TESTING MEDIATING EFFECT OF JOB SATISFACTION ON THE RELATIONSHIP BETWEEN REWARDS AND EMPLOYEES’ LOYALTY Mrs. Shanthakumary Milroy Christy Mahenthiran Aloysius Head, Dept. of. Human Resource Management, Faculty of Management Studies & Commerce, University of Jaffna, Sri Lanka
[email protected] Mobile Phone :00940771335673 Abstract The present study analyzed the impact of Job satisfaction on the relationship between rewards and loyalty among the life insurance sales staff in Jaffna district. The main objectives of the study were to find out the mediating effect of Job satisfaction on the relationship of monetary rewards and loyalty and to find out instrumental value of the monetary rewards system on loyalty of sales staffs of the insurance companies All the analysis was made by using the responses of eighty seven employees of four private sector Insurance Companies. Two hypotheses were set out for the study.H1 was there is a strong positive relationship between monetary rewards and loyalty. H2 was Job Satisfaction works as mediator in the relationship of Monetary Rewards and Loyalty. The study found there is a low positive relationship between monetary rewards and loyalty (0.225) and Job satisfaction fully mediated the relationship between monetary rewards and loyalty. Key Words: Job satisfaction, Loyalty, Mediator, Monetary rewards.
1.
INTRODUCTION
Employees‟ loyalty and their work quality are main reasons behind the success of any kind of industry. Especially in the service sector, majority of the main P s (product, people, process management and physical evidence) depend on the employees who are engaging in providing required services. According to Benjamin Schneider quoted by Keiningham and Aksoy,(2011), the employee's loyalty-related attitudes precede a firm's financial and market performance. Employees‟ loyalty is considered as major determinant of customer satisfaction which is one of the major sources of competitive advantage of organizations. Suyan (2010)] defined employees‟ loyalty as “being committed to the success of the organization and believing that working for this organization is their best option. Not only do they plan to remain with the organization, but they do not actively search for alternative employment and are not responsive to offers”. Therefore creating loyalty among employees helps the organization to retain them and to prevent the organizations from the risk of quitting key employees and increasing the strengths of the competitors. Generally organizations give various rewards to promote motivation and satisfaction of the staff and ultimately to enhance the productivity of them, it could be any form: monetary or non monetary. The earlier writers such as F.W. Taylor believed the money would motivate the employees to perform in an efficient way. On the other hand authors like Herzberg(1973) said absence of monetary rewards bring dissatisfaction on the job. Even though there are many arguments about financial rewards as a motivator and their influence on performance of the employees and the
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productivity of the organization, financial rewards are given to the employees to encourage them. Insurance is a fast growing sector in Sri Lankan economy. According to statistics of Central Bank of Sri Lanka(2011) there are 19 companies registered under Board of Insurance to provide long and medium terms policies, especially life insurance policies, to the customers. Due to the competition to increase their market share and as the way to appeal more customer awareness, the companies introduce new packages with various benefits to the customers. But the customer attitude towards life insurance does not reach highly „appreciated‟ level. Due to the lack of high appreciation towards the life insurance, the sales staffs face lot of challenges in selling life insurance policies. On the other hand, the sales staffs are paid commission on the basis of performance. Problems associated in the working environment and the method of rewarding them hinder the motivation of sales staff and contribute to labour turn over and subsequently affect loyalty. Due these reasons, delighting employees is one of the major tasks of every organization. Delighted employees would like to stay with the particular organization and subsequently look after the customers well. On the other hand, due to the impact of the world economy, the national economy of Sri Lanka has been facing various economic problems such as increasing interest rate of bank deposits, the increasing trend of general price level and so on. At present, bank interest rate for fixed deposits is seemed in two digits. Hence people rationally think it as an investment rather than considering insurance as prudent or cover to life. Because having fixed deposit in a bank gives highest return than any other means. All these above said facts, selling of life insurance cover is a challengeable task in Northern Province.
2.
LITERATURE REVIEW
Monetary rewards and their influence on various organizational related factors are the main focus of many researchers from the inception of the scientific management thoughts to recent studies. It is accepted by many authors that the monetary rewards have impact on motivation (Khan,Aslamand,&Lodhi,2011) ,(Khan, Farooq &Ullah, 2010), job satisfaction (Galanou, et. al,2011) and the loyalty (Abdullahet al, 2011) of the employees. Many HR experts agreed that one of the main aims of any reward system is to retain the employees with the organization. Despite the reward system is attractive, if there is no loyalty among employees; the retention might not be possible. The term “Rewards” refers to all of the monetary and non-monetary payments that employees received from their employment. Monetary reward consist of all form of rewards are given to the employees in money terms, such as pay, commissions, bonus and etc According to Dessler(2008) there are three major objectives of rewards system: attracting new employees, encouraging them for good performance and maintaining commitment to the organization. Cascio(2003) cited by Döckel, & others pointed out rewards are given to the employees to retain them (Döckel Basson and Coetzee,2006). Many researchers studied the influence of monetary rewards on employees‟ loyalty. Golparvar1 and Nadi, 2010) analyzed relations between rewards and encouragement of loyalty, they identified a strong significant correlation between the said variables. Galanou, et. al (2011) found rewards system influenced the level of satisfaction. Different rewards system has different power to cause differences in job satisfaction and further they stated job satisfaction can strengthen commitment and employees‟ loyalty. Abdullah et.al (2011) investigated the relationship between job satisfaction factors and loyalty factors, they found
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strong association between the two variables and they further quoted findings of Jawahar(2006)that the job satisfaction has connection with loyalty. Turkyilmaz et.al(2010) did an empirical study on job satisfaction and loyalty in public sector organizations in Turkey. They revealed a strong relationship between employees‟ satisfaction and their loyalty. On the other hands, researchers like Iaffaldano and Muchinsky(1985) reported uncertain degree of association in between job satisfaction and loyalty. The concluded the relationship is weak between job satisfaction and loyalty. Mediating impact of job satisfaction in between different variables has investigated by many authors. Abu Elanain(2010) did an analysis on testing the direct and indirect relationship between organizational justice and work outcomes, concluded that job satisfaction play partial mediation between organizational justice on commitment and intention of quitting from the organization. Another study revealed job satisfaction has fully mediation effect on the relationship between perceived organizational support and organizational citizenship behaviours and partially mediated on the relationship of perceived organizational support and organizational commitment ( Ladebo, Abubaka and Adamu,2011). Mediating effect of job satisfaction studied by Ibrahim and Boerhaneoddin,(2010) on the relationship between compensation structure and organizational commitment. They concluded job satisfaction strongly mediated the relationship between studied independent and dependent variables. By considering all these findings, we have the evidence to justify the relationship between monetary rewards and job satisfaction ,monetary rewards and loyalty and job satisfaction and loyalty. 3.
SIGNIFICANCE OF THE STUDY
The main purpose of the reward system of any organization is to fulfill three important goals of the organizations such as attracting potential employees, retain present employees and inducing them to do their best. Due to the high competition among the participants in the insurance industry, the companies are trying to retain their talent employees by providing attractive reward packages, though unemployment of the country is 4.9% of labour force in 2010. At the same time, 65000 agents are engaged in marketing of life insurance product (Central Bank of Sri Lanka,2011) these agents are dealing with customers and the sales staffs of the particular companies. Therefore loyalty of the sales people is important to ensure the growth of the market share and through profit. In this scenario, the present study will help the insurance companies to identify the psychological status of the sales staff with regard to their reward system. Further it will be useful the future researchers to study the status of the industry in Jaffna district as less number of studies addressed service quality and customer satisfaction and no study conducted to find out the mediating effect of job satisfaction in creating and strengthening loyalty among insurance sales people with monetary rewards. Therefore the study will be significant due its contribution to fill the research and knowledge gaps. 3.1
PROBLEM STATEMENT
According to Central bank of Sri Lanka, 19 companies registered by Insurance Board of Sri Lanka up to 2011. Among these 12 companies are engaging long term and general insurance business, while 5 companies are only in general insurance business and 2 companies are in long term general business. However, a large number of men and women are employed directly and indirectly in the industry. At the same time there are six companies with significant size of market share operating in Jaffna including government sector: Sri Lanka Insurance, Ceylinco, Aviva, Union Assurance, HNB Assurance and Janasakthi. After the war number of financial institutions opened their branches in Jaffna District and a significant
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number of young men and women got job opportunity in these organizations. There are two types of staffs employed in insurance companies: sales and non sales staff. Sales staffs are paid commission on the basis of their own sales figures. Some of the companies pay a portion of commission as basic salary, and the balance are paid in the form of commission. Since the major element of compensation is given in monetary terms, a few companies give non monetary rewards as well. Employees are highly depressed due to the commission system and job insecurity. They can be terminated from the service for their poor performance. Carrot and stick approach is generally practiced by the companies. The field survey revealed that the labour turn over in the industry might be 10%. This is a common problem among all private sector insurance companies. But after selling a certain amount of policies sales staff do not like to leave from the organization due to the loss of earnings of commission from previously sold policies. In this situation, the extent to which employees are willingly serve for the organization is questionable. On the other hand one of the previous researchers found that the performance based reward system increased job satisfaction and reward system is seemed to a strong predictor of all facet job satisfaction in Sri Lankan Insurance industry. The following question addresses the problem of the study. Does job satisfaction mediate the relationship between monetary rewards and employees’ loyalty among Insurance sales staff?
4.
OBJECTIVES AND HYPOTHSES OF THE STUDY
The following objectives set out for this research.
4.1
1
To examine the mediating effect of job satisfaction on the relationship between monetary rewards and loyalty
2
To identify the relationship between rewards and loyalty
CONCEPTUAL MODEL
3 Monetary 4 Rewards 5
4.2
Job Satisfaction
Loyalty
HYPOTHESES H1- There is a positive relationship between monetary rewards and loyalty H2- Job Satisfaction works as mediator in the relationship between Monetary Rewards and Loyalty
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5.
METHODOLOGY
The total population of the sales staff in the insurance industry is approximately 1820 in Jaffna district. Convenient random sampling technique was used to select sample employees. Eighty seven sales staffs from four major private insurance companies have been selected for the purpose of the study. With the support of SPSS16.0 Version all analysis has been done. 5.1
RESEARCH DESIGN
The study used a self-administered questionnaire as its instrument and has two parts. Part I measured demographic variables of the sample employees. Part III has the five scale questions ranging from highly satisfied to highly dissatisfied to measure rewards, loyalty and the job Satisfaction. Prior to the analyses, all variables were examined for accuracy of data entry and missing values. Missing cases were excluded from the data while carrying out analyses. At the same time direct interview method also used to get some insights of the employees and the managers.
5.2
VALIDITY AND RELIABILITY
There are three concepts considered to carry out the study, they are monetary rewards, loyalty and Job satisfaction. The perception of adequacy and the level of its satisfaction about monetary rewards, loyalty job satisfaction operationalized using the self administrated questionnaire and also validity and the reliability of the questionnaire were tested. Job satisfaction was operationalized by the Minnesota Satisfaction Questionnaire. This is a 20-item questionnaire rated on a 5-point Likert type scale with anchors 1 = “Very Dissatisfied” and 5 = “Very Satisfied”. The internal consistency reliability of the job satisfaction scale was found to be .82. (Ünuvar,2006). As far as monetary rewards and loyalty are concerned, the questionnaire consist of 12 items in each variables with 5 point Likert scale questions. The test-retest reliability is also found to be significant and varied from 0.71 to 0.762 (Monetary rewards),0.79 to 0.823 (loyalty) Table 1 Reliability of Variables Factor
Cronbach's Alpha
Monetary Rewards
0.762
Loyalty
0.823
Job Satisfaction
0.82
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6.
RESULTS AND DISCUSSION OF FINDINGS
6.1 DESCRIPTIVE STATISTICS Participants‟ mean tenure within the organisation was approximately 44 months and the standard deviation 27.1136. Minimum and maximum level of experience with the particular organization is 12 months and 96 months respectively. The average remuneration earned by the sample sales staff was Rs 38,303.57 and the standard deviation was 17,888.46, this salary level is fairly high enough among other industries with the same qualification. Minimum and maximum level of salary seems Rs 15000/- and Rs 120,000/- the salary level is higher in comparing with non sales staff. The level of qualifications amongst the sample was quite impressive with approximately 14.3% of the sample have professional qualification , 67.9% reported to G.C.E(O/L) and G.C.E(A/L); 5.4% of sample completed Bachelor degree and 12.5% of sample are working with master degree. All these employees are employed in the sales division but in different grades. Table 2 Correlation Between the variables Variables Monetary
r Rewards 0.225
r2
Significance
0.051*
0.037
0.214**
0.000
&Loyalty Monetary Rewards & 0.463 Job Satisfaction **Correlation is significant at the 0.01 level (2‐tailed). *Correlation is significant at the 0.05 level (2‐tailed). According to the above table relationship between monetary rewards and loyalty is low positive at 5% significant level. Therefore there is a significance relationship between monetary rewards and loyalty(the value of significance is less than 0.05) Therefore the H1 was accepted. According to r2 value 5%of variation in loyalty is explained by monetary rewards. i.e 96% of variation is explained by factors other than monetary rewards. At the same time relationship between monetary rewards and Job satisfaction is moderate positive at 0.01 level.21.4% of variation in job satisfaction is explained by the changes of monetary rewards. So there is evidence to say that the monetary rewards have significant effect on job satisfaction. 6.2 THE MEDIATOR Baron and Kenny(1986) suggested some conditions to test the influence of mediator. Condition 1 Regressing mediator on predictor variable and the predictor variable must affect the mediator. Condition 2 Regressing criterion variable on predictor variable and predictor variable must be shown to affect criterion variable.
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Condition 3 Regressing criterion variable on predictor variable and on mediator variable. Separate coefficients for each equation should be estimated and tested. In the third equation the mediator must affect criterion variable. After meeting all these condition the effect of predictor variable must be less in third equation than the second one. Table 3 Regression Analysis for examining the mediating of Effect of Job Satisfaction
Equation 1
Variable Job Satisfaction
Equation 2
Loyalty
Equation 3
Loyalty
Predictor Mon. Rewards Mon. Rewards Mon. Rewards Job Satisfaction
Beta .463
t 4.783**
Adj r2 .205
.225
2.115*
.039
4.475
.144
1.734
.539
50.762
.797
9.762**
F 22.878
**p < .01, *p
