The Effect of Non-Financial Compensation On Employee Performance of Micro-Finance Institutions: A Case of Wakenya Pamoja Sacco, Kisii County, Kenya

Imperial Journal of Interdisciplinary Research (IJIR)
Vol-2, Issue-6, 2016

ISSN: 2454-1362, http://www.onlinejournal.in
The Effect of Non-Financial Compensation on

Employee Performance of Micro-Finance
Institutions: A Case of Wakenya Pamoja Sacco,
Kisii County, Kenya
OBURU Lewis Nyaribo & ATAMBO Wallace Nyakundi PhD
Jomo Kenyatta University of Agriculture and Technology
Abstract. A compensation system is based on the a pilot study was done. For reliability, questions
expectancy theory, which suggests that employees were discussed with the supervisors prior to
are more likely to be motivated to perform when collection of data. The data was then analyzed
they perceive that there is a strong link between both quantitatively and qualitatively. The study
their performance and the reward they receive established that indeed the Micro finance industry
(Fey and Bjorkman, 2001; Guest, 2002; especially WakenyaPamoja Sacco-Kisii, does
Mendonca, 2002). Aspects of non-financial employ Non-financial compensation and
compensation include workplace environment, incentives to motivate employees, drive up their
career development, training, employee performance as well as to retain staff.
empowerment and participation. This study aimed
at establishing the effect of non-financial KEY TERMS. Effect, Non-Financial
compensation on employee performance of micro Compensation, Employee Performance, and Micro-
finance institutions in Kenya with special Finance Institutions.
reference to WakenyaPamoja Sacco in Kisii
County - Kenya. The study was guided by the
Microfinance institutions : These are financial
following objectives: to establish the different
institutions operating on the principles of group
forms of non-financial compensation at
mobilization of saving and lending where group
WakenyaPamoja Sacco-Kisii, to determine how
members co-guarantee each other.
aspects of non-financial compensation promotes
employees performance at WakenyaPamoja
Sacco-Kisii, to find out how non-financial
incentives contributes to better employee CHAPTER ONE
performance, and to find out the extent to which
WakenyaPamoja Sacco- Kisii has benefited from INTRODUCTION
non-financial compensation. It was the intention
of this study that upon realization of the 1.1 Background to the Study
objectives, the findings of this research study Compensation is one of the most important elements
would be of great significance to researchers and which motivates employees to contribute their best
scholars, the government and the existing body of effort to generate innovative ideas that lead to better
knowledge related to the field of study in business functionality and further improve company
improving the overall employee performance and performance both financially and non-financially.
operations of the microfinance institutions. This According to Dewhurst et al. (2010), there are other
study was done in the month of December 2015. It means to reward employees that do not just focus on
targeted microfinance institutions in Kenya with financial compensation. Some of these include the
specific reference to WakenyaPamoja Sacco in appraisal that employees are able to acquire from
Kisii County. The target population was their managers, the opportunity to take on important
determined using a census survey method since projects or tasks, and even leadership attention. Much
the population under study was small. All the 65 research on leader power have found that supervisor
employees of WakenyaPamoja Sacco-Kisii reward power would be positively associated with
participated in the study. To collect data, the employee task performance, productivity,
researcher used questionnaires which were satisfaction, turnover, and organizational citizenship
distributed to all respondents. To ensure validity,
Imperial Journal of Interdisciplinary Research (IJIR) Page 103

behaviors (Simon,1976; Martin & Hunt, 1980; once pay exceeds a subsistence level, intrinsic factors
Jahangir,2006). are stronger motivators, and staff motivation requires
Employees will give their maximum when they have intrinsic rewards such as satisfaction at doing a good
a feeling or trust that their efforts will be rewarded by job and a sense of doing something worthwhile.
the management. There are many factors that affect There is mix finding in the literature to determine
employee performance like working conditions, which type of compensation is more effective to
worker and employer relationship, training and increase employees’ performance. According to
development opportunities, job security, and Perry et al (2006) financial rewards is not the most
company’s overall policies and procedures for motivating factor and financial results have a
rewarding employees. Among all those factors which demotivating effect among employees (Srivastava,
affect employee performance, motivation that comes 2001). Several studies have found that among
with rewards is of utmost importance. employees surveyed, money was not the most
Motivation is an accumulation of different important motivator, and in some instances managers
processes which influence and direct our behavior to have found money to have a demotivating or negative
achieve some specific goal Baron (1983). Rewards effect on employees.
can be extrinsic or intrinsic. Extrinsic rewards are On the other hand, Ryan et al (2000)
tangible rewards which are external to the job or task indicated that non-monetary types of compensation
performed by the employee. Extrinsic rewards can be can be very meaningful to employees and very
in terms of salary, incentives, bonuses, promotions, motivating for performance improvement. According
or job security. Intrinsic rewards are intangible to him, creative use of personalized non-monetary
rewards or psychological rewards like appreciation, rewards reinforces positive behaviours and improves
meeting the new challenges, positive and caring employee retention and performance. These types of
attitude from employer, and job rotation after recognition can be inexpensive to give, but priceless
attaining the goal. to receive. In this study, the researcher seeks to
In his work Luthans (2000), notes that, there establish the effect of non-financial compensation on
are two basic types of rewards, financial and non- employee performance.
financial and both can be utilized positively to WakenyaPamoja Savings and Credit Co-
enhance performance behaviors of employees. operative (SACCO) is one of the largest cooperative
Financial rewards/compensation means pay-for societies within Kisii County in terms of membership
performance such as performance bonus, job and share contributions. It was established and
promotion, commission, tips, gratuities and gifts. registered in 1976 under the Cooperative Societies
Non-financial rewards are non-monetary/non cash Act Cap 490 of the Laws of Kenya as a Union
and it is a social recognition such as Banking section of Kisii Farmers’ Co-operative
acknowledgement, certificate, and genuine Union (KFCU). It became Autonomous in the year
appreciation. The non-financial rewards are also 1992 under the name Gusii Farmers Rural Sacco
called materials award (Neckermann and Kosfeld, (GRFS). The society has, over the years, undergone
2008).Desired performance can only be achieved major governance reforms which have facilitated the
efficiently and effectively, if an employee gets a change of name which was in line with the strategic
sense of mutual gain to organization as well as of move to expand geographically and explore other
himself, with the attainment of that defined target or financial opportunities and diversification of the
goal. An organization must carefully set a membership to increase the society’s scope beyond
compensation system to evaluate the employee’s tea and coffee to include value chain financing,
performance at all levels and then compensate them microfinance, business development financing, asset
whether through visible pay for performance or financing among others. The diversification to
invisible satisfaction. microfinance followed by value chain financing has
The concept of performance management created the impetus and the incentive for change in
has given a rewards system which contains: needs the society. The day to day activities are run by the
and goals alignment between organizations and Chief Executive Officer (CEO) assisted by section
employers rewarding employees both extrinsically managers who oversee the operations of the above
and intrinsically. The system also suggests where mentioned areas of operation. The society is
training and development is needed by the employee structured into various departments namely: Finance,
in order to complete the defined goals. This training Marketing, Microfinance, Internal Audit, Information
or development need assessment of employee gives Communication and Technology, e-Banking and
them an intrinsic motivation. Frey (1997) argues that Human Resources Departments. WakenyaPamoja

Sacco, like any other organization is facing a risk of in the country. This will result in an improved
fraudulent activities which are likely to lower its economy in the areas of investments, employment
performance especially in its profitability, efficiency, and overall per capita income through improved
effectiveness and wastage of resources which may employee performance which follows proper
jeopardize the achievement of its goals. Therefore employee compensation. On the other hand, policy
there is a need to evaluate the impact of internal makers will benefit by obtaining data and information
control system on performance of the organization to on how to exercise non-financial compensation in
identify to what extent it contributes to protection Micro Finance Institutions. Equally, this study will
against errors and frauds. assist the management within Microfinance
Institutions in Kenya to make informed decisions and
1.2 Statement of the Problem take corrective measures to mitigate against
There are mixed findings in the literature to demotivating employees due to absent or weak non-
determine which type of compensation is more financial compensation mechanisms. Moreover, the
effective in increasing employee performance. community will also benefit by getting improved
According to Perry et al (2006) financial rewards are services (loans with low interest rates, employment
not the most motivating factors and financial rewards opportunities, corporate social responsibility offered
have a de-motivating effect among employees by the society) as a result of improved employee
(Srivastava, 2001). Several studies have found that performance. Finally, the findings of this study will
among employees surveyed, money was not the most be useful in the sense that Micro-finance Institutions
important motivator, and in some instances managers will have an insight into the understanding of the
have found money to have a demotivating or negative effect of non-financial compensation on employee
effect on employee performance. On the other hand, performance of Micro Finance Institutions in Kenya.
Ryan (undated) indicated that non-monetary types of
rewards can be very meaningful to employees and 1.4. Objectives of the Study
very motivating for performance improvement. The general objective of the study was to establish
According to him, creative use of personalized non- the effect of non-financial compensation on
monetary compensation reinforces positive employee performance of micro finance
behaviours and improves employee retention and institutions in Kenya.
performance. These types of recognition can be
inexpensive to give, but priceless to receive. This 1.4.1 The specific objectives include:
study therefore seeks to ascertain what makes non-
financial compensation an important motivation in
i. To establish whether WakenyaPamoja
promoting and sustaining performance of employees
Sacco-Kisii, Kenya employs non-financial
in any organization today. This is based on the
incentives and non-financial compensation
foregoing supposition that there is need for
to spur higher employee performance.
organizations to develop innovative ways of tapping
ii. To determine how job design, career
intrinsic motivation of employees by engaging their
development, training and improved
hearts and institutionalizing such robust practices and
workplace environment promote employee
effective processes that will ultimately positively
performance at WakenyaPamoja Sacco-
impact on employee performance.
Kisii,Kenya.
1.3 Significance of study. iii. To find out how participation and
recognition enhance employee performance
at WakenyaPamoja Sacco-Kisii,Kenya.
The findings of this study will be useful to various iv. To investigate whether WakenyaPamoja
stakeholders. First, this research will assist scholars Sacco-Kisii, Kenya has realized greater
and/academicians as a source of data and literature performance upon wide use of non financial
for broadening of the body of knowledge with rewards.
respect to this study hence provide a deeper
understanding on the effect of non-financial
compensation on employee performance of micro 1.5 Research Questions.
finance institutions in Kenya. Second, the study will
enable the government to come up with good policies The research was guided by the following questions:
that will help in the institutionalization of non-
financial compensation in Micro Finance Institutions

i. What are the different forms of non- CHAPTER TWO

financial compensation and incentives
in use at WakenyaPamoja Sacco-Kisii, LITERATURE REVIEW
Kenya?
ii. How does training, career development 2.1 Introduction
job design and better work-place This chapter contains literature review in general and
environment promote employee theoretical literature related to the study. Both
performance at WakenyaPamoja Sacco- independent and dependent variables for the study
Kisii, Kenya? were reviewed in this chapter. The purpose of this
iii. How does participation and recognition study was to establish the role of the various elements
enhance employee performance at of non-financial compensation on employee
WakenyaPamoja Sacco-Kisii, Kenya? performance in microfinance institutions. This
iv. How do the twin aspects of non- section was divided into introduction, the
financial reward affect the performance theoretical/conceptual framework, and the critiques
indicators namely profitability, of existing literature relevant to the study, the
efficiency, effectiveness and improved summary and the research gaps.
service delivery?
2.2 Empirical Literature Review.
1.6 Scope of the Study.
While the study findings will contribute to general 2.2.1Compensation
knowledge on the effect of non-financial Rajagopd (2010) argues that compensation as well as
compensation on employee performance of micro sales territory design influence the effectiveness of
finance institutions in Kenya, it’s obvious that the sales forces. (Krafft, et al 2012) state that
different microfinance institutions have different compensation is used as a mechanism for directing
characteristics ranging from geographical, nature sales force energy, activity and performance. These
of market and types of products they offer. The compensation systems may also affect the
results therefore may not be totally applicable to satisfaction and retention of sales people. While there
other microfinance institutions but can be are a variety of ways to compensate a sales force,
generalized to reflect the effect after most companies use three main methods: straight
modifications. Data collection was restricted to salary, straight commissions and a combination of
questionnaires. salary and commissions. Besides salary and
commission, financial compensation could also
1.7 Limitations of the Study. include reimbursement of sales expenses and
The study targeted only members of WakenyaPamoja transportation. Non-financial incentives may also be
Sacco management and employees in Kisii Main included in a compensation plan (Hair et al. 2010).
Branch. Secondly, data collection was restricted to As a sales force can become accustomed to a
the use of questionnaires which were designed for relatively stable compensation plan, it can become
both cadres of junior staff and senior management ineffective as a motivator, thus emphasizing the fact
staff. By designing questionnaires that targeted all that sales managers need other non-financial
staff cadres the researcher eliminated the need for motivational approaches as well (Ibid).
interviews for top management and deftly utilized the
limited financial resources at his disposal for the 2.2.2 Non-Financial Rewards
study. The scope was not very wide therefore any The non-financial rewards include job design,
working environment, career development, training,
generalization of the findings of this study should be
done with these limitations in mind. participation and recognition.
Job Design
Job design is the process of systemizing the tasks,
duties and responsibilities, (Opatha, 2002). It aims at
enhancing employee satisfaction and accomplishing
organizational goals by designing the content,
methods and connection of jobs, according to the
aptitude and abilities of employees. The job design
can play an effective role in motivating the employee

by organizing the tasks in a way that are interesting motivation. Management should improve working
and challenging at the same time. A well designed conditions in order to improve productivity and
job can increase the employee morale by reducing the motivate the employees. Since employees are not
monotony and repetition of work, (Georg & Rastogi, robots so the workplace should have a gym and
2006). The perceived work demands, job control and lounge for the wellbeing of employees.
social support through job design leads to high
productivity. The job design can be improved by Career Development
implementing the HR interventions like job rotation, The lack of career development opportunities affects
job enrichment and job enlargement. These motivation and performance. If employees are
interventions are helpful in terms of creating a offered opportunities for developing their careers by
challenging work environment with varying the job adapting skills, technologies and competencies
aspect which enhances the employee motivation and essential for performance improvement and
performance. promotion, they will feel valued and motivated.
On the other hand, flexible work schedules, Motivation is goal-oriented behavior.
job sharing and telecommuting also facilitate the According to this concept, employees can be
employee and are helpful in motivating them. The motivated if their expectations concerning the goal
flexible work schedule allows the employee to accomplishment are linked with the specific actions
determine their arrival and departure time and to on the part of management. Hence, 6employee
perform their duties during the core time. In job motivation will increase with the realization that the
sharing, two employees can share their duties on one course of action will not only lead to accomplishment
job and telecommuting motivates the employee by of goals but results in greater chances for their
facilitating them to work two or three days a week promotions. The provision of opportunities for
from home, (Bohlander & Snell, 2004). learning and growth of the organizations can
motivate the employee, Armstrong, (2001).
Better Workplace Environment Organizations pay more attention on developing their
A better workplace environment leads to increased employees and enhancing their motivational aspects
employee commitment and performance. It boosts the like self-esteem and self-actualization. So, they can
employee motivation and improves the productivity. reach the most favorable performance. Equal
A work environment where employees feel that they opportunities for career advancement and “equitable”
have reasons for doing work and get pleasure from payment system and training can increase the
doing their job motivates the employee. In working motivation of employees.
conditions where employees are not provided with
adequate resources, tools, training, software and Training
supplies lead to the motivation and lesser There is a positive relationship between training and
productivity. The inefficient working conditions employee performance, (Whithey & Cooper, 1989).
which include comfort issues like poor ventilation, The anticipation of future financial benefits,
seating, lightning and noise can cause anxiety and promotions and recognition motivates the employee
decrease the output, Hughes, (2007). to adapt new skills and technology at the training
The workplace with lack of privacy and program. A training program that starts with a needs
communication barriers reduces motivation and assessment and then inconsistency between actual
productivity. A healthy work place which is made by and standard performance of trainee is analyzed.
using ergonomic furniture and accessories, lightning Later on, training objectives are made. After
and functional design will diminish distress and determining who wants the training and what sort of
improve production. Lack of praise, recognition and training should be given, the training program is
promotions in the workplace environment affect the implemented. The last step of the process is to
motivation of employees. The presence of evaluate the effectiveness of training programs.
troublesome and negative employees also influences Training has a positive impact on the employee
the employee’s relationship with rest of colleagues in performance.
a negative way. As a result, the absenteeism rate The lack of training will result in ignorance
increases and they are less likely to continue the job, of the manager about the skills, competencies and
Roeloelofsen, (2002). Relationship with the knowledge that are decisive for the performance
coworker, equal opportunities for promotions, improvement and motivation. Organizations conduct
responsibility and autonomy are also components of training programs due to dynamic changes in the
working environment which can affect the business environment which increases the motivation
of employees. As a result, the employees are

promoted due to the training provided to them, they did not report how strong correlation between
Roscoe, (2002). Firms who spend more on training of participation and performance was. Besides
the employee are more developed as the human participation’s positive effect on performance, they
resource training enhances the productivity more than also found that short time participation has no effect
any other resources, Khattak, et al (2010); Murphy, on performance and that the improvement of the
et al (2006) concluded that employees are motivated performance is dependent on the amount of the
to be trained because they foresee an increase in their influence. The more influence employees had the
confidence level, self-esteem and career satisfaction. more performance improved, (Ibid)
The training and development brings more future Although participation’s direct effects on
opportunities for promotion. An involvement of performance have reported to be modest there is
employees in the training program and determining possibility that participation has some indirect effects
their training needs gives them ownership of the on performance. For example (Fernie and Metcalf,
training process and add value to the performance. 1995) found that possibility to participation increases
employees’ commitment to organization and
2.2.3 Non-financial Incentives organization’s goals. One reason for employees’
Non-Financial incentives constitute such inclusive increased commitment can be that employees feel
aspects as participation and recognition they are important when they have access to
management info and influence on decision making.
Participation Also Brown, (1996) found that participation
Employees’ possibility to participation is the source has strong positive correlation with commitment.
of intrinsic motivation (Herzberg 1968; Fernie & Brown also reported that participation has negative
Metcalf 1995; Brown 1996). According to Brown correlation with turnover. More involvement
(1996) participation is a key to activate employee employees want to stay in organization. The
motivation. Participation engages employee in work participation’s commitment aspect can be one reason
and makes work more meaningful which in turn why Cotton et al. found no effect with short term
increases intrinsic motivation. Four of the six above participation and performance. Maybe participation’s
demonstrated motivation theories support effects on performance come out only in long run.
participation’s positive effect on performance. This hypothesis also partly impugns the results of
According to Maslow’s hierarchy of needs other studies which reported participation to have
participation can fulfill peoples’ social and self- only modest effect on performance. Like in the case
actualization needs. In Herzberg’s motivation of feedback it is important to notice that participation
hygiene theory participation is a motivation factor is also important when implementing other incentive
which in-creases motivation and job satisfaction. plans. Especially in monetary incentive’s case
Cognitive evaluation theory hypothesis individual’s participation has positive effect on incentives
basic needs are autonomy and competence. satisfaction (Ibid).
Participation gives employees’ possibility to
influence on their work. In that way, participation can Recognition
fulfill individual’s need for autonomy and motivate According to Naveed, (2012), recognition
employees. and rewards have a direct impact on motivation of the
Although participation has been considered employees and increase their efficiency. Recognition
the source of intrinsic motivation and some of the refers to the general acknowledgement or
motivation theories support participation’s confirmation of a given occurrence or performance
motivating effect several studies have been found out (Petresca and Simon, 2008). According to Harrison
that generally participation has modest positive effect (2005), employee recognition is seen as a timely,
on performance. Locke et al, (1980) researched how informed or formal acknowledgement of an
monetary incentives, participation and job individual’s behavior and effort that directly supports
enrichment affect performance. In their study, they the achievement and organizational goals and values
found that participation has the most minor effect on and usually has been beyond normal expectation
performance. Participation improved performance levels. It is therefore an employee’s
less than one per cent, (Ibid). Also Brown, (1996) acknowledgement of an employee’s accomplishment
found that generally correlation between participation and effort towards the organization’s goals. It
and performance is positive but weak. Cotton, et al concludes the act of giving special attention to
(1988) found that employees’ possibility to influence employee’s actions, efforts behavior or performance
on decision focusing on the employees’ work or job which can either physically or psychologically or
issues has positive effect on performance. However,

both. It is actually one way of dealing with the

employee feelings. Employee recognition is one of
the ways of motivating staff in an organization,
making them feel valued and in improving the overall
attraction and employee retention. Not all employees
are motivated to perform beyond the essential
minimum with monetary incentives alone Nolan,
(2012). It is therefore incumbent on organizations to
provide relevant awards on merit as a form of
employee recognition.
According to Keller (1999) non-monetary
rewards can be very motivating helping to establish
confidence feelings and satisfaction on part of the
employee. Empirical studies show that employees
who receive recognition at their work place end up
with higher self-esteem, self-confidence and an
induced feeling and willingness to take up new
challenges while embracing innovations (Allen &
Figure 2.1 Conceptual framework
Kilmann, 2001). Employees who feel appreciated
often go above and beyond the organizational
Non-financial compensation and non-financial
expectations and are likely to stay in the organization
incentives form the independent variable. Non-
Welsh et al, (2012). Such employees become positive
financial compensation aspects rely on job design,
about themselves and as a result of their positive self-
better workplace environment, career development,
esteem, they end up becoming the best and reliable
and training while non-financial incentives
employees in the organization. This further translates
encompass participation and recognition. If these
into greater performance requiring minimal
elements are put into action, they will lead to aspects
supervision. Some organizations use recognition to
of good performance reflected in the dependent
spur individual performance while others use it to
variable which include: profitability, efficiency,
enhance overall organizational performance.
effectiveness, and improved service delivery. The
Organizations can offer employee
conceptual framework is designed based on Lawler’s
recognition in various ways ranging from the
model of pay satisfaction (Lawler, 1981) which links
provisions of gifts cards, certificates, shopping
individual elements of a compensation system to
vouchers, ‘thank you’, praise dinners, trophies, career
employee performance in the organizations under
advancement opportunities, trainings, appreciating
study.
ideas and respect where it deserves, Nolan, (2012).
Organizations have even devised recognition A compensation system is a sum-total of
programmes such as ‘employee of the month year elements at an employer’s disposal that may be used
schemes and long service awards.’ Studies indicate to attract, motivate, and retain employees (Ibid). It is
that failing to include recognition as a component of therefore all that the employee perceives to be of
compensation is a common occurrence in most value out of his or her employment relationship as
organizations Ndetei et al, (2009). Recognition is established in the organization, Lawler, (2003).The
however the least expensive Corby et al, (2005) and conceptual framework used in this study is in tandem
yet it elicits more benefits from employees. with the total reward model by Armstrong et al.
(2011). The total reward model, supposes that
2.3 Conceptual Framework employee motivation and satisfaction will
Figure 2.1 below depicts the relationship between the
automatically translate to excellent results and
independent and dependent.
performance and the degree of satisfaction or
motivation will determine the level of outcomes in
performance and results, which in turn add up to the
overall organizational performance and general
public image. By creating an appropriate mix of
organizational culture, business practice and human
resource strategies with total reward strategy which
finally results in employee attraction, retention, and

motivation. All the afore mentioned will in turn result have used extrinsic rewards (for example, monetary
in low employee turn-over rates, great corporate incentives and recognition) to motivate their
image, higher performance, innovation and employees (Fairbank and Wiliams, 2001; Van Dijk
unmatched results. and Van den Ende, 2002). While empirical research
has shown that extrinsic rewards help enhance
2.4 Theoretical Review individuals’ creative performance. The literature is
still divided when it comes to its effects on
In the globalization age, the workplace individuals’ creativity (Beer et al., 2003).
realities of previous organizations no longer exist. It
is necessary to revise carefully. It is also important The effectiveness of skilled employees is
for the organizations to meet and introduce new likely to be limited if they are not motivated to
motivational tools of employees since the change has perform. One of the means that organizations can use
been observed on the workplace realities in today’s to enhance employee motivation and performance is
organizations Roberts, (2003). Beer et al, (1984) to provide performance- related compensation
strongly asserts in their research of changing work (Delaney and Huselid, 1996). A reward and
environment the reality that organizations today have compensation system is based on the expectancy
totally changed, therefore it is more important for the theory, which suggests that employees are more
top management to carry out new methodologies of likely to be motivated to perform when they perceive
developing strong and durable relationship between that there is a strong link between their performance
the organization and employees for meeting the and the reward they receive ( Fey and Bjorkman,
organizational goals and fulfilling the continually 2001; Guest, 2002; Mendonca, 2002). In other words,
changing needs of both parties. the compensation system (for example, profit
sharing) contributes to performance by linking the
Most of the organizations have gained interest of employees to those of the team and the
immense progress by fully complying with their organization, thereby enhancing effort and
business strategy through a well-balanced reward and performance (Kallebergand Moody, 1994; Huselid,
recognition programs for employee. Deeprose (1994) 1995; and Kling, 1995).
argued that the motivation of employees and their
productivity can be enhanced through providing them According to Nelson & Spitzer (2002)
effective recognition which ultimately results in although cash rewards are welcomed by employees,
improved performance of organizations. The entire managers should never use this as a tool to motivate
success of an organization is based on how an their employees to improve their performance levels.
organization keeps its employees motivated and in Should this happen, there is a change that the essence
what way they evaluate the performance of of the reward would be forgotten. In a study
employees for job compensation. According to conducted by Bowen, (2000), the researcher warns
Babakus et al. (2003), the perceptions that employees that managers should be aware of ‘no rewards’. Such
have with regards to their reward climate influences rewards should be utilized sparingly, and should not
their attitude towards their employees. be used all the time. They are also described to be
passive, and they do not necessarily lead to positive
In addition, the commitment of managers behaviors in the long term.
towards their organization is also shown by how the Shore & Shore (1995) indicate that
manager rewards his/her employees. Goulder (1960) employees who are able to experience and receive
mentions the norm of reciprocity, which focuses on recognition for their work are also able to have a
the ability of organization to accommodate the needs better perception of their work, their workplace and
of their employees, and reward them for their effort. the people they work for. Thus, there is a need for the
In exchange for the rewards provided to them, employer to really make an effort in showing the
employees should reciprocate by increasing their employee that his/her wellbeing is of concern to the
commitment towards their organization and their organization and the management and that the
work. Many studies in the creativity literature have contribution of the employee towards the
shown that the firm’s reward system plays a critical organization is highly valued. This idea is further
role in motivating employees to perform creatively reiterated by Buchanan (1974) who adds that the
(Eisenberger, 1992; Eisenberger, Armeli and Pretz, recognition of contributions towards the organization
1998; Eisenberger and Rhoades, 2001). As an effort has a positive relationship towards increasing the
to stimulate employees’ creativity, many managers

commitment of the employee towards the instance, the person's assessment of how well the
organization and its objectives. amount of reward correlates with the quality of
Goodwin & Gremler (1996) note that the performance. Finally valence is the perceived
banking and finance industry is in need of employees strength of the reward or punishment that will result
that are both satisfied and motivated, for without that, from the performance. If the reward is small, the
customer satisfaction level would also be affected. motivation will be small, even if expectancy and
This idea is also supported by Adelman et al. (1994) instrumentality are both perfect.
who maintains that interpersonal relationships
established between bank personnel and the
customers are a big driving force behind ensuring Atambo (2014) concurs that the expectancy
that a customer is satisfied or dissatisfied. Reynolds theory lays emphasis on how employees make
& Beatty (1999) add that the relationship established choices from the possible options available to
between the employees and the customers may lead influence their behaviours and effort. On the basis of
to an increase in values perception with regards to the expectancy theory, anticipation the consequences,
bank’s products and services. When a high outcomes or results influence both short term and
perception of value is achieved, then it is also highly long term behavior indicators in an individual Vroom
likely that the customer will be satisfied, thereby (1964). And Torrington et al (2008). The expectancy
bringing in more business for the organization. It is theory simply points to the expected compensation.
against this background that this study seeks to Similarly, according to Beardwell & Claydon (2007),
establish the effect of non-financial compensation on the expectancy theory enables the individual to exert
employee performance. effort and skill on a task based on the possible
options available. The expectancy theory is solidly
2.4.1 Expectancy Theory founded on two variables namely: the Valence which
is seen as the perceived value of the outcomes and
Expectancy theory also known as the Expectancy on the other part which is viewed as
Expectancy theory of motivation supposes that an the probability that the behavior through action and
individual will behave or act in a particular manner effort will lead to a point of yielding the anticipated
because they are motivated to select a specific outcomes, (Vroom, 1964). Both the Valence and
behaviour over other behaviours due to what they Expectancy are therefore understood to influence
expect the end result of that selected behaviour will employee job performance. The expectancy theory is
be Oliver, (1974). Therefore, the motivation of the also based on two assumptions namely: first,
behaviour selection is driven by the desirability of the employees are motivated to receive positive
end result. Nevertheless, at the centre of the outcomes while avoiding negative outcomes and that
expectancy theory is the mental process of how an secondly employees are rational, careful processors
individual weighs the different motivational of information, Lawler, (2003).
elements. This is normally done before making the
ultimate choice. The outcome is not the sole 2.5The Critique of the Existing Literature
determining factor in making the decision of how to Relevant to the Study
behave, (Ibid).
The literature review above presents an
The expectancy theory attempts to bring elaborate and detailed linkage between the
together many of the elements of previous theories. It independent and the dependent variables in the study.
combines the perceptual aspects of equity theory with The literature review is based on the expectancy
the behavioral aspects of other theories. Vroom theory. Several critics (Graen, Lawler, and Porter
(1964) summed it as motivation = expectancy * 1968) have suggested that adjustments and re-
instrumentality * valence, where he noted that considerations to Vroom’s original expectance theory
motivation is the degree a person will be motivated should be made. Vroom is operating under the
by the situation they find themselves in, and it is a assumption that all employees are seeking more
function of expectancy which is person's perception power, money or prestige. However, there are some
that effort will result in performance. In other words, workers who might not see a raise as enough
the person's assessment of the degree to which effort motivation to put in more time and effort. There are
actually correlates with performance. While also employees who are balancing family life with
instrumentality is the person's perception that work, and would actually reject the prospect of a
performance will be rewarded or punished. For

promotion with a responsibility increase simply due satisfied or dissatisfied can lead to improvement and
to a lack of time to commit. innovation in their work. This also helps the
organization under study including the entire industry
Despite these few criticisms, the Expectancy determine how to retain employees, lower
Theory of motivation is a convincing and beneficial absenteeism, as well as employee turnover rates, and
model to use when attempting to explore individuals’ inevitably attract and retain competent staff.
underlying incentives to engage in setting and
achieving goals, especially when applied to the work 2.7Summary
place. All the elements of non-financial
compensation in this study have been cited to have a This chapter has provided a detailed review of
positive effect on performance in differing extents. A literature relevant to this study. The literature
delicate balance of the elements stated above is highlighted includes: the empirical literature review,
necessary to elicit the full potential of microfinance theoretical frame work, the theoretical literature
sector employees. It is the above background which review, issues related to the expectancy theory, the
informs the suitability of this study, to study the critiques of the existing literature relevant to the
effect of non-financial compensation on employee study, and the gaps in the literature reviewed.
performance of micro finance institutions in Kenya
with specific reference to WakenyaPamoja SACCO.
CHAPTER THREE
2.6Gaps in the Literature Reviewed
It is important to note that much has been RESEARCH METHOLOGY
done concerning the effect of both financial and non-
financial compensation on employee performance. 3.1Research Design
Much of the foregoing studies are on job satisfaction Kerlinger (1986) defines research design as a plan,
versus compensation. structure or strategy of investigation conceived in
Most studies on job satisfaction in various sectors order to obtain answers to research questions or
including education, Public sector, health, problems. This study used a descriptive survey
manufacturing industry, transport, communication, research design. Orodho (2005) notes that this design
and finance have done little with respect to non- gathers data at a particular point in time with the
financial compensation. On the other hand, studies on intention of describing the nature of the existing
compensation in the microfinance industry have conditions, identifying the standards against which
concentrated on financial compensation. Available existing conditions can be compared and determining
data revealed that financial rewards have the greatest the relationship that exist between specific events.
impact in fostering employee performance in the The central feature of descriptive survey is the
microfinance industry. Very little focus has been systematic collection of data in standardized form
given to the effect of non-financial compensation on from an identifiable population or representative
employee performance in the microfinance sample. This study sought to describe and analyze,
institutions in Kenya, nor is there any study that and in some cases explore some aspects of the
determines whether non-financial compensation or organization as they were. This design was suitable
rewards played a significant role in motivating for the study because it enabled the researcher to
employees or causing their retention or eliciting job collect original data from the management of
satisfaction. Thus the study of the effect of non- WakenyaPamoja Sacco - Kisii. It also enabled the
financial compensation on micro-finance institution researcher to obtain both qualitative and quantitative
employees seems inevitable since an understanding data from the field.
of the factors involved in employee retention, job
satisfaction, and the accruing higher organizational 3.2Target Population
performance is vital in improving happiness of This research study was done at WakenyaPamoja
workers, Okpara et al (2005). Sacco situated in Kisii town, Kisii County. In the
Another researcher notes that use of non-financial recent period, it had taken its branch-network to
rewards influences the mental and physical wellbeing Homabay County and Nyamira County. The research
of the employees in their work as well as the quality population constituted sixty five (65) employees of
of their production which is important in the WakenyaPamoja Sacco Ltd. This included employees
attraction, and retention of valuable staff Asiago from the department of bookkeeping, employees
(2015). Understanding whether employees are

from the department of accounts, and employees Therefore, document analysis was used to validate
from the department of finance and administration. and check data gathered by the researcher.
Category (Years) population Sample Size 3.5 Pilot Test

Size
Senior management 3 3 To ensure reliability of the instruments, a pilot study
Middle management 20 20 was carried out in the Gusii Mwalimu Sacco Society
Employees 42 42 – Nyamira Branch. The organization was selected
Total 65 65 since the two organizations were in the same industry
and shared the same geographical area albeit slightly
different clientele. The research instruments were
Table 3.1 Sample Size
administered to the same pilot group twice after an
interval of one week and the results compared. The
Cronbach’s alpha was 0.826 indicative of high
3.3. Sampling Procedure and Sample Size reliability, once the research instrument’s reliability
had been established, they were adopted for the
study.
This study used a census survey method since the
population was small. Also under this method, the
result of the enquiry was likely to be exact and 3.5.1 Reliability
accurate, because the information was collected from
each and every member of WakenyaPamoja Sacco - Enon (1998) observes that the reliability of research
Kisii Branch. Kothari (2004) notes that when the instruments is concerned with the extent to which the
Universe is a small one it is no use resorting to a instrument yields the same results on repeated trials.
sample survey method, in this study the Universe was Reliability ensures that the consistency of the
Sixty-five (65), and the researcher opted for a census research measurement or degree to which the
survey method. questionnaires as a measure or as an instrument,
measures the same way each time it is used under the
3.4 The Data collection Instruments same condition with the same subjects. A measure is
considered reliable if a researcher’s findings on the
3.4.1 Questionnaires same test given twice are similar. Mugenda &
Warwick and Linger (1975) stated that researchers Mugenda (2003) further assert that reliability ensures
should settle on instruments, which provide high that there is precision with which data is collected. If
accuracy, generalizability and explanatory power the same results are gained time after time, no matter
with low cost, rapid speed, and a minimum of how many times you conduct a piece of research, this
management demands, with high administrative suggests that the data collected is reliable. Test- retest
convenience. This study employed questionnaires to method was used to determine the reliability of the
collect data. A questionnaire is a research instrument questionnaire items in which the respondents were
that gathers data over a large sample, Kombo and asked to provide information for the second time.
Tromp (2006). Data collection procedures involved This was done through pilot test of 2, 3 and 4 weeks
the researcher and the research assistants handing out interval. The main aim was to affirm the consistency
questionnaires to respondents and then collecting of the tool and provide consistent information in
them after one week for analysis. order to draw informed conclusions. In this case, the
questionnaires were pretested on the pilot group
3.4.2 Document Analysis outside the study and the result was a Cronbach
Alpha index of 0.826 for the data collection
Ogula (1998) defines document analysis as a instruments which indicates high reliability.
systematic assessment of communication for
purposes of identifying specific characteristics of 3.5.2 Validity
message. In this study, contents of documents on
microfinance organizations with specific reference to A valid instrument contains content that is relevant to
WakenyaPamoja Sacco-Kisii were analyzed to the study. Validity is thus the degree to which results
establish the extent to which non-financial obtained from an analysis of the data actually
compensation was used to motivate the staff. represent the phenomenon under study (Mugenda &

Mugenda, 2003). Kothari (2005) further notes that a of the study and the rationale for adopting the census
test is said to be valid if it measures what it is study method. Further the instruments of research
designed to. To assess the content validity, the have been identified, after their validity and
research sought assistance from the University reliability has been established. Data collection
supervisors who were experts in the field of Human procedures, analysis and presentation are identified
Resource Management. The supervisors gave the herein and all the above aided in the writing of
required feedback for implementation. Through Chapters Four and Five to achieve the expected
these, the researcher was able to identify weaknesses purpose and objective of the study.
and ambiguity in them and make the necessary
adjustments.
CHAPTER FOUR
3.6 Data Collection Procedures DATA ANALYSIS AND DISCUSSION
Kombo and Tromp (2006) defined data collection 4.1 Response Rate
procedures as the collection or gathering of The data for this study were collected within one day
information to serve or prove some facts. It involves using a structured questionnaire. The questionnaires
the real process of going to the field to get the were administered to 65 respondents comprising all
required information from selected population. employees of WakenyaPamoja Sacco - Kisii. Of
According to Saunchers et al (2008) a response rate these 65 questionnaires, 54 were successfully
of at least 35 per cent is reasonable. Both quantitative completed and returned to the researcher by
and qualitative data were gathered relating to the respondents, giving a response rate of 82.8% which
existing compensation systems and policies with was considered sufficient. This summary was
regard to employee performance. In order to presented in Figure 4.1
administer the research tools, the researcher obtained
an introductory letter from JKUAT– Kisii CBD
Campus which enabled him to get a research permit
from the Ministry of Education before proceeding to
the field. Upon acquiring the permit, the researcher
further asked the permission of the Board of
Management of WakenyaPamoja - Kisii to enable
him collect data from within the institution. This was
done through a letter stating the research area,
purpose of the research and the exact dates when the
research will take place. On the actual dates of the
research, the researcher and his research assistants
issued the questionnaires and collected them after one
(1) day for data analysis and presentation.
Fig. 4.1 Response rate.
3.7 Data Processing and Presentation
The data were analyzed by use of both quantitative 4.2 Response on Demographic Characteristics.
and qualitative method of data analysis. The The study analyzed five demographic characteristics
quantitative measures were used to generate of the respondents: gender, age, level of education,
descriptive statistics to analyze for frequencies, length of service, and terms of service. Table 4.1, 4.2,
means and percentages while qualitative methods 4.3, 4.4, and 4.5; indicate the response by working
were used in sorting out data from questionnaires. out the frequencies and percentages of each category
The questionnaires were screened for completeness, of the respondents.
coded and then formatted. The results were reported
using descriptive statistics such as frequency tables, Table 4.1: Frequency of Gender
pie charts and graphs. The findings were be used to
Gender Frequency Percentage (%)
make inferences.
Male 35 64
3.8 Summary Female 19 36
The chapter has provided an indepth description of
the research design, the target population, the locale

From Table 4.1, 64% of the respondents were male 4.2.3 Education of the respondents.
while the remaining 36% were female. This big
disparity was due to socio-cultural and economic Table 4.3, categorizes the respondents according to
factors which tend to affect the female population their level of education and/academic qualification.
negatively in the society when compared to the male
population. This outcome shows that the government Table 4.3: Frequency of Education
and its relevant organs must work harder to bridge
the gap between the male and female population with Level of Education Frequency Percentage (%)
respect to exposure to relevant education. This Primary 0 0
notwithstanding, it is clear that WakenyaPamoja Secondary 0 0
Sacco - Kisii meets the one third gender Diploma 4 7.3
representation which is a constitutional requirement. Higher Diploma 6 10.4
Degree 29 53.7
4.2.2: Age of respondents.
Master 15 28.7
Table 4.2, shows the age groups, the frequencies and
percentages of the respondents utilized during this
From Table 4.3, there was no respondent with either
study.
primary or secondary level education. Those with
Table 4.2: Frequency of Age diploma level education were 4 (7.3%). 6 (10.4%)
had a higher diploma, 29 (53.7%) had a degree and
Age Category (Years) Frequency Percentages (%) 15 (28.7%) had a masters degree. This spread clearly
20-25 3 4.9 indicates that the microfinance industry employs
26-30 20 39 people who are well educated considering the
31-35 24 43.9
percentage of those with at least a degree (53.7%)
36-40 4 7.3
>41 3 4.9 and those who had attained a masters degree (28.7%).
From Table 4.2, majority of the respondents who From Table 4.2.3, it is clear that all employees at
participated in this research were in the age category WakenyaPamoja Sacco - Kisii are well educated and
of 31-35 (43.9%). They were followed closely by can fully understand aspects of non-financial
those in the age bracket of 26-30 (39%). This age compensation.
category mainly comprises of fresh graduates from
the universities and colleges who were recently 4.2.4: Terms of Service of the respondents.
employed by the company. Those who were in the
This study undertook to establish the cadre of the
age bracket of 36-40 were 7.3 % and were the third
respondents who were engaged in this study. Table
leading category in number. Those who were in the
4.4 gives a summary of the designation of all
age bracket of 41 years and above (4.9%) and those
respondents utilized in the study.
between the ages of 20-25 years (4.9%) were the
least in number. Those between the ages of 20-25 Table 4.4: Frequency of Terms of Service
years are people who are still in colleges though they
have been allowed by WakenyaPamoja Sacco - Kisii
to do their internship from the institution. Those in Designation Frequency Percentage(%)
the age bracket of 41 years and above are the older Temporary 2 3.7
members of staff who are mostly senior employees of Permanent 41 75.9
the company. The above result indicates that the level Casual 6 11.1
of exposure to non-financial compensation on Contract 2 3.7
employee performance of microfinance institutions in In-service 3 4.9
Kenya and in particular WakenyaPamoja Sacco - From Table 4.4, the terms of service of the
Kisii is most prevalent in people who are in their mid respondents was also taken into consideration with
to late twenties and in their early thirties. This clearly the greatest percentage, (75.9%) being permanent
shows that there is need for microfinance institutions employees. Casual employees were 11.1% while
to institutionalize non-financial compensation to those on in-service constituted 4.9%. Those on
promote performance. contract made up 3.7% just like those employed on
temporary terms who were 3.7% of the total
workforce. This spread clearly indicates that the bulk

of the respondents are employed on permanent basis. for a period of 7-10 years thus had had enough
Indeed, these are the right people when it comes to exposure to aspects on non-financial compensation
aspects of non-financial compensation because they within the microfinance institutions in Kenya and
experience it firsthand in their working place. more particularly at WakenyaPamoja Sacco –Kisii
meaning that the information they would have given
4.2.5: Length of Service of the respondents is reliable and/ accurate.
Table 4.5 gives a summary of the level of experience 4.3 Non-financial Compensation Systems.
of the respondents. From the responses given, it became apparent that
WakenyaPamoja Sacco – Kisii has been utilizing
Table 4.5: Frequency of Length of Service non-financial compensation to promote performance.
This is because all the 54 respondents ticked ‘Yes’
Length of Service (Years) Frequency Percentage (%)
<2 4 7.3 (representing 100%) when they were asked whether
3 to 6 15 28 their institution has put in place non-financial
7 to 10 29 54.3 compensation systems.
>11 6 10.4
From Table 4.5, it is clear that with regard to length 4.4 Aspects of Non-financial Compensation
of service, 29 respondents (54.3%) had worked for Used at WakenyaPamoja Sacco –Kisii.
the company for a period between 7-10 years, 15 The research ascertained that WakenyaPamoja Sacco
respondents (28%) had served for between 3-6 years, - Kisii used various aspects of non-financial
6 (10.4%) had worked with WakenyaPamoja Sacco compensation to promote performance. These aspects
for over 11 years while a meager 4 (7.31%) had of non-financial compensation included: job design,
worked for WakenyaPamoja Sacco for less than 2 better workplace environment, career development,
years. From Table 4.5, it is clear that most of the training, participation and/ recognition. Table 4.6
respondents used in this study (54.3%) had worked shows the response of the respondents when querried
for the organization about this.
4.4.1: Aspects of Non-financial Compensation Used at WakenyaPamoja Sacco – Kisii.
Table 4.6: Aspects of Non-financial Compensation Used at WakenyaPamoja Sacco – Kisii
Aspects of Non-financial Strongly Agre Undecide Disagre Strongly ∑f ∑fiw ∑fiwi/∑f

Compensation Agree e d e Disagree i i i
5 4 3 2 1
Job Design 47 3 2 1 1 54 256 4.74
Better Workplace Environment 49 2 1 1 1 54 259 4.79
Career Development 44 7 2 1 0 54 256 4.74
Training 45 3 3 2 1 54 251 4.65
Participation and/ Recognition 47 4 2 1 0 54 259 4.79
From Table 4.6, the greatest number of employees

strongly agreed that participation and/recognition 4.4.2 The Extent to which Aspects of Non-
(4.79) and better workplace environment (4.79) were financial Compensation Promote Employee
aspects of non-financial compensation which were Performance in Your Organization.
utilized by WakenyaPamoja Sacco to promote
performance. The respondents also agreed that job
design (4.74) and career development (4.74) were Table 4.7, gives a summary of the extent to which
also used. The respondents also agreed that training aspects of non-financial compensation promote
(4.74) is a form of non-financial compensation which performance at WakenyaPamoja Sacco - Kisii.
was equally utilized to promote performance within
the microfinance industry.

Table 4.7: The Extent to which Aspects of Non-financial Compensation Promote Employee Performance Your
Organization
Employee Performance Strongly Agree Agree Undecided Disagree Strongly Disagree ∑fi ∑fiwi ∑fiwi/∑fi
5 4 3 2 1
Profitability 34 16 2 0 0 54 240 4.44
Efficiency 39 13 2 0 0 54 253 4.69
Effectiveness 37 11 4 2 0 54 245 4.54
Improved Service Delivery 38 13 2 1 0 54 250 4.63
From Table 4.7, respondents agreed that four out of workplace environment, training, participation
the five aspects of non-financial compensation given and/recognition, and career development contribute
promoted performance to a very high extent: to better employee performance within the
participation and/recognition (4.76), job design microfinance industry. The implication thus is that
(4.69), training (4.67), and better workplace these aspects should be institutionalized to serve as
environment (4.59). Career development also an impetus and motivator for employees in their day
promoted performance to a high extent (4.43). This to day performance in the microfinance industry.
outcome clearly shows that job design, better
The respondents agreed that non-financial systems
4.4.3 The Extent to which Respondents Agreed contributed to better employee performance at
that Non-financial Systems Contribute to WakenyaPamoja Sacco – Kisii. Table 4.8,
Better Employee Performance summarized this.
Table 4.8: The Extent to which Respondents Agreed that Non-financial Systems Contribute to Better
Employee Performance
Non-financial Compensation Very High Extent High Extent Average Low Extent No Extent ∑fi ∑fiwi ∑fiwi/∑fi
5 4 3 2 1
Job Design 46 3 2 2 1 54 253 4.69
Career Development 38 8 3 3 2 54 239 4.43
Training 44 6 1 2 1 54 252 4.67
Participation and/ Recognition 47 2 4 1 0 54 257 4.76
Table 4.8, shows the extent to which the respondents 4.4.4 The Effectiveness of Non-financial
agreed that non-financial systems contribute to better Compensation Systems on Organizational
employee performance at WakenyaPamoja Sacco - Performance
Kisii.
From Table 4.8, respondents strongly agreed that
non-financial compensation promoted efficiency The study undertook to determine the effectiveness of
(4.69), contributed towards improved service delivery non-financial compensation systems on
(4.63), and also enhanced effectiveness (4.54). On the organizational performance at WakenyaPamoja
other hand, the respondents agreed that non-financial Sacco - Kisii. Table 4.9, summarized this.
compensation promotes profitability (4.44).

Table 4.9: The Effectiveness of Non-financial Compensation Systems on Organizational Performance.
Effectiveness of Non-financial Very Effectiv Neutra Ineffectiv Very ∑f ∑fiw ∑fiwi/∑

Compensation Effective e l e Ineffective i i fi
5 4 3 2 1
Job Design 38 5 1 0 0 44 213 4.84
Career development 37 6 1 0 0 44 212 4.82
Training 33 6 3 2 0 44 192 4.36
Participation and/Recognition 34 4 4 2 0 44 202 4.59
Table 4.9, shows the effectiveness of non-financial an effective way of compensating employees for
compensation systems on organizational performance better performance at WakenyaPamoja Sacco – Kisii.
at WakenyaPamoja Sacco – Kisii. In line with the This outcome demonstrates that all the identified
overall goal of this research, the study summarized aspects of non-financial compensation were either
the responses on the effectiveness of aspects of non- effective or most effective meaning that the
financial compensation on organizational microfinance industry must utilize them fully in order
performance. From Table 4.9, it is evident that better to enhance performance.
workplace environment is the most effective aspect
of non-financial compensation at WakenyaPamoja 4.5 Respondents’ Response on the Extent to
Sacco – Kisii. Other compensation systems that were which Non-financial Systems Contribute to
most effective are: job design (4.84) and career Organizational Performance.
development (4.82), participation and/recognition
(4.59). It was also established that training (4.36) was
Table 4.10: Managements’ response on the extent to which non-financial Systems contribute to organizational performance.
Compensation System Strongly agree Agree Undecided Disagree Strongly disagree ∑fi ∑fiwi ∑fiwi/∑fi
5 4 3 2 1
Non-financial Rewards 8 1 1 0 0 10 47 4.7
Non-financial Incentives 7 2 1 0 0 10 46 4.6
4.5.1 Managements’ Response on the Extent to industry, more particularly WakenyaPamoja Sacco –
which Non-financial Systems Contribute to Kisii must embrace these two forms of compensation
Organizational Performance in order to ensure better employee performance.
The study summarized responses on the extent to
which non-financial incentives contribute to 4.5.2 Employees’ Response on how Non-
organizational performance. The study sought to financial Compensation Systems Affect
establish the extent to which non-financial systems Performance Indicators
contribute to organizational performance at
WakenyaPamoja Sacco-Kisii. The responses
were as indicated in Table 4.10 The study sought to establish how Non-financial
According to Table 4.10, it was clear that both types Compensation Systems Affect Performance
of non-financial compensation (according to the Indicators at WakenyaPamoja Sacco – Kisii.
management) contribute towards better employee Performance indicators that were included are:
performance. From the data, the managers profitability, efficiency, effectiveness, and improved
strongly agreed that non-financial rewards (4.7) and service delivery.
non-financial incentives (4.6) promote employee
performance. This implies that the microfinance

Table 4.11: Employees’ Response on how Non-financial Compensation Systems Affect Performance
Indicators
Performance Indicators Very Effective Effective Neutral Ineffective Very Ineffective ∑fi ∑fiwi ∑fiwi/∑fi
5 4 3 2 1
Profitability 38 5 1 0 0 44 213 4.84
Efficiency 41 2 1 0 0 44 216 4.91
Effectiveness 37 6 1 0 0 44 212 4.82
Improved Service Delivery 34 4 4 2 0 44 202 4.59
In line with the overall goal of this study, the study Those in the age bracket of 41 years and above
summarized the responses on the effectiveness of were the older members of staff who were mostly
non-financial compensation systems on senior employees of the company. From Table 4.2,
organizational performance. Table 4.11, shows that there was no respondent with either primary or
non-financial compensation is a very effective tool secondary level education as their highest
that contributes towards all performance indicators: academic qualification. Those with diploma level
efficiency (4.91), profitability (4.84), effectiveness education were 4 constituting (7.3%). 6 (10.4%)
(4.82), and improved service delivery (4.59). had a higher diploma, 29 (53.7%) had a degree
and 15 (28.7%) had a masters. This clearly
indicates that the microfinance industry employs
4.6 Discussion of findings. people who are well educated considering the
This study analyzed the effect of non- percentage of those with at least a degree (53.7%)
financial compensation on employee performance and those who had attained a master’s degree at
of micro-finance institutions in Kenya. (28.7%). This finding correlate with previous
Specifically, it established the different forms of research that found greater academic achievement
non-financial compensation at WakenyaPamoja in most segments of the Kenyan Society with the
Sacco - Kisii, Kenya, determined how aspects of introduction of Free Primary education, Free
non-financial compensation promotes employee Secondary Education and widening access to
performance at WakenyaPamoja Sacco- Kisii, Higher Education Odhiambo (2016). Table 4.3
Kenya, found out how non-financial incentives shows that 64% of the respondents were male
contribute to better employee performance at while the remaining 36% were female. This big
WakenyaPamoja Sacco-Kisii, Kenya, and disparity was due to socio-cultural and economic
investigated the extent to which WakenyaPamoja factors which tend to affect the female population
Sacco - Kisii, Kenya has benefited from non- negatively in the society when compared to the
financial compensation. male population. This outcome shows that the
government and its relevant organs must work
From Table 4.1, it became clear that a harder to bridge the gap between the male and
majority of the respondents who participated in female population with respect to exposure to
this research were in the age category of 31-35 relevant education. Table 4.4 captured data on the
(43.9%). They were followed closely by those in terms of serviceof the respondents. The data
the age bracket of 26-30 (39%). This age category collected showed that the greatest percentage,
mainly comprised of fresh graduates from the (75.9%) were permanent employees. Casual
universities and colleges who were recently employees were 11.1% while those on in-service
employed by WakenyaPamoja Sacco - Kenya. constituted 4.9%. Those on contract made up 3.7%
Those who were in the age bracket of 36-40 were just like those employed on temporary terms who
7.3 % and were the third leading category in were also 3.7% of the total workforce. This spread
number. Those who were in the age bracket of 41 clearly indicates that the bulk of the respondents
years (4.9%) and above and those between the were employed on permanent basis.
ages of 20-25 years (4.9%) were the least in
number. Those between the ages of 20-25 years On the other hand, Table 4.5 showed the
were people who are still in colleges though they length of service the employees had served the
had been allowed by WakenyaPamoja Sacco - organization. It indicated that 29 respondents (54.3%)
Kisii to do their internship from the institution. had worked for the company for a period between 7-

10 years, 15 respondents (28%) had served for (2011) who avers that non financial rewards such as
between 3-6 years, 6 (10.4%) had worked with employee recognition, participation, training and
WakenyaPamoja Sacco for over 11 years while a many others play a big role in motivating employees
meager 4 (7.31%) had worked for WakenyaPamoja as well as enhancing employee performance and
Sacco - Kisii for less than 2 years thus it became retention. These findings also support previous
clear that the bulk of the respondents utilized in this research by (Kluger & DeNisi, 1996, Jimenez, 1999,
study (54.3%) had worked for the company for a Baard et al, 2004 and Demot2012) all who variously
period of 7-10 years thus had had enough experience found that intrinsic rewards are greatly valued by
in the use and/ utilization of internal control systems employees and greatly promote performance at work.
for strategic performance. From Table 4.8, respondents strongly agreed that
non-financial compensation promoted efficiency
On non-financial compensation systems, (4.69), contributed towards improved service delivery
from the responses given, it became apparent that (4.63), and also enhanced effectiveness (4.54). On the
WakenyaPamoja Sacco - Kisii had been utilizing other hand, the respondents agreed that non-financial
non-financial compensation to promote performance. compensation promotes profitability (4.44).
This is because all the 54 respondents ticked ‘Yes’
(representing 100%) when they were asked whether In line with the overall goal of this research,
their institution has put in place non-financial the study summarized the responses on the
compensation systems. From Table 4.6, the greatest effectiveness of aspects of non-financial
number of employees strongly agreed that compensation on organizational performance. From
participation and/recognition (4.79) and better Table 4.9, it is evident that better workplace
workplace environment (4.79) were aspects of non- environment is the most effective aspect of non-
financial compensation which were utilized by financial compensation at WakenyaPamoja Sacco -
WakenyaPamoja Sacco - Kisii to promote Kisii. Other compensation systems that were most
performance. The respondents also agreed that job effective are: job design (4.84) and career
design (4.74) and career development (4.74) were development (4.82), participation and/recognition
also employed at the institution. The respondents also (4.59). It was also established that training (4.36) was
agreed that training (4.74) is a form of non-financial an effective way of compensating employees for
compensation which was equally utilized to promote better performance at WakenyaPamoja Sacco - Kisii.
performance within the microfinance industry. The This outcome demonstrated that all the identified
above findings concur with what had been noted in aspects of non-financial compensation were either
other related studies (Areri 2012, Atambo 2014 and effective or most effective meaning that the
Asiago 2015) all studies that found that inclusion of microfinance industry must utilize them fully in order
non-financial compensation in the form of incentives to enhance performance, as in the studies of (Nolan,
and recognition played a big role in motivating 2012, Leila et al 2010 and Mirabella, 1999) who
employees besides improving performance and found that non-financial compensation is a much
retention of the same. From Table 4.7, respondents more esteemed and effective instrument in the work
agreed that four out of the five aspects of non- place than any known financial compensation
financial compensation promoted performance to a regimen.
very high extent: participation and/recognition (4.76), According to Table 4.10, it was clear that
job design (4.69), training (4.67), and better both types of non-financial compensation (according
workplace environment (4.59). Career development to the management) contribute towards better
also promoted performance to a high extent (4.43). employee performance. From the data, the managers
This outcome clearly showed that job design, better strongly agreed that non-financial rewards (4.7) and
workplace environment, training, participation non-financial incentives (4.6) promote employee
and/recognition, and career development contribute performance. This implies that the microfinance
to better employee performance within the industry, more particularly WakenyaPamoja Sacco -
microfinance industry. The implication thus is that Kisii must embrace these two forms of compensation
these aspects should be institutionalized within the in order to ensure better employee performance This
microfinance industry more particularly at finding is supportive of previous works and literature
WakenyaPamoja Sacco - Kisii to serve as an impetus by Locke (2004) and that of Kohn (1993)..
and motivator for employees in their day to day Accordingly, and in line with the overall
performance in the microfinance industry. This goal of this study, the study summarized the
concurs with revious literature by Armstrong et al responses on the effectiveness of non-financial

compensation systems on organizational 5.1 Summary of the Findings.

performance. Table 4.11 shows that non-financial
compensation is a very effective tool that contributes 5.1.1 Effect of non financial compensation
towards all performance indicators: efficiency (4.91), on employees of Micro finance institutions
profitability (4.84), effectiveness (4.82), and in Kenya.
improved service delivery (4.59), This agreed with This study analyzed the effect of non-
Pryice et al (2011) and ABaer, et al (2003) who both financial compensation on employee performance
concluded that non-financial compensation is a much of micro-finance institutions in Kenya.
better tool to effectively marshal employee Specifically, it established that different forms of
motivation and performance than the known financial non-financial compensation are employed by
packages at the work place. These finding further managements of Micro Finance institutions in
concur with the findings and literature of Tsutsumi & Kenya, as was evidenced at WakenyaPamoja
Kwakwami (2004), Delaney & Huselid (1996) as Sacco - Kisii, Kenya,the study also determined
well as that of Stajkovic & Luthans (2001) and that how aspects of non-financial compensation
of Dessler & Varkey (2011). promote employee performance at Micro finance
The findings in this study support the institutions in Kenya. The study found out that
various theories of motivation which encourage the indeed non-financial incentives contribute to better
use of extrinsic rewards for motivating employees employee performance in the Micro Finance
to higher levels of performance for the attainment Industry in Kenya, and that the industry has
of corporate goals (Schuler, 1998). The study benefited from non-financial compensation.
findings point that a Sacco/Micro finance institution
employees will exert effort if they expect it will 5.1.2 Forms of Non-financial compensation
result in an outcome that they value. This finding employed at WakenyaPamojaKisii Kenya.
is consistent to the expectancy theory as advanced by On non-financial compensation systems,
Pearce and Perry (1983) which opine that in the case from the responses given, it became apparent that
of the PBP, employees will work harder if they value WakenyaPamoja Sacco - Kisii had been utilizing
non financial rewards and believe that those awards non-financial compensation to promote performance.
will result from their increased efforts. This is because all the 54 respondents ticked ‘Yes’
(representing 100%) when they were asked whether
their institution has put in place non-financial
CHAPTER FIVE compensation systems.From Table 4.6, the greatest
number of employees strongly agreed that
SUMMARY, CONCLUSION AND participation and/recognition (4.79) and better
RECOMMENDATIONS workplace environment (4.79) were aspects of non-
financial compensation which were utilized by
5.0 Introduction WakenyaPamoja Sacco - Kisii to promote
This chapter contains a summary of the performance. The respondents also agreed that job
findings conclusions and recommendations on the design (4.74) and career development (4.74) were
way forward to the effective use of Non-financial also employed at the institution. The respondents also
compensation in Micro finance Institutions to agreed that training (4.74) is a form of non-financial
enhance the performance of employees in the said compensation which was equally utilized to promote
industry and particularly WakenyaPamoja Sacco – performance within the microfinance industry.
Kisii Kenya. The general Objective of the study was
to establish the effect of non-financial compensation 5.1.3 Determination of how Non-financial
on employee performance of Micro finance compensation promotes Performance at
institutions in Kenya. The study focused on WakenyaPamoja Sacco – Kisii Kenya.
WakenyaPamoja Sacco – Kisii Kenya. This chapter From Table 4.7, respondents agreed that
is divided into four sections, the first section is a four out of the five aspects of non-financial
summary of the research findings, the second is the compensation promoted performance to a very high
conclusion, while the third are the researcher’s extent: participation and/recognition (4.76), job
recommendations and finally are suggestions for design (4.69), training (4.67), and better workplace
further research. environment (4.59). Career development also
promoted performance to a high extent (4.43). This
outcome clearly showed that job design, better

workplace environment, training, participation responses on the effectiveness of non-financial

and/recognition, and career development contribute compensation systems on organizational
to better employee performance within the performance. Table 4.2.11 shows that non-financial
microfinance industry. The implication thus is that compensation is a very effective tool that contributes
these aspects should be institutionalized within the towards all performance indicators: efficiency (4.91),
microfinance industry more particularly at profitability (4.84), effectiveness (4.82), and
WakenyaPamoja Sacco - Kisii to serve as an impetus improved service delivery (4.59).
and motivator for employees in their day to day
performance in the microfinance industry. 5.2 Conclusion
The study concluded that indeed non-
financial compensation promotes employee
5.1.4 How Non-financial incentives enhance performance of micro finance institutions of Kenya
employee performance at WakenyaPamoja especially those of WakenyaPamoja Sacco - Kisii
Sacco – Kisii Kenya. Kenya. This study sought to assess the contribution
From Table 4.8, respondents strongly agreed of this study to knowledge based on the examination
that non-financial compensation promoted efficiency of the research topic in question and the improvement
(4.69), contributed towards improved service delivery in the knowledge and understanding of the effect of
(4.63), and also enhanced effectiveness (4.54). On the non-financial compensation on employee
other hand, the respondents agreed that non-financial performance of micro-finance institutions in Kenya,
compensation promotes profitability (4.44). the different forms of non -financial compensation at
In line with the overall goal of this research, WakenyaPamoja Sacco - Kisii, Kenya, how aspects
the study summarized the responses on the of non-financial compensation promotes employee
effectiveness of aspects of non-financial performance at WakenyaPamoja Sacco - Kisii,
compensation on organizational performance. From Kenya, how non-financial incentives contribute to
Table 4.9, it is evident that better workplace better employee performance at WakenyaPamoja
environment is the most effective aspect of non- Sacco-Kisii, Kenya, and the extent to which
financial compensation at WakenyaPamoja Sacco - WakenyaPamoja Sacco - Kisii, Kenya has benefited
Kisii. Other compensation systems that were most from non-financial compensation.
effective are: job design (4.84) and career One of the theoretical contributions of the
development (4.82), participation and/recognition study is the comprehensive definition of non-
(4.59). It was also established that training (4.36) was financial compensation. The connection between
an effective way of compensating employees for financial compensation and non-financial
better performance at WakenyaPamoja Sacco - Kisii. compensation and how both affect employee
This outcome demonstrated that all the identified performance in the microfinance industry has been
aspects of non-financial compensation were either drawn. The study clarifies aspects of non-financial
effective or most effective meaning that the compensation. Also, this study presents the different
microfinance industry must utilize them fully in order forms of non-financial compensation influencing
to enhance performance. employee performance. The study uses existing
literature together with empirical material to produce
5.1.5 The Extent to which WakenyaPamoja more detailed concepts and insights on non-financial
Sacco – Kisii Kenya has benefitted from Non- compensation and it therefore becomes clear that the
financial compensation of its employees. microfinance industry employs non-financial
According to Table 4.10, it was clear that compensation to motivate its employees thus enhance
both types of non-financial compensation (according performance in the business prism. These aspects
to the management) contribute towards better include job design, better workplace environment,
employee performance. From the data, the managers career development, training, participation
strongly agreed that non-financial rewards (4.7) and and/recognition.The point of departure for this study
non-financial incentives (4.6) promote employee was the scarcity of knowledge about the effect of
performance. This implies that the microfinance non-financial compensation on employee
industry, more particularly WakenyaPamoja Sacco - performance of micro-finance institutions in Kenya.
Kisii must embrace these two forms of compensation
in order to ensure better employee performance. 5.3 Recommendations.
Accordingly, and in line with the overall The outcome of this study clearly showed
goal of this study, the study summarized the that job design, better workplace environment,
training, participation and/recognition, and career

development contribute to better employee [3] Allen, R..& Kilmann, N. (2001) The role of
performance within the microfinance industry. The reward system for a total quality management
implication thus is that these aspects should be based strategy. Journal of Organizational
utilized and institutionalized within the microfinance Change Management.Vol. 14.Iss 2 pp 110-
industry more particularly at WakenyaPamoja Sacco- 131
Kisii to serve as an impetus and motivator for [4] Areri, G. M. (2012) Factors Influencing Health
employees in their day to day performance in the care Employee retention in Public Hospitals
microfinance industry. in Kenya: A case of Nyamache District
Hospital in Kisii County. Master of Science
This study therefore recommends that the Thesis Jomo Kenyatta University of
microfinance industry conducts more research Agriculture and Technology, Nairobi.
touching on non-financial compensation to ensure [5] Armstrong, M., (2012).Armstrong’s handbook of
that there is enough information that will enable the human resource management practice:
industry to utilize aspects of non-financial Handbook, 12thedition,London.,Kogan Page
compensation for better employee performance. Ltd.
Equally, the microfinance industry should set funds [6] Armstrong, M. Brown D. & Reilley, P.
aside that will ease the utilization of these aspects for (2011).“Increasing the effectiveness of
better employee performance. In summary, it is reward management: An evidence-based
apparent that all these non-financial compensation approach.”Employeerelations, Vol. 33.Iss
aspects should therefore be improved, utilized and 2.pp106-120
institutionalized to ease management and decision- [7] Armstrong, M., (2001). Human resource
making thus, in the end, translate to better employee management practice: Handbook, 8thEdition,
performance. London., Kogan Page Ltd.
[8] Asiago, L. S. (2015) Effect on Non-financial
5.4 Suggestions for Further Research Incentives on Job Satisfaction of Teachers in
Public Secondary Schools.A survey of Kisii
Sub-county. Master of Science Thesis Jomo
This study recommends that further research should Kenyatta University of Agriculture and
be done to furnish the microfinance industry with Technology, Nairobi.
more information on how best non-financial [9] Atambo, W. (2014) The Role of Compensation on
compensation would be utilized for better results and performance in the Public Health Sector: A
better employee performance in the microfinance Survey of Kenya’s Public Hospitals in
industry. On the other hand, a study should be Selected Counties.PhD Thesis Jomo
conducted to establish how non-financial Kenyatta University of Agriculture and
compensation would be employed and fully Technology, Nairobi.
systemized to maximize accruing benefits and drive [10] Baard P.P., Deci, E. L., and Ryan, R. M. (2004)
strategic business growth in the microfinance Intrinsic Need Satisfaction: A Motivational
industry and in any other competitive industry in the Basis of Performance and well-being in two
ever-changing business world. Work settings. Journal of Applied Social
Psychology.Vol. 34 Issue 10 pp 2045 – 2068
[11] Babakus, E., Yavas, U., Karatepe, S. M. and
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Imperial Journal of Interdisciplinary Research (IJIR)

Vol-2, Issue-6, 2016

The Effect of Non-Financial Compensation on

Imperial Journal of Interdisciplinary Research (IJIR) Page 103

Imperial Journal of Interdisciplinary Research (IJIR) Page 104

Imperial Journal of Interdisciplinary Research (IJIR) Page 105

i. What are the different forms of non- CHAPTER TWO

Imperial Journal of Interdisciplinary Research (IJIR) Page 106

Imperial Journal of Interdisciplinary Research (IJIR) Page 107

Imperial Journal of Interdisciplinary Research (IJIR) Page 108

both. It is actually one way of dealing with the

Imperial Journal of Interdisciplinary Research (IJIR) Page 109

Imperial Journal of Interdisciplinary Research (IJIR) Page 110

Imperial Journal of Interdisciplinary Research (IJIR) Page 111

Imperial Journal of Interdisciplinary Research (IJIR) Page 112

Category (Years) population Sample Size 3.5 Pilot Test

Imperial Journal of Interdisciplinary Research (IJIR) Page 113

Imperial Journal of Interdisciplinary Research (IJIR) Page 114

Imperial Journal of Interdisciplinary Research (IJIR) Page 115

4.4.1: Aspects of Non-financial Compensation Used at WakenyaPamoja Sacco – Kisii.

Table 4.6: Aspects of Non-financial Compensation Used at WakenyaPamoja Sacco – Kisii

Aspects of Non-financial Strongly Agre Undecide Disagre Strongly ∑f ∑fiw ∑fiwi/∑f

From Table 4.6, the greatest number of employees

Imperial Journal of Interdisciplinary Research (IJIR) Page 116

Profitability 34 16 2 0 0 54 240 4.44

Efficiency 39 13 2 0 0 54 253 4.69

Effectiveness 37 11 4 2 0 54 245 4.54

Improved Service Delivery 38 13 2 1 0 54 250 4.63

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Table 4.9: The Effectiveness of Non-financial Compensation Systems on Organizational Performance.

Effectiveness of Non-financial Very Effectiv Neutra Ineffectiv Very ∑f ∑fiw ∑fiwi/∑

Participation and/Recognition 34 4 4 2 0 44 202 4.59

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compensation systems on organizational 5.1 Summary of the Findings.

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workplace environment, training, participation responses on the effectiveness of non-financial

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Imperial Journal of Interdisciplinary Research (IJIR) Page 123

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Pakistan, 12International Business Research [51] Locke E. (2004). Work motivation. In

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of Higher Education Policy and Facilities Management; ABI/INFORM

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