TITLE: EFFECT OF INCENTIVES ON SERVICE QUALITY AND EMPLOYEE

PERFORMANCE. A STUDY OF SELECT UP-SCALE RESTAURANTS IN WEST BENGAL.

By

Amitabh Dey
Professor/Research Scholar
Principal – NSHM School of Hotel Management
Arrah, shibtola, Durgapur – 713212
TEL: +91-9933049428
MAIL ID: amitabh.dey@nshm.com

P.R.Sandilyan
Professor/Research Scholar
NSHM School of Hotel Management
Durgapur-12
Tel: 03432533813/14/16
Mail ID: ganesh_pr2001@yahoo.co.in

Gautam Bandopadhyay
Assistant Professor

National Institute of Technology

(Deemed University)
Durgapur
Tel: 03432544805
Mail ID: math_gb@yahoo.co.in

Manojit Mitra
Research Scholar
National Institute of Technology
(Deemed University), Durgapur
Tel: 03432544805
Mail ID: manojit.mitra@nshm.com

Banarsidas.doc.Amitabh.Sandy.GB.Manojit on 10/11/2010 Page 1 of 13

TITLE: EFFECT OF INCENTIVES ON SERVICE QUALITY AND EMPLOYEE

PERFORMANCE. A STUDY OF SELECT UPSCALE RESTAURANTS IN WEST BENGAL.

0.0 Abstract

It has always been accepted and agreed upon that quality comes at a cost. This is true for service

quality also and applicable to the hospitality industry likewise. In modern days, Human Resource

Managers have recognized the need to keep well motivated employees to maintain quality

standards in service delivery. The aim of this study is to describe the role between Incentives

with employee performance and quality of service delivered. Change of employee‟s performance

and service quality due to incentives are examined to pave the way for further study and

research.

The best way to keep employees well motivated is by means of Incentives and most

organizations understand and apply this to get the best from their employees. The nature of

Human Resource practices in the catering and Hospitality Industry is reviewed and how

incentives affect the performance of employees and service quality is studied. This literature and

sample data based research will offer insight into the relation between performance of employees

and incentives. This will help Human Resource Managers to plan and adopt appropriate methods

to motivate employees and get the best results in terms of performance and service quality.

Determining appropriate incentive standards would be easier.

The literature concerning Human Resource Management and performance is briefly reviewed,

and its relevance to Hotel Industry and service quality and performance is addressed. Service

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Quality is indicated as a performance indicator in line with incentives and rewards. The need for

additional research is identified.

0.1 Key words

Incentives, Human Resource Management, Hospitality, Service Quality, Employee Performance.

0.1 Research Goal

The aim of this study is to describe the relationship between Incentives with employee

performance and quality of service delivered. Commitment of employees and workplace

attitudes are examined to pave the way for further study and research.

1.0 Introduction

Human Resource has been identified by most Human Resource Managers and Employers

globally as the most essential ingredient necessary for the success of any business. This belief

holds good for the Hospitality Establishments also. Hospitality organizations thrive on the

customer‟s perception of value for money in terms of amenities and service. Service being a

perishable and intangible commodity it goes without saying that it is more difficult to measure

and track. This challenge is unique to service product organizations worldwide and each one has

developed a yardstick to study and track the performance of their employees in accordance to the

location and market where they operate. In West Bengal also the HR managers face a similar

challenge and strive to meet the ever increasing demands of the modern day traveler and

customers. India being a labor market and West Bengal being one of the slower developing

areas, the challenge before the HR managers in this area is huge. They have to match the

Banarsidas.doc.Amitabh.Sandy.GB.Manojit on 10/11/2010 Page 3 of 13

available talent pool with the cost structure permitted by the organization and thus ensure to

strike a balance between the two. This study is mainly to ascertain how far the efforts of these

employers and HR managers in this region have been successful in achieving the expectations. A

total of twelve establishments falling across various category cities in the region have been

examined for this study. There were some essential hypotheses that were examined for the

purpose of this study. Firstly it was taken that the rewards and incentive packages in metro cities

would be higher and more suited to meet the expectations of the employees because the

employees had plenty of options to switch jobs. Secondly it was taken that rewards and

remuneration had a direct bearing on employee performance and service quality. Thirdly it was

expected that service quality standards and expectations of customers in metros would be much

more as compared to the customers of smaller cities and towns. Lastly it was assumed that

employer expectations in terms of delivery in metros would also be higher as compared with the

smaller cities.

2.0 Review of Literature

P Joshi & D. N. Venkatesh, (2006) (H. R Management Pg 325, Remuneration centers around

factors such as job complexity, the company‟s ability to pay, and executive human capital.

Zeithaml, Bitner and Gremler, 2006, Services are characterized by intangibility, heterogeneity,

inseparability and perishability.

C.B Mamoria, S.V. Gankar, Personnel Management Text and Cases Himalaya Publishing House

Page No 460 Chapter 17, Incentives – Different people value things differently. Enlightened

managers realized that all people do not attach the same value to monetary incentives, bonus,

Prizes or trips. Employee views these things differently because of age, marital status, economic

Banarsidas.doc.Amitabh.Sandy.GB.Manojit on 10/11/2010 Page 4 of 13

need and future objectives. However, even though employee reactions to incentives vary greatly,

incentives must have some redeeming merits.

C.B Mamoria, S.V. Gankar, Personnel Management Text and Cases Himalaya Publishing House

Page No 491, Chapter 18, Employee Benefits and services – It is important to note that

„financial‟ incentives are paid to specific employees whose work is about standard. „Employee

benefits and Services‟ on the other hand, are available to all employees based on their

membership in the organization.

These benefits are usually known as “fringe benefits” – as they are offered by the employer to

the employee as a “fringe”. Different terms have used for these benefits such as, “ fringe

benefits”, “ Welfare benefits”, “ Wage Supplements”, “Subwages” or “ Social Charges”.

C S Venkata Ratnam, BK Srivastava, Persannel Management And Human Resources, Tata

McGraw-Hill Publishing Company Limited, New Delhi, Pay and Benefits Chapter 8, Page no

169, Pay and benefits constitute an important element in human resource management. A

number of considerations like theoretical, public policy and legeal framework, company

objectives, labour market situation, pressures from unions and competition, etc. impinge upon

policies and programmes concerning pay and benefits. Job evaluation and pay surveys provide

the basis for a systematic approach to the subject.

A.M. Sarma, Understanding Wage System, Himalaya Publishing House, Wage Incentives

Chapter 5, Page No 95 Ninth Revised Reprint 2009, The term “incentives” has been used both in

the restricted sence of participation and in the widest sence of financial motivation. The concept

of incentive implies increased willingness or motivation to work and not the capacity to work. It

refers to all the plans that provide extra pay for extra performance in addition to regular wages

Banarsidas.doc.Amitabh.Sandy.GB.Manojit on 10/11/2010 Page 5 of 13

for a job. Under this programme, the income of an individual, a small group, a plant workforce

or all the employees of a firm are partially or wholly related to some measure of productive

output.

3.0 Methodology

A questionnaire was framed and administered to employees of the service industry from select

establishments in West Bengal to collect their responses on the relation between Incentives and

rewards on their performance and service quality. The data so collected was initially scanned and

verified. Further statistical and mathematical tools were used to establish the relationship

between Incentives and rewards with employee performance and service quality. The outcome of

the analysis was studied and elaborated to draw appropriate conclusions. Initial Factor analysis

confirmed the fact that with the exception of one question where the answer was overall similar,

(Question on the effect of incentives and rewards on the performance of employees and service

quality) there was a divide in the opinion of employees in the rest of the questions.

4.0 Data Analysis

Here the average of the responses collected from about hundred employees on their views on

Incentives and its effect on service quality and employee performance was first calculated and

analyzed using various parameters of age, income group, qualification, gender and location. The

output of the analysis is as follows:

CROSSTABS
/TABLES=age BY income
/FORMAT=AVALUE TABLES
/STATISTICS=CHISQ
/CELLS=COUNT

/COUNT ROUND CELL.

Crosstabs

Banarsidas.doc.Amitabh.Sandy.GB.Manojit on 10/11/2010 Page 6 of 13

 age group * income segment Crosstabulation

Count

income segment

0-1 lakh/yr 1-2 lakh/yr 2-3 lakh/yr 3-5 lakh/yr above 5 lakhs Total

age group below 25 yrs 25 5 0 3 0 33

25-30 yrs 8 6 2 3 5 24

31-35 yrs 1 4 7 4 0 16

36-40yrs 2 7 0 7 3 19

above 40 yrs 0 0 2 3 2 7

Total 36 22 11 20 10 99

Chi-Square Tests

Asymp. Sig. (2-

Value df sided)
a
Pearson Chi-Square 69.583 16 .000

Likelihood Ratio 75.280 16 .000

Linear-by-Linear Association 28.086 1 .000

N of Valid Cases 99

a. 18 cells (72.0%) have expected count less than 5. The minimum expected count
is .71.

Chi-Square tests were performed to check the interdependency of the attributes like age,

income group, gender, employee category and it was verified that most of these attributes

were interdependent. In the above table the 4th column reads less than 0.5 and proves the

dependency of the attributes.

Only income and gender was similarly proved to be independent. ## (See Appendix 1)

Hence the data was analyzed using two-way ANOVA.

UNIANOVA Average BY age income

/METHOD=SSTYPE(3)
/INTERCEPT=INCLUDE

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 /POSTHOC=age income(BTUKEY)
/PLOT=PROFILE(age*income)
/EMMEANS=TABLES(age*income)
/PRINT=HOMOGENEITY
/CRITERIA=ALPHA(.05)

/DESIGN=age income age*income.

Univariate Analysis of Variance

Tests of Between-Subjects Effects

Dependent Variable:Average

Type III Sum of

Source Squares df Mean Square F Sig.

a
Corrected Model 77.135 18 4.285 15.289 .000

Intercept 38.476 1 38.476 137.275 .000

age 2.091 4 .523 1.865 .125

income 29.542 4 7.385 26.350 .000

age * income 5.141 10 .514 1.834 .068

Error 22.143 79 .280

Total 124.958 98

Corrected Total 99.278 97

a. R Squared = .777 (Adjusted R Squared = .726)

Post Hoc Tests

age group
Homogeneous Subsets
Average

Tukey B

Subset

age group N 1 2 3

below 25 yrs 33 -.0404

25-30 yrs 24 .2396

Banarsidas.doc.Amitabh.Sandy.GB.Manojit on 10/11/2010 Page 8 of 13

 31-35 yrs 16 .9531

36-40yrs 19 1.1009

above 40 yrs 6 1.5972

Means for groups in homogeneous subsets are displayed.

Based on observed means.
The error term is Mean Square(Error) = .280.

income segment
Homogeneous Subsets
Average

Tukey B

Subset

income segment N 1 2 3

0-1 lakh/yr 36 -.4699

1-2 lakh/yr 22 .4773

2-3 lakh/yr 11 1.2121

3-5 lakh/yr 20 1.4833

above 5 lakhs 9 1.5093

Means for groups in homogeneous subsets are displayed.

Based on observed means.
The error term is Mean Square(Error) = .280.

Profile Plots

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For reference only one analysis of variance is shown here and the rest shown in appendix 2

5.0 Results and Inferences

On analysis of the data the following points emerged.

Age group, income, education were proven to be interdependent.

There was no relation between gender and income segment.

There were similarity in the views between the age groups of below 30, 30 to 40 and

those above 40 years or in other words there emerged three categories of responses.

Income groupings also had three segments.

The responses of employees with 2-3lakhs/annum were closer to those with a higher

income. There was negligible difference between the responses of employees in the

higher income bracket.

Banarsidas.doc.Amitabh.Sandy.GB.Manojit on 10/11/2010 Page 10 of 13

 Qualification had a very unique response pattern. Graduates and professionals were very

similar in their responses, where as much differences existed between the under graduates

and post graduates. However it was clear that undergraduates were mainly being used as

cheap labor and they had neither much income nor scope for growth.

Employee category showed that junior employees differed in their views with middle and

senior employees.

Gender had no or negligible influence on the employee category or the income group.

Location did have a bearing on the income of employees.

6.0 Conclusion

On analysis of the collected data various interesting results were visible. The interdependence of

age group, income segment and education was established by means of Chi-Square tests and

ratified the existing hypotheses on the same, which could be useful for further research work in

the area. Further the two-way ANOVA helped to group the employees in various sub groups.

Another hypothesis that was verified was that there was no effect of gender on the income or

employee category. So it was established that both genders had equal scope for performance and

growth. However the gender ratio of employees still is far different and also signifies that there

are more men than women in employment at all levels. The incentives were more acceptable to

the higher income group and also the fact was established that the lower income segment were

not very happy or content with what incentives that was being offered. The effect of education

was clearly established and also was seen that undergraduates were more likely to be fitted into

the lowest income groups and not much scope for higher paid positions as the graph showed no

undergraduates in the upper brackets.

Banarsidas.doc.Amitabh.Sandy.GB.Manojit on 10/11/2010 Page 11 of 13

Senior and middle category employees were more inclined to agree with the incentive and

remuneration policies of the organization where as there was marked difference in the views of

lower category employees. Here one can also perceive that a lot of undergraduates were

employed and who probably never got any benefits in terms of rewards and recognition as well

as career growth. Organizations must look at making some policies to help these employees to

get educated or trained and provide them with opportunity to grow. Graduates and professionals

on the other hand showed that even though they belonged to a lower income group, there were

plenty in the middle and higher category also. This showed that they had the potential to grow

based on their education. Similar was the status of post graduates and higher. As the junior

employees had more interaction with the customers at various establishments studied, it is

imperative that the organizations look at these employees carefully and increase the satisfaction

levels of this segment. Location of the establishment had some effect on the satisfaction of the

employees as employees in metro cities were provided with better remuneration as compared to

the employees of smaller towns. Further it is necessary for organizations to invest more on the

employees at the junior levels and plan for them as this would help them in their efforts to

deliver service quality. Also we can justly state that employees must also try and upgrade

themselves if they wish to have career growth and better remuneration. Organizations using

unskilled and inefficient employees as cheap labor would lose their standards and ultimately

suffer as the customer would not like to pay for poor service quality and shift his loyalty to other

business units.

7.0 References

Human Resource Management, 2nd edition, V S P Rao

Human Resource Management 12th edition, (1997), Dr. Anjali Ghanekar

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 Human Resource Management 10th edition, 2004, Robert L. Mathis & John H. Jackson

Human Resources Management, 2008, 11th edition, Gary Dessler

P Joshi & D. N. Venkatesh, (2006), Human Resource Management Pg 325,

Silva, P. (2006) Effects of disposition on hospitality employee job satisfaction and

commitment, International Journal of Contemporary Hospitality Management. Vol. 18.

Robert L. Mathis & John H. Jackson, (2004), Human Resource Management 10th edition

B. Mamoria & S.V. Gankar, (2001), Human Resource management 6th edition

Burack and Boldsmith, Human Resource Management,

K Aswathappa, 1997, Human Resource Management, 5th edition

Rollinson, D., Breadfield, A. and Edwards, D. J. (1998) Organizational behavior and

analysis. Harlow: Addison-Wesley.

Hurley, R. F. and Estelami, H. (2007) An exploratory study of employee turnover

indicators as predictors of customer satisfaction, Journal of Services Marketing.

Philips, J. J. (1996) Accountability in human resource management. Houston, Texas:

B. Mamoria & S.V. Gankar, (2001), (H.R management 6th edition pg- 303)

C S Venkata Ratnam, BK Srivastava, Persannel Management And Human Resources,

Tata McGraw-Hill Publishing Company Limited, New Delhi,

A.M. Sarma, Understanding Wage System, Himalaya Publishing House, Wage Incentives

Chapter 5, Page No 95 Ninth Revised Reprint 2009

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