MANAGING EMPLOYEE INCENTIVES IN HOTELS IN XIAN CHINA Bruce Zhang Xibei MBA Student Hotel and Tourism Management Institute Switzerland ABSTRACT This paper focuses on analysing the employee incentive function, its operation and its impact factors in a sample of four and five star hotels in Xi’an, China. A qualitative approach was adopted. Interviews were conducted with Human Resource Managers in five hotels. Questions focused on the impact factors of employee incentive programmes. The findings show that two factors, training and a reasonable compensation plan, are considered as the most effective motivation methods. Issues of fairness also emerged as important. INTRODUCTION Over the next ten years, China is expected to be the fastest growing economy in the world. Its domestic and international tourism are both increasing and are making a significant contribution to economic recovery following the global financial crisis. It is forecast that by 2020, the travel and tourism economy will account for 9.6% of global GDP and 9.2% of total employment worldwide and that China's tourism industry will be the leader in tourism recovery and growth (WTTC, 2009). Cooper (2010) anticipates that by 2020 China will occupy a leading position in the world tourism market. As a consequence the hotel industry in China is developing rapidly. It is inevitable that there will be severe competition between hotels and hotel chains not only to gain a fair share of visitor numbers but also to recruit and retain the best staff. It is widely acknowledged that any organization is only as good as the people who work within it and, for a service organisation, the interaction between staff and the customers is crucial. The key to good hospitality service is excellent staff, and, for hotels to have excellent staff they must retain their best employees and ensure they deliver high job performances. However, the hotel industry has high employee turnover (Deery, 1999; Iverson and Deery, 2007). One strategy adopted by human resource (HR) managers to address this issue is to manage employee incentives (Baker, 2000). Effective employee incentive management can result in higher job satisfaction, better customer service, reduced recruitment and training expenses and improved profit (Cho et al, 2006). An effective employee incentive program can help change employee attitudes and lead to improved job satisfaction and job performance (Dermody, 2002). This paper explores the function, operation and success of employee incentive management programmes through a series of in-depth interviews with in a sample human resource managers of four and five star hotels in Xi’an, China. The objectives of the research were to investigate the historical and theoretical foundations for incentive management through an extensive literature review; to discover the issues involved in designing effective employee incentive systems; and to determine the views of HR managers on the incentive programmes used in their hotels. LITERATURE REVIEW There are many theories of employee motivation and much evidence that the motivated employee tends to show high work performance and organisational loyalty (Beardwell and Clayton, 2007; Latham & Pinder, 2005). The challenge facing HR managers is to devise strategies which effectively raise employees’ motivation and engage them with their jobs. Essentially, there are two main approaches to motivation theory: content and process theories (Beardwell & Clayton, 2007). Content theories of motivation focus on factors internal to the individual that energize and direct behaviour, for example Maslow’s hierarchy of needs (Maslow, 1943, 1987); Alderfer’s ERG model (Alderfer, 1972); and Herzberg’s motivator-hygiene theory (Hertzberg, 1987). While each theory differs in detail, all propose that motivation arises form an unsatisfied need. Maslow’s theory (Maslow, 1943, 1987) is built on a hierarchy of needs (physiological, safety, social, esteem and self-actualisation) and the argument that if needs at a lower level are met, then an individual will be motivated to satisfy needs at a higher level. Within the workplace, employees are motivated to meet their needs in a hierarchical fashion. Hence for example, if an employee earns sufficient money to satisfy basic needs, then money may not longer be a motivator, and other incentives must be offered to ensure motivation is sustained. Alderfer’s model (Alderfer, 1972) classifies needs into a continuum of needs (existence, relatedness and growth), and proposes that if needs in one category are met then individuals move to the next category, but if needs are not met, individuals may regress back along the continuum. Thus, if an individual is continually frustrated in attempting to satisfy growth needs, relatedness needs may reassume importance, that is if an employee’s growth needs are blocked, because their job environment does not provide promotion opportunities, then more money may be effective motivator. Herzberg proposed a theory of workplace motivation (Hertzberg, 1987) whereby sources of motivation are classified as motivators ( which include a sense of achievement, opportunities for personal growth, having responsibility and recognition) and hygiene factors (which include money, working condition, job security, company policies, quality of supervision and interpersonal relationships at work). Hertzberg argued that hygiene factors do not lead to job satisfaction, they only prevent dissatisfaction. Thus, pay, benefits, safety and other job- contextual factors may prevent dissatisfaction, but will not motivate employees to improve their work performance. The process theories of motivation focus on conscious human decision-making as a process which helps explain motivation and include expectancy theory (Vroom, 1964); equity theory (Adams, 1963); and goal-setting theory (Locke and Latham, 1984). Vroom (1964) argued that motivation depends on subjective evaluations of valence, instrumentality and expectancy and individuals choose the work behaviours they believe will result in the achievement of the specific outcomes they value. Thus, employees are motivated when they believe their efforts will improve their performance and lead to valued rewards. The equity theory of motivation (Adams, 1963) is based on the principle that employees compare their situations with others to assess fairness and if these comparisons (of the inputs, which include previous experiences and effort, the outputs, which include salary, performance related pay and praise) are perceived to be fair, then employees will be motivated to perform well; if comparisons are perceived as unfair and the situation persists, then the employee may leave. Locke and Latham (1984) argue that there is a positive relationship between goals setting and performance, hence an employee with a higher goal will do better than an employee with a lower goal; an employee with goals will perform better than someone who has no goal; and specific goals lead to higher performance than vague goals. Further, financial incentives can enhance performance by raising the level of a goal or increasing an employee’s commitment to a goal. As the various theories of motivation imply, money is not necessarily the major reason for employees to deliver their best performance on the job, other sources of motivation, or incentives, are important. Within the hospitality industry it is important to identify these sources. The main product of the hospitality industry is service. Angelo and Vladimir (1998) discuss several characteristics of service, which is a process composed of a series of people activities. The customer ultimately retains only an impression as production and consumption happen simultaneously and the quality of the encounter between the service provider and the customer should lead to customer satisfaction. Schlesinger and Zornitsky (1991) found evidence of a positive correlation between employee satisfaction and customer satisfaction ratings; and Schlesinger and Heskett (1991) suggest that antecedents such as improved employee incentives and training help increase employee satisfaction levels. Thus, effective employee incentive management can result in higher job satisfaction, better customer service, reduced recruitment and training expenses and improved profit (Cho et al, 2006). An effective employee incentive program can also help change employee attitudes and lead to improved job satisfaction and job performance (Dermody, 2002), which in turn is reflected in customer satisfaction (Schlesinger and Zornitsky, 1991). Incentives may take many forms. They may be financial, including commissions, bonuses, profit sharing and share options: part-financial, including pensions, meals and company cars; or non- financial, including holidays, sick pay and medical insurance (Boella and Gross-Turner, 2005; Cullen, 2001). Boella & Goss-Turner (2005) observe that managers use different ways to motivate employees and that not only is it important to motivate individual employees, it is also important to motivate and reward teams. Teamwork is important in hotel operations to ensure an overall satisfactory customer experience. Hence managers must be able to incentivise both individual employees and teams. Cordery, Mueller and Smith (1991) conducted a study comparing semi-autonomous work teams and traditionally organised work groups. They found that the semi-autonomous teams reported higher levels of freedom in their work, a characteristic associated with intrinsic job satisfaction, as well as extrinsic satisfaction and organisational commitment. Cordery et al (1991) concluded that employees in autonomous work groups develop more favourable work attitudes and levels of motivation. Jin (1993) examined the effect of work group formation in China, how the members of and found that work groups that had formed voluntarily reported higher levels of work motivation, higher cooperative intentions, better interpersonal relations, greater work satisfaction, had fewer disciplinary problems and produced higher quantity and quality work output than those groups formed by management. Crown and Rosse (1995) found that when group members were given individual goals, the group performed less well and were less motivated than when employees had group goals. Group-oriented goals were associated with more cooperative strategies better performance and better reported levels of motivation. Individual goals were associated with more competitive strategies that interfered with the group’s ability to perform and reduced levels of motivation. Feiertag (2005) has suggested that incentive programmes can be formalised in a psychological contract between employer and employee, that is “the beliefs, based upon promises expressed or implied, regarding an exchange agreement between an individual and, in organizations, the employing firm and its agents” (Rousseau, 2004:120). A major feature of the psychological contract is the concept of mutuality, there is a common and agreed understanding of the promises and obligations that the respective parties have made to each other about work, pay, loyalty, commitment, flexibility, security and career advancement (Beardwell & Clayton, 2007). Thus, mangers have to motivate people with incentives which go beyond the financial rewards for work. This study explores the approaches to employee incentive management adopted in a sample of Chinese hotels and the perceived effectiveness of the strategies implemented from the perspective of the hotels’ human resource managers. RESEARCH METHOD Of China’s 4861 hotels, 13.4% (650) are five-star, 1364 (28.1%) are four-star; and 31% are international hotels (Horwath, 2008). It is anticipated that the rate of growth of new hotel developments across China will slow down over the next few years, but in X’ian the rate of slowdown (between 0% and -5%) is lower than in many other regions (Horwath, 2008). This study was carried out with a sample of four- and five- star hotels in X’ian, China. Five hotels were chosen, on the basis of convenience sampling and interviews arranged with the HR manager in each organisation. Semi-structured interviews, carried out on a one-to-one basis, were conducted in Mandarin and subsequently transcribed into English. Interviews explored employee incentive management within the hospitality industry in general, in Xi’an and in their own hotel. The importance of motivating employees, the means of motivating employees and examples of effective employee motivators were also examined and the importance of money as a motivator was examined. Each interview lasted approximately 30 minutes. FINDINGS AND DISCUSSION All five respondents were female and each had at least 12 years experience in the hotel business, one had worked in hotels in Xi’an for 23 years. Hence there was a wealth of experience among the interviewees which lead to great richness in the data gathered. Confidentiality and anonymity was assured. An historical trend in the development of programmes of employee incentive management in Xi’an was identified by the interviewees. In the 1980s, there was no need for systematic incentive management in the Xi’an hotel industry because average salaries (140 RMB/month compared to an average of 50 RMB/month), the working environment (an air-conditioned and peaceful working environment with music in the background) and other benefits (free meals and hot showers for employees) meant that this work was very attractive and better than most other industries at that time. As respondent 5 said: If people had a job in 5 stars hotel, they all do their job best, because very strong competition between employees and they were afraid replaced by other [Respondent 5]. However, towards the 1990s, with the economy booming in China, average incomes increased and the hotel salaries were not so attractive then: With long working hours, big working pressures and low payment, employee incentive management become more and more important for maintaining staff and attracting talent people into hospitality industry [Respondent 3]. In the 1990s, hotels tried simple methods to motivate and reward employees, for example using “Excellent staff” and “Excellent team” rewards. However, while initially effective, problems emerged with this system as it became routine and the reward was shared around: This season is F&B, the second season supposed to be housekeeping. It doesn’t help employees’ motivation [Respondent 2]. The next stage in development was an open acknowledgement of the importance of people as individuals, training them to do their jobs and giving them career progression opportunities. This step was based on western motivation theories and HR management experiences combined with the characteristics of the Chinese employment market, evidence of this is seen in the following two quotations: Now we focus on people and create a hotel that gives people a sense of belonging [Respondent 2]. Training is the best motivation for employee from our hotel; training develops employees’ personal skills and also helps their future careers [Respondent 1]. There was an acknowledgment that the majority of hotel employees in Xi’an came from normal families and did not have high education levels. They took jobs in hospitality because they were straightforward, however the factors which most impacted on them tended to be the long working hours and high working pressures. Some employees were content to stay in their current jobs, welcoming the stability offered in a secure job. This particularly applied to older working females. On the other hand, others, particularly young employees, welcomed change and challenge. Managers shared common views about salary. For all employees, their salary is acknowledged as not only a recompense but also an encouragement to hard work in future. Salary is not only income but also a representation of personal worth. Some hotels had performance-related salary scales (for example in sales and marketing) and others had special position allowances (for example for security staff, engineers and IT personnel). A reasonable salary system not only can inspire enthusiasm and initiative of the existing employee but also can help the organization to attract excellent new staff. T Most hotels operated included a loyalty element to salary scales, whereby salary is linked to length of service. This is another strategy to tackle issues of labour turnover. These findings establish that designing and establishing rational compensation systems can help the strategic development of the hotel. This is very significant for domestic hotels in the current fiercely competitive environment. The issue of respect arose in a number of interviews and there was a general feeling that managers should demonstrate: Management by example, a good manager should always set a good example for employees [Respondent 4]. Employees relied on their managers to give them direction and encourage them: Managers should respect employees, communicate with staff frequently. Commend staff performance and praise staff achievement [Respondent 3]. Managers felt they should also be aware of employee potential and offer opportunities for training and promotion where appropriate. Training can raise the capabilities and quality of employees and increase the hotel’s competitiveness by equipping employees to do their jobs and opening up new employment opportunities. Training is what most HR managers considered to be the most effect instrument of an employee incentive management contributing to job satisfaction and loyalty to the organisation. However, employees must devote themselves to training or face the consequences, in other words, they must show some return to the hotel for the investment made in them. As this manager said: In our hotel, employees have lots of training opportunities, after training we have training evaluations for staff, if an employee’s results are not as expected we give them a second chance to do the training again. Those who fail have to be replaced or moved to a lower position. If employees have done an excellent training program, they get more chances to be promoted [Respondent 1]. One manager emphasised that employees want to take on training courses to improve their knowledge and skills and, ultimately, to get promotion to a more interesting job and its associated increased salary. In our hotel, the situation is our employees want to learn, instead of hotel wants them to learn [Respondent 4]. Training became particularly important as China’s economy grew, hotel development increased and the demand for talented staff rose. The prospect of training is a valuable asset in recruitment. Many managers emphasised the important of continuing to learn and develop throughout life. Also, in order to retain their best staff, hotels had to offer incentives which would encourage them to stay and staff had to know that there were opportunities available for promotion. At one hotel the preferred option was to promote staff internally where 70%-80% of promotion was by internal replacement. Promotion was widely viewed as the most effective method for motivating employees. However caution is needed in some circumstances, as illustrated by this manager: In our hotel, we not only have recruitment interviews for employees, but also leaving interviews for staff. These may helps us to find out for what reason our employees changed jobs to another company. The strange thing is that we had an employee who had served within our hotel for nine years in the laundry room. His performance was excellent during his time. So the management had decided to promote him to Laundry Manager. However, after only one and a half months, he proposed to leave or go back to his previous job. This was because it was really hard for him to handle the relationship with colleagues in his new position [Respondent 2]. In this quotation, Respondent 2 raises the issue of teamwork, which cropped up frequently in interview discussions. All five managers supported group incentives and group rewards for doing the job, however there was consensus among three managers that in addition exceptional performances by individuals should lead to individual rewards. These two perspectives are summarised in the following quotations, the first of which is an amalgam of the views of all five managers, the second reflects the views of three of them: Group benefit means that every single employee obtains a reward such as an endowment insurance, medical insurance, unemployment benefit, accident insurance in work, lodging accommodation funds, uniform, staff meals, festival gifts or birthday gifts etc [Respondents 1,2,3,4,5]. Personal benefits depend on an employees’ performance. An excellent employee may have the chance to obtain a holiday, a trip, an announcement, honour an honorary title or special financial rewards [Respondents 1, 2, 3]. Regardless of the level at which employees worked in the hotel, managers believed they needed to know they worked within an organisation with a clear organisational structure which incorporated a fair and open operation policy and reflected the culture of the organisation. Every international hotel chain has its own culture, which differentiates it from its competitors and which creates an environment within which employees feel they belong. Managers were proud of their culture and acknowledged its importance and distinctiveness: You may copy our operation, but you cannot copy our culture [Respondent 2]. Culture is our spirit; you can feel it but cannot make yours the same [Respondent 3]. However, it is not only the intangible culture of a hotel which influences employee motivation and loyalty. Relationships with colleagues are important and they too need to be based on respect and trust, as summarised by: When hotel employees respect each other, trust each other, and help each other, this promotes teamwork. Good colleagues’ relationship creates a sense of belonging [Respondent 2]. The working environment needs to provide the facilities and equipment needed to do the job and to be perceived by employees as safe and secure. One manager asserted: A good working environment can make people work better [Respondent 5]. The concept of the psychological contract emerged in interviews with managers, this is the invisible contract between the employer and employee, which impacts on and influences their mutual responsibilities to each other. Each and every employee’s expectation are different, some need a good working environment, some want harmonious relationships with others, some focus on achievement, some simply prefer a good salary, but basically much of the implementation of the psychological contract is seen as based on the concept of fairness. No incentive scheme can ignore or avoid issues of fairness. Since there are no absolute criteria against which to measure fairness, employees compare themselves with others to assess fairness. Therefore, whether the rewards are fair in comparison to what others have received will influence the level of motivation and the efforts put in by employees. Employees compare their levels of input and output of effort with other employee’s levels of effort. The key is not how much they have attained, but whether the reward considered as fair. However, managers agreed that this was an extremely difficult issue to address and one admitted: There is not always fairness in employee incentives but fairness doesn’t mean each and every employee has to have equal rewards. The reward has to depend on position, performance, responsibility and contribution. However the methods of evaluation have to open to all employees to enable them to understand which factors and characteristics influence the assessed result [Respondent 3]. CONCLUSION A number of conclusions emerge from the findings. First, one of the drivers for the introduction of employee incentive management has been the rapid development of the hotel industry in China, and in X’ian province in particular. Second, the aspects of employee incentive schemes which are most important include salaries, leadership, training, opportunities for promotion, organisational structure and culture, relationships with colleagues, the working environment and benefit and bonus schemes. Third, an adequate compensation plan based on the concept of perceived fairness is essential, however this does not imply that there is absolute equality between all employees. These conclusions are consistent with the work of Boella & Goss-Turner (2005) Feiertag (2006) and others, thus suggesting that within the hospitality industry, Chinese hotels are seeking to address significant issues in the management of their human resources. The findings are however, limited to a very small scale study within a small area of a vast country, hence although they may offer insights into developments in X’ian further research would be required before the findings could be generalised to other regions or other employment markets. 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