LITERATURE REVIEW - The Relationship of Organizational Culture, Compensation, Job Satisfaction

This chapter expanded on the previous chapter providing a general overview on the concept of employee turnover globally and then comprehensively reviewing the literature related to employee turnover with particular focus to organizational culture, compensation and job satisfaction.

An Overview of Employee Turnover

Employee turnover has been defined by Newman and colleagues (2002), as the rate at which an employer losses an employee. Simply put how long employees tend to stay in their various work places. Therefore, the employee turnover to be investigated in this study pertained to voluntary turnover and not including termination or retirement. This definition clearly captured the current situation of the Gambian service industry as the movement of employees from one institution to the other especially those regarded as been skillful is at an unprecedented level (Proceedings of the NESIS meeting, 2005).

Therefore, this study looked at the turnover intention of employees employed in the service industry in The Gambia. Turnover intention samples the desire and intent of staffs employed by an entity ready to make a move or change to either another organization or to another unit within the same organization as soon as they get the opportunity.

Turnover is considered as a bad sign for the organization as it involves considerable visible and hidden costs. It may even tarnish the image of the organization as a bad employer.

According to studies by Bingley & Westergaard-Nielsen (2004) high turnover could cause poor employee morale, ineffectiveness of staff, reduce productivity, weaker work teams and increase cost of training new employees. Also, new employees take time to reach full effectiveness and are likely to be more error-prone than their experienced counterparts. In addition, it results in loss of tacit knowledge that the employees must have acquired during their period of service with the organization. Turnover is particularly harmful in the service industry as relationship building is core to the sustainability of the sector. As a result, employees and customers do enjoy a symbiotic relationship and a high turnover is generally seen as an inhibitor of this relationship.

However, in certain instances the literature showed some amount of turnover benefits

organizations positively (Dalton & Todor, 1993). This might happen when a poor performer is replaced by a more skilled employee and when a retired employee is replaced by a younger one.

The phenomenon of employee turnover is one of the most mesmerizing and puzzling areas in organizational management (Lee & Rwigema, 2005) and could to some extent be argued to be an inevitable issue in the labor market. It is therefore not quite perplexing that over the year’s researchers and academics have made concerted efforts in identifying the antecedents’ factors that cause turnover in order to assist managers of all sorts of businesses and institutions to institute preventative measures.

Research revealed that turnover occurs for various reasons. Many causative factors have been associated with it and various theories have been proposed to unravel the mystery surrounding the behavior of employees. In a large study conducted by Harter (2008) the study pointed out career advancement, pay, lack of job fit and general work environment been the chief factors predicting turnover. It showed that at times new jobs also attract employees and pull them to leave the old. In contrary, employee also pushed to leave job due to dissatisfaction in their present workplace or due to domestic circumstances. Below we take an in-depth review of the existing expert findings and contributions by looking at the variables assumed to have effect on turnover by treating them one after another.

Organizational Culture

Organizational culture is increasingly becoming a popular term in organizations as well as in the management field. There is a lot of literature on the relationship between organizational culture and turnover. Most of these writings deal with the management practices which in several situations where the causes of employees quitting their jobs. To have a more accurate understanding of organizational culture, it is appropriate to establish the various definitions that have been assigned to it over the years since the term was coined by Pettigrew in the literature (1979). It must be mentioned that since then no single definition has been universally agreed on as it has been conceptualized in several ways (Sackmann, 1991). The concept has been studied from a variety of perspectives ranging from fields such as anthropology and sociology, to the

applied disciplines of the management sciences. It would be safe to conclude that there exist two schools of thought with regards the concept of organizational culture. The first view organizational culture as implicit in social life being what naturally surfaces as individuals transform themselves into social groups. The second school of thought regards organizational culture as an explicit social product arising from social interaction either as an intentional or

The norms, values, and beliefs concerning the organization that are shared by members of the organization.

Louis , 1980 A set of understandings or meanings shared by a group of people that are largely tacit among members and are clearly relevant and

distinctive to the group which are also passed on to new members.

Allaire & Firsirotu, 1984

A system of knowledge, of standards for perceiving, believing, evaluating and acting… that serve to relate human communities to their environmental settings.

Trice & Beyer, 1993 Any social system arising from a network of shared ideologies consisting of two components: substance - the networks of meaning associated with ideologies, norms and values; and forms - the practices whereby the meanings are expressed, affirmed, and communicated to members.

Perhaps, the best known definition of organizational culture was the one given by the renowned MIT professor of Psychology, Schein (2004) when he defined it as

a pattern of shared basic assumptions that was learned by a group as it solved its problems of external adaptation and internal integration, that has worked well enough to be considered valid and, therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems.

What tends to unite these several definitions of organizational culture over the years is an emphasis on rituals, beliefs, values, amongst others, shared among members of the organization (Hatch, 1997). Therefore, for the purpose of this study, we broadly conceptualize organizational culture as a process of interacting relationships between underlying assumptions, values, beliefs, artifacts, and symbols that are communicated within all organizational functions. Hence, organizational culture could be regarded as the normative cohesive factor that holds an organization together. This therefore implies the more business leaders understand organizational culture the implications will be favorable as they will be able to motivate their employees and keep them productive.

Various scholars had always viewed organizational culture as an obscured and an abstract concept. In an earlier work, Schein (1988) proposed three fundamental levels which set more clarity on the meaning of organizational culture. The figure 2.3 depicts these three levels of culture from the very visible to the invisible aspect.

Visible organizational structures and processes

Strategies, goals, philosophies

Unconscious, taken for granted beliefs and thoughts.

Figure 2.1. The three levels of culture Source: Schein, 1988.

The first level “behavior and artifacts” are regarded as the most visible level observable. It consists of behavioral patterns and outward manifestations of culture at various degrees. It may also tell us what a group is doing, but not why. The second level “Espoused values” refers to an organization’s values, principles and visions. These are the values that help an organization to create their own image and brand. It underlies and to an extent determines behavior, but they are not directly observable, as behaviors are. These aspects are learnt and pass on to others as they join the organization. The last level “Underlying Assumptions” is regarded as the deepest level and to really understand culture we need to get here. Schein asserted that this level emerged from values “until they become taken for granted and drop out of awareness”. Most at times the values of organizations are elements formulated based on the founders philosophy that is later expounded, shared and taught to members as the organization prospers and are generally taken for granted.

According to the works of Parboteeah and Cullen (2011); Schein (2004), organizational culture can therefore be characterized as comprising behavior, values and beliefs. Behavior is the observable aspect and consists of patterns and outward manifestation of an organizational culture.

On the other hand, values underlie and to a greater extent determine organizational behavior and Behavior and

Artifacts

Espoused Values

Underlying Assumptions

may not be quite visible while beliefs centered on conviction at a deeper level on values of an entity. From these studies, these three components could broadly and concisely be captured by four parameters namely organizational goals, job design, employee welfare and supervision, and integrity which are appropriate for this study. Therefore, in order to accurately and fully exploit the research agenda, a review of the mentioned parameters follows:

Organizational Goals

According to Aguinis (2009) “the purpose of setting goals is to formalize statements about what the organization hopes to achieve in the medium to long-range period”. They can be a source of motivation and provide employees of all levels with a more realistic target for which to work towards. Studies found out that the positioning of appropriate organizational goals influence employee retention and job performance. On the contrary, failure of putting in place clear cut organizational goals has potentials to result to turnover. In the study conducted by Kim, Leong, and Lee (2005), they found out that organizational direction and support had an important impact on employee overall commitment. This claim has received several support from many empirical studies such as Chew, Girardi, and Entrekin (2005); Cho, Woods, Jang, and Erdem (2006); Milman and Ricci (2004). According to Becker and Huselid (1999), organizational culture creates competitiveness since it changes employee behavior by making them act consistently with the firm’s desired corporate goal, thereby influencing employee retention.

Job Design

Organizational culture also embodies job design and according to the extensive work of Werner and DeSimone (2009), it pertains to the complete “development and alteration of the components of a job (such as the task one performs, and the scope of one’s responsibilities) to improve productivity and the quality of the employee’s work life”. The same authors indicated that when tasks and functions posse’s elements that meet employee’s personal development feelings of “responsibility, meaningfulness, and knowledge” results; workers are better satisfied and gave their utmost.

An employee’s personal values, career goals, and plans for the future must fit with the larger organizational culture and the demands of the job. This is because the more an employee’s personal values, career goals and plans for the future fits in an organization, the higher the likelihood that an employee will feel professionally and personally connected to an organization

and attempt giving their best (Mitchell, Holtom, Lee, Sablynski, & Erea, 2001). A reversal is a common cause of turnover studies revealed. Employees who do not experience job fit tend to leave slightly sooner than employees who fit their job. Proper job fit refers to an employee’s perceived compatibility or comfort with the organization and with the work environment (Mitchell et al., 2001). Other studies support the relationship between employees experiencing job fit and their decision to remain in the organization (Werbel & Gilliland, 1999).

Employee Welfare and Supervision

Organizational culture that treats people with respect retains its people and studies have shown the most common reason people quit their jobs lies with their dissatisfaction with their supervisors. According to research conducted by Kinicki and Williams (2008); Phillips and Connell (2003), organizational culture is the most often cited reason for turnover in most industries including strained relationships with the boss or co-workers, unfair treatment, and harassment. These studies further reports that if the workforce feels that the organization is responsible and takes the right interest in their wellbeing, they are in return more likely to commit themselves in providing better services and going the extra mile in meeting clients expectations. This will certainly translate into greater satisfaction among the organization’s clients and overall improve the workforce’s performance, thereby making them less likely to quit their jobs. Employees wants to feel recognized for their contributions and this component has a strong bearing with the organizational culture. Another study by Kerr and Slocum (1987) pointed organizations with a strong culture that emphasis values such as teamwork, security and respect for individual members able to attract and retain loyal employees. Moreover, the development of shared values improves the work environment and productivity by strengthening personal effectiveness, corporate loyalty and pride, teamwork and above all ethical behavior (Kouzes &

Posner, 2002). The study continued to show that organizations with these cultural values perform better than their competitors in terms of growth and profitability.

Integrity

Integrity may mean different things to various individuals based on various situations.

However, this study focuses on the issue of the integrity of the employee and its bearing at the organizational level in creating and fostering a culture of integrity. It embodies integrity pertaining to the policies and leadership beliefs and philosophy existing in an organization. Such

an organizational culture has to emanate from the top and be seen as a tool in the conduct of activities of the organization as it fosters trust and boost efficiency. According to Duggar (2010) an organizational culture that promotes integrity is bound to be “innovative, collaborative, constructive, and transparent, with high employee morale, valued customer loyalty and strengthen partnerships”. On the contrary, an organizational culture of low integrity the researcher continued leads to high employee turnover, an atmosphere of suspicion and disrespect.

These therefore call for the involvement of the corporate leadership to set light on the features of the environment appropriate for the particular business entity. It is largely assumed that all aspects of an organizational culture are beneficial for the growth of an organization which might not be the case. Certain aspects of an organization’s culture may pose adverse threats on its functioning. Therefore, it is prudent business leaders identify components of their organizational culture that are contributing to their bottom line and also promoting employee welfare. Secondly, in the event of a strong national culture ingrained in some employees, studies have not shown how these affect individuals in organization. This study endeavored to exploit fully these vital areas not treated or fully covered in previous studies.

Compensation

Even though much research has been conducted on compensation it has often been viewed as a dependent variable rather than the core object of interest (Gerhart & Milkovich, 1992). A number of scholars defined it as a “bundle of value returns” offered in exchange for a “cluster of employee contributions” (Bloom, 1995; Cappelli & Rogovsky, 1994). Simply put it refers to all forms of financial returns, tangible services and benefits employees receive as part of an employment relationship (Milkovich, Newman & Gerhart, 2011). They pointed out how people view their compensation affect how they behave and that it is seen as the core of any employment arrangement. It is therefore not surprising that Dulebohn and Werling (2007) noted the reason why most people work was because they needed money to cater for their needs and if this was not forthcoming or satisfactory they are bound to look elsewhere. Compensation is a long established management practice to get employees put in their best at work and numerous studies have addressed the impact it has on turnover and retention (Becker & Huselid, 1999;

Guthrie, 2001; Milman & Ricci, 2004; Walsh & Taylor, 2007). It is expected to boost employees’ effort as well as performance. Compensation comes in a variety of ways and forms and it is one of the factors if properly utilized have potential impacts on employee retention and curbing turnover rates. According to a study by Zani, Rahim, Junos, Samano, Ahmad, Merican, Saad, and Ahmad, (2011) compensation can be divided into two categories namely; financial and non-financial rewards. Below we take a much closer look at the two main ways employees are compensated.

Financial Rewards

Financial rewards or simply money is a payment of monetary values in the form of direct monetary gain such as allowances, salary increases and bonuses (Mathauer & Imhoff, 2006).

Financial rewards have been identified over the years as the “most critical outcome of organizational membership for employees” (Gupta & Shaw, 2001). This is because the more people value pay and the more highly they are paid, the more satisfied they will be and the more likely they will remain with the organization. It can be regarded as the most powerful and influential reward in the workplace globally and it is always used to encourage and keep employees in organizations (Woodruffe, 2006). It also has a significant impact on job satisfaction as it is largely the reason why people work in the first place. The study by Broadbridge (2002), in the UK indicated the main reason why employees work for a firm or organization was for the purpose of pay, but at the same time it was also a reason for leaving as the rates of pay were relatively low. Financial rewards do not only help people attain their basic needs but it is also instrumental in satisfying upper level needs such as esteem and self-actualization. The findings of Vroom (1964) in his celebrated expectancy theory, states that money even in the long run has the ability to motivate and enable an individual to satisfy personal goals.

On the contrary, there are studies that failed to lend support to what Vroom had found and argued that employees are not only motivated by money. The first of such was advanced by Elton Mayo in his research known as the Hawthorne studies (Dickson, 1973). The result found that human relations and understanding behaviors were more motivating and rewarding than money. Similarly, the study by Kohn (1993), entitled Why incentive plan cannot work, indicated that higher financial rewards does not result to better productivity but instead it only has a short

term positive effect on the workforce and becomes ineffective in retaining the workforce in the longer term. The study observed financial rewards as not effective in shaping employees attitudes and behavior in the longer term. As a result, the study feared using financial rewards will pose more troubles for an organization in the future as employees tend to seek further financial rewards which may not be available and could trigger turnover. The findings of this study were reechoed by Darling, Arn and Gatlin (1997), when they stated financial rewards on the workforce has a short-lived effect on motivating the workforce. Some other studies such as that of Turner (2006), conducted on factory workers found that the relationship between financial rewards and performance was not significant, however when he conducted a similar study on the service industry, the finding turned out to be positively significant. Other researchers such as Kontodimopoulos, Paleologou and Niakas (2009) found that financial rewards were the strongest motivating factor for the employee to keep on giving their best at work. Similarly, Manolopoulos

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