Tài liệu The effect of monetary incentive on effort and task performance a study of vietnamese company

DECLARATION OF ORIGINALITY AND WORD COUNT I hereby declare that the graduation project is based on my original work except for quotations and citations which have been duly acknowledged. I also declare that it has not been previously or concurrently submitted for any other course/degree at Help University College or other institutions. The word count is 14,056 words. ______________________ NGO THI KIEU VUI October, 2011 1 ACKNOWLEDGEMENT First at all, I would like to express my sincere thanks to my project supervisor, Dr. Le Van Lien, International School, Vietnam National University Hanoi for guidance and encouragement in carrying out this project work. Great deals appreciation goes to Ms. Sumathi, Help University College, who initiated and gives me much instruction and support about the dissertation. My sincere thanks to the collaboration of Mr. Nguyen Xuan Luat_ Director of VIETCOMBANK, and Ms. Phung Nguyen Hai Yen_ Chief Accountant of VIETCOMBANK, have spent time to help me in my interview. I also wish to express my gratitude to Vietnamese teachers at International School and the Malay teachers at Help University College who taught and helped me during the study process at the International School. Thanks to my foreign friends especially those who work with me during my study time. Not forget, great appreciation go to teachers and friends who have worked closely with me throughout my five of study at the University. Finally yet important, I wish to avail myself of this opportunity, express a sense of gratitude and love to my beloved parents for their support, strength and encouragements. NGO THI KIEU VUI 2 THE EFFECT OF MONETARY INCENTIVE ON EFFORT AND TASK PERFORMANCE: A STUDY OF VIETNAMESE COMPANY By NGO THI KIEU VUI October 2011 Supervisor: Dr. Le Van Lien ABSTRACT In many Vietnamese companies, incentive systems are designed to motivate employees at work and attract new talented candidates. Monetary incentives are considered as the most powerful motivational tool in such systems. The companies originally use monetary incentives for the purpose of encouraging their employees to perform in the most effective way. However, in practice, the effectiveness of using monetary incentive to encourage them is still controversial among the researchers. In the accounting field, managers and accountants play important roles in preparing a complete financial statement. How to encourage them to make the true and fair financial statements is very important to various parties in a company. The purpose of this research is to find out the real effect of monetary incentive in the workplace, especially its effectiveness on motivating managers and accountants in providing the true and fair financial statement and performing other tasks in the company. 3 TABLE OF CONTENTS DECLARATION OF ORIGINALITY AND WORD COUNT ................................................ 1 ACKNOWLEDGEMENT ............................................................................................................ 2 ABSTRACT ................................................................................................................................... 3 TABLE OF CONTENTS .............................................................................................................. 4 LIST OF FIGURES ...................................................................................................................... 7 LIST OF ABBREVIATIONS ...................................................................................................... 8 1. 2. INTRODUCTION ................................................................................................................. 9 1.1. Background of study ..................................................................................................... 9 1.1.1 Monetary incentive in the world ................................................................................... 9 1.1.2. Monetary incentive in Vietnam .................................................................................. 10 1.1.3. Accounting scandal involved in monetary incentive .................................................. 11 1.2. Scope of research ........................................................................................................ 12 1.3. Problem statements ..................................................................................................... 13 1.4. Hypotheses .................................................................................................................. 14 1.5. Organization of research ............................................................................................. 15 LITERATURE REVIEW ................................................................................................... 17 2.1. Issues related to monetary incentives ......................................................................... 17 2.1.1. Motivation................................................................................................................... 17 2.1.2. Monetary incentive ..................................................................................................... 19 2.1.3. Arguments for monetary incentives ............................................................................ 21 2.1.4. Arguments against monetary incentives ..................................................................... 22 4 2.2. Review of accounting theories related with monetary incentives .............................. 23 2.2.1 Adams’ Equity Theory ............................................................................................... 23 2.2.2 Bonus schemes ............................................................................................................ 26 2.2.2.1 Accounting-based bonus plans ................................................................................... 27 2.2.2.2 Market-based bonus schemes ..................................................................................... 30 2.2.3 Agency Theory ........................................................................................................... 31 2.2.4 Possitive Accounting Theory ...................................................................................... 34 2.2.4.1 Three key hypotheses of Positive Accounting Theory ............................................... 35 2.2.4.2 Opportunistic perspective ........................................................................................... 36 3. RESEARCH METHODOLOGY ....................................................................................... 39 3.1. Research objective ...................................................................................................... 39 3.2. Data source ................................................................................................................. 40 3.2.1. Secondary data ............................................................................................................ 40 3.2.2. Primary data ................................................................................................................ 41 3.3. Research method ......................................................................................................... 41 3.4. Research tool............................................................................................................... 42 3.4.1. Questionnaire .............................................................................................................. 42 3.4.2. Personal interview....................................................................................................... 43 3.5. Data collection ............................................................................................................ 43 3.6. Sampling ..................................................................................................................... 44 3.6.1. Sample population ...................................................................................................... 44 3.6.2. Sample frame .............................................................................................................. 44 3.6.3. Sample size ................................................................................................................. 44 5 4. 5. 3.6.4. Sample techniques ...................................................................................................... 44 3.7. Limitations .................................................................................................................. 44 FINDINGS AND ANALYSIS ............................................................................................. 46 4.1. Test for Hypotheses .................................................................................................... 48 4.1.1 Hypothesis 1 ............................................................................................................... 48 4.1.2. Hypothesis 2 ................................................................................................................. 50 4.1.3. Hypothesis 3 ............................................................................................................... 51 4.2. Overall discussion from questionaire survey .............................................................. 53 4.2.1 Purpose and motivation at work ................................................................................. 53 4.2.2 Imbalance between monetary incentive and input ...................................................... 56 4.2.3 Opportunism in work .................................................................................................. 59 4.3. Overall discussion from managers and accountants interviews ................................. 61 CONCLUSION .................................................................................................................... 65 REFERENCES ............................................................................................................................ 68 APPENDIX A: QUESTIONNAIRE .......................................................................................... 78 APPENDIX B: STATISTICAL TEST ...................................................................................... 81 6 LIST OF FIGURES Table 4.1 Classification of the Respondents from Different Sector .......................................... 46 Table 4.2 Classification of the Respondents from Different Gender ........................................ 46 Table 4.3 Classification of the Respondents of Different Age Group ...................................... 47 Table 4.4 Respondents’ purpose and motivation at work ......................................................... 49 Table 4.5 Imbalance between monetary incentive and input .................................................... 51 Table 4.6 Opportunism in work ................................................................................................ 52 Figure 4.1 Classification of the Respondents from the Length of Employment ....................... 47 7 LIST OF ABBREVIATIONS EMH Efficient Market Hypothesis FD Financial Director GAAP Generally Accepted Accounting Principles IAS International Accounting Standard NPV Net present value PAT Positive Accounting Theory R&D Research and development VAS Vietnamese Accounting Standard 8 1. INTRODUCTION 1.1. Background of study 1.1.1. Monetary incentive in the world Monetary incentives have been known as a motivation tool and have been used in many companies in the world many years ago. The most popular forms of monetary incentive are bonus and share options. Since 1929, Bethlehem Steel was the second-largest steel manufacturer in the US. Eugene G. Grace, President of Bethlehem Steel, was rewarded a $1.6 million bonus. He became the first million-dollar man at a public company (Business Week, 1999). In the history, the success of many large companies usually records a large amount of monetary incentive to be paid for the board of management. This result has been shown in many surveys conducted by Business Week Magazines, Financial Director (FD) Magazines. In 1997 Business Week’s annual executive pay survey, Coca-Cola provided Roberto Goizueta, CEO of Coca-Cola, a total of $111.8 million which consisting of annual salary, bonuses, and long-term compensation. This was also one of the most well-paid monetary incentive packages in the history of public companies. However, Coke’ shareholders were very happy with such incentive package. It could be said that the whole life of Goizueta devoted to Coca-cola during his 16 years reign, he has made great contributions to the company. Coke’s stock increased at an amazing 3,800 per cent (Roger Martin). In the same year, top executives of nearly half of the 200 largest companies were awarded a large number of options that worth at least $10 million. In 9 addition, according to 2005 FD salary survey, Kevin Hayes, FD of Man Group_ a world leading alternative investment management business, ranked no. 1 in FTSE-100 FD pay league with a total pay of £2,359,000 including £310,000 salary, £2,000,000 bonus and £49,000 others (Financial Director, 2005). Hayes’ bonus was even much higher than his basic salary. In these cases, the success of these companies was based on the fact that monetary incentive has played an important role in encouraging the board of management on performance. 1.1.2. Monetary incentive in Vietnam Nowadays, with the widespread use of monetary incentive, almost all Vietnamese companies have set up bonus and welfare funds to reward their employees while the Vietnam law on Enterprises (2005) does not oblige the companies to set up such funds. Many companies have used monetary incentives as a good starting point to encourage their employees’ performance and they have seen monetary incentive as a good motivational tool to improve their employees’ behavior. Within companies, managers and accountants are often the most important people in performing financial statements. Many companies have rewarded them based on the result of the financial reports. That means if there are high reported earnings; they could be rewarded high bonuses or more number of share options. The use of monetary incentive is expected to increase their effort in performing the true and fair financial statement. However, monetary incentive might motivate them in choosing accounting methods, which bring the best interest for them, but not for the company. 10 In Vietnam, there are not many surveys conducted as what has been done by Business Week and Financial Director. In addition, it is very hard to find sufficient information which involves managers’ and accountants’ monetary incentive because there are only a few companies voluntarily declared and the Vietnamese Accounting Standard Board (VASB) does not require the company to disclose such amounts (Vietnamese Accounting Standard). Only one thing that can be easily recognized is that managers are often rewarded more than the direct labor of many workers in many companies. This can be explained by the fact that managers often have to work harder, have to have more achievements, more influential, more dedication for the company. Therefore, it is very difficult to evaluate their’ performance, and the link between monetary incentive and their performance. 1.1.3. Accounting scandal involved in monetary incentive In history, there were many accounting scandals in the world. This study will mention a typical scandal involved in monetary incentives in the accounting history. That is the case of Nortel Networks Corporation. Since 1895, Nortel Networks Corporation was a Canadian multinational telecommunications equipment manufacturer. Then, it has rapidly grown into a global leader in delivering communications capability (Corporate website). However, it was involved in the worst telecom meltdown in the history when it announced a loss of $2.2 billion for the last quarter of 2005. On 2 July 2007, a Wall Street Journal reported that Nortel manipulated its books by misusing accrued liabilities to boost profit earnings (Wojtek Dabrowski, 2008). Many of Nortel’s executives have been charged by U.S regulators for engaging in accounting fraud. They 11 manipulated Nortel’s books to meet Wall Street’s expectations, and pay themselves high level of bonuses. “Nortel's earnings management fraud could not have happened without their efforts. These defendants all received significant compensation while they were falsifying Nortel's financial results”_ Christopher Conte said_ an Associate Director of the Commission’s Division of Enforcement (U.S Securities and Exchange Commission, 2007). It was believed that the cause of this scandal was Nortel’s board put a too powerful monetary incentive package for its leaders into place. If Nortel reached break even point for the first quarter, the management team would be rewarded US$13.6 million and US$30 million for three consequence quarters. This drove senior management to intentionally under-report income in 2002 in order to ensure to break even in 2003. Due to the intention of management, 2003 was a break-even year and Nortel’ CEO and CFO were rewarded a huge amount of bonuses in cash and stock. Frank Dunn, one-time CEO, sacked $2.15 million. CFO Douglas Beatty got $831,000. In 2003, Nortel had to pay US$10 million for managers’ bonuses. It is clear that monetary incentive had motivated management in manipulating accounting information. Therefore, Nortel had not used monetary instruments effectively in encouraging managers to product the true and fair accounting information. 1.2. Scope of research This study focuses on the effectiveness of using monetary incentives in motivating effort and task performance. However, this thesis on the effect of monetary incentives on effort and task performance of every worker seems more like a thesis for social science major. This thesis must satisfy all the requirements for the degree of Bachelor of Accounting. In 12 addition, in accounting field, managers and accountants can be considered as the most important people who influence the financial reports. Therefore, the scope of research will be limited by only researching on effort and task performance of managers and accountants in Vietnamese companies. In addition, there is a close relationship among them because accountants are people who directly prepare financial statements; managers are people who take charge of choosing accounting methods for their company. It is very hard to separate the role of managers and accountants in performing financial statements. This study will consider managers and accountants to be a unique entity and these names are interchangeable in the study. 1.3. Problem statements There are many problems involved in utilizing monetary incentives to motivate employees in Vietnamese companies. The following research questions are tried to address the effect of monetary incentive on effort and task performance:  Do all Vietnamese companies have reward funds to motivate accountants and managers?  Which circumstances can the companies use money to motivate managers and accountants on effort and task performance?  What happens if monetary incentives are not parallel with managers and accountants’ effort?  What are the types of monetary incentive that can motivate managers and accountants the most? 13  Should monetary incentives always be used to motivate employees on effort and task performance in today’s working environment in Vietnam? 1.4. Hypotheses There are three hypotheses to be established and tested by chi-square test. H1 represents the alternatives of hypothesis and H0 represents the null hypothesis. The hypothesis will be tested with the significant level α = 0.05. Hypothesis 1 H1: The purpose of work of managers and accountants is mainly due to money and they are motivated on performance by monetary incentive. H0: The purpose of work of managers and accountants is not mainly due to money and they are not motivated on performance by monetary incentive. Hypothesis 2 H1: If the monetary incentive is imbalance with managers’ and accountants’ input, they usually do not perform their tasks well. H0: If the monetary incentive is imbalance with managers’ and accountants’ input, they still perform their tasks well. Hypothesis 3 H1: Regardless of how much monetary incentive, when there is an opportunity, managers and accountants will act opportunistically. 14 H0: Regardless of how much monetary incentive, when there is an opportunity, managers and accountants will not act opportunistically. 1.5. Organization research The studies are into five chapters with different objectives as following: Chapter I: Introduction In this chapter, the study provides a general picture about the relating topic. In particular, it gives introductions about monetary incentives, main objectives of the study and problems involved in the application of monetary incentive in Vietnamese companies. Chapter II: Literature review This chapter concentrates on explaining all concepts and theories related to the topic. Thus, this chapter focuses on explaining all the issues and the main theory relates to monetary incentive. Chapter III: Research methodology This chapter describes all techniques and strategy used to conduct the research such as data source, research tools, and data collection. This chapter also mentions to some difficulties when the researcher conducts the study. Chapter IV: Findings and analysis This chapter shows all findings from the collected data after conducting survey related to topic. And then, the chapter mainly focuses on analyzing all the collected data. The collected information is very necessary to investigate the effect of monetary incentive on task and effort performance of managers and accountants. 15 Chapter V: Conclusion This is the final chapter in the study. The main duty of this chapter is to sum up all the results from the study. 16 2. LITERATURE REVIEW 2.1. Issues related to monetary incentive 2.1.1. Motivation Thousands of years ago, when the concept of “motivation” was still unknown, people realized the importance of influencing workers to accomplish task performances. Many years later, this was the premise of the appearance of the term “motivation” and then it has rapidly become one of the most common concepts in everyday language. Nowadays, it is a concerning issue of almost all companies and a difficult subject in the workplace. Although it is very difficult to define this concept rigorously, there are still various definitions on this concept. Motivation can be referred to as “the act of stimulating someone or oneself to get a desired course of action to push the right button to get a desired reaction, a compliment, dollar raise, a smile, a promise of a rise, a new typewriter, a preferred location or a new desk” (Michael L. Jucius); “the psychological process that gives behavior purpose and direction” (Kneitner, 1995); “give reason incentive, enthusiasm, or interest that causes a specific action or certain behavior” (Wenday Pan, 2008); or “a set of forces that directs an individual to the behavior that results in better job performance” (Ashim Gupta, 2011). Two main kinds of motivation are intrinsic and extrinsic. Intrinsic motivation (non-financial incentive) comes from within the individual, not from any outside pressure, such as public recognition or feelings of achievement. It is driven by enjoyment and pleasures of completing a task. Adversely, extrinsic motivation (financial 17 incentive) occurs when external factors attract employees to work, for example, monetary incentives or punishment. Motivation brings advantages to both the company and employees. If an employee is highly motivated, motivation will be converted to “probably work harder, produce a higher quality of work and be less liable to take time off”. In addition, it helps to “avoid clashes and non-cooperation and brings harmony, unity and co-operative outlook among employees” (Gauray Akrani, 2010). As a result, the company can increase the efficiency and productivity of employees which lead to increase profitability. For the employees, they can get various benefits, such as monetary and non-monetary facilities in exchange for their efforts. In 1955, Elton Mayo had conducted the Hawthorne Studies from 1924 to 1932 (James R. Lindner, 1998). The results of these studies help us to understand what motivated people at work; and how they were motivated. In almost all companies, motivational techniques are very useful to leaders, employers and other managers. Management can consider motivation as a key role in leadership success. According to Walter, motivation is also the most important factor of performance (Walter Jack Duncan, 1998, p438). Many evidences show that enhancing motivation will lead to promote performance (McCullage, 2005; Wilson, 2005). Moreover, motivation is the most fundamental factor for workers to stick with the job and do a better job. In the human resource management, motivating employees to work on high effort is one of the most important issues. In the accounting field, motivating managers and accountants in choosing accounting policies that bring the best interest for the whole company is the most important one. When the issue is motivation, companies need to 18 motivate managers and accountants on higher performance. For owners, they should be especially aware of the importance of motivation because only if they understand the importance of it, then can they implement incentive policy to motivate their employees at work. In addition, managers also need to think about what motivates them to work because most people have to work with high pressure throughout their life. 2.1.2. Monetary incentive An incentive in anything can be referred to as a motivation for doing a particular course of action. It makes managers as well as other employees desirous to do better, try harder and expend more energy. Vaida (2003) stated that “incentives are used to reward outstanding performance and to sustain efficiency in work processes”. In the companies, they usually offer incentive systems as an important part of the companies’ motivation. These systems are usually used as the way to reward staff. In many cases, incentive systems are also used for the purpose of correcting and preventing the employees’ mistakes in term of penalties, fines and other punishments. However, the systems can encourage or discourage their employees up to their ability in designing these systems. A good incentive system can encourage employees to work harder, produce more efficiency and foster loyalty to the company. Monetary incentive is a type of incentive and used as a motivation tool. The companies offer monetary incentive to all categories of workers in terms of rewarding money in exchange for their desired performance. In general, monetary incentive is paid in addition to basic wages or salary. It may be further divided into two categories: individual monetary incentive and group monetary incentive. Individual monetary 19 incentive means that individuals are paid “based solely on the performance of the individual employee” (Judith, 2001). F.W. Taylor suggested a good example of the individual monetary incentive which is different incentive wage plans. Different employees have different ability in production. Therefore, they are paid different incentive wages as per their production efficiency. As for managers and accountants, they hold important positions in a company. Their responsibility is often higher than other employees. They also have to work on higher effort than others. This also means the company should pay them different monetary incentives than others. Moreover, if managers want to be paid more monetary incentive, they need to work more efficiently and productively than others. With group monetary incentives, the monetary incentive is given to a group of employees or to all employees in the company. Some typical examples of the group monetary incentives are bonus payment, profit sharing, pension funds. Rewarding managers as a group will motivate them to cooperate with other employees to accomplish the company’s goals. Furthermore, this also motivates managers to act in the best interest of the company. For the company as a whole, group monetary incentive brings many benefits. However, because performance is evaluated over the group’s performance, the owners will have less control over each manager’s performance. In many cases, managers may work less effectively and productively than they are paid individual monetary incentives (Blinder, 1990; McCoy, 1992). Bonus is a typical example of monetary incentive. It can be defined as “compensation for employees for work performed, they are paid in addition to salary or wages” (Jean Murray, 2011). Within companies, owners consider bonus as the most effective rewarding tool to strike the balance between the effort that managers put into work and 20