CHAPTER TWO LITERATUREREVIEW 2.1. Introduction about the chapter and the topic Adequate incentives have been found to be one of the means through which organization can adopt to encourage and increase their workers‟ performance. There are many studies in the literature, which examine the monetary and nonmonetary incentives and their effects on organizational variables (Al-Nsour 2012; Scheepers, 2009). Incentives are designed to get the maximum performance from the employees and help retain the most productive among them (Arnold 2013). Organization can consider a variety of ways to reward the employees for their work performance, but an organization need to consider using the best employee incentives to get the desired results. Incentives are an instrumental drive towards employee motivation and performance and it has great benefits and high potentials to motivate workers to put in their best in any giving tasks (Condly, S.J, Richard E. Clark & Harold D. Stolovitch, 2013). Performance ensures that an individual employee or teams know what is expected of them, and stay focused on effective performance. Organizational performance takes many forms which may include increased productivity, increased diversity in regard to workforce mix, and retention of talent, increased satisfaction both for the employee and the customer, increased quality of service among many others (Cascio, 2009). Perception is the process people use to make sense out of the environment by selecting, organizing and interpreting information from the environment (Daft, 2000) .He contends that employee perception of any aspect of their employment will be a function of the intensity or repetitiveness of that aspect. 2.2. Incentives The incentive is a positive motivational influence on a person that helps improve his performance. Thus, it can be said that all the measures taken by the management to improve the performance of its employees are incentives. National Productivity Council (i.e. retrieved, 2014). Defined incentive as a measure stimulating human effort, whereby employees are driven to put in their best. Incentives are awards given for the accomplishment 9 ofpredetermined goals and are directly related to performance and has a positive influence on the employees‟ objectives and organizational success. According to Milton L. Rock, (2015), incentives are defined as „variable rewards granted according to variations in the achievement of specific results‟. According to K. N. Subramanian, (2017), „incentive is system of payment emphasizing the point of motivation, that is, the imparting of incentives to workers for higher production and productivity. The National Commission of Labour, Jacqueline Azari, (2009) defines incentive as follows: „wage incentives are extra financial motivation. They are designed to stimulate human effort by rewarding the person, over and above the time rated remuneration, for improvements in the present and targeted results‟ Incentives are used by organizations in order to reach certain goals, encourage a certain behavior and team-spirit for collective awards. Incentive systems are not universally applicable, but are likely to play a role in enhancing individual effort or employee commitment for attained their performance where the conditions and the incentive packages designed are right. Employee commitment can be shown that the effects of incentive packages on employee performance include: Involvement of employees in decision making, reduced turnovers, improved teamwork and cooperation, improved efficiency, employee satisfaction, attainment of targets and goals and finally improves the image of the organization. These results indicate that the employees had a positive perception that incentive packages leads to good employee performance (Bara E. Brahmantika, 2012). Organizations use different type of incentive packages to motivate employees. Incentives are designed to get the maximum performance from the employees and help retain the most productive among them. Incentives are divided into financial incentives and non-financial incentives which is also known as monetary or non-monetary incentive (Manjunath and Rajesh, 2012). 2.2.1. Financial incentive packages Monetary incentives are used by employers of labors to retain their best brains and as well compensate them for a job well done and excellence of job performance through monetary 10 form. In today‟s socio-economic condition money has become a very important part of our lives. We need money to satisfy almost all our needs as it has purchasing power. Thus, financial incentives refer to those incentives which are in direct monetary form i.e. money or can be measured in monetary terms. Financial incentives can be provided on an individual or group basis and satisfy the monetary and future security needs of individual. Money whether it is in the form of wages, piecework or any other incentive pay, bonuses, stock options, company –paid insurance, or any other things that may be given to people for performance is important. The way to ensure that money has meaning, as a reward for accomplishment and as a way of giving people pleasure from accomplishment, is to base compensation as much as possible on performance (Pamela, 2015). The most commonly used financial incentive packages are: 2. 2.1.1. Basic Salary Is the fixed or guaranteed regular monthly or annual gross payment made to employees; it varies between hierarchy of job positions, employees to employees and companies to companies. A salary is the basic incentive for every employee to work efficiently for an organization. Salary includes basic pay, dearness allowance, house rent allowance, and similar other allowances. Under the salary system, employees are given increments in basic pay every year and also an increase in their allowances from time-to-time. Sometimes these increments are based on the performance of the employee during the year Armstrong (2010). 2. 2.1.2. Bonus incentive Bonuses a payment on the accomplishment of planned specific objectives. The intent of this incentive pay is to influence certain behaviors towards the attainment of goals or set objectives. Once the objectives are met, the payment is made. It is a sum of money offered to an employee over and above the salary or wages as a reward for his good performance (Gomez-Mejia, 2014). 2. 2.1.3. Profit-Sharing Sometimes the employees are given a share in the profits of the organization. This motivates them to perform efficiently and give their best to increase the profits of the organization. Profit sharing is designed to pay out incentives when the company is most able to afford it and 11 it may come in the form of current distribution plan, deferred plan and combined plan. Gain- sharing Armstrong, (2009), emphasizes that gain-sharing is a formula- based company or factory wide incentive plan that provides for employees to share in the financial gains resulting from increases in added value or gain sharing plans on measures of plant productivity 2. 2.1.4.Perquisites Several organizations offer perquisites and fringe benefits such as accommodation, car allowance, medical facilities, education facilities, recreational facilities, etc. in addition to the salary and allowances to its employees. These incentives also motivate the employees to work efficiently (Marwan, 2012). 2. 2.2. Non-Financial Incentives Nonmonetary incentives are to reward employees for excellence job performance through opportunities. That means apart from the monetary and future security needs, an individual also has psychological, social and emotional needs. Satisfying these needs also plays an important role in their motivation. Non-financial incentives focus mainly on the fulfillment of these needs and thus cannot be measured in terms of money. However, there are chances that a particular non-financial incentive may also involve the financial incentive as well. For example, when a person is promoted his psychological needs are fulfilled as he gets more authority, his status increases but at the same time, he has benefitted monetarily also as he gets a rise in salary. Those incentives are based on respect of a human being who has feelings, hopes and aspirations. It could be in the form of participate in decision-making, training, career development (promotion) certificates of thanks and appreciation etc. (Marwan, 2012). The most common non-financial incentives are: 2.2.2.1. Status With reference to an organization, status refers to the position in the hierarchy of the organizational chart. The level of authority, responsibility, recognition, salary, perks, etc. determines the status of an employee in the organization. A person at the top level management has more authority, responsibility, recognition and salary and vice-versa. Status 12 satisfies the self-esteem and psychological needs of an individual and in turn, motivates him to work hard. (Marwan2012 2.2.2.2. Organizational Climate Organizational climate refers to the environmental characteristics of an organization that are perceived by its employees about the organization and have a major influence on their behavior. Each organization has a different organizational climate that distinguishes it from other organizations. Some of the factors that influence the organizational climate of an enterprise are organizational structure, individual responsibility, rewards, risk and risk-taking, warmth and support and tolerance and conflict. When the organizational climate is positive employees tend to be more motivated (C. Solbach Krauthammer, 2015). 2. 2.2.3. Job Security Job security provides future stability and a sense of security among the employees. The employees are not worried about the future and thus work with more enthusiasm. Owing to the unemployment problem in our country, job security works as a great incentive for the employees. However, there is also a negative aspect of this incentive that employees tend to take their job for granted and not work efficiently (Njoroge W, 2011). 2. 2.2.4. Employee Participation Involving the employees in decision making regarding the issues related to them such as canteen committees, work committees, etc. also helps in motivating them and inducing a sense of belongingness in them. Work decisions; an emphasis on communications and sharing of information relevant to plan performance; joint employee-management willingness to change plan formulas and measures as needed; cooperation among unions, employees, and managers in designing and implementing the group plan and tailoring plans to the smallest feasible group; and an economic environment that makes plan payouts feasible. Giving more autonomy and powers to subordinates also make them feel that they are important to the organization and in turn they serve the organization better (Marwan, 2012). 13 2.3. Importance of Incentive package (Michele, B and Rob, A. 2009). 1. Incentive package motivate workers for higher efficiency and productivity 2. It can improve the work-flow and work methods. 3. Incentive package make employees hardworking and innovative. 4. When employees are dedicated, supervision costs can be reduced. 5. The National Commission on Labour says that under our conditions, wage incentives are the cheapest, quickest, and sure means of increasing productivity. 6. Incentive package help establish positive response in an organization 7. It helps workers improve their standard of living. 8. Other benefits offered by incentive package are Keep employees happy, encourage teamwork, build trust with employers, reduced turnover, reduced absenteeism, and reduced lost time (M. Abadi, 2017). 2. 4. Effects of Incentive package The effects of incentive plan as emphasized by Rajkumar (2009) can be organized under the following categories Promoting Teamwork: Incentive plans tied to teamwork or group initiatives can help promote collaborative work efforts in your business. Staffers working in teams that collectively rely on each other‟s' productivity for the group to receive a bonus or award may support and encourage each other to perform at top levels. Peer pressure may also encourage additional degrees of performance from underperforming staffers who don't want to let their team members down. Psychological effect or morale Boosters: Incentive plans have the potential to raise morale and increase job satisfaction in a company. Employees see a direct correlation between their work effort and their earning potential. Higher workplace morale can decrease turnover, which saves your company money associated with recruiting, hiring and training new staffers. Additionally, staffers with high levels of job satisfaction often exhibit lower degrees of absenteeism, which can also help improve a company's bottom line. 14 Effect of Service Levels: Employees competing for or striving to meet the goals of an incentive plan may provide higher degrees of service to your customers. This can encourage repeat business, improve customer satisfaction and enhance your company's reputation. Improved service levels can also encourage referral business as well as positive word-of- mouth advertising. Economic effects: Greater productivity outcome from incentive plans will lead to lower consumer cost, increased purchasing power, and improved living standard of the employees. Incentives also encourage the employees to offer suggestions for improvement, discover different tools, methods, and equipment for more efficient operations to increase productivity and profitability. 2. 5. The concept of employee performance Development of organizations relies on various factors that are meant for improving sustainability in relation to the effectiveness of an organization. When productivity is improved, the commitment of workers is as well improved because the values of an organization, its culture and also the norms improve (Brooks, 2016). As cited in (Pettigrew, 2009). Employee‟s basis regarding norms and values on the management of a particular organization aids in the improvement of the performance of employees. Quality awareness leads to improved employee as well as organizational development. Performance as a concept has earlier on been understood in different ways by various academicians and researchers; however, the majority of scholars have always related performance with transactional efficiency dimension and the efficiency of an organization towards achieving its goals (Berne, 2011). An employee‟s job is put together by the degree to which an employee achieves targets as per the definition of the organization‟s mission, which in turn gives the definition of performance boundaries Performance as demonstrated behavior or something that is done by employees for the performance of an organization, and the assessment is effected via the outcome of performance that is operational in relation to sales, turnover, income, volume in addition to shareholders dividend that has been declared by an organization, the quality and service quantity. In this regard the performance on job as a concept cannot be termed as a concept that is singly unified, rather, a concept having numerous viewpoints that contains a variety of behaviors. 15 For instance industries dealing with services produce goods that are insubstantial and services quality has its predictions done according to the performance that is immediate from employees that are in service. Thus, the conclusions based on these arguments are that the performance on job is obtained via employees efforts (O‟Hara, 2011). Aktar, Sachu, & Ali, (2012) a good reward system that focuses on rewarding employees and their teams will serve as a driving force for employees to have higher performance hence end up accomplishing the organizational goals and objectives. A reward system that is given for high performance is more effective in inducing high performance in the future than a reward that is not dependent on performance. According to Njanja, et.al (2013), many writers in human resource management suggest the following indicators for measuring employee performance and they include: quality that can be measured by percentage of work output that must be redone or is rejected; Customer satisfaction that can be measured by the number of loyal customers and customer feedback. Also, timeliness, measured in terms of how fast work is performed by the employee when given a certain task; absenteeism/tardiness observed when employees absent themselves from work; and achievement of objectives measured when an employee has surpassed his/her set targets, he/she is then considered to have performed well to achieve objectives 2. 6. Employee Perceptions According to Daft (2009), perceptions are the way people organize and interpret their sensory input, or what they see and hear, and call it reality. Perceptions give meaning to a person„s environment and make sense of the world. Employee perception is a factor that can make a huge difference in the quality of the workplace. When employees view the employer, their work, and their relationships within that workplace as being positive, there is a good chance the employee will be productive and remain with the employer for a long time. Negative perceptions of the company and the working environment can cause qualified employees to seek opportunities elsewhere. Concerns about the accuracy of management Perception of a direct link between pay and individual productivity will motivate employees to higher levels of performance. Perception of employees is influenced by internal and external factors leading them to see some perceived objects, persons or events differently. External factors could include size, 16 intensity, contrast, repetition, motion, novelty, status and appearance. Internal factors in perception are characteristics of the perceiver. The perceivers have a tendency to use themselves as a basis for perceiving others, events, etc. Internal factors that can influence perceptions of employees are needs and motives, past experiences, self-contest and personality (Nzuve, 2009). 2. 7. Ways of Measuring Employees’ Performance According to DavidHekala (2010) the performance measures can be grouped into six general categories those are; 1 The effectiveness examines the degree to which the process output.(work product ) conforms to requirements.(Are we doing the right things? ) 2 The efficiency indicates the degree to which the process produces the required output at the minimum resources cost (Are we doing things right? ) 3 Quality aspects checks on the degree to which a product or service meets customer requirements or expectations. 4 The timeliness aspects measures on weather a unit of work was done correctly and on time. 5 The productivity checks on the value add by the process divided by value of labour and capital consumed. Productivity is a performance measure encompassing both effectiveness and efficiency (Muindi .M, 2012). 6 Safety measures the overall health of the organization and the working environment of its employees. 2. 8. Performance indicators According toNeedles& powers (2009) Performance indicators are ratios, numbers and activities which used as a pointer to evaluate performance from different perspectives. The researcher selects two performance indicators in each perspective those have strong power to explain the performance of MFIs. 2.8.1. Financial Perspective The financial category often uses conventional big-picture, long-term validate metrics that are traditional for ultimately measuring economic success. 17 2. 8.1.1. Adjusted Return on Asset (AROA) Return on assets is a measure of profitability that shows how efficiently a company uses its assets to produce income (Needles & powers 2009). It is also an overall measure of profitability which reflects both the profit margin and the efficiency of the institution. 2. 8.1.2. Adjusted Return on Equity (AROE) Return on equity is a measure of profitability that relates the amount earned by a business to the stockholders‟ investment in the business (Needles & powers 2009). The return on equity (ROE) Ratio provides information on how much net income was earned on the equity of on micro-finance institutions.2. 8.1.3. Operating Self Sufficiency (OSS) Operating Self Sufficiency measures operating revenue as a percentage of operating and financial expenses including loan loss provisions expense. If OSS ratio is greater than 100% that MFI is covering all of its costs through own operation and it is not relying on contribution or subsidies from donors to survive Churchill &Frankiewicz (2010). 2.8.1.4. Portfolio at Risk > 30 Days (Par) The most widely used measure of portfolio quality in the microfinance industry is Portfolio at Risk (Par), which measures the portion of the loan portfolio infected by amount overdue as a percentage of the total portfolio. A microenterprise loan is typically considered to be at risk if a repayment remained due for more than 30 days (Jonson et al. 2013). 2.8.1.5. Ration of Operating Expense to Loan (ROEL) ROEL is the most widely used indicator of efficiency. It allows a quick comparison between MFIs portfolio yield with its personnel and administrative expenses, how much it earns on loans versus how much it spends to make and monitor them (Rosenberg 2009). ROEL ratio is calculated by dividing all expenses related to the operation of MFIs including all the administrative and salary expenses, depreciation and board fees by the period average gross portfolio, interest and provision expenses (Wolday&Anteneh 2013). 18 2.8.2. Non-Financial Perspectives Under this performance perspective four performance indicators are stated. Unlike the financial performance indicators the non-financial performance indicators may not be stated as a proxy for one single performance dimensions instead they may create a cause and effect relationship. For instance increasing number of clients and serving higher number of women in the institution can implicate the breadth and depth of outreach and the satisfaction of these clients also show the productivity and effectiveness of employees besides serving high number of clients lead to financial performance. So, the selected performance indicators under this perspective have a power to affect the selected performance dimensions directly or indirectly (Olasupo& A. Afolami 2013). 2.8.2.1. Percentage Change in Number of Clients (PCNC) The production approach considers microfinance business as firms that provide services for their clients; hence their outputs could be best measured by the number of clients (Olasupo& A. Afolami 2013). The main customers of MFIs are the poor who are in need of financial service. Having this theoretical view it can be argued that, increase in total number of clients implies that more people are offered financial service with potential welfare impact. Thus, increasing outreach (customer base) can be viewed as measure of a MFI performance linked with main strategic objective of serving the poor. 2.8.2.2. Percentage of Women Borrowers (PWB) Achieving only higher customer base may not guaranty to higher outreach since it only show the breadth of outreach. Beside breadth of outreach, depth of outreach should have a good look if the microfinance addressed the underserved and marginalized as well. i.e. .Financial services to low income clients Some MFIs achieve deeper outreach by targeting the client the most vulnerable groups, such as women and/or people with very low income Matthew Brown (2015). 2.8.2.3. Percentage Change of Voluntary Saving (PCVS) On the whole, micro savings are grouped into two main types: compulsory and voluntary. Compulsory savings (forced savings) is defined as the minimum amount of savings which conditions borrowers‟ access to loans, and can be seen as a collateral substitute imposing a 19 positive inducement for repayment. On the other hand voluntary savings (flexible savings) allows borrowers as well as non-borrowers to deposit or withdraw according to their needs Montgomery (as cited in Bruno 2011). Voluntary savings assumes that savings and credit are integral components of financial intermediation and that savers already know why and how to save Robinson (2001). So with understanding the higher the voluntary saving means the higher the institution perform in this indicator. 2.8.2.4. Customer Satisfaction (CS) Customer satisfaction is one of the most important and commonly used performance reporting measures under the customer perspective. Satisfied employees‟ improved customer satisfaction leads to loyal customers and increased market share, which directly affect the bottom line (BSCI 2012). Customer satisfaction can be seen from different point of view i.e. the accessibility of the institution, the time that loan application process need, the amount of the loan they can get, the interest rate charged on loan and provided on deposit, the time they have to pay back the loan, the approaches of the staffs to the client and effective service delivery, and the like. 2.9. Empirical Review Literature Incentive is used by various organizations to compensate and reward performance of employees who perform more than expectation (Waterloo & Ontario, 2009). The literature shows factors like security of job, employee participation, and organizational climate as directly influencing performance of employee (Tesfaye and Debela, 2009). The research conducted by Mirea result shows the companies reward should consider the profit of the specific company Moreover; the incentives /financial and non-financial incentives/ must be closely linked to the performance. For this, it is required to the managers: 1. To follow the additional reasoning leading to the better performance; 2. Remember that additional resources allocated to the incentives do not mean solving of the automatic problem; rather than they have to consider correctly allocating of these resources and the permanent relationship between incentives and performance Mirea (2012). Nawab&Bhatti (2011) conducted research on influence of incentives such as profit sharing, different types of allowances, status, organizational climate on employee performance 20 (productivity and effectiveness). In their research attention was drawn on the role of each component of financial & non-financial reward towards employees performance, which they can implement and increase their practices to maximize the employees contribution and production. The study conducted by Surafel G/TSadik (2017) investigated the effects of pay/salary/ and bonus incentives on employee performance with respect to employees in the Zemen banks s.c. An empirical investigation result shows by using a sample of (160) employees drawn using the systematic random sampling technique. The findings of the study indicated pay /salary and bonus are direct relationship with employee performance The research of Saba Salem revealed positive and significant association between financial incentives and employee commitment for performance and increase in financial incentives such as salary increment and bonuses enhanced employee commitment which increases the employee‟s performance and reduces turnover and employees can only be loyal when their wants and desires satisfied Saba Salem (2011). A journal research conducted by Falola Hezekiahl (2014) show that the researches adopted on a descriptive research method and using stratified and systematic sampling technique for the study. The results show that strong relationship exists between incentives packages /financial incentives /bonus profit sharing and non-financial incentive packages /organizational climate and employee participation/ on employees‟ performance but the employees‟ are not satisfied with the present incentive package in government Parastatals in Ogun State, South-West, Nigeria .Folola Hezekiahl et.al (2014). A research conducted by Peter K. result shows that reward such as basic salary, bonus, profit sharing, status and job securities are a major motivational incentive factor for employees‟ performance Peter (2012). A research conducted by TesfayeFantu in Niyala motors‟ s.c. the results show that there is high relationship between financial incentives on employee performance and moderate relationship between non-financial incentives on employee performance and has a high positive significant effect of incentives on employee performance within the company; to improve employees work performance TesfayeFantu (2018). 21 According to Dr. Ashraf Mohammed (2014) in his thesis the result shows incentives, such as bonus, profit sharing, perquisites, employee participation those four factors found to have significant impacts on employee performance in Jordanian travel and tourism institution To summarize, the key practical messages of the effect of incentive package on employee‟s performance as Armstrong (2009) described that, financial incentives provided by employers in the form of pay will help to attract and retain employees and for limited periods, may increase effort and minimize dissatisfaction. Non-financial incentives related to responsibility, achievement and the work itself may have a longer-term and deeper impact on employee performance. Incentive package should therefore include a combination of financial and non- financial rewards. 2.10. Conceptual Framework Incentive packages are designed to encourage performance of individuals. Regardless of the incentive forms, incentive packages play an active role in pushing forward individual‟s capacity and moving abilities, motivating them to develop their skills and balance between organization requirements and the individual needs‟ which enhance the employee performance efficiently and effectively. According to (Armstrong & Taylor, 2014) financial incentive works when a link between effort and reward is clear and the value of the reward is worth the effort. According to Herman son et.al (2006) the researcher aimed at exploring the system at which the financial incentives are to be provided to the staff. They come up with conclusion that the expectation of individual employees will determine how much the employees should be award with the financial incentive packages. In their exemplifications try to relate the system with the institution were by the employees awarded according to the performance.. The conceptual framework of the study specifies the nature of the study, which is departed in the diagrammatic form of Figure 1. According to the model Financial and non-financial incentive packages are an independent variable of the study. It is therefore subjected to be provided to the employees so as to influence performance in the institution under which the researcher has decided to conduct the study. The variable has its elements like basic salary, bonus, profit sharing and perquisites and non-financial incentive packages like status 22 organizational climate, job security and employee participation as a result of best performance of an individual employee Employees‟ Performance (EP) is a dependent variable of the study. It is therefore depends much on the driving force of financial and non-financial incentives packages, where if it well provided to the employees leads into better performance of the employees in the institutions under which the researcher has decided to conduct the study, variable has got its elements like productivity and effectiveness of employees. The independent and dependent variables are link together through the combined and measureable effects (increase employee performance, increase productivity and effectiveness) of the employee in order to enhance theirperformance in the institutions. Independent variable is the driving force toward the dependent variables where the outcomes become the better fruit of the employees and the institution. Based on the above explanation of what different authors have said about the employees and the incentive packages, it is shown that factors of financial and non-financial incentive packages have great impact on employees performance of any institution, thus it is imperative for the researcher to show how the activities get done through incentive packages in selected branches of MFIs in achieving high institutions returns. During the reviewing of the employee performance, the following questions to be raised; Are they effective? Are they efficient? Are they learning and improving? Therefore dozens of factors to measure when trying to answer these three questions .There are a few used one of the most important to consider employee productivity and effectiveness According to Hat ice, (2012), and Gohari, et.al, (2013) others on their studies includes the issue of employee perception and expectations but this research try to conduct by the issue of productivity and effectiveness of the employees. Productivity is the ratio of output or production capacity of the workers in an organization. The ultimate essence encourage the employees is to meliorate productivity. An effective employee is a combination of a good skill set and a productive work environment. The institution relay on employee to produce and deliver high quality products and services. Employees are impacted by a variety of forces both internal and external as they attempt to perform their job duties. This is directly related to productivity. Meeting personal goals helps 23 an employee stay motivated and feel about them to continue to produce by improving proficiency and employee connection. Employee satisfaction helps to improve employee performance and thus achieving organizational goals. Employee effectiveness is an extent up to which an individual fulfills its goals using certain resources and with placing strain on its members. It helps to ensure the operative use of HR gratification of employees, mutual consistency, durability of work force and it brining about job satisfactions. Fig 1 conceptual frame work of the study Source: The study adopted with some modification from (Armstrong & Taylor, 2014) Financial incentive packages  Basic salary  Perquisites  Profit sharing  Bonus Non-Financial Incentive packages  Status  Job security  Employee participation  Organizational climate  Career advancement opportunity Employee performance  Productivity  Effectiveness 24 CHAPTER THREE RESEARCH METHODOLOGY 3. 1 INTRODUCTION This chapter describes description of the study area and the research methodology used in this study. It contains information about the research design, research approach, target population, sampling techniques, sample size, data sources, data collection instruments and data processing and analysis. 3.2 Description of the study area Omo micro-finance institutions (OMFIs) approved by the Ethiopian Government according to proclamation No. 40/96, which established the licensing and supervision of microfinance institution as a share companies in accordance with the commercial code of Ethiopia. The same as that Vision fund micro-finance institution (VFMFI) has been in operation since 1999 as regulated and legally registered micro-finance service provider in Ethiopia, The primary and main objective of both Omo and Vision Fund micro finance institutions are to provide a large scale sustainable rural focused credit and saving services to poor society or community in order to overcome the financial constraints and expand job and economic opportunity. MarcandRamya, (2009), Micro-finance institutions (S. Cs) in Wolaita Zone where is located in SNNPR state 329 km far from the capital city of Ethiopia and 162 km far from Hawassa. Wolaita zone is composed of 16 rural woredas and 6 Town administrations in addition to new formulated woredas and Town administrations. Omo micro-finance institution has totally 15 branches are there; for this study case in six selected branches have a total number of 108 employees are used for the study, the same as that Vision fund micro-finance institution S. C s in Wolaita zone has six branches are there and in those six branches total number of 85 employees are used for this study. The internal organization of MFIs consisting of four work positions (Auditors; finance or accountants, operations and supportive staff or tailor) that enables the company to give the best service to its customers. Thus, those branches of MF institutions are to provide such service delivery in efficient and effective way, to retain satisfied customer and to boost 25 success of the organization, it is important to attract, motivate and retain talent workforce in the organization. (Institution report, 2018) 3.3 Research Design The studyemployedas descriptive survey and explanatory. Those designs were appropriate for the study, because data generated from both quantitative and qualitative, that describe the characteristics of the population “what exist” with respect to variables or conditions in a situation, also it is used to understand how people act in real-life situation According to Kothari, (2004), descriptive survey designs are concerned with describing, recording, analyzing and reporting good conditions that exist or existed. It also argued that descriptive methods are widely used to obtain data useful in evaluating present distribution and providing basis for relationship between variables. In line with the explanatory research design, the main aim: is to identify the reasons that links between the factors or variables that pertain to the research problem. 3.4 Research approach The study adopted as both quantitative and qualitative study approach those were describes the nature of incentive packages of present distribution and characteristics of the effect of incentive package on employee performance. According to Burns and Grove (1993), quantitative survey is the most appropriate to use if the purpose of an investigation is to describe the degree of relationship which exists between the variables. Besides, it also helps in examining and describing the interactions among those variables. Whereasqualitative research approach is used to provide a more complete picture of evaluation and understand behaviors. Thus, both approaches are determined by the fact that has attempted to answer questions about the present distribution of incentive package and its relationship between employee performances. 26 3.5 Population and Sample 3.5.1 Target Population The study populations were comprised of 85 employees of total six branch of vision fund micro-finance institution and 108 employees in six selected branches ofOmo micro-finance institution in Wolaita Zone were chosen as a unit of analysis for this study (Zone HR department report, 2019). The target population of employees were used for this study consisted within six selected branches of each institutions (Sodo, Humbo, Areka, Badessa (Damotewoide), Bodit, and Gasuba/Ofa/) arelocated in wolaita Zone. The specific selection of branches from Omo micro-finance institution based on purposive selection limited on the same geographical location of both branches of the institutions where existed in operation to comparing the present distribution and effect of incentive package on employee performance, whereas Vision fund micro-finance institution total branches were included in this study. 3.5.2 Sample Size Sampling size is used to represent characteristics of the targeted population. The researcher was used to probability sampling. Thus the study applied proportional stratified random sampling technique to select a sample of 84 respondents for OMFI and 70 respondents for VFMFI, in which the population are divided into groups. In proportional stratified random sampling, the strata (groups) are formed based on members' shared attributes or characteristics. Its advantages include minimizing sample selection bias and ensuring certain segments of the population are not overrepresented or underrepresented showing sample. According to Dempsey (2003) proportional stratified random sampling is considered appropriate since it gives respondents an equal chance of being selected as a study respondent and this it has no bias and easily to generalize the findings. Proportional stratified random sampling was used to a group of respondents into four strata‟s namely ;( auditors, customer service officer or operation, accountant and taller or supportive staff/) Omo micro-finance six selected branches have 108 employees (population/) and Vision micro-finance totally six branches have 85 employees (population) in Wolaita Zone. Therefore, based on these population the researcher was used the following formula to determine the sample size. 27 Because the following formula has two advantages: First it measures the acceptable error. Second it is easy to use the formula n= Z2.P.q.N/e2 (N-1) +Z2.P.q Where p = sample proportion e = acceptable error q= 1-p Z=value on standardized normal distribution curve corresponding to the level of significance. N = number of total population n = sample size required. C.R.Kothari (2004) the researcher assume that 95% confidence and 5% acceptable error which means Z=1.96 and p=0.5 q= 1-0.5=0.5 N =108 and 85 Omo micro- finance and Vision fund micro-finance respectively, thus the total population was 193 Table 3.1 Sample sizes of Omo micro-finance institutions n=1.96 2 *0.5 2 *108/0.05 2 *(108-1)+1.96 2 *0.5 2 =103.7232/1.2279 = 84.47 = 84 (approximately) N o Branch es P0sition /Department Auditors Accountant Operations H/resource and others p o p u la ti o n em p lo y e e P er ce n ta g e S am p le si ze P o p u la ti o n P er ce n ta g e S am p le si ze P o p u la ti o n P er ce n ta g e S am p le si ze P o p u la ti o n P er ce n ta g e S am p le si ze P 0 p u la ti o n P er ce n ta g e S am p le si ze 1 Sodo 1 1.2 1 7 6 5 6 6 5 4 3.6 3 18 16.8 14 2 Areka 1 1.2 1 7 6 5 4 3.6 3 5 4.8 4 17 15.6 13 3 Bodit 2 1.2 1 8 7.2 7 4 3.6 3 5 4.8 4 19 16.8 15 4 Humbo 1 1.2 1 7 6 5 5 4.8 4 5 4.8 4 18 16.8 14 5 Ofa 1 1.2 1 7 6 5 5 4.8 4 5 4.8 4 18 16.8 14 6 D/Woyde 1 1.2 1 7 6 5 5 4.8 4 5 4.8 4 18 16.8 14 Total 7 7.2 6 43 37.2 32 29 27.6 23 29 27.6 23 108 100 84 Source: Omo MFI, 2020) 28 Table3. 2 Sample sizes of Vision Fund micro-finance institutions n=1.96 2 *0.5 2 *85/0.05 2 *(85-1)+1.96 2 *0.5 2 =81.634/1.1704 = 69.75=70 (approximately) N o Branche s Position / department/ Total Auditors Accountant Customer service Tailor P o p u la ti o n P er ce n ta g e S am p le p o p u la ti o n P er ce n ta g e S am p le P o p u la ti o n P er ce n ta g e S am p le P o p u la ti o n P er ce n ta ge S am p le p o p u la ti o n P er ce n ta g e S am p le si ze 1 Sodo 2 2.9 2 1 1.4 1 9 10 7 4 4.3 3 16 18.6 13 2 Areka 2 2.9 2 1 1.4 1 9 10 7 3 2.9 2 15 17.2 12 3 Bodit 2 2.9 2 1 1.4 1 9 10 7 3 2.9 2 15 17.2 12 4 Humbo 2 2.9 2 1 1.4 1 8 10 7 3 2.9 2 14 17.2 12 5 Gasuba 2 1.4 1 1 1.4 1 8 10 7 2 2.9 2 13 16.2 11 6 Bedessa 2 1.4 1 1 1.4 1 7 8.6 6 2 2.9 2 12 14.3 10 Total 12 14.4 10 6 8.4 6 50 58.6 41 17 18.8 13 85 100 70 Source: Vision Fund MFI Report, 2020 3.5.3 Sampling technique Sampling is the process of choosing representative portion of the entire population (Wireman, 1995). The selection of six branches, out of 15 total branches of Omo MFI, in the study area by using purposive selection method because of the other only one MFI (Metemamen MFI) is newly emerged MFI due to the relevancy of the study. Thus, both ofOmo and Vision Fund MFIssixselectedbranchesare operating in the same towns. It helps to make comparative analysis between both selected branches of Omo and Vision Fund MFIs to measure the extent of employees‟ performances and other related performance indicators which result due to productivity and effectiveness of their employees. In order to take manageable number for the study, depending on this fact, proportional stratified random sampling technique was applied for the study, which is on the basis of their location, was used to get information from 29 employees who work in both micro-finance institutions. This technique is preferred because it is used to assist in minimizing bias when dealing with the population. With this technique, the sampling frame can be organized into relatively homogeneous groups (strata) before selecting elements for the sample. According to Janet (2006), this step increases the probability that the final sample was representative in terms of the stratified groups. 3.6. Source of Data This study incorporates both primary and secondary data. 3.6.1 Primary Data Primary data was used for better understanding of the issue under the study and were collected from respondents selected branches of micro-finance institution who was assume to give firsthand information on the subject under study. The self-administered survey questionnaire was used to collect the data from the respondent‟s .Before beginning actual data collection; the researcher was give awareness to the staff members with regard to the purpose of the research. Kothari, 2004).The researcher obtained the primary data in this study because all information received directly from the staff themselves. For that reason the information extracted the truth about the problem, and makes it to be meaningful and useful. 3.6.2 Secondary Data Secondary data was gathered from sources like; annual reports, journal articles, internet, magazines, and books related to the subject of the study. These are consulted at length exact the information required to support the finding from the studies respondent 3.7. Data Collection instruments Kothari, (2004); pointed out that for the descriptive and explanatory study, the survey data method of collecting data were needed. A survey is a research techniques in which information are gathered from a sample of people using a questionnaire. In this study the questionnaires used to solicit responses from subjects The questionnaire included both close-ended and open-end question items based on the objectives of the study, the research questions and points raised in the review of related literature by comprising four parts. Part A covered demographic characteristic of employees. 30 Part B was consisting of questions for the consistency distribution of incentive package and the effect of incentive packages on employee performance to the organizational employees. Which was measured by using Likert scale while Part C was contain questions relating to measure the level of employee performance using Likert scale type. Likert scales usually give the respondents a wide range of statements emerging from the literary discussion, where they are expected to always to never and strongly agree to strongly disagree. Part D The open- end questionnaire for organizational employees is crucial in ensuring that the study objectives are comprehensively evaluated. 3.8. Data Collection method The questionnaires were self-administered to the respondents by the researcher on hand delivery and given enough time to fill them, and then collected the complete questionnaires after a few days. The advantage of this method is that the researcher had the opportunity to personally introduce the study to the respondents and explain to them the intentions of the study, as he also clarified anything regarding doubts that may arise during the study. 3.9. Validity of the Instruments Validity of the research instrument is the ability of an instrument to measure what it is designed to measure. According to Kumar (2005), the judgment that an instrument is measuring what it is supposed to primarily based the logical link between the questions and the objectives of the study. In this study, triangulation was used to enhance data validation. The researcher conducted discussion with business administration experts and senior researchers to verify face and content validity of the questionnaires. They assessed the relevance of the content used in the questionnaires and necessary modifications were made based on their feedback. Content validity of research instruments is judged by the researcher and experts in the field (Kumar, 2005). To further establish face and content validity of the research instruments, the researcher carried out twelve questionnaires distribute for respondents as a pilot study. The pilot study tested data collection and analysis procedures, clarity of the responses and the research as assistants and ensured that the research instruments were not only valid but captured the required data. During the pilot study, the researcher visited the selected MFIs and reported to the manager office to seek authority to administer the questionaries‟ to the employees. The pilot study was 31 carried out to determine the difficulty level of the questions and to check the weaknesses and clarity of the questions. In doing so, the discussions were held with business administration experts and senior researchers in verifying face and content validity of the questionnaires that the instruments could be used to solicit information for the study. Also, based on the results of the pilot study, the instruments were refined by modifying or eliminating inappropriate items. 3.10. Reliability of the Instruments Reliability of a research instrument is the degree of accuracy or precision in the measurements made by the research instrument (Kumar, 2005). Therefore, a measuring instrument is reliable if it provides consistent results (Kothari, 2004). The researcher conducted pilot study with four work positions (divisions) in order to determine the level of the reliability of the instruments The internal consistency of the questions measuring the distribution of incentive packages, (financial and non-financial incentives) and employee performance were presented in Table 3 below. Table3. 3, Reliability of the Research Instruments Variables Cronbach's Alpha No. of Items The consistency and fairness distribution of incentive packages 0.876 8 Financial Incentives 0.764 16 Non-financial Incentives 0.71 16 Employees performance 0.836 10 To determine the reliability of the questionnaire, the researcher used Cronbach's Alpha value to compute the reliability Cronbach's Alpha value of the questionnaires. The Cronbach's Alpha value for the distribution of incentive packages 0.876, financial incentives 0.764, non- financial incentives, 0.71 and employees‟ performance 0.836 respectively .These indicate that all scales had internal consistency and were therefore reliable for use. These were accepted as good indications of reliability. According to Fraenkel and Wallen (2002), an alpha value of 0.7 is considered suitable to make inferences that are accurate enough. 32 3.11. Method of Data Analysis Data analysis is the process of bringing order, structure and meaning to the mass of information gathered. Data collection through closed end, open ended questions & document evaluations were analyzed by using narration. After collecting all the necessary data, these data were coded and edited, analyzed and rephrased to eliminate errors and ensure consistency. Data collected from the respondents were entered into a computer and analyzes with the use of statistical packages for social scientists (SPSS) Version: 20, which assisted to summarize the coded data and expedited data analysis. Data collected from the questionnaires was carefully analyze, summarized and interpreted by using both descriptive and inferential statistics. Descriptive Statistics (percentages, mean and standard deviation) was used to analyze data obtained. Data collected from the field is coded on the computer coding sheets and were presented in tables The descriptive statistics include frequencies, valid percentages, means and standard deviation. These are used to present the demographic characteristics of the respondents and incentive package practices part of the questionnaires in a summarized manner. Inferential statistics is computed and used to come up on conclusion on how representative is the sample to tale about the relations between financial and non-financial incentives (independent variables) with employee performance (dependent variable) was made by using Pearson product- Moment Correlation Coefficient and Multiple regression analysis to investigate and compare the degree and character of relationships between a dependent variable and independent variables. Estimated regression coefficients indicate the relative importance of each independent variable in the prediction of the dependent variable in both MFIs. Findings were presented in tables discussed. The objective testing was conducted at 99% confidence intervals and eventually, findings, conclusions and recommendations are drawn from the entire population. 3.12. Ethical Consideration The researcher was used data from employees which are collected through self- administer questioner; as per permission is obtained from employees. To maintain confidentiality, the respondents were informed that the information they provide are confidential and used only for academic purpose. The respondents were informed not to write their names on the questionnaire. The data that are collected is kept confidential and the researcher was try to work on the paper with standard professional ethics. 33 CHAPTER FOUR DATA ANALYSIS, INTERPRETATION AND DISCUSSIONS In this chapter, the collected data through questionnaires is presented, analyzed and interpreted. 154 questionnaires were distributed to each of six selected branches of Omo and Vision Fund MFI, out of these questionnaires, 142 were filled properly. As a result, the overall response rate was 92.2 percent. The questionnaires were distributed and collected within one month (from March 07, 2012 to April 06, 2012 E.C.). Under this section the back ground and characteristics of respondents, the result of questionnaires and findings are discussed. 4.1 Demographic profiles of the respondents Below, the demographic profiles of the participants are analyzed based on the variables sex, marital status, and age, level of education, job categories/classification, service year and monthly income. Table 4 .1 Demographic distribution of respondents Variables Description Frequency Percentage Gender Male 110 77.46 Female 32 22.54 Total 142 100 Marital Status Single 7 4.9 Married 133 93.6 Divorced 2 1.5 Others - - Total 142 100 Age 18-25 years 3 2.1 26-30 years 50 35.2 31-35 years 39 27.4 36-40 years 35 24.8 41-45 years 11 7.7 34 50 and above 4 2.8 Total 142 100 Division Auditors 14 9.9 Operation/customer 60 42.3 Accountant/finance 32 22.5 Supportive/taller 36 25.3 Total 142 100 Tenure Less than 1 year - - 1-3 years 19 13.4 4-6 years 55 38.7 7-9 years 68 47.9 10 and above - - Total 142 100 Education Diploma 24 16.9 1 st degree 112 78.9 MBA/MSC 6 4.2 PhD - - Total 142 100 Monthly Income below 5,000 24 16.9 5,001-10,000 112 78.9 10,001-20,000 6 4.2 Total 142 100 As depicts in table 4.1 about 77.46 %( 110) respondents are male and the rest 22.54 %( 32) respondents are female, based on this fact, male participants by far the majority (142) when compared with female participants. Regarding marital status, 4.9 %( 7) are single, 93.6 % (133) are married and 1.5 % (2) is divorced. The other demographic variable to be considered in this study is age, in table 4 above 35.2 % (50) respondents aged between 26-30 years, this clearly showed most of the respondents were 35 young ,consequently, it is vital for the MFI incentive planners to design appropriate reward strategy in order to retain this young labor force to achieve organizational objectives. Respondents aged between 31-35 is 27.4 % (39), respondents aged 36-40 is 24.8% (35), respondents aged between 41-45 is 7.7 % (11), respondents aged 50 and above 2.8% (4) and the respondents were aged under 18-25 years is 2.1% (3). Table 4 also reveals that customer service officer dominate the sample with 42.3 % (60) respondents, whereas 25.3 % (36), 22.5 % (32) and 9.9 % (14) respondents have a position supportive/taller/, accountant or finance and auditors respectively. In table 4.1 the length of service year of the respondents reveals that almost half of the respondents that is 47.9 % 68) they have been working in the MFI between 7-9 years, 38.7 % (55) respondents they have been working between 4-6 years, from the total respondents 13.4 % (19) of them they have been working between 1-3 years and none of the respondents working less than 1 year and above 10 years in the organization. On the basis of educational qualification, majority of the respondents 78.9 %( 112) were degree holders. This implies that most of the respondents are educated and have a good insight about reward systems, the rest 16.9 %( 24) and 4.2 %( 6) respondents were diploma and MBA/M.SC holders respectively. No respondents were a PhD. holder. Finally, in the above table 4.1, 16.9% (24), 78.9 % (112) and 4.2 % (6) have monthly income below 5, 000, between 5001-10,000 and 10,001-20,000 respectively, this implies that monthly income is less to see the open market salary scale specifically within Omo micro-finance institution 36 4.2. Fairness and consistency of incentive packages which distributed in micro-finance institutions Table4.2. Fairness and consistency of incentive packages which distributed in micro- finance institutions Types of incentive packages MFIs Always Usually Sometim es Rarely Never Total F % F % F % f % F % f % Level of basic salary Omo - - - - 70 92.1 6 7.9 - - 76 100 VF 50 75.8 10 15.1 6 9.1 - - - - 66 100 Bonus Omo - - - - 71 93.4 - - 5 6.6 76 100 VF 55 83.3 - - 11 16.7 - - - - 66 100 Profit sharing Omo - - - - - - - - 76 100 76 100 VF - - - - - - - - 66 100 66 100 Perquisite pay Omo - - - - 4 5.3 - - 72 94.7 76 100 VF 54 81.8 8 12.2 4 6 - - - - 66 100 Status Omo - - 10 13.1 60 79 6 7.9 - - 76 100