CHAPTER 2

THEORETICAL FRAMEWORK

2.1 Risk Allowance

In the everyday work life employees often received what is called a total compensation

package. Total compensation package is usually classified into fixed pay, flexible pay,

and benefits. In this classification, fixed pay is compensation where the amount and

payment are guaranteed (base pay, seniority bonuses, etc.). The second component which

is flexible pay includes variable pay and deferred income. Variable pay is compensation

in which the amount is variable and/or its distribution is uncertain (gain-sharing, bonuses,

incentives, goal-based pay, overtime, etc.). Deferred income are sums that are blocked for

a given period of years before becoming available (company savings plans, employee

stock ownership plans, etc.). The third component of total compensation regroups all the

different kinds of benefits and is made up of four principal elements. The first comprises

allowances and reimbursements for miscellaneous expenses concerning food,

transportation, clothing, etc. The second consists of miscellaneous benefits and

perquisites in the form of goods and services supplied at a reduced price, made available,

or offered to employees (company housing, company car, private usage of telephone,

public transportation passes, etc.). The third includes employee welfare programs and

recreational opportunities concerning tickets for various entertainment events, Christmas

presents family assistance, scholarships, etc. Finally, the fourth comprises

complementary pension plans and health insurance cover paid for by the employer.

Risk allowance is one of the parts that built benefit in workers total compensation

package. In general it is a compensation paid for performing work involving particularly

high-risk factors. A typical example is the cash-handling or money-handling allowance

paid to employees who, by reason of their jobs involving paying out or collecting money,

are particularly exposed to the risk of error on their own part or fraud on the part of

others.

2.2 Hazardous Environment

Environmental hazard is the state of events which poses a threat to the surrounding

natural environment and adversely affects people's health. This term incorporates topics

like pollution and natural disasters such as storms and earthquakes. Hazards can be

categorized in five types:

1. Chemical

2. Physical

3. Mechanical

4. Biological

5. Psychosocial

2.2 Job Satisfaction

Job satisfaction has been defined in many ways possible by a lot of researchers. The most

commonly used definition in today’s would probably the description of Locke (1976) that

defined job satisfaction as a pleasurable or positive emotional state resulting from the

appraisal of one's job or job experience.

According to study conduct by Timothy and Klinger, job satisfaction is a salient and

perhaps inveterate attitude, permeating cognitive, affective, and behavioral aspects of

peoples' work and non-work lives. These features accentuate the importance of job

satisfaction as a construct worthy of attention in the organizational sciences as well as

subjective well-being research more generally. The reciprocal nature of job attitudes and

subjective well-being highlights the fact that a sound understanding of one domain is

incomplete without due consideration of the other. (Timothy and Klinger, 393)

Several theories or model in determining job satisfaction in employees:

1. Job Characteristic Model

The job characteristics model (JCM) argues that jobs that contain intrinsically

motivating characteristics will lead to higher levels of job satisfaction (Hackman

& Oldham, 1976). Five core job characteristics define an intrinsically motivating

job:

a) Task identity-degree to which one can see one's work from beginning to end

b) Task significance-degree to which one's work is seen as important and

significant; Skill variety-extent to which job allows one to do different tasks

c) Autonomy-degree to which one has control and discretion over how to

conduct one's job.

d) Feedback-degree to which the work itself provides feedback for how one is

performing the job.

According to the theory, jobs that are enriched to provide these core

characteristics are likely to be more satisfying and motivating than jobs that do

not provide these characteristics. More specifically, it is proposed that the core job

characteristics lead to three critical psychological states--experienced

meaningfulness of the work, responsibility for outcomes, and knowledge of

results-which, in turn, lead to outcomes such as job satisfaction.

Initially a purely situational model, the JCM was modified by Hackman and

Oldham (1976) to account for the fact that two employees may have the same job,

experience the same job characteristics, and yet have different levels of job

satisfaction. The concept of growth need strength (GNS), an employee's desire for

personal development, was added as a moderator of the relationship between

intrinsic job characteristics and job satisfaction. According to this interactional

form of the model, intrinsic job characteristics are especially satisfying for

individuals who score high on GNS. Empirical evidence supports this position:

The relationship between work characteristics and job satisfaction is stronger for

high-GNS employees (average r = .68) than for low-GNS employees (average r =

.38) (Frye, 1996)

2. Frederick Herzberg's two-factor theory, or as known as intrinsic/extrinsic

motivation, concludes that certain factors in the workplace result in job

satisfaction, but if absent, they don't lead to dissatisfaction but no satisfaction. He

distinguished between:

Motivators; (e.g. challenging work, recognition, responsibility) which give

positive satisfaction, and

Hygiene factors; (e.g. status, job security, salary and fringe benefits) that do not

motivate if present, but, if absent, result in de-motivation.

From the 3 theories we can see that the value-percept model expresses job satisfaction in

terms of employees' values and job outcomes. But the flaw of this model is that its

ignores influences from exogenous factors, such as costs of holding a job, or current and

past social, economic, or organizational conditions external to the individual. From the

Job Characteristics model and Herzberg's theory we can see how several aspects in job

can affect job satisfaction of employees. Judge et al. (1998) showed that individuals with

positive core self-evaluations perceived more intrinsic value in their work, and Judge,

Bono, and Locke (2000) showed that core self-evaluations was related to the actual

accomplishment of complex jobs. Because job complexity is related with intrinsic job

characteristics this result shows that part of the reason individuals with positive core self-

evaluations perceived more challenging jobs and reported higher levels of job satisfaction

is that they actually have obtained more complex (and thus challenging and intrinsically

enriching) jobs. By choosing this model as the theoretical framework to determine

worker job satisfaction, it is to be expected to find a clear performance management in

the workers’ place.

2.3 Work Motivation

There are a lot of definitions of motivation but the most commonly used is that it is as a

process that drives the individual to voluntarily produce effort in his work (e.g. Campbell

and Pritchard, 1976; Graen, 1969; Lawler, 1964; Porter and Lawler, 1968, etc.). The

general idea of motivation is basically to give “something” in order for specific action or

certain behavior to take place. Motivation is present in every life function and can be

anything from reward to coercion.

Motivation is divided into two categories; intrinsic motivation and extrinsic motivation.

Intrinsic motivation is internal or come from within. It occurs when people are required

to do something out of pleasure, importance, or desire. Extrinsic motivation occurs when

external factors require the person to do something. Howlett hierarchy of work

motivators explained these two kinds of motivation in the form of hierarchy;

Level 1: Salary, Benefits, Working conditions, Supervision, Policies of agency

Level 2: Safety in the workplace, Job security

Level 3: Affiliation, Interpersonal relationships

Level 4: Recognition, Growth, Responsibility, Nature of job

Level 5: Achievement, Advancement

Level 1, level 2, and level 3 in this hierarchy are all externally motivated needs. When

these needs are achieved, the person moves up to level four and then five. However, if

levels 1 through 3 are not met, the person becomes dissatisfied with their job. When

satisfaction is not found, the person becomes less productive and eventually quits or is

fired. Level 4 and level 5 are internal motivators. They occur when the person motivates

themselves (after external motivation needs are met.) An employer or leader that meets

the needs on the "Howlett Hierarchy" will see motivated employees and see productivity

increase.

Theories of management and work motivation distinguish between two kinds of rewards;

extrinsic and intrinsic. Extrinsic rewards are ones such as money and verbal

reinforcement which are mediated outside of the person, whereas intrinsic rewards are

mediated within the person. We say a person is intrinsically motivated to perform an

activity if there is no apparent reward except the activity itself or the feelings which result

from the activity. Most theories of work motivation (e.g., Porter & LaMer, 1968) assume

that the effects of two kinds of rewards (intrinsic and extrinsic) are independent, or

additive. This suggests, therefore, that work should be structured to arouse intrinsic

motivation and also that workers should be rewarded extrinsically (and contingently) for

doing well.

Deci has suggested a cognitive evaluation theory to explain the change in intrinsic

motivation. It concentrates on a person's perception of why he is doing the activity. When

he is intrinsically motivated, the perceived locus of causality (Heider, 1958) of that

behavior is within himself. He is doing it because it provides him with some sort of

internal satisfaction. However, when he performs the activity for external reinforcements

such as money, he comes to perceive that he is doing it for the money. The perceived

locus of causality changes from within him to the environment. Basically he evaluates

that by doing this activity he will received external reward. In other words, the first

process by which intrinsic motivation can be affected is a change in perceived locus of

causality.

On the other hand, Deci (1971, 1972) has reported that verbal reinforcements do not

decrease intrinsic motivation; in fact, they appear to enhance it. In the Deci (1971), the

experimental subjects were rewarded with verbal statements such as, "That's very good,

it's the fastest anyone has solved this one," each time they solved a puzzle. The control

group received no rewards. The results indicated that subjects who received verbal

rewards were more intrinsically motivated following that experience than subjects who

received no rewards. Hence, the verbal reinforcements strengthen his intrinsic motivation

because they provide additional positive value which becomes associated with the

activity; so the subject is more likely to perform the activity in the absence of external

rewards. According to the cognitive evaluation theory then, the second process by which

intrinsic motivation can be affected is that of feedback. Positive feedback increases the

total positive value properties (Koch, 1956) associated with the activity by strengthening

the person's sense of competence and self-determination. This makes him more

intrinsically motivated to perform the activity.

In building their study in finding the relationship between compensation, work

motivation and job satisfaction, Jacques Igalens and Patrice Roussel (1999) use

expectancy theory model as their theoretical framework in order to allows them to find a

better differentiation between the concepts of work motivation and job satisfaction

compared to other possible approaches such as need, intrinsic motivation, equity, or goal

setting theories. Furthermore, they stated that expectancy theory clearly indicates the

attitudinal factors which, during the motivational process, drive the individual to produce

effort to perform better.

2.4 The Interaction between Risk Allowance, Work Motivation, and Job Satisfaction

There are no particular/specific studies that already done the interaction between risk

allowance with work motivation and job satisfaction. That is why the theoretical

framework is concentrating more on a big picture of total compensation (that include

benefit as part of the risk allowance) relation respectively with both of the variables.

There are already a lot of studies in finding the relationship between total compensation,

work motivation, and job satisfaction. One of them is the study by Jacques Igalens and

Patrice Roussel (1999). In this research they make several conclusions, which are:

1. Fixed pay can have a positive influence on job satisfaction. In fact, the more

employees are satisfied with the internal equity of their fixed pay, the more then

tend to be satisfied with their job. Similarly, the more employees are satisfied

with the external equity of their fixed pay, the more they tend to be satisfied with

their job. These results suggest a high expectancy on the part of employees for

individualized compensation based on fixed pay and the recognition of their

contributions to the company.

2. Flexible pay (variable pay and deferred income) neither motivates nor

increases job satisfaction. An employee can experience feelings of satisfaction

with regard to gain-sharing dividends or a bonus without the increasing of job

satisfaction.

3. Benefits neither motivate nor increase job satisfaction. Benefits include

allowances and reimbursements for miscellaneous expenses, miscellaneous

benefits and perquisites, employee welfare programs and recreational

opportunities, complementary pension plans and insurance cover. They make this

conclusion because they see that benefits have little influence on job satisfaction.

There is actually a positive and significant, but weak relation between benefit

satisfaction and job satisfaction. Employees who are attracted or motivated by this

form of compensation seem to seek the satisfaction of a need for comfort or

security. They are more satisfied with their job if it offers benefits that correspond

to their expectations, but their motivation to perform will not be increased.

J. Igalens and P. Roussel (1999) also build a model for their theoretical framework. They

analyze job satisfaction and work motivation using expectancies model and discrepancy

theory. They only examined the relations between perceptual variables. To get to the

employee motivation and job satisfaction they built a model like shown below.

Figure II-1 J.Igalens and P.Roussel Model

The first results from the way in which they set out their hypotheses on the efficiency of

compensation in relation to satisfaction and to motivation. Thus in each case, they

examine whether a first field of perceptions has an influence on the second. If pay

satisfaction has an influence on job satisfaction, and if being incited by compensation

actually increases motivation to perform at work, then the compensation, or one or other

component of the compensation, is efficient.

Another theoretical framework in order to determine this interaction is the big picture of

job performance that is represent by Behavior = f (M, A, E). This motivation triangle

model as shown below simply said that in order to motivate employee to establish a

certain behavior, compensation cannot do it alone. It needs to back up by culture and

performance management of the company.

2.6 Discriminant Analysis

Discriminant analysis is a statistical method that is used by researchers to help them

understand the relationship between a "dependent variable" and one or more

"independent variables." A dependent variable is the variable that a researcher is trying to

explain or predict from the values of the independent variables. Discriminant analysis is

similar to regression analysis and analysis of variance (ANOVA). The principal

difference between discriminant analysis and the other two methods is with regard to the

nature of the dependent variable.

Discriminant analysis requires the researcher to have measures of the dependent variable

and all of the independent variables for a large number of cases. In regression analysis

and ANOVA, the dependent variable must be a "continuous variable." A numeric

variable indicates the degree to which a subject possesses some characteristic, so that the

Figure II-2 The Triangle Model

higher the value of the variable, the greater the level of the characteristic. A good

example of a continuous variable is a person's income.

In discriminant analysis, the dependent variable must be a "categorical variable." The

values of a categorical variable serve only to name groups and do not necessarily indicate

the degree to which some characteristic is present. The categories must be mutually

exclusive; that is, a subject can belong to one and only one of the groups indicated by the

categorical variable. While a categorical variable must have at least two values, it may

have numerous values. As the mathematical methods used in discriminant analysis are

complex, they are described here only in general terms.

There are two basic steps in discriminant analysis. The first involves estimating

coefficients, or weighting factors, that can be applied to the known characteristics of the

independent variables. Second, this information can then be used to develop a decision

rule that specifies some cut-off value.

There are various tests of significance that can be used in discriminant analysis. One

widely used test statistic is based on Wilks lambda, which provides an assessment of the

discriminating power of the function derived from the analysis. If this value is found to

be statistically significant, then the set of independent variables can be assumed to

differentiate between the groups of the categorical variable. This test, which is analogous

to the F-ratio test in ANOVA and regression, is useful in evaluating the overall adequacy

of the analysis.

Once the analysis is completed, the discriminant function coefficients can be used to

assess the contributions of the various independent variables to the tendency of an

employee to be a high performer. The discriminant function coefficients are analogous

regression coefficients and they range between values of -1.0 and 1.0. The discriminant

function is treated as a standardized variable, so it has a mean of zero and a standard

deviation of one. The average values of the discriminant function scores are meaningful

only in that they help us interpret the coefficients. The magnitudes of the coefficients also

tell us something about the relative contributions of the independent variables. The closer

the value of a coefficient is to zero, the weaker it is as a predictor of the dependent

variable. On the other hand, the closer the value of a coefficient is to either 1.0 or -1.0,

the stronger it is as a predictor of the dependent variable.

The second step in discriminant analysis involves predicting to which group in the

dependent variable a particular case belongs. A subject's discriminant score can be

translated into a probability of being in a particular group by means of Bayes Rule.

Separate probabilities are computed for each group and the subject is assigned to the

group with the highest probability. Another test of the adequacy of a model is the degree

to which known cases are correctly classified.