Effect of organizational compensation and reward system on employee performance at Kenya Revenue Authority

Abstract

“Employee performance is critical to any organization’s success. A successful organization is driven by effective Human Resource Management practices that meet the goals of employees and at the same time attain the organizational objectives. The main purpose of this study was to investigate the effect of compensation and reward system on employee performance at Kenya Revenue Authority. The specific objectives were; to establish the effects of salary, promotion, recognition, fringe benefits and the extent to which the four elements of compensation had affected employee performance at Kenya Revenue Authority. A number of theories informed the study. These were expectancy-reinforcement theory, equity theory and agency theory. The study adopted a descriptive survey research design, which sought to describe the prevailing state of affairs. Stratified random sampling technique was employed to select a sample of 120 respondents from a target population of 1200 employees of Kenya Revenue Authority Headquarters. A mixed method of quantitative/qualitative approach was used. The study used both primary and secondary data. Primary data was collected using questionnaires and observation of the behavior of employees with respect to the phenomenon under investigation. Documentary review of the Kenya Revenue Authority Corporate Plans, Human Resource Policy Manual, Performance Reports and Library journals assisted in obtaining secondary data. The data was analyzed using descriptive and inferential statistics. A multiple linear regression model was used to test the significance of the influence of each independent variable on the dependent variable. Pearson’s bivariate correlation analysis revealed the extent to which the various elements of compensation (salary, promotion, fringe benefits and recognition) influenced the performance of employees at Kenya Revenue Authority. Descriptive statistics revealed that KRA has not met its revenue targets as indicated by 79% of the respondents. Additionally, 90% of the respondents indicated that motivation is a critical determinant of employee performance at KRA. The mean of the responses for the various independent variables was 3.71 for salary, 3.66 for promotion, 3.43 for recognition and 3.55 for fringe benefits. The findings reveal a positive connection between the four aspects of compensation and reward system, and employee performance at KRA. On the other hand, inferential statistics confirmed that salary (p=0.000<0.05), promotion (p=0.019<0.05) and fringe benefits (p=0.037<0.05) had a positive and statistically significant effect on employee performance. Recognition had a positive effect but it was not statistically significant (p=.511>0.05). The findings lead to the conclusion that Kenya Revenue Authority has put in place a fair compensation and reward system although the system has not inspired high employee performance to the fullest. Consequently, it is recommended that Kenya Revenue Authority should give due consideration to employees compensation and reward package to enhance high performance. Kenya Revenue Authority should also establish a remuneration system that covers all employees. It is necessary to harmonize salaries in all job cadres and sensitize employees on criterion used for promotion. Additionally, Kenya Revenue Authority should streamline its fringe benefits scheme for fairness and recognize employees regularly whenever they have high performance.”