Application of Herzberg’s Two –Factor Theory in Banking Industry

 

Introduction

There are numerous motivation theories that have influenced the way organizations manage employees to achieve a motivated work force. These theories attempt to explain why people behave the way they do and advice on factors and strategies which when employed can get the best out of employees in terms of their commitment to work. Notwithstanding, because of the complex nature of the issues worth considering when motivating people, it is always not an easy task when it comes to organizations motivating workers for effective performance. 

Frederick Herzberg’s Two Factor Theory 

Herzberg’s Two-Factor Theory divides motivation and job satisfaction into two groups of factors known as the motivation factors and hygiene factors (Dartey-Baah and Amoako,2011).

According to Frederick Herzberg, “the motivating factors are the six ‘job content’ factors that include achievement, recognition, work itself, responsibility, advancement, and possibility of growth. Hygiene factors are the ‘job context’ factors, which include company policy, supervision, relationship with supervision, work conditions, relationship with peers, salary, personal life, relationship with subordinates, status, and job security” (Ruthankoon, 2003). Herzberg revealed that certain characteristics of a job are consistently related to job satisfaction while different factors are associated with job dissatisfaction Ratzburg (2003). This is classified into motivator factors and hygiene factors which form the basis of his Motivational-Hygiene Model. 

Shermerhorn (2001), emphasizing that Herzberg's two-factor theory clarifies the motivational effects of the work environment. Motivation factors such as recognition, achievement, responsibility, growth, opportunities and promotion make high motivation and high satisfaction further, Hygiene factors include salary, Working Conditions, Job Security, personal life, Company policies and administration create general satisfaction (Kim, 2006). Herzberg says best way to motivate the employees is to give challenging work that they can take responsibility (Leach and Westbrook, 2000). Management need to implement combination of Hygiene and Motivation factors to motivate employees (Dartey-Baah and Amoako, 2011). 

Figure 1.0: Frederick Herzberg’s Two Factor Theory

  (Source: Lumen)

According to Frederick Herzberg, below actions can help, in eliminating job dissatisfaction in organizations (Amoako, 2011).

·         Fix poor and obstructive company policies.

·         Provide effective, supportive and non-intrusive supervision.

·          Create and support the culture of respect and dignity for all team members.

·          Ensure that wages and salaries are competitive.

·          Provide job security.

·          Build job status by providing meaningful work for all positions. 

And following conditions can create job satisfaction and Job enrichment (Amoako, 2011).

·         Providing opportunities for achievement.

·         Recognizing worker’s contributions.

·         Creating work that is rewarding and that matches the skills and abilities of the employee.

·         Giving as much responsibility to each team member as possible.

·         Providing opportunities to advance in the company through internal promotions.

·         Offering training and development opportunities so that people can pursue the positions they want within the company. 

Vedio 1 : Herzberg's Theory Described by Fred Herzberg

(Source : Key Management Skill,2014 )

Application of Motivational-Hygiene Model in Banking Industry 

A basic human urge is to be seen and appreciated for the work performed coupled with the chance to move ahead. This is as true in banking as in any other industries. Previously, employee motivation was restricted to providing required training when a need was felt by the management. Various organizational issues such attractive salaries, benefits, welfare facility and lack of proper rewards, rigid hierarchical structures, lack of proper mechanism to award for efficiency, innovation and excellence, incentive linked schemes etc. were responsible for low levels of motivation. The management of employee motivation through development of soft skills, non-monetary benefits, open communication, were not on the priority list of banks (Shannon Riley, 2005). As well as providing with the best working condition with an ambience of work and satisfaction were often overlooked with respect to banking employees. Compensation benefits were based on industry level settlements between representatives of Sri Lankan Bankers Association and Unions; where they entered into bipartite agreement in lieu of increments. This was applied to all employees across, irrespective of their individual performance.

With the entry of private and multinational banks, issues on employee motivation have taken a new dimension. In the early decades, most of the prevailed organizations including banks were used rigid controls within their organizations. There was no chance to innovate the new motivational practices as everything was activated with rigid orders & practices. Therefore, most of the employees felt that their major source of motivation stemmed from fulfillment of the basic needs. It’s no longer sufficient to provide the basic minimums for the employees. Incentives based on performance, productivity linked bonuses, provision for world class working conditions, allowances based on job profiles etc. need to be incorporated for the benefit of employees as well as organization (Gunasekera & Kulathunga, 2011).

Today banking focus moving towards profits and profitability with increasing of competition therefore the employee motivation becomes one of the top priority issues for the banking fraternity. When the employee is motivated-customer are served well, customer may give more business to the bank, profitability of bank goes up, benefits can energies the deserving employees and finally employees can be more motivated. This circle of excellence is of prime importance in customer centric business processes that we are witnessing in banking today and more so in the years to come.

References

Baah, KD & Amoako, GK 2011, ‘Application of Frederick Herzberg’s Two-Factor theory in assessing and understanding employee motivation at work: a Ghanaian Perspective’, European Journal of Business and Management, Vol 3, No.9, viewed 04^th December 2020,

< https://www.iiste.org/Journals/index.php/EJBM/article/view/642/535>

Gunasekare, Thamara & Kulathunga, Nisansala. (2011). An Empirical Study of Herzberg’s Two Factor Theory with Operational Level Employees of Private Banks in Sri Lanka. University of Kelaniya, viewed 04th December 2020,

https://www.researchgate.net/publication/288944504_An_Empirical_Study_of_Herzberg%27s_Two_Factor_Theory_with_Operational_Level_Employees_of_Private_Banks_in_Sri_Lanka

Key Management Skills, 2014,Herzberg's Theory, Online Video, viewed 5^th  December 2020,          < https://www.youtube.com/watch?v=0PokpX56G_4>

Kim, D. (2006). Employee Motivation: “Just Ask Your Employees” Seoul Journal of Business. Volume 12, Number 1.

Leach,F.J., Westbrook, J.D. (2000). Motivation and Job Satisfaction in One Government research and Development Environment. Engineering Management Journal. Vol.12, Iss. 4; pg. 3-9.

Lumen Learning, Herzberg Two Factor Theory – digital image, viewed 04^th December 2020, https://images.app.goo.gl/cWMNAhdFiQca7kjW7

Schermerhorn,J.R, (2001): Management, Six Edition. John Wiley Sons, Inc., 285-287. 

Stello, CM 2011, ‘Herzberg’s Two-Factor Theory of Job Satisfaction: An Integrative Literature Review’, Department of Organizational Leadership, Policy, and Development College of Education and Human Development, University of Minnesota, viewed 04^th December 2020,

<https://www.semanticscholar.org/paper/Herzberg-%E2%80%99-s-Two-Factor-Theory-1-Herzberg-%E2%80%99-s-of-%3A-Stello/5c203ef79d233a1788ee4e9c433af1b71db55ade>

UKEssays. November 2018. Effectiveness of Motivational Strategy In Habib Bank. [online]. Available from: https://www.ukessays.com/essays/business/effectiveness-of-motivational-strategy-in-habib-bank-business-essay.php?vref=1 [Accessed 04^th December 2020].

 

Impact of Employee Engagement on Objectives of the Bank

 

The  economy  of  any  country  depends  on  three  key  regions;  agricultural  sector,  industrial  sector,  and  service sector (Farwin and Uthayakumar, 2018). Among their vital role is played by the service sector for the success of economic advancement. It evidenced that the banking  sector  contributes  to  the  massive  extent  to  the  financial  development  of  the  country  directly  and indirectly.  Generally,  banks  are  highly  known  for  a  heavy  workload,  long  working  hours  and  least motivated employees.

Baumruk (2004)   contends   that   every   organization   wants   to   gain   competitive advantage and employee engagement is the best tool for achieving it.  In fact, employee engagement is considered to be the most powerful factor to measure a company’s    vigor    and    orientation    towards    superior    performance. Employee engagement has a monumental effect in the context of ensuring that employees are committed to the achievement of bank’s objectives. Human capital is the primary asset in achieving competitive advantage in any sector. Engaged employees support the organization to attain its mission, execute its strategy, and generate significant business results. Employee engagement can be enhanced by different HR practices comprising job design, recruitment, selection, compensation, training, and performance management (Vance, 2006).

Figure 1.0 Impact of Employee Engagement on Objectives of the Bank

Source: UKEssays (2018)

Absence management, credible leadership, job security and career satisfaction, communication, motivation and workload could be identified as significant areas that impact on the objectives of the banks. Failure to design explicit policies and due to stress being placed on staff can result in disengaged employees. 

Figure 2.0: Levels of Employee Engagement and their Behaviors

Source : Gallup (2006) 

Gallup (2006), proposed that employees could be divided into three types with regard to their level of engagement, Engaged, Not-Engaged and Actively Disengaged, with the later being of most concern to the employer brand as a result of sharing their discontent with their co-worker and the wider world. Managers want to improve employee engagement on grounds that it leads to superior   performance, reduces   staff   turnover   and   improves   the   well-being   of employees (Macey & Schneider, 2008; Hakanen et al., 2008).  Engaged employees value, enjoy and have pride in their work and are more willing to help each other and the organization succeed.  LePine, Erez, & Johnson (2002) argue that engaged employees take additional responsibility, invest more effort in their jobs, share information with other employees and remain with the organization than employees who are less engaged.

In a survey conducted by Netsurvey to analyze responses from 200,000 employees across 40 companies in 60 countries, several troubling trends were found, including engagement scores decline with employee tenure, meaning that employees with the deepest knowledge of the company typically are the least engaged (Kaufman et. al. 2014).

Managing human resources is very challenging as compared to managing any other resources and for its effective management, banks require strong and effective HRM system. Having the sense of belongingness to the bank, is one of the fundamental factors to improve the employee engagement towards the implementation of strategic goals of the bank. It is not only the responsibility of human capital managers to ensure the utilization of all their skills to facilitate employee engagement. Superiors and coworkers must work hand in hand to achieve the same. It is important for HR managers to better understand and implement the practices and policies which are effective predictors and promoters of employee motivation, employee retention and employee productivity, organizational processes, values of the organization, management, challenges in employee role, employee work/life balance, information, compensation, workplace environment and their products and services (Glen 2006).

Employee engagement was greatly influenced by performance management, personal development and growth, workplace recreation and remuneration package. However, among the determinants, remuneration is the highest contributor of employee engagement with workplace recreation having the least influence. Low engagement and job satisfaction can contribute to multiple organizational problems and have been associated with increased levels of turnover and absenteeism, adding potential costs to the organization in terms of low performance and decreased productivity. It is important for bank management to be aware of the needs and make up of their workforce, as well as the impact of environmental factors, when developing their programmes and policies that have implications on engagement (Mokaya et al., 2014).

Safety of customer deposits, offer customers interest on deposits whilst helping to protect money against money losing value due to inflation, lending money to firms, customers and homebuyers, offering financial advice and related financial services, such as insurance are the main purposes of banks. All these purposes lead to the ultimate objectives of the banks’ i.e. profit maximization at the organizational level and contribution to the financial and monetary stability of the economy at large. Further research shows that employee engagement has an effect on a company's bottom line and is sturdily linked to business performance (Saks, 2017).

In essence, from the given literature in this context, it can be said, that there is a direct correlation between employee engagement and objectives of any organizations, irrespective of the industry the organization operates in. Banking organizations being a service provider which is run by employees in the forefront to backend office staff contributes immensely in the achievement of the bank’s objectives mainly by satisfying customers’ banking needs, thus having engaged employees can be considered as a key in achieving bank objectives in the long run.

 

References

Gallup, 2006. Gallup study: “engaged employees inspire company innovation:  national survey finds that passionate workers are most likely to drive organizations forward”, The Gallup Management Journal. [Online]. Available at: http://gmj.gallup.com/content/24880/Gallup‐Study‐Engaged‐Employees‐Inspire‐Company.aspx [Accessed on 30^th November 2020] 

Kumari, K.W.S.N. and Jayasinghe, G.J.M.S.R. and Sampath, J.K.H., Employee Motivation Factors in Banking Sector: A Study on Qualitative and Quantitative Analysis, 2020. Journal of Social and Political Sciences, Vol.3 No.1 (2020).

Mokaya, S.O., 2014. “Determinants of Employee Engagement in the Banking Industry in Kenya; Case of Cooperative Bank”, Journal of Human Resources Management and Labor Studies, Vol. 2, No. 2, pp. 187-200. [Online]. Available at:  http://jhrmls.com/journals/jhrmls/Vol_2_No_2_June_2014/12.pdf [Accessed on 30^th November 2020]

Robinson, D, Perryman, S & Heyday, S 2004, ‘Drivers of Employee Engagement’, report 408, Institute for Employment Studies. [Online]. Available at:  <https://www.employment-studies.co.uk/system/files/resources/files/408.pdf> [Accessed on 30^th November 2020]

Saks, Alan. 2017. Translating Employee Engagement Research into Practice. Organizational Dynamics. Pp 46.

Smith, GR & Markwick, C., 2009. ‘Employee Engagement: A review of current thinking’, report 469, Institute for Employment Studies. [Online]. Available at:  <https://www.employment-studies.co.uk/resource/employee-engagement-review-current-thinking> [Accessed on 30^th November 2020].

UKEssays. November 2018. Impact of Employee Engagement in Banking Strategic Success. [online]. Available from: https://www.ukessays.com/essays/banking/impact-of-employee-engagement-in-banking-strategic-success.php?vref=1 [Accessed 5 December 2020].

Vance, R. J., 2006. Employee engagement and commitment; A guide to understanding, measuring and increasing engagement in your organization.

Employee Engagement Under Covid-19 Pandemic Situation

Employee engagement has become one of the prominent factors during this pandemic situation. The employee engagement occurred due to Covid-19 is challenged by the definitions presented by the scholars such as Kahn, 1990. This situation has given intensive attention to many more digital aspects such as virtual learning and development, online courses, team meet‐ups over video conference, online sessions for stress management and webinars with industry experts. Traditional business setup has been replaced by the work from home concept due to the global pandemic Covid-19 (Chanana and Sangeeta 2020).

Restrictions imposed by the countries to minimize the spread of the virus have impacted the continuous and consistent process of businesses. Lockdown, social distancing and other health parameters have encouraged employees to work from home. Work from home does not create the organizational climate and employees are always distracted by the family members. Conversely, technical difficulties and work-life conflicts arise due to this (Chanana and Sangeeta 2020).

Employees around the world have faced to stress and anxiety due to not sure about their job security and pay. These factors have misaligned the concentration on work which resulted in lack of productivity of employees. It is the organizational responsibility to consider the well-being of employees amidst this stressed situation. It is the duty of the employers to boost the morale of the employees through online programs and create an open online platform to discuss the issues and to raise their voice (Chanana and Sangeeta 2020).

Jones and Kober  (2019) explained some strategies related to how to achieve superior employee engagement in difficult times and higher business results. These strategies are:

1. Stay centered on your core values - it encourages employee engagement in difficult times.
2. Explicitly support your employee - so they remain motivated during tough times.
3. Solicit employee feedback - ask employees to freely share information, both frustrations and ideas for developments in a productive way.
4. Communicate upfront with employees - leaders should communicate openly and honestly, so employees perform more effectively.
5. Commit to your employee's employment - so employees should be committed to your organization.

Article published in Nature (Fan et al., 2020) stated five tips to help support employees working from home. These are:

1. Create a healthy workspace - encourage workers to create a healthy workspace at home. Encourage employees to work ergonomically from home as best they can and review their work‐at‐home setup.
2. Maintain a routine - encourage employees to stick to a routine and to maintain boundaries between their “work” time and “home” time.
3. Do not forget to be social - communication with colleagues is a great stress reliever. An organization should set up a session for fun activities that would normally take place in the office.
4. Encourage well‐being practices - organizations should care about their employee's well‐being; it can help reduce absenteeism, boost engagement, and performance.
5. Invest in technology - communication tools such as instant messaging and video and voice calling platforms can help to keep teams connected. It is important to invest in a recognition platform that allows employees to send and receive recognition.

Goyal,et.al (2020) suggested and explained various ways to increase employee engagement during the lockdown. These are: conduct weekly alignment session, team meet‐ups, entire team gathers over video conference for lunch, short online game session, virtual challenges and competitions, 5 min of informal talk, shared content such as TED Talks, books, online courses, brainstorming focus, aha, apology and appreciation session, communication exercise, ditch a task, map of alignment, and emphasize results over timelines.

Banks should consider adopting successful, creative and innovative employee engagement practices during the pandemic situation of Covid-19. These transparent and aligned policies will ensure the employees are motivated, stimulated, committed and satisfied to perform their assigned duties.

References

Chanana & Sangeeta, 2020. Employee engagement practices during COVID‐19 lockdown. (Online) Available from: https://doi.org/10.1002/pa.2508  (Accessed on 25^th November 2020).

Fan, W., Zhao, S., Bin, Y., Chen, Y.‐M., Wang, W., Song, Z.‐G., & Yi, H. (2020). A new coronavirus associated with human respiratory disease in China. Nature, 579, 265– 269. (Online) Available from: https://doi.org/10.1038/s41586-020-2008-3 (Accessed on 25^th November 2020).

Goyal, M., Trivedi, D., Nandwani, R., Changulani, V. & Lokhandwala, T. (2020, April 10). Ways to increase employee engagement during lockdown. Stratefix. (Online) Available from: https://stratefix.com/ways-to-increase-employee-engagement-during-lockdown/ (Accessed on 25^th November 2020).

How to Engage Remote Employees during Coronavirus Pandemic, 2020, SHRM, viewed 25^th  November 2020, <https://www.shrm.org/resourcesandtools/tools-and-samples/how-to-guides/pages/how-to-engage-remote-employees-during-the-coronavirus-pandemic.aspx>

Jones, M. D. & Kober, J. J. (2019). Employee engagement in difficult times. World Class Benchmarking. (Online) Available from: http://worldclassbenchmarking.com/employee-engagement-in-difficult-times/ (Accessed on 25^th November 2020).

Whillans, A (Assistant Professor of Business Administration) 2020, COVID-19 and the Workplace: Implications, Issues, and Insights for Future Research and Action, Working Paper 20-127, Harvard Business School, viewed 25^th November 2020, <https://hbswk.hbs.edu/item/covid-19-and-the-workplace-implications-issues-and-insights-for-future-research-and-action>

 

 

Relationship Between Employee Engagement and Company Performance

Mann and Harter (2016) defined employee engagement as “the level of commitment and involvement an employee has towards his organization and its values”. Mishra et al. (2015) considered employee engagement as the degree to which individuals are attentive to and absorbed in performing their roles. Gallup (2016) described an engaged employee as “emotionally invested and focused on creating value for their organization every day”. From the definitions of the employee engagement, itself it can be understand the extent to which employee engagement can influence company performance.

Organizational performance lies at the heart of a firm’s survival. In very generic terms, Organizational performance has been defined as a set of both financial and non-financial indicators capable of assessing the degree to which organizational goals and objectives have been accomplished (Kaplan and Norton, 1992). The drive for organizational success is rooted to employees that are engaged; these employees possess characteristics that include behavioral factor, which is the employee’s efforts in their work; emotional aspect, the employee’s feelings about the organization; cognitive engagement, employee belief of the organizations culture, leaders, and the overall organization (Lockwood, 2007; Saks, 2006). Thus, to drive company performance, employee engagement acts as an essential factor.

In simple terms, it can be said that there is a relationship between employee engagement and organizational performance by stipulating that when employees are engaged and committed, organizational performance also improves (Kazimoto 2016).

Kazimoto (2016) further revealed, that employee satisfaction always yields higher profitability as a result of improved productivity. In a similar study, it was stated that employees with higher engagement levels tend to reduce staff turnover and absenteeism which results in higher organizational performance. According to Farouk (2014), employee engagement impacts on organizational productivity as engaged employees exercise care in what they do in their efforts to contribute to the success of the organization through a greater sense of ownership and accountability. In doing so, they become less absent from work, more willing to take on more responsibility, and have increased initiative to do the work

The synopsis of the result by Soni (2013), indicated that in the Gallup Study nine performance outcomes were studied: Customer loyalty/engagement, profitability, productivity, turnover, safety incidents, shrinkage, absenteeism, patient safety incidents and quality (defects) and employee engagement is related to each of the nine studied performance aforementioned outcomes. Results show consistent correlation across different organizations. Studies have shown that employee engagement has a positive influence on organizational performance, following relationships among Performance outcomes and Employee Engagement can be derived as illustrated in the Figure 01 below.

Figure 01: Relationship Between Employee Engagement and Organizational Performance

Further, Kaliannan and Adjovu (2014) also found that committed and/or engaged employees are the recipe for attaining organizational goals through higher productivity. Farouk (2014) agreed that employee engagement impacts on organizational productivity as engaged employees exercise an element of care in what they do and in their efforts to contribute to the success of the organization through a greater sense of ownership and accountability. The 2016 meta-analysis also verified that employee engagement relates to productivity (Gallup, 2016).

The following table 01 shows, performance indicators in the perspective of Staff retention, market capitalization, and profit for the year and return on equity for the year 2019 of four leading private Banks in Sri Lanka, which heavily prioritize employee engagement in their strategy formulation and implementation.

Table 01: Performance Indicators of Banks Which Heavily Focus on Driving Employee Engagement. 

Bank	No of employees as at  31st December 2019	Staff Retention Ratio for 2019	Market capitalization Ranking for 2019  Rs/Bn	Profit for the year 2019   Rs/Bn	Return on equity for 2019
Commercial Bank	5,027	96%	97	17	13.54%
Hatton National Bank	4,913	93%	69	14	11.54%
Sampath Bank	4,134	98%	61.9	11	11.78%
National Development Bank	2,936	93%	22	5.1	13.73%

 (Source: Commercial bank Annual Report 2019, HNB Annual Report 2019, Sampath Bank Annual report 2019 and NDB Annual report 2019)

Therefore, it can be said that employee engagement has a positive impact towards bank performance in a highly competitive business environment which is volatile, uncertain, complex and ambiguous. To further remain competitive and to sustain, the banks will essentially need to focus on employee engagement on ongoing basis. 

Without any doubt it can be said that organization with engaged employees have higher employee retention as a result of reduced turnover and reduced intention to leave the company, productivity, profitability, growth and stakeholder’s satisfaction. On the other hand, companies with disengaged employees suffer from waste of effort and bleed talent, earn less commitment from the employees, face increased absenteeism and have less customer orientation, less productivity, and reduced operating margins and net profit margins (Markos & Sridevi, 2010).

Thus, there is a clear direct relationship between employee engagement and company performance. More engaged employees; better organizational performance.

References

Commercial bank Annual Report, 2019.

Farouk, I., 2014. Exploring employee attitude and productivity at electricity company of ghana, ashanti-east. Journal of Human Resources Management 5(4).

Gallup, 2016. Gallup employee engagement survey report [Online]. 

Available:hhttps://www.sf.k12.sd.us/images/docs/school_board/school_board_reports/2017/10A%20- %20GallupEmployeeEngagementSurveyReport.pdf [Accessed November 27, 2020].

Hatton National Bank Annual Report, 2019.

Kaliannan, M. & Adjovu, S. N., 2014. Wining the talent war via effective employee engagement: A case study. Journal of Business and Financial Affairs, 3(3)(3).

Kaplan, R. S., & Norton, D. P., 1992. The Balanced Scorecard: Measures that Drive Performance. Harvard Business Review, 70(1), 71-79.

Kazimoto, P., 2016. Employee engagement and organizational performance of retails enterprises. American Journal of Industrial and Business Management, Vol.06 No.04, 6(4)(4).

Lockwood, N. R., 2007. "Leveraging employee engagement for competitive advantage." Society for Human Resource Management Research Quarterly 1 (2007): 1-12.

Mann, A. & Harter, J., 2016. The worldwide employee engagement crisis. Business Journal.

Markos, S., & Sridevi, M. S., 2010. Employee Engagement: The Key to Improving Performance. International Journal of Business and Management, 5 (12), 89-96.

Mishra, K., Boynton, L. & Mishra, A.,2015. Driving employee engagement: The expanded role of internal communications. International Journal of Business Communication, 51(2), 183-202.

National Development Bank Annual report, 2019.

Saks, A. M., 2006. Antecedents and consequences of employee engagement. Journal of managerial psychology, 21(7), 600-619.

Sampath Bank Annual report, 2019.

Soni, B. S., 2013. Employee engagement - a key to organizational success in 21st century. Volce of Research, 1(4).