Human resource issues among SMES in eastern Europe: a 30 month study in Belarus, Poland, And Ukraine.

Carraher, Shawn M. ; Carraher, Sarah C.

ABSTRACT

In the present study we examine the applicability of some traditional human resource management theories to 374 owners of small to medium sized enterprises in border cities of Belarus, Poland, and Ukraine. We examine the relationships between facets of job satisfaction and annual income, and between facets of job satisfaction and performance. It is found that performance and annual incomes were relatively unrelated to facets of job satisfaction with multiple R's in the range of .05 to .34. We also found that within the time period studied that 17.4% of the owners left their businesses for greener pastures. We conclude that many findings based in traditional Western human resource management about the relationships between performance, income, and job satisfaction designed for use with employees do not seem to operate well with business owners in Eastern Europe.

INTRODUCTION

Compensation has long been a topic of interest to employees and employers alike. In fact, the use of compensation as a motivator has been traced to antiquity (Peach & Wren, 1992). The concept of an employment relationship implies that employees work in exchange for some reward, and this reward is often monetary compensation (Brockner, 2002). Satisfaction with pay satisfaction has been shown to exhibit significant relationships with organizationally important outcomes such as absenteeism (Weiner, 1980), turnover intentions (Griffeth & Gaertner, 2001), perceived organizational attractiveness for job seekers (Heneman & Berkley, 1999) organizational citizenship behaviors (Lambert, 2000), and job performance (Mulvey, LeBlanc, Heneman, & McInerney, 2002; Werner & Mero, 1999).

As noted by Rice, Phillips, and McFarlin (1990), one of the most intriguing findings with respect to pay satisfaction is the strength of the relationship between how much an individual is actually paid and that individual's pay satisfaction. This relationship typically has been positive and statistically significant and able to explain around 25% of the variance in pay satisfaction. Interestingly while compensation costs have increased dramatically over the last fifty years, there is solid evidence that employees tend to grossly underestimate the total costs of their pay packages (Convey, 2000; Kerr, 1999). It would appear that instead of perceiving many parts of the packages as an added form of compensation, many employees perceive them as a "right" (Milkovich and Newman, 2002).

Even if an employee undervalues a compensation package, this does not necessarily indicate that he/she will be dissatisfied with his/her compensation. The absolute value of compensation packages can be relatively easily calculated and communicated to employees to remedy the problem of undervaluation; however, establishing levels of satisfaction and the perceived importance of compensation is a more complex issue because they involve perceptual phenomenon (Carraher and Buckley, 1996; Carraher, Buckley, & Carraher, 2002; Lambert, 2000; Sparrow and Cooper, 1998). Assuming that employees consider nonpecuniary outcomes when determining satisfaction (Gomez-Mejia, Balkin, and Cardy, 1995; Lewis, 2000), it is possible that as has been suggested, compensation packages may have the ability to attract and retain employees (Heneman and Berkley, 1999), and perceived dissatisfaction with compensation packages may result in general job dissatisfaction, higher levels of absenteeism, lower levels of performance, and higher turnover rates and intentions (Lee, 2001) and less organizational commitment (Yousef, 2000; 2003). The extent to which this may occur is unknown.

A 2001 state survey of small business owners in New York found that the rising cost of health insurance was their primary concern of doing business. Sixty-three percent of those surveyed cited health insurance costs as the most serious problem facing them (Coons, 2001). Small businesses are competing in a global marketplace for employees and face the difficult task of providing competitive compensation packages to employees in a cost effective manner (DiFiore, 2000; Simmons, 2001) while attracting employees with the needed knowledge, skills, and abilities in order to effectively perform their jobs (Heneman and Berkley, 1999) while still trying to remain profitable. Research with small, medium, and large businesses, alike has found that employee compensation packages can play a strategic role in enhancing organizational performance and profitability for small businesses (Joo, 2000; Mangel and Useem, 2000; Meyer, Mukerjee, and Sestero, 2001). Heneman and Berkley (1999) found that many small businesses were so successful with their compensation packages that they had statistically significantly more applicants per vacancy than larger firms.

Does performance lead to satisfaction or does satisfaction lead to performance? Questions such as this have been studied going back at least to the Hawthorne studies (Roethlisberger & Dickson, 1939). The relationship between performance and satisfaction has been described as the "holy Grail" of organizational research (Fisher, 2003; Judge, Thoresen, Bono, & Patton, 2001; Landy, 1989). Judge et al. (2001) examined seven models of the relationship between performance and satisfaction and found an average true correlation of .30 based upon a sample size of 54, 417.

The prior research discussed has focused on typical employees in traditional small, medium, and large organizations. In the current study it is our purpose to explore how well these traditional findings hold up when examining the relationships between job satisfaction and performance, and between job satisfaction and income for groups of business owners of small to medium sized enterprises.

METHOD

Measures

Job satisfaction

The measures of job satisfaction used in the current research purported to measure general job satisfaction and seven facets of job satisfaction. The seven facets included satisfaction with work, supervision, coworkers, pay, promotion, recognition, and intrinsic job satisfaction with the first five based on the dimensions of the Job Descriptive Index (Smith, Kendall, & Hulin, 1969) and the final two based upon the Minnesota Satisfaction Questionnaire (Weiss, Dawis, England, & Lofquist, 1967). Coefficient alpha reliability estimates for the scales were .74 (work), .78 (supervisor), .82 (coworkers), .70 (pay), .70 (promotion), .78 (recognition), .89 (intrinsic satisfaction), and .81 (general job satisfaction) and the scale unidimensionalities were supported through the use of limited information factor analyses (Sethi & Carraher, 1993). All scales were translated in to Russian, back translated into English, and then retranslated in to Russian in order to provide a check for the accuracy of the meanings of the words in Russian.

Income

Information about income was collected directly from the accounting records of the businesses.

Performance

Performance was measured using assessments from the business owners, their employees, and three trained graduate students utilizing a standardized performance appraisal questionnaire designed for use with retail establishments. The owners and employees were trained to use the rating scales and there was a correlation of .85 between their scores and those of the graduate students indicating a high level of agreement between the raters.

Subjects

Data were collected from 374 owners of small to medium sized retail businesses in Belarus, Poland, and Ukraine. On average they earned $23, 358 (SD = 6578.19) [equivalent to $115,000 in the US] and were 74.9% female. Their average age was 38 years (SD = 11.46) with 6.9 years of experience as a business owner and 4.81 years at their same location. On average they had 2.1 children with 32% being unmarried, 45% married, and 23% divorced or widowed. In the 30 month period of time in which they were followed 17.4% of the owners closed their businesses and either opened another business in a different field or went to work for another business.

ANALYSES AND RESULTS

Ten sets of multiple regression analysis were performed using performance, income, intrinsic satisfaction, satisfaction with promotions, satisfaction with coworkers, satisfaction with pay, satisfaction with the work itself, satisfaction with ones supervisor, satisfaction with the recognition received, and general job satisfaction. In Table 1 Performance and Income are the dependent variables with the facets of satisfaction as the independent variables. In Table 2 Performance and Income are the independent variables and the facets of satisfaction are the dependent variables.

As can be seen in Table 1 the eight facets of satisfaction were able to explain approximately 7% of the variance in performance and 12% of the variance in income. The regression equation for performance was significant at the .0834 level while that for income was significant at the .0026 level. None of the facets of job satisfaction contributed a statistically significant portion of variance in performance at the .05 level while for income only satisfaction with promotional opportunities contributed a statistically significant portion of the variance--but the relationship was negative! Thus as satisfaction with promotional opportunities increases the income decreases possibly indicating that those with lower incomes might be looking for greener pastures in other businesses--either owning different businesses or going to work for someone else.

As can be seen in Table 2 income and performance were able to explain between less than .3% to slightly over 8% of the variance in the facets of satisfaction. In the cases of satisfaction with coworkers, satisfaction with pay, satisfaction with recognition and intrinsic satisfaction income and performance were able to explain under 3% of the variance and neither contributed a statistically significant portion of the variance in satisfaction at the .05 level.

For general job satisfaction and satisfaction with supervisors income and performance jointly were able to explain approximately 3% of the variance (3.23 and 3.01% respectively) with performance in both cases being the only variable contributing a statistically significant portion of the variance (significance levels of .0229 and .0185, respectively). Income and performance were able to account for 5.36% of the variance in satisfaction with work and 8.015% of the variance in satisfaction with promotions. Once again income was a statistically significant predictor with satisfaction with promotions [negative once again] and performance was a statistically significant predictor for satisfaction with supervisors--interesting findings as in most cases it might be assumed that the owners of the businesses did not have supervisors or opportunities for promotions. In follow up research over the course of this study it was found that the business owners considered opportunities for promotions to include opening up a new more profitable business, opening up a larger business, or going to work for a larger organization as a manager. The business owners considered the managers of the market areas to be their supervisors or in some cases their spouse to be their supervisor.

FUTURE RESEARCH AND CONCLUSIONS

There are several directions in which future research could develop. It is interesting to note that within this sample satisfaction with pay level and actual pay level are essentially unrelated. This is a rare finding as most studies have found that actual pay level is the best predictor of satisfaction with pay level (Heneman, 1985; Rice et al., 1990) while in this study it is one of the worst. This sample is unique, however, in that only one level of an organization is included while most researchers have failed to control for differences in organizational level (Fiol, 2001; Truss, 2001). Generally as one advances within an organization, not only will salary increase, but so too will intrinsic satisfiers and individual expectations which may result in inflated correlations between salary and salary satisfaction (Jaques, 1961; 1962; 1970; 1996). Additional work should be performed which would examine the relationship between pay and satisfaction with that pay across organizational levels.

While literally thousands of studies have examined the job satisfactions of non-managerial and managerial employees in large, small, and medium sized businesses (Judge et al., 2001), little research has examined the job satisfaction of the owners of businesses within or across cultures and countries. So a second area for future research could be to replicate this type of research with other samples within this and other cultures and countries. A third area for potential research that could prove fruitful would be to examine the content and construct validities of various facets of job satisfaction for SME owners within the U.S. and across cultures. This should likely begin with qualitative research seeking to examine the underlying content and constructs of job satisfaction for business owners as we sought to do post hoc with the examination of what the business owners considered to be promotions and supervisors. As we previously discussed based upon our post hoc interviews with the SME owners we found that the business owners considered their supervisors to be the managers of the marketplaces in which they operated and/or their spouses. The SME owners additionally considered promotional opportunities to include starting a more profitable business, opening a larger store, or gaining employment working for someone else at a higher rate of pay.

A forth major area for future research based upon these findings could examine differences between SME owners who stay in business versus those who do not stay in business. Are there personality differences between the two groups, leadership style differences, communication style differences, differences in performance or some other external shock (Niederman, 2004) that causes SME owners to seek other employment? Are those more likely to stay in business those who receive the most income from their businesses, those who are task oriented, or those who communicate the best non-verbally?

A fifth area for research could examine reasons that SME owners in developing countries seek self-employment. In some cases it might because of desired flexibility (Wooden & Warren, 2004) or because of the perception of job instability in the region or country (Bockerman, 2004). Dissatisfaction with per capita income, with the government system in place, or dissatisfaction with previous work experiences (Noorderhaven, Thurik, Wennekers, & Stel, 2004) has also been shown to be related to self-employment in cross-country studies (Bockerman, 2004; Noorderhaven et al., 2004).

So in conclusion, do performance and/or income lead to satisfaction or does satisfaction lead to performance and/or income? It would appear that based upon these findings that neither does. Performance and income do not strongly influence satisfaction nor does satisfaction lead to performance or satisfaction. While previous research has found correlations in the range of .30 to .50 for American samples of employees, we found multiple R's in the range of .05 to .34 for these SME owners in Eastern Europe--with the only overlap in the ranges of values occurring in the regression of income based upon satisfaction levels and yet this could be thought of as comparing apples to oranges as higher multiple R's are certainly generally easier to obtain than larger's. We conclude by suggesting areas for future research examining the satisfaction and income/performance linkages.

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Shawn M. Carraher, Cameron University

Sarah C. Carraher, Consolidation Enterprises

Table 1--Regression of Satisfactions on Performance and Income

 Performance Income

Multiple R .26942 .34643
R Square .07258 .12001
Adjusted R Square .03182 .08133
F = 1.78054 3.10270
Signif F = .0834 .0026
Variable Beta T Sig T
INTRINSAT .044347 .581 .5622
PROMOTION .007444 .091 .9277
COWORKERS -.135733 -1.670 .0966
PAY .010790 .137 .8915
WORK .168434 1.718 .0876
SUPERVISR .136305 1.560 .1204
RECOGNIT .024931 .276 .7832
GENERAL .033510 .332 .7406

Multiple R
R Square
Adjusted R Square
F =
Signif F =
Variable Beta T Sig T
INTRINSAT .026368 .354 .7234
PROMOTION -.349635 -4.381 .0001
COWORKERS .043738 .553 .5813
PAY .031982 .416 .6782
WORK .166868 1.747 .0824
SUPERVISR .071605 .841 .4012
RECOGNIT -.063886 -.725 .4694
GENERAL .030302 .308 .7586

Table 2--Regression of Performance and Income on Facets of Satisfaction

 Sat.
 Sat. with with Sat. with
 Work Supervisors Co-workers

R .23151 .17350 0.0524
[R.sup.2] .05360 .03010 0.003
Adj. [R.sup.2] .04353 .01978 -.00786
F = 5.32355 2.91738 .25902
Sig F = .0056 .0565 .7721
Vari Beta T Sig T
INC 0.0965 1.359 .1757
PERF .2098 2.957 .0035

 Sat. with Sat. with Sat. with
 Pay Promotions Recognition

R .08690 .28311 .14290
[R.sup.2] .00755 .08015 .02042
Adj. [R.sup.2] -.00301 .07037 .01000
F = .71521 8.19072 1.95941
Sig F = .4904 .0004 .1438
Vari Beta T Sig T
INC -.0167 -.230 .8187
PERF .0854 1.175 .2413

 General
 Intrinsic Job
 Satisfaction Satisfaction

R .09697 .17971
[R.sup.2] .00940 .03230
Adj. [R.sup.2] -.00114 .02200
F = .89229 3.13705
Sig F = .4114 .0457
Vari Beta T Sig T
INC .0531 .732 .4651
PERF .0807 1.112 .2674

R
[R.sup.2]
Adj. [R.sup.2]
F =
Sig F =
Vari Beta T Sig T Beta T Sig T
INC 0.03 .417 0.68 0.05 .719 .4728
PERF .1707 2.376 .0185 0 0 0.98

R
[R.sup.2]
Adj. [R.sup.2]
F =
Sig F =
Vari Beta T Sig T Beta T Sig T
INC -.2661 -3.804 .0002 -.0523 -.725 .4696
PERF .0986 1.409 .1604 .1333 1.847 .0663

R
[R.sup.2]
Adj. [R.sup.2]
F =
Sig F =
Vari Beta T Sig T
INC .0709 .989 .3242
PERF .1646 2.295 .0229