MINISTRY OF EDUCATION AND TRAINING NATIONAL ECONOMICS UNIVERSITY --- NGUYEN THI HONG THAM THE INFLUENCE OF ORGANIZATIONAL CULTURES ON INCENTIVE SYSTEMS IN VIETNAMESE ENTERPRISES SPECI
Trang 1MINISTRY OF EDUCATION AND TRAINING
NATIONAL ECONOMICS UNIVERSITY
-
NGUYEN THI HONG THAM
THE INFLUENCE OF ORGANIZATIONAL CULTURES ON INCENTIVE SYSTEMS IN VIETNAMESE ENTERPRISES
SPECIALTY: BUSINESS MANAGEMENT
CODE: 62.34.01.02
ADMINISTRATION AND BUSINESS DISSERTATION SUMMARY
HANOI, 2014
Trang 2INTRODUCTION
a The rationale for studying
Researches into the relationship between cultures and
incentives have exposed a significant gap and there are not many
studies considering directly this relationship Studies that focus on
the impact of cultures on incentive systems mostly examines the
influence of national culture on the difference in incentives of
organizations in different countries and mainly study of the value
perspective Therefore, this dissertation will test the influence of
organizational culture, specially department cultures on incentive
systems applied for these sections in Vietnamese enterprises This is
an issue not answered clearly in previous studies
b The purpose of this study
The general purpose of this dissertation is to research of the
relationship between the organizational culture and the incentive
system The study will answer the questions whether the
organizational culture has significant influences on the incentive
system, including frequency of incentive use, parity or equity
allocation principle, the base to allocate and the way to pay
incentives or not
c The research subject and scope
The research issue is the effect of the organizational culture
(specially the section culture) on the incentive system applied in the
department in enterprises
Study scope: Enterprises in Hanoi and provinces that are
next to Hanoi The survey was implemented from November, 2012
to April, 2013
d New findings in the dissertation
Different from many previous researches, this research investigates differences in the relationship between organizational culture and incentive system within one country, Vietnam The findings in this thesis reveals that organizational culture has significant influence on incentive system, including the incentive frequency, the principle, the base and the way to allocate bonus These are new findings that are not answered clearly in previous studies In particularly, in employee – oriented organization, the frequency of bonus is higher, the parity allocation principle and the group – based bonus is used more largely while in less employee – oriented organization, individual – based bonus is used more highly
To the tight or loose control dimension, the investigation results indicate that in tight control units, the equity allocation principle and individual – based bonus is used more largely Another new finding, contrast with the result of Western researches and the qualitative study, is that in less employee – oriented units, bonus is paid secretly
is more popularly
On the practical perspective, firstly, the findings in this study help predict reward system applied in an organization when understanding its culture Secondly, the findings also help managers comprehend the relationship between organizational culture and the incentive system Therefore, they are able to design, fulfill and change incentive plans to have better results
Trang 3CHAPTER 1: THEORETICAL BASIS AND LITERATURE REVIEW
1.1 Theoretical basis
1.1.1 Culture and organizational culture
1.1.1.1 Culture
Culture is specially difficult to define Asif (2011) indicated
that “culture is one of two or three words that is the most
complicated in English” Generally, researchers have agreed that
culture refers to belief and value, expressed in practice, in behavior
and other things, shared by the members of an organization or a
nation However, besides the common agreement, authors shows a
lot of different opinion about culture
1.1.1.2 Organizational culture
According to Hofstede et al (1990), organizational culture
appeared in academic studies in the United State in 1979 and it is
quite recent appearance Up to now, organizational culture definition
become a controversial definition in both theory and practice It
continuously shows different development trends in academics and
new definitions to understand this concept develop endlessly
Although there are various views, scholars are becoming
more consensus While most researchers have agreed that
organizational culture includes artifacts, shared value, belief and
underlying assumptions, their viewpoints about each part are clearly
different Some authors emphasize the value perspective of
organizational culture On the contrast, other scholars highlight the
artifact aspect of organizational culture Many remaining authors are
in the middle of two above viewpoints
Researchers also do not have agreement about the dimension
to assess organizational culture According to the findings of Hofstede et al (1990), the difference in organizational cultures among companies mainly to be observed and evaluated by 6 dimensions, including process versus result orientation organizational culture, employee versus job orientation organizational culture, parochial versus professional organizational culture, open or closed system organizational culture, loose control versus tight control organizational culture and normative versus pragmatic organizational culture
1.1.1.3 The departmental culture
Hofstede et al (1990) found that organizational culture could
be studied at whole organizational level or lower levels, such as the department or unit level depends on its cultural homogeneity These authors found that many organizations included sections that have different cultures and jobs with different culture
This is confirmed in some researches of Hofstede after that
In addition, Martin (2002) found that the subculture in enterprises appeared because of difference in the jobs and functions Moreover, according to Schein (2004), if an organization become successful, it was sure that it would create lower units and start creating their culture basing on their own leaders Besides, other authors also supplied evidences on difference in culture among departments and units In addition, Reiman et al (2005) studied organizational culture
of the maintenance units in two nuclear power factories and Kunda (2006) researched into the culture of the engineering unit in an
Trang 4advanced technology company These are evidences of using
department level to be a research unit in organizational culture
studies Therefore, the author decides to choose examination units
are department in enterprises
1.1.2 Compensation system and incentive
1.1.2.1 Compensation system
Many researchers on compensation have agreed that
compensation oftend includes salary, benefits and bonus, share
options
1.1.2.2 Incentives
Incentives is an important tool to promote managers to reach
the objectives of organization Anthony and Govindarajan (2003)
indicated that incentive plans include two parts: short term plans and
long term incentive plans The short term incentive plans include the
total bonus pool, carryovers and deferred compensation Long term
incentive plans comprise stock options, phantom share, stock
appreciation right, performance shares and performance units
Incentive can be based on the contribution or the working
time It also can be based on the individual result or the group result
Moreover, it is allocated equally or equitably
1.2 Literature review on the effect of organizational cultures on
incentive systems in enterprises
1.2.1 The influence of the organizational culture on management
in enterprises
Pheysey (1993) found that organizational culture had relationship with various perspectives of enterprise management In particularly, this author indicated clearly the relationship between organizational culture and the management aspects, such as change, control, organizational design, job design, motivation, decision making, group behavior, leadership and management, and organization development Culture is emphasized because it impacts
on many other things that is showed in the dissertation
1.2.2 The influence of organizational cultures on incentive systems
in enterprises
1.2.2.1 Domestic literature review
In Vietnam, researches of the impact of culture on management in generally and on salary, reward in particularly are quite new There are few studies that considered this issue Most studies focused on considering each subject separately, such as the culture or the organizational culture or salary or reward Some authors investigated the effect of culture on compensation issue in our country For example, Thuc Anh (2010) found that although Vietnamese culture stressed power distance, the Vietnamese wanted the “equality” in compensation The too big difference in compensation is unacceptable to Vietnamese staffs Huy and Thang (2012) examined the effect of national culture (Vietnam) on compensation practices applied in enterprises, then they proposed some hints to help Vietnamese enterprises to design a suitable reward system to culture value of Vietnamese labor, therefore it helps strengthen the effectiveness of paying salary in enterprises
Trang 51.2.2.2 International literature review
Recently, there is an increasing interest in testing the relationship between culture and parts of the management control
system, such as performance measure system or incentives The most
remarkable research on the influence of organizational culture on
incentives system is made by Bento and Ferreira (1990) These
authors used the qualitative method, explored the influence of
organizational culture on incentive system at an university in the
United State Researches on the effect of organizational culture on
incentive system only examined the impact of the value aspect (not
practice perspective) organizational culture on incentive system
However, the practice side is more important and effective to
investigate organizational culture Therefore, the dissertation will
examine the impact of the practice aspect of organizational culture
on the incentive system
1.3 The research model
Control variables
Demographics of respondents: Job title, age, sex, number of year working for the company, education level
Firm characteristics: working unit, business sector, legal form of organization, company size, company age and
ownership
Organizational culture
Process versus result orientation
Parochial versus professional
Open or closed system
Loose control versus tight control
Normative versus pragmatic
Incentive system
Level of incentives Incentive allocation principles Group-based or individual-based The way to pay incentive
Figure 1.5: The theoretical model
(Source: The author synthesized and proposed)
Some hypotheses are proposed from literature review: H1: In result-oriented units, incentives is more likely to used highly than in process-oriented units
H2a: In employee-oriented units, incentive frequency is likely to be higher than in job-oriented units
H2b: In employee-oriented units, the parity principle for allocating incentives is more likely to be used broadly than in job-oriented units
H2c: In employee-oriented units, group-based incentives are more likely to be used largely than in job-oriented units
H2d: In job-oriented units, individual-based incentive is more likely to be used largely than in employee-oriented units
H2e: In employee-oriented units, the secret payment is more likely to be used popularly than in job-oriented units
H3a: In tight control units, the equity rule for allocating incentive is more likely to be used commonly than in loose control units
H3b: In tight control units, individual-based incentive is more likely to be used universally than in loose control units
Three other practice dimensions, including parochial versus professional, open or closed system, and normative versus pragmatic organizational culture have not been considered to produce hypotheses because the author have not found any relationship between these variables and various aspects of incentive system from literature review
Trang 6
Conclusion of chapter 1 Chapter 1 has systematized various different views of
researchers about organizational culture and incentive Then, the
dissertation has given the accepted definition of two concepts In
addition, chapter 1 has introduced literature review, proposed the
research model and hypotheses on the influence of organizational
cultures on incentive systems in Vietnam enterprises
CHAPTER 2: CASE STUDY OF THE INFLUENCE OF ORGANIZATIONAL CULTURES ON INCENTIVE SYSTEMS
IN DEPARTMENTS OF TWO ENTERPRISES
Studying organizational culture is not an easy job Bento and Ferreira (1990) found that understanding how culture affect on compensation policies requires “a period of immersion in that culture and intensive use of the insider information”
So the author has chosen to study insightly two enterprises producing carton package in the northern region to see whether enterprises in the same industry has differently organizational culture
or not and their incentive system are significantly different or not The author had chosen two cases that are two enterprises in the same industry to eliminate the influence of the outside factors on the incentive system In addition, based on the results of previous researches, enterprises that belongs to different legal forms has not similar organizational culture Therefore, two enterprises were chosen One of them was a private company (An Duy company) and the another had been a state – owned company that is equitized recently (Ban Mai enterprise) So two cases are anticipated to be significantly different in organizational culture, then the author will examine whether incentive practices in two enterprises are different following the predictions given basing literature review or not
At An Duy company, the author interviewed the chief accountant, the vice manager and the assistant of the business division At Ban Mai enterprise, the vice manager of business division and the chief accountant were interviewed The interviews were planned about time, place and were direct contacts Each
Trang 7interview lasts from 1.5 to 3 hours The information of interviews
was taken note and was typed within 24 hours The interviews were
implemented with an interview guide including open questions
developed basing organizational culture scales of Hofstede et al
(1990) and incentive system scales borrowed from the research of
Segalla et al (2006), Mahoney and Thorn (2006) and Goktan and
Saatcioglu(2011) The interview guide and the detail information of
interviewees are showed in the appendix of the dissertation
2.1 Case A: An Duy corporation
This part presents the general information of the company,
the divisional culture and the incentive system applied in the
divisions of the company
2.2 Case B: Ban Mai enterprise
This part presents the general information of the enterprise,
the divisional culture and the incentive system applied in the
divisions of the enterprise
2.3 Some hypotheses were supported
H’1: In result-oriented units, incentives is more likely to
used highly than in process-oriented units
H’2: In result-oriented units, the equity rule for allocating
incentive is more likely to be used commonly than in loose control
units
H’3: In employee-oriented units, the parity principle for
allocating incentives is more likely to be used broadly than in
job-oriented units
Table 2.1: The comparison of organizational cultures and incentive systems at two enterprises
The business department –The culture
- Result-oriented culture
- Job-oriented culture
- Professional culture
- Open system culture
- Loose control culture
- Pragmatic culture
- Process-oriented culture
- Employee-oriented culture
- Parochial culture
- Open system culture
- Tight control culture
- Pragmatic culture, less clearly
- Quite clear
- Quite clear
- Little
- Quite similar
- Quite clear
- Little The
business department –The incentive system
- Revenue bonus monthly for each individual who has completed his duty The percentage of bonus per
dramatically higher than other divisions in the company
- Publicly
- Revenue bonus monthly with the same percentage for all indirect staffs (working in office) if the enterprise get the bigger revenue than planed The difference in the percentage of bonus per compensation among divisions that work in office was lower
- Secretly
- Significantly different in the parity or equity allocation principles
- Difference in the allocation basis: individual/ enterprise results
- Differently
Accounting department –The culture
- Process-oriented culture
- Employee-oriented culture
- Parochial culture
- Open system culture
- Tight control culture
- Pragmatic culture more strongly
-Process-oriented culture clearly
- Employee-oriented culture
- Parochial culture
- Open system culture
- Tight control culture
- Pragmatic culture
- Little
- Little
- Quite similar
- Similar
- Similar
- Little
The accounting department -The incentive system
- Only be rewarded once per year before Tet holiday if the company made profit in the previous year Each staff received a bonus that was equal to his monthly salary
The manager got 1.5 monthly salary
- Publicly
- Bonus monthly with the same percentage for all indirect staffs (working in office) if the enterprise get the bigger revenue than planed Having incentive based on the result of a year and
on holiday occasions
- Secretly
- Significantly different in the incentive frequency
- Difference in the percentage
of bonus per compensation
- Different in the way to pay
(Source: the author synthesized)
Trang 8H’4: In employee-oriented units, the secret payment is more
likely to be used popularly than in job-oriented units
H’5: In employee-oriented units, group-based incentives are
more likely to be used largely than in job-oriented units
H’6: In loose control orientation units, incentives is more
likely to used highly than in tight control orientation units
For other hypotheses on the influence of organizational
culture on incentive system, that are indicated in the chapter 1, the
result of the qualitative research has not provided evidence to
support
CONCLUSION OF CHAPTER 2
This chapter has reported the result of the qualitative study
carried out at two enterprises that producing carton packages in the
northern region of Vietnam The result reveals that some hypotheses
shown in the chapter 1 were supported Therefore, the quantitative
study stage using questionnaires with bigger sample was followed
CHAPTER 3: THE SURVEY STUDY OF THE INFLUENCE
OF ORGANIZATIONAL CULTURES ON INCENTIVE SYSTEMS IN VIETNAMESE ENTERPRISES
3.1 The research method
The study sample was chosen from enterprises that belonged to all legal forms in Hanoi and neighboring provinces The questionnaires were used to explore 150 enterprises that were chosen following different standards to try assure the representative requirement The scales were borrowed from the previous researches
3.2 The study result
The coding and data entering were implemented following the instruction of using SPSS software The data was checked by using the frequency table After that, analyzing factor and checking scale reliability were applied EFA model was used to check scale reliability When the scales were found reliable, the regression analysis were done to examine hypotheses
3.2.1 Sample description statistics
The sample size was 150 enterprises This meant the research could collect 300 answer sheets However, in fact, only 230 answer sheets were collected After excluding the answer sheets lacking the important information or the respondents were not suitable, 216 answer sheets were used to analyze data
3.2.2 Checking the scale reliability
The primary statistical techniques used to analyze data in
Trang 9this study included factor analysis, checking scale reliability and
multivariate hierarchical regression analysis The eigenvalue-based
method was used to identify the number of factors After that, the
factors with “eigenvalue > 1” were kept The result of factor analysis
revealed that for practice perspectives of the organizational culture,
seven factors were created rather six factors as expected from
Hofstede (1990) Among 7 factors, only 2 factors gained reliability
with Cronbach’s alpha were 0.7 and 0.67
3.2.3 The result of correlation analysis, regression and testing
hypotheses
Hypothesis H1 were not tested because the result of the scale
reliability analysis to the process versus result oriented organization
culture dimension was too low This is similar to analysis result of
other Vietnamese authors (Thuc Anh and Minh Hang, 2009)
H2a: The result of the regression analysis exposed that the
full model was significant (Adjusted R square 25, F: 5.006, p<.001)
The employee oriented organization culture variable had
significantly positive relationship with the incentive frequency (.153,
p<.05) It is consistent with hypothesis 2a
H2b: The result of the regression analysis showed that the
full model was significant (Adjusted R square 05, F: 1.752, p<.1)
The employee oriented organization culture variable had
significantly positive relationship with parity allocation (.17, p<.05)
It is consistent with hypothesis 2b
H2c: The result of the regression analysis presented that the
full model was significant (Adjusted R square 121, F: 2.912, p<.01)
The employee oriented organization culture variable had
significantly positive relationship with group-based incentives (.217, p<.01) It is consistent with hypothesis 2c
H2d: The full model was significant (Adjusted R square .064, F: 1.973, p<.05) The employee oriented organization culture variable had significantly negative relationship with individual-based incentives (-.157, p<.05) It is consistent with hypothesis 2d
H3a: The result of the regression analysis indicated that the full model was significant (Adjusted R square 087, F: 2.346, p<.01) The loose vs tight control oriented organization culture variable had significantly positive relationship with equity principle for allocating incentives (.241, p<.01) It is consistent with hypothesis 3a
H3b: The result of the regression analysis directed that the full model was significant (Adjusted R square 067, F: 2.01, p<.05) The loose vs tight control oriented organization culture variable had significantly positive relationship with the individual-based incentive (.15, p<.1) It is consistent with hypothesis 3b
For the hypotheses supported in the qualitative study, H’1 and H’2 were not tested because the scales were not reliable H’3 and H’5 were supported In addition, the results of the quantitative data analysis indicated that the testing outcome of H’4 hypothesis was contrast with the expectation shown in chapter 1 and the H’6 hypothesis was not supported
Trang 10Table 3.13: Results of Regression Analysis for Each Dependent Variable
( Standardized coefficients are shown Significance levels: +p<.1 *p<.05 **p<.01 ***p<.001 )
(H2a)
Parity/equity allocation rule (H2b, H3a)
Individual/group incentive (H2c, H2d, H3b) Control
Model Full Model Full Model Full Model Full Model Full Model Full Model
Controls
-.280 *
Number of year working for current
company
-387 ***
.204 *
.147 +
Independent Variables
.150 +
5.006 ***
1.752 +
2.346 **
2.912 **
1.973 *
2.010*
THE THIRD CHAPTER CONCLUSION Based on the hypotheses shown in the chapter 1 and some results supporting a few hypotheses in the qualitative study stage in the chapter 2, the chapter 3 of the dissertation has implemented the survey study of the influence of organizational cultures on incentive systems with the bigger sample, 150 enterprises in Hanoi and neighboring provinces The sample selection considered various standards, such as the enterprise size, business sector, company age, legal form and ownership The analysis result indicated that most hypotheses presented in the chapter 1 were supported, excluding H1 hypothesis was not tested because the scale was not reliable and the one result was contrast with the hypothesis shown, H2e This demonstrated that the division culture affect dramatically on various perspectives of the reward system applied in that divisions, such as the reward frequency, the reward allocation principles, the base for allocation, group or individual based, and the way to pay, secretly or publicly These are new findings that the dissertation help to clarify the relationship between the organizational culture and the reward system that is interested by many researchers and managers