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MASTER THESIS – GSB6004 1
MASTER THESIS – GSB6004 24
THE EFFECT OF EMPLOYEE LOANS ON MORALE AND PRODUCTIVITY OF EMPLOYEES - A CASE STUDY FOR LUBAMBE COPPER MINE LIMITED
By
Lewis MwewaChola – GSB900319
A Dissertation Submitted to the University of Zambia in Partial Fulfilment of the Requirements of the Degree of Master of Business Administration in Human Resource Management
THE UNIVERSITY OF ZAMBIA
LUSAKA
2019
Declaration
I,Lewis Mwewa Chola, declare that this dissertation:
(a) Represents my own work;
(b) Has not previously been submitted for a degree at this or any other University; and
(c) Does not incorporate any published work or material from another dissertation.
Signed:..........................................................
Date:............................................................
Copyright
All rights reserved. No part of this dissertation should be reproduced or stored in any form or by any means without prior permission in writing from the author or the University of Zambia.
Approval
This dissertation of Lewis Mwewa Chola has been approved as partial fulfilment of the requirements for the award of Master of Business Administration in Human Resource Managementby the University of Zambia.
Signed: Date:
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Abstract
The cu
ent thesis paper, has tried to explore the impact of employee loans on employee productivity and morale with special reference to Lubambe Copper Mine Limited and has been titled, THE EFFECT OF EMPLOYEE LOANS ON MORALE AND PRODUCTIVITY OF EMPLOYEES - A CASE STUDY FOR LUBAMBE COPPER MINE LIMITED. The cu
ent paper aims at finding out the impact of employee loan on employee productivity and morale downgrade and tries to find out ways to retain high productivity and morale of the employees at Lubambe Copper Mine Limited. The research considers in depth assessment of theories, factor and impacts of employee loans, employee productivity and employee morale in order to understand the flaws responsible for influencing one another negatively. In order to provide authentic support to the arguments presented by the researcher, secondary literary sources have been refe
ed to. The use of the secondary sources made the connection between employee loans, employee productivity and employee morale evident.
In order to approach in a systematic order that is compatible with the demands of the research, the researchers has made use of positivism philosophy, descriptive design, deductive approach and primary research that includes both quantitative as well as qualitative data. The researcher selects the respondents through random probability sampling for quantitative data and convenient non-probability sampling technique for qualitative data. The collected data have been put to numerical tables and formulated charts, graphs and figures for better understanding. Based on the data findings and their analysis, it became evident that employees at Lubambe Copper Mine Limited are not satisfied with the amount, repayment time, conditions and rate of interest of the existing employee loan system and seeks change, which has been reflected in the recommendations by the researcher.
Dedication
To my wife Mwape Mukosha, Daughters, Ngosa and Tikvah, Sons, Ernest and Lewis
Acknowledgements
The thesis paper has been a source of great learning experience and is also the platform for realising the contribution of people that has made the paper a hard-earned success. I admit that although I am the researcher of the paper, there have been people whose names deserve to be mentioned. Firstly, the person, who has always been an honest critic of my work, my supervisor needs to be mentioned and thanked. I thank my supervisor for the guidance I was provided with and after completion of each chapter of the thesis paper. I would also like to thank my colleagues for their unwavering support for my project, helping in discussing issues and offering me honest feedbacks has helped me in great degree to optimise the accuracy of the cu
ent work.
Next, I would also like to thank the authors of the literary sources I have citied in my works, for assessing, arguing and learning about the research topic variables and its associated aspects. I am grateful to the respondents for their selfless dedication that allowed me to get a more comprehensive picture of the internals of the organisation and the perspective developing in their minds regarding the thesis paper topic. Lastly, I would like to acknowledge the consistent support of my wife MwapeMukosha. I am thankful for the support I got from my daughters, Ngosa and Tikvah, as well as sons, Ernest and Lewis. Thanking each and every one once again for their support. I would never have been able to pull the paper off with such dexterity, if not every mentioned person took part in the paper, somaybe the paper is officially mine, I would always consider the cu
ent work as a well-assisted piece of literary work.
Thank you all!
Table of Contents
Declaration 2
Copyright 3
Approval 4
Abstract 5
Dedication 6
Acknowledgements 7
Chapter 1: Introduction 15
1.0 Introduction 15
1.1 Background of the Research 15
1.2 Background of the Industry 17
1.3 Background of the Company 18
1.4 Research Rationale 19
1.5 Research Aim 22
1.6 Research Objectives 22
1.7 Research Questions 23
1.8 Significance of the Research 23
1.9 Outline of the Research Chapters 23
1.10 Summary 25
Chapter 2: Literature Review 26
2.0 Introduction 26
2.1 Concept of Employee Loans 26
2.2 Factors leading Employees to seek Loans 27
2.3 Benefits of Employee Loans 28
2.4 Drawbacks of Employee Loans 29
2.5 Theories related to Taking Loans by Employees 30
2.5.1 Theory of Loan Priorities 30
2.5.2 Secured Lending Theory 31
2.5.3 Theory of Loan Commitments 32
2.6 Concept of Employee Morale 33
2.7 Factors influencing Employee Morale 34
2.8 Impact of Employee Morale on the Organisational Productivity 35
2.9 Concept of Work Productivity of Employees 36
2.10 Factors influencing Work Productivity of Employees 37
2.11 Relationship of Employee Work Productivity on Overall Organisational Productivity 39
2.12 Impact of Employee Loans on Employee Morale 40
2.13 Impact of Employee Loans on Employee Work Productivity 41
2.14 Theoretical Models related to Impact of Employee Loans on their Work Productivity and Morale 42
2.14.1 Maslow’s Hierarchy of Needs Model 42
2.14.2 Herzberg’s Two-Factor Theory 43
2.14.3 Vroom’s Expectancy Theory 44
2.14.4 Stacy Adam’s Equity Model 45
2.15 Challenges in Providing Loans to Employees 45
2.16 Challenges in Implementing Loans to increase Employee Morale and Productivity 46
2.17 Ways to Boost Employee Morale and Employee Productivity 47
2.18 Linking Literature with Cu
ent Research through Conceptual Framework 49
2.19 Gaps in Literature 51
2.20 Summary 51
Chapter 3: Research Methodology 53
3.0 Introduction 53
3.1 Research Method Proposition 53
3.2 Research Onion 54
3.3 Research Philosophy 55
3.4 Research Approach 56
3.5 Research Design 57
3.6 Research Strategy 58
3.7 Types of Research 59
3.8 Data Sources 59
3.9 Population, Sample, Sample Size and Sampling Techniques 60
3.10 Data Collection Methods 61
3.11 Data Analysis Techniques 62
3.12 Ethical Considerations 62
3.13 Accessibility Issues 63
3.14 Timeline 63
3.15 Summary 63
Chapter 4: Data Findings and Analysis 64
4.0 Introduction 64
4.1 Analysis of Responses to Survey Questionnaire for Mining Employees 64
4.2 Analysis of Responses to Survey Questionnaire for Authoritative Employees 80
4.3 Analysis of Responses to Interview Questions for Managers 97
4.4 Summary 102
Chapter 5: Conclusions and Recommendations 103
5.0 Conclusion 103
5.1 Linking Objectives with Findings 104
5.1.1 Objective 1 104
5.1.2 Objective 2 104
5.1.3 Objective 3 105
5.1.4 Objective 4 106
5.2 Recommendations 107
5.2.1 Increasing the Loan Amount for Employees 107
5.2.2 Increasing the Time for Loan Repayment 108
5.2.3 Reducing the Loan Interest Rate 109
5.2.4 Offer Loans to Employees based on Priority 110
5.3 Limitations of the Thesis 112
5.4 Future Scope of the Thesis 112
References 114
Appendices 128
Appendix 1: Timeline 128
Appendix 2: Survey Questionnaire 1: For Mining Employees 130
Appendix 3: Survey Questionnaire 2: For Authoritative Employees 133
Appendix 4: Interview Questionnaire with Managerial Transcripts 137
Listof Tables
Table 4.1: Gender 64
Table 4.2: Age Group 65
Table 4.3: Frequency of Seeking Employee Loans 67
Table 4.4: Purpose of Employee Loans 68
Table 4.5: Role of Loan in Fulfilling Major Civic Needs 70
Table 4.5.1: Statistical Calculation 70
Table 4.6: Impact of Getting Employee Loans on Increased Productivity 71
Table 4.6.1: Statistical Calculation 72
Table 4.7: Impact of Getting Employee Loans on Boasting Employee Morale 73
Table 4.7.1: Statistical Calculation 73
Table 4.8: Employees Quitting Jobs against Loan Refusal 75
Table 4.8.1: Statistical Calculation 75
Table 4.9: Ways of Providing Loan 77
Table 4.10: Ways of Repaying Loans 78
Table 4.11: Gender 80
Table 4.12: Tenure in the Company 82
Table 4.13: Reason for Loans 83
Table 4.14: Employee Loan on Employee Productivity 85
Table 4.14.1: Statistical Calculation 85
Table 4.15: Employee Loan on Employee Morale 87
Table 4.15.1: Statistical Calculation 87
Table 4.16: Employee Loans on Employee Satisfaction 88
Table 4.16.1: Statistical Calculation 89
Table 4.17: Employee Loan on Employee Retention 90
Table 4.17.1: Statistical Calculation 90
Table 4.18: Employee Loan Issues at Lubambe Copper Mine Limited 92
Table 4.19: Change of Aspect of Loan 94
Table 4.20: Ways of Providing Loans 95
Table 5.1: Smart Recommendation 1 107
Table 5.2: Action Plan 1 108
Table 5.3: Smart Recommendation 2 109
Table 5.4: Action Plan 2 109
Table 5.5: Smart Recommendation 3 110
Table 5.6: Action Plan 3 110
Table5.7: Smart Recommendation 4 111
Table 5.8: Action Plan 4 112
Table 3.1: Gantt chart 129
List of Figures
Figure 1.1: Structure of the Research 24
Figure 2.1: Conceptual Framework 50
Figure 3.1: Research Onion 54
Figure 4.1: Gender 64
Figure 4.2: Age Group 66
Figure 4.3: Frequency of Seeking Employee Loans 67
Figure 4.4: Purpose of Employee Loans 69
Figure 4.5: Role of Loan in Fulfilling Major Civic Needs 70
Figure 4.6: Impact of Getting Employee Loans on Increased Productivity 72
Figure 4.7: Impact of Getting Employee Loans on Boasting Employee Morale 74
Figure 4.8: Employees Quitting Jobs against Loan Refusal 75
Figure 4.9: Ways of Providing Loan 77
Figure 4.10: Ways of Repaying Loans 79
Figure 4.11: Gender 81
Figure 4.12: Tenure in the Company 82
Figure 4.13: Reason for Loans 84
Figure 4.14: Employee Loan on Employee Productivity 85
Figure 4.15: Employee Loan on Employee Morale 87
Figure 4.16: Employee Loans on Employee Satisfaction 89
Figure 4.17: Employee Loan on Employee Retention 91
Figure 4.18: Employee Loan Issues at Lubambe Copper Mine Limited 92
Figure 4.19: Change of Aspect of Loan 94
Figure 4.20: Ways of Providing Loans 96
Chapter 1: Introduction
1.0 Introduction
As a part of creating value for the organisation, employee retention and employee motivation, loans are given to employees from their respective organisations, so that employees can avail facilities with the bulk of money received. As mentioned by Hunt and Hayward (2018), on one hand, the employees are motivated as they get the scope of loans, on the other they get mentally depressed when the organisational management exploits the employees based on legal terms of employee loans.
The organisation offering employee loans, as stated by Lin, Schmid, and Xuan (2018), only have the employee salary as the collateral against their loans and therefore, they face the issue of retaining employee who underperform intentionally to be dismissed from the work, generating low productivity. In the cu
ent study, the impact of employee loan on employee morale and its subsequent effect in employee productivity is discussed in detail with a special reference to Lubambe Copper Mine Limited.
1.1 Background of the Research
Southern Africa is mineral enriched and Zambia, located within the continent, is a small country, which has identified mining as its primary source of economy. Zambia has huge deposits of copper and cobalt within its political boundaries, which in the context of inability of employment, makes the locals easily available for mining business (ZCCM Investments Holdings Plc, 2018). The mining business requires low wage labours, from local areas, which can invest time in mining and produce ore in huge amounts.
Despite the high profiting nature of the business, it is seen that lack of value for ore in the market makes the higher productivity a proposition of lacklustre profiting. As stated by Marlina, Sjarkowi and Yusuf (2018), mining business causes displacement of localities in mining zones and as a part of social contribution, mining companies offer relocation facilities to people who were relocated. In addition, the relocated people are offered employment in the mining organisations.
As a part of retaining the employees for the mines and help them becoming economically stronger, mine owners provide employee loans to the labours, which considering the living standards of the mine labours tend to be very less and the legal binding vogue. The loans and their convenience make the employee moral high. On the other hand, as stated by Grimsby (2018), taking the advantage of employee loans, employee retain their jobs even after underperforming and the management exploit the employees by making them work for longer hours, impacting their morale in a negative way.
Employee loans are provided to retain the employees and generate a sense of value for the organisation. The employee loans make the employees bound to the organisation and failure of payment of the loans enforce the company to deduct loan instalments from the salaries. The deduction of monthly instalments makes the employees’ morale degenerated, while the availability of employee loans makes the proposition of employability lucrative. In journals developed by Blasi, Kruse and Freeman (2017), the main objective of discussion has been the employee loans and their relation to employee productivity.
On the other hand, journals composed by Paek, Schuckert, Kim and Lee (2015) shows the connection between employees’ morale standards and their productivity in organisation. However, in terms of considering the impact of employee loan on their moral and the subsequent impact on the productivity level have not been discussed thoroughly. As the mining industry is not similar to that of retail or information-technology business sectors, the terms, potential risks and impact of employees over the organisation tends to be different.
It is found that employee loans can improve as well as degenerate the production level of an organisational taskforce and considering Zambia as the background, where majority of the people live below poverty line makes the aspect of employee loans an important aspect of employee productivity and employee morale. With the help of the cu
ent research the connection between employee loan, employee morale and employee, productivity will be proven based on a theoretical approach.
1.2Background of the Industry
The primary source of foreign cu
ency in Zambia comes from mining and it has been a major contributor in the country’s economic growth. There are four major copper mining fields in the country, based on which several smaller mining zones have developed. Although the national government buys majority of the mining companies and their shares, foreign mining companies have tied up with the Zambia government to earn from mining. The government had planned for keeping 15% of the total shares of the mining companies (Zambia Invest, 2017).
However, in reality the government has kept 20% of the shares to itself, limiting the scope of foreign direct investment.In 2015, the copper mining industry in Zambia accumulated to an industry having a value of US$ 1.35 billion. In Zambia, the major mining ore is copper, and in a comparative note, Zambia has the ability to produce 1,500,000 tons of copper ore in 2018, making it the seventh largest producer of copper ore (Zambia Invest, 2017).
In attempt to dig out copper ore from the mining zones, heavy mining drills and water jets are used. The waste generated from the mining contaminates the water, air and land, making the living standards of the locals miserable. The mining wastes are dumped in su
ounding areas of the mines, covering hundreds of hector land. The mining wastes include dumps of waste rock, tailing, slag and ove
urden, all contributing inhabitability of the locals (UN Stats, 2010).
Zambia has benefitted through its copper mine deposits after the copper price boom in the global market. However, as the alternative to mining industry, there is very little scope for employment; people in local areas tend to opt for the career of mining labour, earning very little wages for their living. Despite the fact that mine, labours get higher wages in comparison to that of labours in other Zambian industries. However, despite higher wages, the standard of living is very low, and the wages are not sufficient for a better lifestyle (ALREI, 2018).
1.3 Background of the Company
Lubambe Copper Mine Limited is a well-established underground mining company, which is located in Chililabombwewithin the Greater Konkola Area of the Zambia Coppe
elt and consists of a large – scale mining license covering an area of approximately 240 square kilometres. The company is under the ownership of EMR Capital of Australia (80%) and Zambia Consolidated Copper Mines Ltd- Investment Holding (ZCCM-IH 20%). The mine is a modern, world class facility with fully mechanized underground operations. The Mine is cu
ently in a ramp up stage and will ultimately produce 45,000 tonnes of contained copper and will employ approximately 1,500 people. The Plant infrastructure consist of a Concentrator plant, a laboratory and underground infrastructure. The Concentrator incorporates crushing, milling, floatation and filtration. The design capacity is 2.5 MTPA of ore at an average mill grade of 2.3% copper, yielding 45,000 tonnes of contained copper in concentrate to be sold to smelters in Zambia (ZCCM Investments Holdings Plc, 2018).
Lubambe Copper Mine Limited was set up in 2012, accounting a total of USD 465 million. The company has an employee strength of 1,500 people, which is expected to produce 45,000 tons of copper ore per year from the copper mind. The copper mine has ample deposited of copper that can sustain 28 years of mining in the region. As the mining business has been responsible for significant numbers of displacement of people, the mining companies have offered relocation programs and Lubambe Copper Mine Limited is not different. The company has also been responsible for social development of the labour class people in the local areas (ZCCM Investments Holdings Plc, 2018).
Although the company experienced huge amount of growth in revenue from its start in 2012; it reached an impressive US$ 94.2 million dollar in 2016. However, from 2017, the company started to reduce its production output due to the increasing wages of the labours and the decision of covering the losses faced in the previous financial year. The company has been trying to preserve the ore deposits in the mines and is preparing better dewatering technology for better extraction, which will take ample time to get normal flow of work back (ZCCM Investments Holdings Plc, 2018).
1.4 Research Rationale
The issue is,the employee loans are given to the employees for their convenience and it acts as a sort of monetary benefit that employees of all organisational level utilise for making bigger purchases and facility availing. Employees in Africa take employee loan very frequently and avail higher purchases as the wages are low and the buying capacity of the people in South Africa are comparatively less to that of European countries (Fortune, 2018). The employees stay in organisations to avail employee loans as an added bonus to their job profile. The loans are used for house building, car buying, higher education of kids and many more purposes. The organisations that provide their employees with employee loans, consider the salaries of the employees as their assets against which, they provide loan. The offering of the loans and work more dedicatedly for their respective organisations motivates a significant percentage of the employee.
However, the stress of paying the loans for a fixed monthly period reduces the scope of utility of money for the employees, which de-motivates their morale. The de-motivated morale of the employees gradually makes them feel captive through responsibilities and the start to underperform. As supported by Benson, Thomas and Burton (2018), taking the legal binding as a pivot, organisational managements often make employees work for longer hours, increasing the feeling of exploitation. The management, as stated by Saha, Hock-Eam and Yeok (2018), on the other hand are forced to retain employees despite their low productivity or misconduct, as the only means of recovering the allocated loans remains the salary of the employees.
The employee loans leading to low morale and productivity is an issue because, as the companies are providing loathsome amounts as employee loans, the pressure for repaying the loan amounts are increasing, which is making the employees less independent in terms of the usage of their salary money. As assessed by Charana and Were (2018), when employees are paying their monthly instalments, keeping their salaries as the collateral for their loans, they are legally bound to serve the organisation and are inclined towards low morale at the workplace, which undermines the productivity of the organisation as a whole.
The company, on the other hand, does not possess the right to recover the money in any other form, but to be dependent on the salary of the employees. It is found that despite observing unsatisfactory productivity at the workplace, the management fails to dismiss the employee, as the loan recovery process tends to be long-term. As opined by Ahmed, Mahesar and Mohyuddin (2018), as the management retains underperforming employees who have taken employee loans, the productivity of the organisation declines.
In case the management tends to offer employee loans or restrict the credit capacity to a safer level, the employee dissatisfaction leads to low morale and the employee productivity declines, eventually hampering the organisational productivity. In the context of Lubambe Copper Mine Limited, the employee loans are increasing stress on the employees making them less productive, while the company is not being able to dismiss employees for their underperformance, eventually leading the issue of lower productivity and profit margins.
The employee loans and its effect on employee moral that eventually leads to lowered employee productivity is a cu
ent issue because Lubambe Copper Mine Limited from its start in 2012 has been very successful in its mining business, increasing its profit each year and producing more copper for the international market. Despite generating highest amount of copper ore in the year 2016, the lack of value in the international market for Zambian copper made the company run in losses. In order to make up for the losses in the year 2016, the company planned to reduce its productivity in the year 2017 and generate profit through lower wages to the labours involved in the mining (ZCCM Investments Holdings Plc, 2018).
Lower production of copper ore by Lubambe Copper Mine Limited means that the company will have to meet its profiting targets with lower number of employees and lesser amount of employee loan approvals. The number of employees will not get their morale boosted if they do not get loans, and the company will not be able to dismiss employees with pending employee loans despite their low productivity at the mines. If Lubambe Copper Mine Limited tends to continue its business with the existing system of its human resource management, the company would not be able to reach its goals. Considering the fact that any mining company can face scenarios, in which it would have to reduce its production and motivate its employees to work harder, the research topic must be considered as a cu
ent issue worth discussion and assessment.
The cu
ent research will shed light upon the fact that employee loans create mental stress on the employee post the approval of the loan, affecting their morale. However, the research will also show that employee retention and employees’ job satisfaction depend highly on the provision of employee loans in an organisation, making the proposition of stopping employee loan providing out of equation. The equally proportional connection between employee morale and employee productivity can also be proven through cu
ent research. The discussions of the research and the data collected and analysis for the study willshed light on the ways through, which mining companies such as Lubambe Copper Mine Limited will be able to strike a balance between the employee loans, their morale and their impact of the employee productivity so that positive outcome is derived.
As mentioned by Wilson et al. (2018), balancing the different priorities of an organisation is necessary and in order to make the balancing effective, in depth assessment of organisational internals must be taken under consideration. The research will offer knowledge about the way issues of lowered productivity develops and organisations will gain better knowledge about the true implication of the employee loans and its effects in the long-term.
1.5 Research Aim
Employee loans give employees the scope to attain facilities that they cannot afford from their regular salaries, making them more dedicated towards work. The cu
ent research aims to assess the effects of employee loans on the morale of the employees. It further aims to analyse the ways, in which employee loans affect their work productivity. These variables have been analysed in this paper in the specific context of Lubambe Copper Mine Limited of Zambia.
1.6 Research Objectives
Based on the research aim, this cu
ent study aims to achieve certain objectives. These are listed below:
· To understand the concept of employee loans, workplace morale and employee work productivity in an organisation
· To identify the issues pertaining to employee loans that hamper employee work productivity and employee morale in an organisation, such as Lubambe Copper Mine Limited
· To analyse critically the impact of employee loans on their morale and work productivity, with reference to Lubambe Copper Mine Limited
· To suggest suitable recommendations to mitigate the prevailing issues and facilitate their working psyche through loans at Lubambe Copper Mine Limited
1.7 Research Questions
The key research questions that this paper aims to answer are—
· What are employee loans, workplace morale and employee work productivity?
· What is the relation between employee loan and employee morale at Lubambe Copper Mine Limited?
· How do employee loans affect employee productivityat Lubambe Copper Mine Limited?
· How employee morale and productivity at Lubambe Copper Mine Limited can be improved through employee loans?
1.8 Significance of the Research
The cu
ent research will help business organisations retain their employees and motivate their moral for better performance at the same time. The retention of the employees and the boost in the moral will help the company achieve a better consistency in the business and the employees will be benefitted by getting a chance to work in a positive working environment, which collectively will benefit the society. As the research considers Lubambe Copper Mine limited as its chosen company, which is located in an under-developed country such as Zambia, other countries, in which mining is a source of significant employability will be benefitted. The suggestions provided in the research will help mitigate issues faced not only by mining companies, but also by other business organisations.
1.9 Outline of the Research Chapters
In the cu
ent research, the researcher has divided the entire project into 5 sections for systematic assessment of the research topic and reaching research objectives. As supported by LaPlaca, Lindgreen and Vanhamme (2018), dividing research in systematic order makes the approach to research topic less prone to diversion and therefore is highly prefe
ed. Among the five chapters, the first chapter is Introduction, in which the researcher has given over view of the research topic, its background, the background of the chosen organisation along with research aims and objectives.
In the following chapters, namely, Literature Review, the researcher gave detailed assessment of research topic variables along with the theories, models and aspects associated with the research aims and objectives. In the third chapter, which is Research Methodology there offers an in-depth variety of tools used for the research along with the justification for their selection. As mentioned by Christianson (2018), research methodology determines the course of action adapted by the researcher on logical parameters. In the fourth chapter, Data finding and Analysis, the research has collected data based on the methods selected in the Research Methodology Chapter.
The data will be used for aligning the conception of the researcher in the context of the research topic and with external feedbacks, which generally include theoretical and practical data. The collected data will then be analysed for further processing and assessment. In the last chapter, which is named, Conclusion and Recommendations would give the results, appropriate suggestions, based on the assumption of the data in the fourth chapter.
Figure 1.1: Structure of the Research
(Source: Researcher)
1.10 Summary
In the cu
ent chapter, the researcher has introduced the research topic, its aim, the objectives, research questions along with the chosen company for research. As mentioned by Hulland, Baumgartner and Smith (2018), the research aim and objectives are the bases, on which literature review chapter depends and therefore, introduction chapter is very important. The chapter also gives details on the research outlines of each chapter, making the readers aware about the gradual development of the research.
Chapter 2: Literature Review
2.0 Introduction
In the cu
ent chapter, a range of literary sources have been sought out, assessed and refe
ed in order to make in depth comprehension of the chosen thesis topic and the legitimacy of the variables, in the context of being related to one another. As mentioned by Bush, Abdul Hamid, Ng and Kaparou (2018), literature review of a research gives the research the literary foundation, based on which the research aims, objectives are verified and logically criticised.
In the cu
ent chapter independent literary topic are discussed, however, the way they are a
anged and interlinked, they have contributed in the understanding of the research topic as the mutual goal. The literary sources are not presented in general forms by providing definition only; instead, they are critically aligned and discussed in the light of the research topic variables. In order to assess the entire project easy to understand, a visual representation, namely conceptual framework is provided at the end of the chapter.
2.1 Concept of Employee Loans
Employee loans have been a very effective monetary motivation process that aims at making employees more dedicated towards their work and diverts their loyalty towards the organisation. As assessed by Ford, Agosta, Huang and Shannon (2018), employee loans generate its desirability among employees based on the easy of processing, lowered rate of interest and the value of workplace recognition, instead of the financial balancing of the lent amount. All employers of business organisations strive towards consistent earning of profit, which can be realised by making the organisational human resource effective, loyal and motivated. Considering the importance of retaining employees, organisations offer the facility of lending a certain amount of money to the employees, considering their salaries as the scale for the loan amount and impose minimal interest rates, contributing to an easy loan processing mechanism, namely employee loans.
The accounts department of the organisation regulates employee loans. As argued by Sani, Mohd-Khan, Noor and Saifoul (2018), employee loans are a clever way of earning revenue, as the employee offer interest over their loan amounts on one hand and their developed loyalty towards their organisation makes them more dedicated towards their work. Employee loans use a simple mechanism where the accounts department of the organisation deduct a certain amount of loan instalment from the salaries of the employees, therefore, reducing the chance of instalment failure.
As opined by Rinn and Branch (2018), employee loans create values for organisations and for the employers, as loan facilities are taken by employees many times in his or her career in the company. Employee loans however, depend heavily on the capital of the organisation and are often subjected to biased loan lending. An organisation has limited capacity in terms of offering loans to employees and it is found that many employees face difficulties at the time of getting loans, as the loan approvals are done, based on, past record of loan repayment, salary of the employee, tenure of remaining service and purpose of the loan.
2.2 Factors leading Employees to seek Loans
Employees take loan from their employers on frequent basis; however, there are factors that do show the scenarios, which lead employees to consider taking employee loan. Firstly, the ease of loan processing is a major factor that makes employees, seek employee loans. It is seen that as employee loans do not require mortgaging of assets as collateral, thereby making employees with no assets eligible for loans. As supported by Wickelgren (2018), employees of the lower section of the organisation seek employee loans most frequently, as they lack the opportunity of taking loans from banks due to their lack of assets at disposal.
Secondly, it is found that the salary scale of the employees determines their frequency of opting for employee loans from their employers and therefore, is a major factor. As lower salaries make the employees unable to make bigger purchases within a short time, they prefer taking loans from the employers, unlike higher paid employees who take employee loans less frequently. Considering the fact that employees with higher salaries also take employee loans, Goenner (2018) argued that employee salary could not be the factor for employee loans. The lifestyle of the employees makes them seek loans and attain facilities, as their regular salaries are not sufficient for meeting their demands.
Thirdly, the rates of interest applied on the loan amount are another significant factor. As noted by Garabato, Gardner and Nyce (2018), employees get lower interest rates for their loans, in comparison to the bank rates, making the employee loans the better option between the two alternatives. In case employees have permanent jobs and have long service tenure, they take employee loans and rely upon banks only when the loan amounts are beyond the capacity of the employing organisation.
2.3 Benefits of Employee Loans
As employees get loans from their employers, the loyalty towards the organisation increases as on one hand the organisation is perceived for its valued offerings for its employees and the convenience afforded by the employees with the loan money. As stated by Javed (2018), employee loans make employees motivated at work, which again is an indirect influence of the generated loyalty towards the organisation. As opined by Ghulam, Dhruva, Naseem and Hill (2018), as employees get motivated; they perform better, increasing productivity of the company and earning more scope of earning. Employee loans help the employees to attain holidays in desired locations, family functions, buying of heavy household electronics and even cars, bikes and many more. Therefore, it can be assumed that employee loans help on socio-economic development of the lower levels of society. As mentioned by Bibi, Balli, Matthews and Tripe (2018), sudden flow of cash among the lower living standards of employees, make them upgrade their living standards.
The offering of employee loans increases the reputation of the organisation, which makes the catering of human resource easy, when it comes to business expansion or covering of the employee turnover in the organisation. As identified by Idowu and Ndidiamaka (2018), employees become more obedient after they take employee loan from the employers out of loyalty as well as to ensure a good track record in the company for the retention of their jobs. Taking the cue from the loyalty of the employees, employers, through their management exert better control over the taskforce,
inging in changes in the organisational frame without much resistance. Although the rate of interest is very less, money lent to employees in the form of employee, loans generate ample return on the capital of the organisation, which adds up to the revenue of the company.
2.4 Drawbacks of Employee Loans
On one hand employee loan generates its benefits for the management of an organisation, in the same fashion, it also creates issues within the organisation and causes organisational management to get into dilemmas. As comprehended by Caloghirou, Giotopoulos, Ko
a and Tsakanikas (2018), employee loans
ing employees of an organisation under legal restrictions, which makes them pay the monthly instalments from their salary with no flexibility of paying on later terms, reducing their drawn salaries less than regular one. The deduction process continues until the loan amounts are cleared, making the loans a source of stress on the psyche of the employees. As the employees get mentally stress regarding their loan payments, they become more susceptible to absentmindedness, human e
ors, exposed to risk and underperformance.
As every organisation has limited monetary resources for lending, only a limited number of employees can get loans, eventually triggering issues of favouritism among the taskforce,
eaking the collective harmony. As noted by Wait and Frazer (2018), it is found that many employees with their personal ties with the accounts department get loans more easily than the regular employees, creating a working atmosphere, where ethical practices of honesty, equality and indiscrimination are not followed and valued. Another major drawback of employee loan is the legal limitations.
As organisations lend their money to the employees in against their monthly salaries, they cannot afford to lose the employee during the continuation of the loan, even if the employee is not being productive for the company. The employees in the similar manner face the legal binding of serving in the company during their loan payment continuation despite being forced to work for longer hours at the workplace. As argued by Riyadi, Setiawan, and Ratnawati (2018), employees after taking employee loans become subjects of exploitation from the organisational management and therefore, employee loans are not worth taking.
2.5 Theories related to Taking Loans by Employees
2.5.1 Theory of Loan Priorities
The Theory of Loan Priority comes into existence in terms of the distribution of the shares of return-based profit among the lenders and the responsibility of asset management in case the debtor fails to repay the loan amount in time. As mentioned by Dodson and Ahrendsen, (2018), there are three major sections in the Theory of Loan Priority, which related to the different positioning and security aspects of loan approvals.
In the first section, it is said that the first lender making an insecure loan to a bo
ower, needs to share a certain percentage of the profit to the later lender. In the second section, the later lender gets to share the profit with the first lender in case he or she makes a secured loan, while the first makes an unsecured loan. Lastly, when the first lender makes a secured loan, he or she tends to have a priority over the later lender.As stated by Jahera Jr (2018), the base of the Theory of Loan Priority considers the role of security and the time of the loan as prime factors, which only changes the priority imposition between the different lenders within a single organisation.
2.5.2 Secured Lending Theory
Considering the scope of recovering failed repayments of loans, there are two major loan types, secured loans and unsecured loans. As comprehended by Berentsen and Waller (2018), in case of secured loans, the lenders keep in their custody a property of the bo
ower, as a way of recovering the loan amount, if the bo
owers fail to repay in time.On the other hand, there are the unsecured loans, in which the bo
owers do not offer any form of guarantees to the lenders for loan recovery and pays higher interest rates on the bo
owed loans. The secured loans have certain terms of repaying the lenders and the lenders include the total amount piling up from the interest added with the loan amount, which is the base of Secured Lending Theory. It is worth the mention in case of unsecured loans the theory is also applicable as it justifies the higher interest imposed upon the bo
owers that that of secured loans.
Secured Lending Theory suggests that the bo
owers, who provide assets for their loans as guarantees, pose lesser chances of failed repayments as the bo
owers are always forced to mortgage assets that have higher value than the loan amounts and therefore, must be given higher priority. Despite the logical approach of the Secured Lending Theory, Cummins, Mac and Bhaird, Rosati and Lynn (2018) argued that the theory does not promote or encourage monetary support to economically weaker sections of the society, as it is evident that people who have assets that can parallel huge loan amounts can simply liquidate the asset to get the money. On the critical note, it can also be seen that if loans are provided primarily to people with assets and denied to business loans used for supporting entrepreneurship, economic growth will be hindered, and the point of lending will have no meaning rather than a monetary transaction between economically strong sides.
Considering the central idea positioned in the Secured Lending Theory, it can be expected that by considering the potential of growth as a repayment potential and intangible asset, monetary support can be provided to smaller and personalised purposes, increasing revenue and improving the investment circle. Despite the lofty expectations and assumptions, the market will always possess the risk of uncertainty and failure of repayment would remain high with no asset to recover from, making the unsecured loans a subject to market risks.
2.5.3 Theory of Loan Commitments
In a general context, the banks play the role of large-scale lenders for domestic, personal, organisational and commercial purposes. As the number of bo
owers remain high in the market and the chances of failed repayment becomes equally high, every bank maintains a set of rules that are used for determining the eligibility criteria of the bo
owers, based on the level of potential risks, interest rate application, norms for failed loan recovery and the transactional methods. The formulation of the banking norms forms the foundation of the Theory of Loan Commitments. Considering the importance of loans, as identified by North and Wilson (2018), many organisations have developed system for loan allocation, taking guidelines from the banking norms and modifying them as per the requirements.
The Theory of Loan Commitments is not only beneficial to the banks; it is also beneficial for the bo
owers in the market. The loan commitments form the eligibility criteria for the loans and as the eligibility criteria includes risk factors, risk-oriented loans are eliminated for the consideration list. The bo
owers, who meet the loan criteria, on the other hand get the loan for the bank as committed to provide them. As noted by Mckee and Kagan (2018), the Theory of Loan Commitments also help in reducing risk of failed repayment, as it includes clauses of mortgages, interest rates, property liquidation and many more recovery options and provisions under, which a person or organisation can be denied loans.
Despite providing benefits to both the lenders and the bo
owers, it must be considered that financial organisations with the power vested in them by the Loan Commitments can make changes in the norms in case they meet bo
owers, who have problematic records or possess potential risk to the bank. Finally, it can be said that failure of loan repayment could be catastrophic for the banks, whicheventually would influence the economy of a market, thereby making Theory of Loan Commitments an important aspect to reckon with.
2.6 Concept of Employee Morale
As an employee works in his working environment, the culture of the workplace, the ethical considerations and the scopes for benefit determine the degree of employee satisfaction, which is considered in a collective form as employee morale. As mentioned by Raman and Sambamoorthy (2018), employee morale simply signifies the level of employees’ job satisfaction levels and the associated feeling of being valued by the organisational management. Employees at workplace play specific role and based on the role they play, they develop a sense of self-esteem within the taskforce of the organisation, which gradually leads to a scale of mental satisfaction.
Employee morale is responsible for the development of workplace dedication, efficiency and consciousness towards workplace hazards. As identified by Aidoo (2018), employee morale determines an employee’s outlook towards the work he or she plays at the workplace and therefore is directly responsible for the employee’s productivity. It is found that as employees get de-motivated, ignored and exploited, due the malpractice of unethical norms, the morale of the employees becomes low, making them less careful at the workplace, less dedicated towards the preciseness of the tasks and hence prone to human e
ors and underperformance.
Employee morale is a collective form of interconnected dissatisfactions and it is the source of organisational issues with productivity. As suggested by Zhang, Liu, Tan, Jiang and Zhu (2018), employee low employee morale makes employees less attentive towards training, which reflects from their underperformance and frequent e
ors at the time of duty. In addition, low morale of employees leads to resistance to change as employee lack the will to learn new techniques for the benefit of the organisation. Employee morale determine the relation between employees and the organisation, and low morale makes employee consider their own interests leading to less productive workforce and a complicated working atmosphere, not suitable for consistent business productivity.
2.7 Factors influencing Employee Morale
Employee morale, seen from a
eak down structural point is the outcome of multiple aspects, which can be considered as the factors of employee morale. As mentioned by Rajalakshmi and Naresh (2018), one of the major factors of employee morale is the organisation, in which employees work. Every organisation has its own set of priorities and the more the organisation is focused towards the human resource and their interests the higher the employee morale becomes.
Secondly, the type of the work is another factor that influences the level of employee morale. It is found that as employees engage in work that consistently retains the insecurity of job and makes employee work harder for long duty hours make their morals low. As mentioned by Kaplan et al. (2018), in case of target-based jobs, employees face the consistent threat of losing their jobs if their targets are not achieved, which makes their morale low. In a similar parameter, it is found that employee morale remains high in higher management and in permanent employees, as they do not face the issue of financial and job-oriented insecurities.
Thirdly, the level of supervision is a major factor that influences the employee morale to a considerable degree. As identified by Milliman, Gatling and Kim (2018), due to the nature of the humans, supervision for long time creates mental stress and i
itation, which gradually lead to low employee morale. It is important that employees are supervised for better skill development and e
or reduction, however, consistently telling employees what to do, what not makes them lose self-confidence, and the morale of the employees decline rapidly, affecting their productivity.
Employee morale is also affected by the nature of rewards provided by the employers of an organisation. As opined by Babalola, Stouten, Euwema and Ovadje (2018), employee-rewarding process generates bi-polar outcomes; when all the employees get rewards or the scope of getting rewards remains attainable, employee morale improved, while selective rewards make the employees’ morale low. The offering of rewards directly impacts the self-esteem of the employees at the workforce and it is often seen that employees who get rewards for their work, get competed by their colleagues, creating an unhealthy working atmosphere that has the potential of lowering employee morale.
2.8 Impact of Employee Morale on the Organisational Productivity
The employee morale is directly associated with the aspect of organisational productivity. Higher moral is generated as employees of an organisation feels satisfied with the organisation they are working for, making them more dedicated and the unscheduled absence rate decline. High morale of employees makes them obedient to the management, which Makes the employee allocation and production chain consistency easily attainable. As comprehended by Smith, Wallace, Vandenberg and Mondore (2018), high morale of employees is also responsible for their commitment, which is significant in respect of employee turnover reduction. High morale of employees reduced the scope of time wastage at the workplace, as employees enjoy their work and refrain from wasting time. As mentioned by Messersmith, Kim and Patel (2018), the use of less time, low turnover of employees and the consistency as well as obedience towards the management contributes to higher productivity and lower internal costs, resulting in refined organisational productivity.
Employee morale is disrupted and declines when employees face scenarios, in which they have to shred their skills, acquiring new ones and lacking substance that satisfy their mental needs that changes over time. As identified by Panagopoulos, Hochstein, Baker and Pimentel (2018), as organisational management takes in changes in the existing framework, the employees are faced with situations, in which they have to learn the use of the changed processes and develop skills afresh, which makes their morale low. It is seen that as employees crave for scope of growth at the workplace, giving less emphasis on the aspect of monetary bonus or incentives. As suggested by Ozturk and Karatepe (2018), employee needs are clearly depicted in Maslow’s Hierarchy of Needs Theory, which makes it evident that employee morale is bound to get low.If the employees do not get the scope of growing within the organisation as a part of the hierarchical chain and the lowering employee morale ultimately
ing down the productivity level of the organisation.
2.9 Concept of Work Productivity of Employees
In technical terminology, work productivity can be determined as the average generated from the total work produced by an employee, within an hour, with having limited resources invested in. As noted by Johansen et al. (2018), work productivity can be measured on various scales of work, however, the parameters and process of measurements remains the change. Seen from an organisational perspective, productivity of work is calculated in terms of the total produce in the context of total money invested to total number of employees within a certain amount of time.
The employees of an organisation tend to maintain the quality and quantity of production, however, in terms of considering work productivity of the employees, the aspect of quantity is considered more than the quality. As suggested by Gherman (2018), by developing a complementary production chain product and service quality is maintained, making the aspect of quantity the scale of measuring work productivity of the employees.
As the productivity is determinant of the organisational profiting, the management of organisations is found to provide technical, strategic and managerial assistance to the employees making them more productive in terms of production quantity of concerned. As stated by Patro (2019), organisations predetermine the production techniques and install mechanical tools and equipment that help employees to work faster, producing more within a given time, without talking into consideration the aspect of quality management.
The work productivity of the employees determines the cost of manufacturing products and offering services as the final pricing of the products must include the internal cost of production, which high work productivity
ings within the budged, while low productivity exceeds. As supported by Ojo, Bailey, Chater and Hewson (2018), workplace productivity of the employees can be improved by the assistance of the management, who would provide employees guidelines that would make the employees work skilfully, generating high number of products and services for the organisation.
2.10 Factors influencing Work Productivity of Employees
The productivity of the employees is determined based on skills, mental satisfaction of workplace atmosphere, the nature of the job or tasks, the knowledge of the employee, the experience of the employee and the employee motivation techniques and frequencies, all of which play the role of factors of work productivity of the employees. Firstly, the skills of the employee determine the productivity level. As mentioned by Wagner and Ruhe (2018), skills of an employee are equally proportional to the productivity level.
The skills save time for single unit of task, which allows the employee to produce more within stipulated time limits. The mental satisfaction level of an employee at the workplace comes from the hygiene level of the workplace and the value they derive from diverse levels of need fulfilments. As stated by Allan, Dexter, Kinsey and Parker (2018), as an employee gets mentally satisfied in his or her workplace, the scope of absenteeism and lack of focus reduces, making the workplace safer, employees focused, and productivity optimised to better levels.
It is seen that each job has their own pattern and attention to details, making the consumption of time and level of productivity different. In organisations lower level employees do their regular tasks and indulge in speed improvement with scope for no or very little experiment. As observed by Senasu and Singhapakdi (2018), employees in the research and development department of an organisation had to experiment tirelessly to come up with new products and services for the company and has to consider the issues that ate potentially assessable, making the productivity level low but of utmost importance. The knowledge an employee gathers from the theoretical studies; help him or her to attain easy skills in terms of production, management and use of technology, improving productivity of self in the process. It is also found that the practical knowledge of an employee, is collected from the experience of the employees in the sector ad is directly responsible for the productivity of the employee at the workplace.
Last but not the least; it can be observed that employee productivity is affected by employee motivation, its techniques and the frequency, in which employees are motivated. As employees, get motivated by the monetary and non-monetary incentives, they work either out of organisational attachment or due to the craving for reaching incentive targets, both of which make the employees more productive.
2.11 Relationship of Employee Work Productivity on Overall Organisational Productivity
The productivity level of a single employee does not influence the organisational performance level. However, as common factors start influencing the productivity of the employees on a large scale, the organisational performance declines. As assessed by DeGeest, Follmer and Lanivich (2018), each organisation has interconnected and interdependent department of employees, therefore, the productivity level of one department hampers the productivity of the other, making the overall productivity of the employees decline rapidly. The workplace productivity helps in determining the internal cost of production of products or the offering of services to the customers. As stated by Bendickson, Gur and Taylor (2018), taking cue from the aspect of internal cost, and the fact that organisations tend to have a fixed budget, that help in retaining a satisfactory profit margin or objective, the overall company or organisation restricts its productivity level, which if seen from the aspect of grass root analysis, point at employee productivity.
As employees, perform better based on the motivations they derive from the management and the workplace, the ratio to cost and production become favourable for higher business margin and the organisation tend to use that profit for better implementation of strategies making it perform better. As stated by Tomczak, Lanzo and Aguinis (2018), employee productivity is the reflection of organisational productivity. As employees of one department perform better and be productive, the following work process also starts on time, retaining the right amount of quality, quantity within the allocated budget. In every organisation the official time of duty and the available use of resources tend to be limited, which seen in the context of the employee productivity determine what quality and quantity of products and services the organisation can provide to its customers and clients, which directly determines the organisational productivity.
2.12 Impact of Employee Loans on Employee Morale
Employees’ productivity, dedication towards work and the attitude towards their respective organisations have deep links with the morale of the employees. As affirmed by Cartwright and Cooper (2018), the employee morale is affected by the internal factors the most and the employee loan is the most important factor of them all. Employee loans are given on fixed and equal parameters, which make them, generate a morale standpoint within the organisations. The availability of employee loans within an organisation make the employees feel associated with a company that is capable of securing and improving the lives of the employees and morally get motivated. As identified by Chukwudumebi and Kifordu (2018), every company, in which employee loan facility is provided; there remains an eligibility criterion, which judges the employees equally, promoting employee morale to reach new heights.
The companies, in which employees work, provide employee loans and therefore, when the salaries are paid, the employees get their loan instalments deducted beforehand, making the them morally forced and a sense of pseudo-exploitation takes place. As argued by Poongavanam and Divyaranjini (2018), employee loans have nothing to with employee morale, as benefitted as well as non-benefited employees develop same type of workplace morale if it is seen that workplace ethics are not properly followed or implemented.
However, its cannot be said that employee loans and employee morale do not have connections, as employee loans give employees the ability to purchase product and services that are not possible from their salaries, which mentally satisfies them. The process of employee loans and the transparency of the unbiased practices motivate the employee morale towards a higher standard. The employee morale, as suggested by Sukanta, Yuesti and Kepramareni (2018), gets unsatisfied if the process of loan allocation seems to be biased and complicated.
2.13 Impact of Employee Loans on Employee Work Productivity
Employee loans are significant for organisational productivity and growth as the employee productivity levels get affected by the loans they take or the loans they do not get. The offering of employee loans affects the productivity level of the employees in positive as well as in negative ways. As employees get loans from their employers in the form of employee loans, they feel secured and the realisation of desires availed from the loan money makes life easy, comfortable, which motivates the employees to perform better and be more productive. As opined by Fe
ando and Ruggieri (2018), as employee loans are perceived in a benefit of working as a part of an organisation, employees perform better to show a sense of gratitude through performing better that add ups to the profit of the organisation. Employee loans generated pressure on the employees as the loan amounts are deducted from the salaries and the only way to earn extra money depends on better performance-based incentives, making the employees become more productive without much motivation.
However, on the other side of the spectrum, it is found that employee loans are also responsible for lower employee productivity. As noted by Belas, Smrcka, Gavurova and Dvorsky (2018), once an employee get loan, his or her salary is reduced due to instalment amount deduction and the employee reaching a mental state that gives them no striving towards a new desire, making them perform less and be less productive. In addition, the employees exploit the legal structure of the employment acts, which forces companies to retain its employees during employee loan sessions and perform moderately or poorly. It is worth the consideration that as employees strive towards making themselves eligible for employee loan, they perform better and often exceed the level of productivity expectations.
2.14 Theoretical Models related to Impact of Employee Loans on their Work Productivity and Morale
2.14.1 Maslow’s Hierarchy of Needs Model
Considering the complexity of the shifts in the nature of the demands of employees, Maslow formulated Hierarchy of Need Model, which distinguishes the needs of employees in three
oad and five levelled sections, offering in depth knowledge of the aspect that the employees’ value in the context of passing of time. As mentioned by Haider, Ahmed, de Pablos, and Latif (2018), considering the transition from unemployment to...