Employee Remuneration Determinants and Performance of Microfinance Institutions in Kenya

Abstract

The concept of employee remuneration has remained a key factor of organizational performance. Organizations that compensate their workers effectively are likely to achieve maximum productivity and vice versa. With increased competition and changing business environments, both small and large organizations in the local and global context are experiencing deteriorating performance related to inappropriate remuneration practices. The aim behind this study was to assess employee remuneration determinants and the performance of micro finance institutions in Kenya. The specific objectives of this study were to; examine the relationship between employee competencies, compensation policy, technology and labour market conditions and performance of microfinance institutions in Kenya .The study was anchored on human capital theory and supported by agency theory, efficiency wage theory and technology acceptance theory. The study adopted descriptive research design to establish the problem that was under investigation. It was appropriate because it explored and described the relationship between variables in their natural setting without manipulating them.The target population of the study were 56 microfinance institutions operating in Kenya. Purposive sampling technique was adopted to select the sample of the study. Structured questionnaires were instruments of data collection due to their effectiveness of capturing respondent information in a structured manner and the opportunity of respondents giving their views freely without interference from the researchers. Secondary data was collected from human resource records, related studies and books. Validity and reliability of the research instruments were tested through a pilot study using four employees selected from 2 MFI’s operating in Nairobi County, Kenya (Faulu Kenya and Kenya Women Finance Trust). Internal consistency of the instrument was tested using Cronbach’s Alpha method. Data was analyzed using Statistical Package for Social Sciences (SPSS version 20) software using descriptive and inferential statistics. Structured questionnaires were used to collect data and t-test, Pearson correlation as well as multiple regression analysis used to analyze the data. The F-test was used to test the hypothesis of the study. SPSS Version 22 aided in the data analysis. The analyzed data was presented in form of tables. It was revealed that employee competence, compensation policies, technology and labour market conditions had a positive relationship on performance of MFI’s in Kenya despite small extent of adoption. The study concludes that unless MFI’s realized the value of recruiting highly qualified workers, review compensation policies, integrate technology into the system and assessing labour market conditions before compensating workers, gaining competitiveness will be an uphill task. Therefore, the study recommends that top management of MFI’s should allocate adequate budgets to recruit competent staff, train workers, form industry partnership, implement change and review compensation policies for them to remain competitive.