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Chapter 1

THE PROBLEM AND ITS BACKGROUND

Introduction

Successful performances of the personnel function can greatly enhance the bottom

line of any organization. This is why the Human Resource Management department

strives to achieve organization’s goals through effective personnel programs policies and

procedures. In fact, Dysvik and Kuvaas (2012) said that if organizations want to get the

most out of their employees, they will benefit from creating conditions for their

employees to experience the highest possible motivation at work.

Employees are the front line advocate and the connection between a business and

customers that is why it is important to inspire them and keep them motivated when they

come to work. According to Will (2012) employee happiness is a key to the success of a

business.

Giving the best motivation to make employees productive has long been an issue.

It is an important factor which brings employees’ satisfaction. It is done by developing

framing an incentive plan for the benefit of the employees. This could initiate monetary

and non-monetary incentives, promotion and opportunities for employees and

disincentives for the inefficient of employees.

The common notion is, the more motivated the employees are, the more

empowered a company is. The more is the team work, and individual employee

contribution, more profitable and successful is the business (The Management Study
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Guide, 2012). In other words, a motivated employee is a productive employee and a

productive employee is a more profitable employee.

Employee recognition has many positive effects on the workplace. One of the

more favorable measurable impacts is its improvement to the company in terms of

production goals. Employee recognition in any form increases employee engagement and

raises morale. Improved morale and a workplace with employees who are fully engaged

in their work is key to a productive and profitable organization. Creativity, however, is

necessary for employee recognition to be effective. Employers who develop new and

innovative ways to recognize employees are usually industry leaders when it comes to

maintaining a motivated workforce. Recognition for employees who uphold strong

performance standards is ideal for designating certain employees to assist with training

new hires. Developing fresh and relevant ideas for performance-related recognition

inspires employees to even greater levels of performance, and ultimately, to positions

where their skills and aptitude are best applied for the good of the organization.

What some companies do to motivate their employees to be productive is to

provide them extrinsic motivations. One strategy that some companies implement is the

performance –based pay system.

One example of a company that operates by performance-based incentive pay is

the ConocoPhillips which is the fifth largest private sector energy corporation in the

world and is one of the six "supermajor" vertically integrated oil companies. It sells fuel

under the Conoco, Phillips 66 and Union 76 brands in North America, and Jet in Europe.

ConocoPhillips was created through the merger of Conoco Inc. and the Phillips
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Petroleum Company on August 30, 2002. The Variable Cash Incentive Program (VCIP)

allows its employees to share business successes. All regular employees, full-time or part-

time, salaried or hourly are eligible to participate in the VCIP. This program helps align

employee compensation with the company’s success on critical performance measures.

This variable bonus incentive program motivates and rewards employees to achieve

business results by increasing their awareness of and accountability for the company’s

objectives. It also provides variability and differentiation in compensation based on group

and individual performance (ConocoPhillips, 2010).

Effective performance incentive programs indeed are so important. Properly

designed performance incentive programs not only help to ensure achievement of

business objectives, but they can actually help employees develop or enhance job skills,

thereby improving employee performance and productivity. And, more productive

employees become even more committed to achieving company goals, leading to repeat

success and reducing staff turnover.

No less than the president of the Philippines, his Excellency Benigno Simeon

Aquino III, issued Executive Order No. 80, s. 2012 directing the adoption of a

performance-based incentive system for government employees in the 20th day of

July, 2012. The EO believes that there is a need to strengthen performance monitoring

and appraisal systems based on existing systems like the Organizational Performance

Indicator Framework (OPIF) which is being used by the Department of Budget and

Management (DBM) to measure agency performance, the Strategic Performance

Management System (SPMS) of the Civil Service Commission (CSC) which links
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individual performance to organizational performance, and the Results-Based

Performance Monitoring System (RBPMS). The Performance-Based Bonus (PBB) shall

be adopted in the national government beginning Fiscal Year (FY) 2012. This will then

serve as a basis for a more rigorous performance-based incentive system that can

motivate higher performance and greater accountability in the public sector. (Official

Gazette, 2012).

This study then is being proposed to find out if the performance incentives offered

by the Cindys company which was born in Tarlac in 1971, to their employees, has

impacted to the expansion into about forty (40) branches . Beginning with classics like

freshly baked bread, halo-halo and local favorites like pancit luglog, Cindys grew in

popularity among residents and visitors alike. After the success of the Tarlac store,

Cindys branched out to Olongapo City and then to Metro Manila. As the number of

patrons grew, the need for new, exciting dishes arose. Cindys started to offer burgers,

spaghetti and french fries– additions that the young adult market very much welcomed.

The menu was then divided into three main sections: The Hamburger Section, The

Express Meals and The Bakeshop. In Tarlac province alone, there are 21 outlets as of

2013. Up to the present, the bakeshop is expanding and the outlets remain to be stable.

In an initial interview conducted by the researcher from the management of

Cindys, she found out that the performance incentive pay scheme is being implemented

among their employees. This study therefore, would want to determine the effect of this

pay scheme to the employees’ personal goals and to the goals of the company.
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The end goal of this study is to draw implications of the findings to effective

management of business establishments.

Statement of the Problem

This proposed study would attempt to evaluate the effectiveness of the

performance incentive pay scheme of Cindys Bakeshop outlets in Tarlac province.

Specifically, this will seek to answer the following problems:

1. How is the performance incentive pay in Cindys Bakeshop described along policies

and guidelines?

2. How are the goals of the management and the employees described?

3. How do the managers and employees evaluate the effectiveness of the performance

incentive pay scheme in accomplishing their goals?

4. What are the problems encountered by both the employees and the management in the

implementation of the performance incentive pay scheme?

5. What is the implication of the findings to business management?

Significance of the Study

This study will be devoted to evaluating the effectiveness of the performance-

based incentive pay scheme to the accomplishment of a company’s goals and to the

employees as well. As such, this will be beneficial and significant to the following:
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To the employees, the findings of this study will be significant to them as the

prospect of improvements in pay incentives will be very much possible. Through an

improved incentive pay system, personal goals would be better achieved.

To the employers the findings and recommendations of this study could be their

bases in planning ways to provide attractive incentives pays to their employees in pursuit

of their goals.

To the Human Resource directors or managers, this study would provide them

inspiration to evaluate their respective incentive pay systems to find out better

remuneration packages that would motivate both the employees and the employers in the

companies they are working with.

To prospective businessmen, the findings of this study will guide them towards

development of HR policies on salaries, incentives and benefits that will ensure viability

of their business.

To the researchers , this would be a rich source of related study.

Scope and Delimitation

This proposed study will focus on evaluating the performance-based incentive pay

system implemented at the Cindys outlets in Tarlac province. Both the owners or

managers and the employees will be taken as respondents of this study.

Specifically, this will attempt to first describe the performance-based incentive

scheme of the company by interviewing the HR department directors or managers. After

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which, the managers will be interviewed about their goals and objectives. Then the

employees too will be given questionnaires that will gather data on their personal goals.

Only employees accepted to work at least six months prior to the collection of

data will be included in this study.

Interviews, questionnaires and documents would be the instruments that would

gather data needed to answer the research questions.

Definition of Terms

The following terms are defined to enable understanding among the readers.

Company Goals. These refer to the targets of the Cindy’s Bakeshop on a

determined time. In other words, these are what the management wants to achieve which

include production and profits in a given period of time.

Evaluation of Effectiveness. This is determining the success of acquiring goals

after implementing the strategies that would lead to their accomplishment. In this study,

this is determining the effectiveness of the performance –based incentive pay in

accomplishing company’s goals and employees’ goals too by asking the respondents to

accomplish an evaluation check-list.

Goals. These are the target acquisitions of a company on a predetermined scope

of time.

Implications. These are the inferred effects of the findings of the study to

management of similar businesses.

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Individual Goals. These are the employees’ personal targets are while working in

Cindy’s Bakeshop. This may include financial stability or career promotions.

Performance-Based Incentive Pay Scheme. This is a system of determining the

bonuses to give to an employee based on his performance or acquisition of the goals set

in his scope of work.

Policies and Guidelines. These are written descriptions of an organization’s

stance on how their employees would be awarded their bonuses or incentives.