REWARD STRATEGIES THAT AFFECTING TURNOVER INTENTION OF MANUFACTURING

INDUSTRY IN KUCHING

Susan Thian Su ~huang

Corporate Master in Business Administration 2013

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APPROVAL PAGE

I certify that I have supervised and read this study and that in my opinion it conforms to

acceptable standards of scholarly presentation and is fully adequate, in scope and quality,

as a research paper for the degree of Corporate Master in Business Administration.

Associate Professor Dr. Kartinah Ayupp

Supervisor

The research paper was summited to the Faculty of Economics and Business, UNIMAS

and is accepted as partial fulfilment of the requirements for the degree of Corporate

Master in Business Administration.

Dr Mohamad Affendy Arif

Dean, Faculty ofEconomics and Business

UNIMAS

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DECLARATION AND COPYRIGHT

Name : SUSAN THIAN SU ZHUANG

I Matric Number : 12030003

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I hereby declare that this research paper is to the best of the author's knowledge that of

the author except where due reference is made.

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: Date:

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© Copyright by Susan Thian Su Zhuang and UNIMAS

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ACKNOWLEDGEMENT ,

This research study is mainly focusing on the influence of reward strategies that affecting

turnover intention of manufacturing in Kuching. It will not be completed successfully

without the concerted efforts of various individuals and I would like to give my heartfelt

thanks to my lecturer, respondents, friends and family members.

First and foremost, I would hke to express my highest gratitude to my supervisor,

Associate Professor Dr. Kartinah Ayupp who has guild, encourage and gave abundance

information for me in completing this research study. Without her help and guidance, this

research will not meet its completion deadline.

Next, heartfelt thanks to my family members for providing help, support and guidance

while completing this research study. They kept me motivated all the time which made it

possible for me to complete my research study with full commitment.

Nevertheless, this research study cannot be completed without the cooperation of the

respondents who sacrifice their precious times for completing the questionnaire.

Throughout the whole process, I have learned how to get along with different respondents,

work to get things done efficiently, and complete it before the due date. Again, thank you

to all the individuals that have made this research study possible. Without your

cooperation, this study might not be successful.

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ABSTRACT

( Retention of skilled employees has become strategic and critical to sustainable

competition among organizations especially in the manufacturing industry. Globalization

has tremendously ephanced mobility of skilled individuals, thereby accelerating the rate

of employee turnover in organizations. Given the high costs of turnover and its

destructive tendency, it has become imperative for managers to identify retention

variables that constantly and influence the decision of valuable employees to have a

longer tenure in an Organizati~

This research proposal titled "Reward Strategies that Affecting Turnover Intention of

Manufacturing Industry in Kuching" seeks to investigate the relationship between

rewards and employees' turnover intention among the manufacturing industry that

located in Kuching. This study also examines how rewards such as pay, promotion and

recognition would influence intention to quit the job. The research is specifically

conducted among employees in Cahya Mata Sarawak Berhad and Its Group of

Subsidiaries (CMS), Kuching. Primary data will be collected from 200 employees using

questionnaire methods. This research paper is important as the findings, results will

establish a good reference for a more systematic, and structured approach to acknowledge

employees' efforts and find out the most appropriate reward strategies that should be

implemented to reduce the high turnover rate of the key employees in CMS. It may also

used to tackle the problem oflow job performance by revising the company's work ethics,

policy and so forth in the future.

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ABSTRAK

Pengekalan pekerja mahfr merupakan salah satu isu yang amat strategik dan kritikal

terhadap persaingan yang berterusan di kalangan organisasi tenttamanya dalam

industri pembuatan. Globalisasi yang semakin ketara meningkatkan mobiliti pekerja

mahir. Hal ini akan mempercepatkan kadar peninggalan pekerja. Memandangkan

peninggalan pekerja melibatkan kos yang tinggi and implikasi buruk kepada organisasi,

pengurus perlu mengenalpasti cara dan kaedah yang sesuai untuk mengekalkan pekerja ,

terutamanya pekerja yang mahir dan berbakat.

Tajuk penyelidikan ini ialah "Strategi Ganjaran yang Mempengaruhi Niat Meninggal

Organisasi dalam Industri Pembuatan di Kuching". Penyelidikan ini bertujuan untuk

mengkaji hubungan antara ganjaran dan niat peninggalan pekerja dalam industri

pembuatan di Kuching. Kajian ini juga mengkaji kesan ganjaran seperti gaji, kenaikan

pangkat dan pengiktirafan dalam mempengaruhi niat untuk berhenti kerja. Kajian ini

secara khusus dilaksanakan di kalangan pekerja dalam Cahya Mata Sarawak Berhad

and Its Group of Subsidiaries (CMS), Kuching. Data akan dikumpul daripada 200

pekerja dengan menggunakan kaedah soal selidik. Keputllsan penyelidikan ini membantu

pihak pengurus untuk memperkenalkan pendekatan yang lebih sistematik, menghargai

usaha pekerja dan memahami strategi ganjaran yang paling sesuai sllpaya kadar

peninggalan pekerja boleh dikurangkan. Kajian ini juga membantll untuk menangani

masalah prestasi pekerjaan yang rendah pada masa depan dengan mengkaji semula

etika kerja, polisi dan sebagainya.

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Pusat Khidmat Maklumat Akademik UNlVERSm MALAYSIA SARAWAK

TABLE OF CONTENTS

CONTENT PAGE

APPROVAL PAGE

DECLARAnON AND COPYRIGHT 11

ACKNOWLEDGEMENT III

ABSTRACT IV

ABSTRAK V

TABLE OF CONTENTS VI

LIST OF TABLES XI

LIST OF FIGURES Xli

1.0 GENERAL INTRODUCTION AND OVERVIEW OF THE STUDY

1.1 Background of Study 1

1.2 Statement of the Problem 2

1.3 Objectives of the Study 4

1.3.1 General Objectives 4

1.3.2 Specific Objectives 4

1.4 Significance of the Study 4

1.5 Definitions of terms 5

1.5.1 Rewards 5

1.5.2 Turnover Intention 6

1.6 Scope of Research 6

1.7 Organization of the research paper 7

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2.0 LITERATURE REVIEW

2.1 Introduction 8

2.2 Rewards 9

2.2.1 Pay 14

2.2.2 Promotion 15

2.2.3 Recognition 16

2.3 Employee Turnover Intention 17

2.4 Proposed Theoretical Framework 19

2.5 Proposed Hypotheses 20

2.6 Underlying Theory 20

2.7 Previous Studies of Researches 24

2.8 Concluding Remarks 26

3.0 RESEARCH DESIGN AND METHODOLOGY

3.1 Introduction 27

3.2 Research Design and Procedure 27

3.2.1 Type ofStudy 27

3.2.2 Purpose ofthe Research 27

3.2.3 Units ofAnalysis 28

3.3 Subject of the Study 28

3.4 Methodology Used in the Study 29

3.4.1 Data Collection Techniques 29

3.5 Questionnaire Construction 30

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3.5.1 Wording ofQuestions 30

3.5.2 Physical Characteristics ofthe Questionnaire 31

3.5.3 Questionnaire Design 34

3.5.4 Types ofquestions asked 34

3.6 Sampling Techniques and Sample Size 35

3.7 Pilot Testing 35

3.8 Statistical Data Analyses 36

3.8.1 Descriptive Analysis 36

3.8.2 Validity and Reliability 37

3.8.3 Factor Analysis 37

3.8.4 Correlation Analysis 38

3.8.5 Regression Analysis 39

3.9 Problems Experienced with the Research 40

4.0 ANALYSIS AND RESULT

4.1 Introduction 41

4.2 Samples and Profiles 41

4.3 Reliability of Measurement 44

4.4 Factor Analysis 45

4.5 Hypotheses Testing 46

4.5.1 Correlation Analysis 46

4.5.2 Multiple Regression Analysis 48

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5.0 DISCUSSION AND CONCLUSION

5.1 Introduction 51

5.2 Recapitulation of the Study 51

5.3 Discussion of Major Findings 52

5.4 Implications 54

5.4.1 Managerial Implications 54

5.5 Limitations 57

5.6 Future Research 58

5.7 Conclusion 59

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61 REFERENCE

APPENDIXES

APPENDIX A: QUESTIONNAIRE 70

APPENDIX B: FREQUENCIES 73

APPENDIX C: RELIABILITY TEST 76

APPENDIX D: FACTOR ANALYSIS 79

APPENDIX E: CORRELATION ANALYSIS 82

APPENDIX F: MULTIPLE REGRESSION ANALYSIS 82

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LIST OF TABLES

Table Description

Table 2.1 The Importance of Rewards Strategy in 2005 Compared to 2003 13

Table 2.2 Studies of Previous Researches 24

Table 3.1 CMS Employees that Based in Kuching 29

Table 3.2 Questionnaire Source and Validity 34

Table 3.3 Calculation Matrix for Stratified Random Sampling 35

Table 4.1 Profile of the Respondents 43

Table 4.2 Results of Reliability Analysis 45

Table 4.3 Results of Factor Ana]ysis 46

Table 4.4 Pearson's Correlation Coefficients of the Study Variables 47

Table 4.5 Results of Multiple Regressions 49

Table 4.6 Summary of Hypotheses Testing 49

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LIST OF FIGURES ,;

Figure Description

Figure 2.1 Hierarchy of Needs Theory 11

Figure 2.2 The WorldatWork Total Rewards Model 12

Figure 2.3 Proposed Theoretical Framework 20

Figure 2.4 The Causal Model of Intent to Leave 21

Figure 4.1 Results of Multiple Regressions 49

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CHAPTER 1

GENERAL INTRODUCTION AND OVERVIEW OF THE STUDY

1.1 Background of Study

Malaysia is rolling into exuberate economic development and industrialization, resulting

in an astonishing structural transformation in production and trade. Playing a major role

to achieve the New Economy Policy, manufacturing industry generates the most

substantial export revenues to Malaysia. (Department of Statistics, Malaysia, 2011) The

manufacturing industry was expected to grow 4.2% with the recovery in environment and

energy demand from the US and Euro area. (Elwell, 2013)

New era of globalization which transformed by political, economIC, social and

technological changes have created new 'competitive environment to the manufacturing

industry. To enhance its competitiveness and efficiency in productivity, manufacturing

industry with its origins workforce focused on managing masses of low skilled workers

has gone through an evolution that emphasize on talent management. One of the greatest

challenges in talent management is to reduce the turnover intention among the employees.

Turnover is one of the most researched phenomenons in organizational behavior (Perez,

2008). The typical focus in those researches was on employees leaving and voluntary

turnovers. The wide ranges of turnover studies signal the interest towards the significance,

complexity and impacts of the turnover problem. However, the underlying concept that

lead to turnover is turnover intention which also known as voluntary job mobility. A

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number of recent researches have assessed and explored the role of turnover intention in

anticipating and understanding of actual turnover (Perez, 2008). Turnover intention

therefore will be used as the dependent variable instead of turnover in this research paper.

Turnover intention is report to be highly correlated with actual turnover. It is imperative

to identify turnover intention to enable the management to determine the reward factors

that is influential in reducing the turnover among the employees.

The studies on the contribution of rewards to turnover intention in manufacturing

industry are still relatively limited. This is essential to the manufacturing firms since they

have to face intense competition both from local and international organizations. This

circumstance has as well increased the rivalry for talent of which many manufacturing

companies work out every quomodo to retain the employees. This study aims to

determine the rewards that may drive down the turnover intention among the employees.

1.2 Statement of the Problem

The ability to recruit, exploit and retain the talent has form the key advantage or

differentiator for firms to compete and sustain in today's highly competitive business

environment. (Samuel, 2008) In other words, the success of manufacturing companies in

achieving the goals and objectives heavily relies on the employees' performance. This

has lead to the intense competition on talents as they are in short supply and attracted by

several organizations with different type of rewards. With rapid changes stirring all over

the world, there is an essential need for the organizations to reassess, re-evaluate and

improve the current management in terms of communication, tasks organization, system

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designation, and so forth in consideration of the employees needs, perspectives, thinking

and the ways they value the company. Rewards management is a key strategic

consideration for all organizations regardless of size, sector, market or profile.

Turnover had become one of the major contributions to the diminishing organizational

productivity. Highly competent employees are migrating from domicile to overseas or

hifting to other organizations for better-paid jobs. The employees always move with

their client assets when they migrate or shift away and this affects investment of

manufacturing activities. According to one of the executives in Human Resources (HR)

department of Cahya Mata Sarawak Berhad and Its Group of Subsidiaries (CMS),

employees' turnover rate is approximately 25% on average compare to last year at 20%.

HR department claimed that there are at least two employees resigned within a month and

this situation is estimate to getting worst in the future. Lack of interaction, loyalty and

continuity of employees may incur high costs to the organization in recruiting, analyzing

and training the right employees for the right position at the right time, and this is

especially critical when the turnover involve vastly expertise and knowledgeable

employees.

Consequently, management has to formulate inventive ways of retaining well-performed

employees to avoid frequent employment that involve high cost and time consuming.

(Samuel, 2008). Hiring the right employees and best talents are unproductive if there are

no appropriate intrinsic and extrinsic rewards to retain them. With such verification, the

management needs to establish suitable rewards strategies to prevent turnover intention

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among the employees. This study will facilitate the sustainable and steadfast reward

strategies that can effectively reduce turnover in manufacturing industry. Consequently,

the elementary question addressed from the above-mentioned view of points is what

reward strategies may influence employees' turnover intention in the manufacturing

industry?

1.3 Objectives of the Study

The objectives of this research are to tackle the problem statement of manufacturing

companies as below:­

1.3.1 General Objectives

)0> To study the relationship of rewards towards the employees' turnover intention.

1.3.2 Specific Objectives

~ To identify the influence of rewards such as pay, promotion and recognition

towards the turnover intention.

To identify the dominant reward factor that contributes to retain employees.

1.4 Significance of the Study

The present study will identify and recommend reward system that has an effect on the

turnover intention in the manufacturing sector. The study outcome shall significantly

develop and improve the knowledge edge to the current literature studies on rewards and

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Pusat Khidmat Maklumat Akademik UNlVERSm MALAYSIA SARAWAK

turnover intention. Furthennore, the research findings will be practical in the

development and implementation of effectual policies on employee's retention. Thus, the

significance of this study is that it provide outlook and perspectives on the type of

rewards employees value the most, their behaviors and preferences towards the rewards.

The reward management system is likely to retain the talent successfully if it matches

with the employees' needs and desires. To conclude, the overall study will be useful in

exploring the employment and inspiration potential of the reward system in

manufacturing companies to reduce the turnover intention.

1.5 Definitions of terms

1.5.1 Rewards

Rewards consist of the returns in response to employees' contributions for their work,

efforts, time and perfonnance. The rewards strategies that will be study thoroughly

throughout the research proposal are as below:

> Pay

Pay is such as basic salary, bonus, incentives, allowances and so forth that provided by

the employer to employee for their input provided such as time, skill, effort and so forth.

This includes both fixed pay and variable pay' based on the contribution and level of

perfonnance.

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~' 1 ......--------------------~--------------------~---------,.

» Promotion

Promotion is categorized into two: Promotion to a higher job grade level and Promotion

to a higher position with great increment in fundamental pay. A promotion to a higher job

grade level enhance the employees to move further up in term of grade rank under the

same positions, job description and salary schedule. On the other hand, a promotion to a

higher position modifies the employee to gain more authority, responsibility and higher

pay compare to the existing position.

» Recognition

Recognitions are acknowledges towards employees' efforts or positive performance. The

examples are such as verbal recognition, trophies, certificates, plaques, dinners, tickets

and so forth. It fulfills the inherent psychological needs such as gratitude and support by

strengthening such behaviors that may lead to the success of the organization.

(WorldatWork - The Total Rewards Association, 2011)

1.5.2 Turnover Intention

Turnover intention is define as emptoyees' intention to relinquish the current

organization (Ali, 2008) and a conscious willfulness to seek for other alternatives in other

organization (Aondoaver Ucho, March).

1.6 Scope of Research

This research intends to study the major rewards that affect the turnover intention within

the manufacturing industry. However, the coverage of this study is delimitating to the

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geographical location of Kuching only and the sample is taken from one conglomerate­

manufacturing firm only i.e. CMS due to it is one of the major manufacturing players in

Sarawak. According to Pehin Sri Haji Abdul Taib Mahmud, CMS has played significant

roles in leading the State to undergo quick transformation from an under-developed State

to one whose development and living standards are comparable to the best in Malaysia

over the last 30 years. (Cahya Mata Sarawak Berhad, 2005-2013) This research will

mainly conduct using secondary sources and empirical investigation via questionnaire.

Future research may need to assess and examine a wider scope of study in terms of

location and sample.

1.7 Organization of the research paper

This dissertation organized into five (5) chapters. Chapter 1 is the prologue part that

explains about the study backgrounOd, the problem statement, the objectives, the

significance of the study, the scope and the definition of the terms. Chapter 2 discuss

about the literature review that presents pertinent sources related to this research and

further discuss on the proposed theoretical framework and hypothesis based on the past

researcher fmding to be applied and adopted to the subject of the study. Chapter 3 will

discuss about the research design, methodology used and the rationale behind the choice

whereas Chapter 4 will convey the result of the' analysis. Finally, Chapter 5 will provide

the conclusions, recommendations, limitation and suggestion for future research.

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CHAPTER 2

LITERATURE REVIEW

2.1 Introduction

Faced with increasingly volatile operating environments, organizations are under pressure

to manage costs, including human capital investments. Preceding researches have shown

that contented employees will be more likely to stay in the organization compare to those

who are dissatisfied. The manufacturing firms can reduce turnover intention by predicting

and implementing the rewards that will contribute to job satisfaction. By assessing and

applying the proper rewards to improve job satisfaction, the management can probably

increase positive outcome such as employees' performance and satisfaction. Investigating

the employee's value-perception can aid in building effective reward strategies to achieve

low turnover intention among the employees. Most of the existing literatures highlighted

lack of recognition, promotion and compensation system always forms the major motives

for employees' turnover.

In the face of this challenge, it is more important than ever to invest reward spend for

maximum return. The main purpose of this chapter is to further define and inspect the

relationship between rewards strategies and turndver intentions from several perspectives

and dimension, which include the theories developed and literature reviewed by other

researchers.

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2.2 Rewards

Reward inclusive of pay, promotion, recognition, benefits, praise and so forth which

offers by the firms to the employees in return of their time, contributions and

perfonnance that are expected by the employers. Rewards provide enduring impression

and support the discernment that employees valued. As compared to the organizations in

the relevant industry, organizations that are more dedicated to the employees will be

more concern about the turnover issue and make further investment in reward packages

to retain the talent. The linkage between rewards and employee turnover intention give

insights on the thinking and perceptions of the employees towards their work and rewards

matters.

The expectancy theory presented a comprehensible prophecy for turnover behavior.

Employees determine whether to stay" or leave the company as well as the degree of

efforts to be put into the job. These decisions are depend on the realization of employees'

expectations. The employees will search for alternative employment opportunities when

their expectations are not met by the organization. The expectancy theory remains

important for the management to figure out what rewards have valence for individual

employees. Impartiality is one of the key components for the organizations' reward

system. Superior performers should receive mare desired rewards than other employees

to motivate them to higher performance. Talent management that implements reward

practices also help in keeping the talent. Management should define realistic goals, set

clear reward expectancies and provide the right rewards to motivate their subordinates.

The expectancy theory suggests that individual employees should be permitted to decide

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the rewards they desire rather than a general application since different people have

different needs and are motivated by different valences. All employees have different

needs and desires so organizations should implement flexible reward system to ensure

effect.ive motivation towards different individuals (Samuel, 2008). This entails the

providing of choices in terms of the various rewards received by employees in return for

their contributions rendered to the organization. Reward systems should be designed in

varieties and abundance with contribution from individual employees whose needs

diverge based on the socio-cultural, psychological, environmental and economic

backgrounds. These rewards may include subsidized meals, stock grants and club

membership or training development opportunities, to name a few.

Another theory that supports the importance of rewards is the Hierarchy of Needs Theory

as shown in Figure 2.1, which stated that individuals comprise of five essential needs at

different times (McLeod, S. A., 2007). The three assumptions to be based on include:

unsatisfied needs will stimulate motivation; physiological needs must be satisfy first

before shifting to the following needs in the Maslow hierarchy; human needs array from

the superbly crucial to additional multifaceted.

Maslow's theory identifies the following five categories of needs that are in relation with

rewards strategies:

Physiological (biology) needs - Pay is always the major concern for employees as

it fulfil the basic needs such as food and clothes.

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afety (security) needs - In organizations, this level of need include employees'

needs for job security, safe working conditions, benefits, insurance retirement

plan and so forth.

Social needs - The employees seek to fulfil their social needs such as

companionship, love and belonging through official and unofficial activities.

Esteem needs - This needs satisfy one's sense of worth and accomplishment in

telms of reputation, recognition, status symbol and promotions that reflect.

Self-actualization needs - Individuals have to focus on self-fulfilment once the

other needs are satisfied. Seeking to apprehend one is full potential, increase

knowledge or skills, be creative, or simply "be the best I can" are manifestations

of this need in both personal and professional life.

Figure 2.1: Hierarchy of Needs Theory

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self-esteem. confidence. achievement.

rpc:.np,~t of other's. respect by

Source: McLeod, S. A. (2007).

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