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Group 19A STUDY OF EMPLOYEE SATISFACTIONAND ITS EFFECTS TOWARDLOYALTY IN HOTEL INDUSTRYBYCHAN SOO YINCHAN YEE FENKHOO YUN MENGLOH POH YINWONG WEIN JACKA research project submitted in partial fulfillment of therequirement for the degree ofBACHELOR OF BUSINESS ADMINISTRATION (HONS)UNIVERSITI TUNKU ABDUL RAHMANFACULTY OF BUSINESS AND FINANCEDEPARTMENT OF BUSINESSMARCH 2012

A Study of Employee Satisfaction and Its Effects toward Loyalty in Hotel IndustryCopyright @ 2012ALL RIGHTS RESERVED. No part of this paper may be reproduced, stored in aretrieval system, or transmitted in any form or buy any means, graphic, electronic,mechanical, photocopying, recording, scanning, or otherwise, without the priorconsent of the authors.ii

A Study of Employee Satisfaction and Its Effects toward Loyalty in Hotel IndustryDECLARATIONWe hereby declare that:(1) This undergraduate research project is the end result of our own work andthat due acknowledgement has been given in the references to ALLsources of information be they printed, electronic, or personal.(2) No portion of this research project has been submitted in support of anyapplication for any other degree or qualification of this or any otheruniversity, or other institutes of learning.(3) Equal contribution has been made by each group member in completingthe research project.(4) The word count of this research report is 22912 words.Name of Student:Student 64109ABB0749509ABB04972Chan Soo YinChan Yee FenKhoo Yun MengLoh Poh YinWong Wein JackDate:iii

A Study of Employee Satisfaction and Its Effects toward Loyalty in Hotel IndustryACKNOWLEDGEMENTWe would like to sincerely appreciate to the individuals who give us guidance,advices, opinions and support throughout the entire research project. Thus, weonly can complete our research efficiently and effectively.First and foremost, we would like to much appreciate to thanks to our supervisor,Mr.Kuek Thiam Yong who always gives us guidance and advices complete ourresearch study. Mr.Kuek Thiam Yong was given us an overview of conducting aresearch and also provides some valuable ideas and suggestion to enhance us toaccomplish the research smoothly and successfully.Moreover, we would like to appreciate to Universiti Tunku Abdul Rahman(UTAR) that giving us a valuable opportunity to carry out this research projectbefore we graduate from the university. We were gained a lot of experience,knowledge and information which are related to carry out the research. It alsoenriched our study life in UTAR and we are enjoying the research process verymuch.Otherwise, we would also like to thanks for our coursemates and group membersfor their coordination, valuable assistance and sharing knowledge about theresearch project and also their supportive actions. Therefore, this can helps uscarried out our research project more easily and running smoothly.Lastly but not least, we would like to offer our sincere thanks to the respondentswho are willing to spend their valuable time to complete the questionnaires thatwe designed for this research.iv

A Study of Employee Satisfaction and Its Effects toward Loyalty in Hotel IndustryTABLE OF CONTENTSPageCopyright Page . .iiDeclaration .iiiAcknowledgement .ivTable of Contents vList of Tables .xiList of Figures .xiiiList of Appendices .xivList of Abbreviations .xvPreface .xviAbstract .xviiCHAPTER 1INTRODUCTION . .11.0Introduction 11.1Research Background .11.2Problem Statement .31.3Research Objective . . .41.3.1 General Objective. . .41.3.2 Specific Objective . .51.4Research Question .51.5Hypotheses of the Study . .61.6Significant of Study .71.7Chapter Layout .81.8Conclusion . .9CHAPTER 2LITERATURE REVIEW . .112.0Introduction . .112.1Review of the Literature .112.1.1 Employee Loyalty .12v

A Study of Employee Satisfaction and Its Effects toward Loyalty in Hotel Industry2.1.2 Career Development . 142.1.3 Compensation and Rewards . .162.1.4 Job Security . .182.1.5 Workplace Environment . .212.2Review of Relevant Theoretical Models . .222.3Proposed Theoretical or Conceptual Framework .292.3.1 Career Development .302.3.2 Compensation and Rewards . 312.3.3 Job Security .332.3.4 Workplace Environment . .342.4Hypotheses Development . .352.4.1 The Relationship between Career Development andEmployee Loyalty . .362.4.2 The Relationship between Compensation and Rewardsand Employee Loyalty .372.4.3 The Relationship between Job Security and EmployeeLoyalty . 372.4.4 The Relationship between Workplace Environment andEmployee Loyalty .382.5Conclusion .38CHAPTER 3RESEARCH METHODOLOGY .403.0Introduction .403.1Research Design .403.2Data Collection Methods . .413.2.1 Primary Data . .413.2.2 Secondary Data . .413.3Sampling Design . .423.3.1 Target Population .423.3.2 Sampling Frame and Sampling Location . .423.3.3 Sampling Element .433.3.4 Sampling Technique .443.3.5 Sampling Size . .44vi

A Study of Employee Satisfaction and Its Effects toward Loyalty in Hotel Industry3.4Research Instrument .453.4.1 Questionnaire . . .453.4.2 Pilot Test .473.5Constructs Measurement . .473.5.1 Nominal Scale . .473.5.2 Ordinal Scale . .483.5.3 Likert Scale . .483.6Data Processing . .493.6.1 Checking .493.6.2 Editing . .493.6.3 Coding . .503.6.4 Transcribing . .523.6.5 Data Cleaning . .533. 7Data Analysis .533.7.1 Descriptive Analysis 533.7.2 Scale Measurement .543.7.3 Inferential Analysis . .553.7.3.1 Pearson Correlation Analysis 553.7.3.2 Multiple Regression Analysis .563.8Conclusion .57CHAPTER 4RESEARCH RESULT N .584.0Introduction .584.1Descriptive Analysis .584.1.1 Respondent Demographic Profile .594.1.1.1 Gender .594.1.1.2 Age 604.1.1.3 Race .614.1.1.4 Nationality . 624.1.1.5 Status . 634.1.1.6 Job Designation .644.1.1.7 Education Level . 664.1.1.8 Working Period . .67vii

A Study of Employee Satisfaction and Its Effects toward Loyalty in Hotel Industry4.1.2 Central Tendencies Measurement of Constructs .684.2Scale Measurement .694.2.1 Reliability Analysis . .694.3Inferential Analyses . 724.3.1 Pearson Coefficient Correlation . .724.3.1.1 Career Development . .724.3.1.2 Compensation and Rewards .734.3.1.3 Job Security .754.3.1.4 Workplace Environment .764.3.1.5 Summary of four independent variables onemployee loyalty .784.3.2 Multiple Regression Analysis . .804.3.2.1 Highest Contribution .844.3.2.2 Second Highest Contribution .854.3.2.3 Third Highest Contribution . 854.3.2.4 Lowest Contribution .864.4Conclusion . .86CHAPTER 5Discussion and Conclusion . .875.0Introduction . .875.1Summary of Statistical Analyses . 875.1.1 Descriptive Analysis .875.1.2 Inferential Analysis .885.1.2.1 Pearson Correlation .885.1.2.2 Scale Measurement .885.1.2.3 Multiple Regression Analysis .895.2Discussion of Major Findings . loyee Loyalty .905.2.2Relationship between Compensation and Rewards andEmployee Loyalty .915.2.3Relationship between Job Security and EmployeeLoyalty . .94viii

A Study of Employee Satisfaction and Its Effects toward Loyalty in Hotel Industry5.2.4Relationship between Workplace Environment andEmployee Loyalty Dependent Variable . .985.3Implication of the Study .995.3.1 Managerial Implications . .995.3.1.1 Career Development . .995.3.1.2 Compensation and Rewards . .1005.3.1.3 Job Security .1015.3.1.4 Workplace Environment .1025.4Limitations of the Study . .1045.5Recommendations for Future Research .1055.6Conclusion . .106References . .108Appendices . 119ix

A Study of Employee Satisfaction and Its Effects toward Loyalty in Hotel IndustryLIST OF TABLESPageTable 2.1: Employee Satisfaction Variables26Table 3.1: Labels and Codings Assigned to the Employee PersonalInformation50Table 3.2: Labels and Coding Assigned to the Employee Personality andEmployee Loyalty Questionnaire52Table 3.3: Interpretation of the Correlation Coefficient56Table 4.1: Gender59Table 4.2: Age60Table 4.3: Race61Table 4.4: Nationality62Table 4.5: Status63Table 4.6: Job Designation64Table 4.7: Education Level66Table 4.8: Working Period67Table 4.9: Descriptive Statistics68Table 4.10: Coefficient of Cronbach’s Alpha70Table 4.11: Interpretation of Cronbach’s Alpha71Table 4.12: Correlation between Career Development and EmployeeLoyalty72Table 4.13: Correlation between Compensation and Rewards and EmployeeLoyalty74Table 4.14: Correlation between Job Security and Employee Loyaltyx75

A Study of Employee Satisfaction and Its Effects toward Loyalty in Hotel IndustryTable 4.15: Correlation between Workplace Environment and EmployeeLoyalty77Table 4.16: Correlation among four independent variables78Table 4.17: Model Summary(b)80Table 4.18: ANOVA(b)81Table 4.19: Coefficients(a)82Table 5.1: Regression weights of the model93Table 5.2: Regression weights of the model97xi

A Study of Employee Satisfaction and Its Effects toward Loyalty in Hotel IndustryLIST OF FIGURESPageFigure 2.1: Conceptual Model23Figure 2.2: The Estimated Model of Employee Loyalty25Figure 2.3: The Study’s Proposed Theoretical Framework29Figure 4.1: Gender59Figure 4.2: Age60Figure 4.3: Race61Figure 4.4: Nationality62Figure 4.5: Status63Figure 4.6: Job Designation65Figure 4.7: Education level66Figure 4.8: Working Period68xii

A Study of Employee Satisfaction and Its Effects toward Loyalty in Hotel IndustryLIST OF APPENDICESPageAppendix 3.1: Questionnaire119Appendix 3.2: Pilot Test125Appendix 4.1: Descriptive Analysis128Appendix 4.2: Central Tendency131Appendix 4.3: Reliability Test132Appendix 4.4: Pearson Correlation Analysis135Appendix 4.5: Multiple Regression Analysis136xiii

A Study of Employee Satisfaction and Its Effects toward Loyalty in Hotel IndustryLIST OF ABBREVIATIONSH0Null HypothesisH1Alternative HypothesisSPSSStatistical Package for Social ScienceHRHuman ResourceCATIComputer-Assisted Telephone InterviewingCAPIComputer-Assisted Personal Interviewingxiv

A Study of Employee Satisfaction and Its Effects toward Loyalty in Hotel IndustryPREFACEThis study is basically under the subject of UBMZ 3016 Research Project which isusually taken by the final year students of Bachelor of Business Administration(HONs) in Universiti Tunku Abdul Rahman (UTAR). It is a compulsory subjectfor every student before they are graduating from university. This research projectis carried out around half of a year to complete it. Students need to learn the skillsand ways to conduct the research and questionnaires during conducting theresearchIn this project, we chose “A Study of Employee Satisfaction and Its Effectstoward Loyalty in Hotel Industry” as this research topic. The main objective forthis research is to determine and studying the factors that motivate the employeeloyalty in Malaysia hotel industry. Thus, this research is conducted to obtain indepth understanding about the determinants which can affect the employee loyaltyin order to reduce the employee turnover rate in hotel industry Malaysia.Employee loyalty is very important role in an organization to improve theefficiency and effectiveness of organization operations. There have four variableswhich affect the employee loyalty in this research and we believed that this studywill enhance our learning, skills of research and additional knowledge. We wererefereed to many journals and articles to find out the relationship between thosefour variables and employee loyalty. Other than that, UTAR also given us aguideline for conducting the research and we make it as an overview of process toinvestigate in the research.xv

A Study of Employee Satisfaction and Its Effects toward Loyalty in Hotel IndustryABSTRACTNowadays, the number of hotels in Malaysia increasing year by year in Malaysiadue to the effects of tourism in Malaysia. However, the employees’ turnover ratein hotel industry is declining year by year also. Thus, there is a issue that affectsthe employees’ turnover rate in the hotel industry which is the employee loyalty.Employee loyalty is an important issue for all organizations. There is not an easilyway to maintain the employee loyalty in an organization to retain the employees.There have several variables that are influence the employee loyalty in the hotelindustry such as career development, compensation and rewards, job security andworkplace environment.Therefore, this research is conducted to study about the relationships betweenthese four variables and the employee loyalty which can reduce the employeeturnover rate in the hotel industry. Based on the past study, there is a significantrelationship between these four variables and the employee loyalty. In the research,there has some evidence which can prove that employee loyalty is reliable to thesefour variables. So, organization needs to focus more on career development,compensation and rewards, job security and workplace environment to improvetheir employees’ loyalty towards the hotel industry.In this research, researchers have conducted this study by using the questionnaires.Researchers distributed the questionnaires to the employees who worked in thehotel industry. This can helps the researchers identify the variable more accurately.Besides, this study also describes the important role of employees for thecompany productivity and operation.Furthermore, there also has several recommendations are proposed in the last partof this research for cultivating the employee loyalty towards the hotel industrywhich can helps organization maximize the profits and improve the operation. Inxvi

A Study of Employee Satisfaction and Its Effects toward Loyalty in Hotel Industryshort, this research shows that the importance, information and awareness ofemployee loyalty in the hotel industry in Malaysia.xvii

A Study of Employee Satisfaction and Its Effects toward Loyalty in Hotel IndustryCHAPTER 1: INTRODUCTION1.0 IntroductionChapter 1 is an overview of the whole research of study context and explain theresearch problems. In the research, the problem statement is describing the coreidea of the study prompting to make a clear explanation on the research objectivesto be achieved and the research question to be answered. Besides, researchers alsoclarified the hypotheses to be tested and elucidate the importance and contributionof conducting this study. In the end of this chapter, conclusion is provided.1.1 Research BackgroundThe hotel industry is encountering a highly competitive environment worldwide.The formulations of a marketing strategy, strengthening of hotel operations, andupgrading the quality of service have become essential not only for profitability,but also for a hotel’s survival (Hwang & Chang, 2003). According to the TaiwanTourism Bureau, the hotel classification system consists of two groups which arethe international tourist hotels and ordinary tourist hotels. The international hotelsare four-star or five-star equivalent hotels, while ordinary tourist hotels are threestar equivalent hotels. In 2002, there were 62 international tourist hotels whichcould be classified as independent operations and chain operations (includinginternational and domestic) in terms of ownership and management in Taiwan.Chain operations included the types of franchise chain, management contract, andmembership. The independent operation hotel means that an investor owns (orleases) and runs the hotel. According to Abdullah et al. (2009) establishes that thehotel industry has been recognized as a potential prospect in the growth of theservice industry in Malaysia. However, the growth of hotel industry is impeded bythe high turnover rates of employees who worked in the hotel industry.Page 1 of 136

A Study of Employee Satisfaction and Its Effects toward Loyalty in Hotel IndustryHotels that provide higher salaries, strong reputation, and benefit-in-kind caneasily retain their employees because the employee satisfaction is achieved.Employee satisfaction is the employees who enjoying their positions and feelsrewarded for their efforts will ultimately be the most successful, as well as themost beneficial to their companies. Employee satisfaction is also used to describethe employees’ happiness, contented, fulfilling their desires and needs at work.Employee satisfaction is a factor in employee motivation, employee goalachievement, and employee morale in the workplace. A mediocre employee wouldlike to stay in the organization if the employee satisfied with the workplaceenvironment. Moreover, the longer an employee works for a company, the morevaluable they are becoming, especially in the service industry. Heskett et al. (1997)as cited in Abdullah (2011) stated that, staff training programs can helps to createthe employees satisfaction and loyalty. Besides, according to Sturgeon (2006) alsoagrees that training is one of the main drivers of employees’ satisfaction. Fromhere, researchers also know that an industry which offers training programme totheir employees may increase their employee satisfaction.The employee satisfaction will directly affects the employee loyalty in hotelindustry. Employee loyalty can be described in terms of a process, where certainattitudes give rise to certain behaviors. Loyalty has two dimensions which isinternal and external. Loyalty is a fundamentally of an emotional attachment. Theinternal dimension is the emotional components. It includes the feelings of caring,of affiliation and of commitment. Employer must understand their employeesfeeling and the employees who are facing any problem can consult with counselorsthat provide by the employer. This can increase the employees’ loyalty to theemployer by reducing the turnover rate. Next, external dimension has to do withthe way loyalty to manifests itself. This dimension is comprised of the behaviorsthat display the emotional component and is the part of loyalty that changes themost. According to Rider (1998) as cited in Mehta et al. (2010) found that trust,loyalty and related norms may have a crucial economic role to play and it does notfollow that regulation should be used to foster their development. In addition,according to Cunha et al. (2002) state that the relationships of the interplaybetween culture, structure and leadership which are managed to build employeePage 2 of 136

A Study of Employee Satisfaction and Its Effects toward Loyalty in Hotel Industryloyalty. These processes are effective because the employees reinforce with oneanother.Finally, according to Heskett et al (1997) as cited in Abdullah (2011) stated thatthe model chain of relationships between profits and growth are linked to thecustomer loyalty while customer loyalty is linked to customer satisfaction, in turn,customer satisfaction is linked to service value while service value is linked toemployee productivity, whereas employee productivity is linked to employeeloyalty, employee loyalty is in turn linked to employee satisfaction, and employeesatisfaction is linked to internal quality of work life.1.2 Problem StatementIn Malaysia, the hotel industry has been recognized as a potential prospect in thegrowth of the service industry. Malaysian government’s determination is to tap thepotential of the tourism industry. For 2007, the number of foreign tourists whovisited Malaysia exceeded the 20 million target set by the government. In terms ofrevenue, this industry earned RM46.1 billion which surpassed the targeted revenueof RM44.5 billion1. As part of the tourism industry, the hotel sector is entrustedwith a significant role to continuously assist the Malaysian government inrealizing the economic potential of the industry (Kasim & Minai, 2009).The labor force in hotel and restaurant industry is about 800,500 (“Guna TenagaEmployment, 2009). In addition, based on the statistics by Malaysian Associationof Hotels (2011) from 2007 to 2010 the number of tourist arrival has increasedfrom 20.9 million to 23.6 million and this was followed by the increment in thenumber of hotels and motels from 1567 to 2005. However, the growth is impededby the high turnover rates of employees in the hotel industry. Many organizationsin the hotel industry face difficulties in retaining employees since the organizationunable to identify the factors which contribute to employee satisfaction and theresultant loyalty.Page 3 of 136

A Study of Employee Satisfaction and Its Effects toward Loyalty in Hotel IndustryRetention experts said that hotels spend thousands dollar to train for each newemployee to replace a seasoned worker who leaves every year. It is no longer astartling fact that the cost of losing an employee is between half and one-and-ahalf times their annual salary (CHA International, 2009). So, recruiting new staffis a time consuming and expensive exercise that directly affects the organization’sbottom line.The hotel industry has higher turnover rate issue from the loyalty of employeestowards the company. This may linked with the employees’ job satisfaction thatthe company given. Therefore, organizations should be concerned about theiremployees’ level of job satisfaction because employees’ satisfaction increasesemployee retention. Robert Habeeb who is president of First Hospitality Group in2001 says that, “If you treat your employees more like hotel guests, you willreduce turnover. Then employees will treat hotel guests better, which spreads goodbuzz, encourages repeat visits and voila, makes the business more profitable”(Mcconnell & Huba, 2001).1.3 Research ObjectiveThe main objective of this research is to fill up the above mentioned gap in theproblem statement. According to the research problem, the following objectivesare identified in addition to the main objective to achieve through this research. Inorder to get more information to achieve the objective of this research, researchershave conduct literature review to understand the concept of each variable in thisresearch.1.3.1General ObjectiveBased on the previous research done by others researchers, they haveidentified few factors of employee satisfaction which affected theemployee loyalty. Employee satisfaction is an independent variable;Page 4 of 136

A Study of Employee Satisfaction and Its Effects toward Loyalty in Hotel Industryhowever employee loyalty is a dependent variable in this research. In thisresearch, researchers have extracted few factors of employee satisfactionwhich affects employee loyalty from previous research as independentvariables in this research. Researchers aim to ensure that the relationship ofthe factors in the employee satisfaction and employee loyalty in HotelIndustry. Therefore, the specific objectives of this research are to find outthe relationship of those factors of employee satisfaction and employeeloyalty in hotel industry. The factors of employee satisfaction extractedfrom previous research are career development, compensation and benefits,job security and workplace environment.1.3.2 Specific ObjectiveThe specified objectives are as below:i.To find out the relationship between career development andemployee loyalty.ii.To find out the relationship between compensation and rewards,and employee loyalty.iii.To find out the relationship between job security and employeeloyalty.iv.To find out the relationship between working environment andemployee loyalty.v.To find out the relationship between independent variables anddependent variable.1.4 Research QuestionsBased on the problems have been identified in problem statement lead to create theobjectives of this research. In order to conduct this research, researchers havedeveloped few questions such as:Page 5 of 136

A Study of Employee Satisfaction and Its Effects toward Loyalty in Hotel Industry1. What are the relationships between compensation and benefits andemployee loyalty in Hotel Industry?2. What are the relationships between career development and employeeloyalty Hotel Industry?3. What are the relationships between job security and employee loyaltyHotel Industry?4. What are the relationships between working environment and employeeloyalty Hotel Industry?5. What are the relationship between independent variables and dependentvariable?1.5 Hypotheses of the StudyAfter determine the independent and dependent variables of this research anddeveloped few research questions, this leads to build up few hypotheses of thestudy such as:Hypothesis 1H0: There is no significant relationship between career development andemployee loyalty in Hotel Industry.H1: There is significant relationship between career development and employeeloyalty in Hotel Industry.Hypothesis 2H0: There is no significant relationship between compensation and rewards andemployee loyalty in Hotel Industry.H1: There is significant relationship between compensation and rewards andemployee loyalty in Hotel Industry.Page 6 of 136

A Study of Employee Satisfaction and Its Effects toward Loyalty in Hotel IndustryHypothesis 3H0: There is no significant relationship between job security and employee loyaltyin Hotel Industry.H1: There is significant relationship between job security and employee loyalty inHotel Industry.Hypothesis 4H0: There is no significant relationship between workplace environment andemployee loyalty in Hotel Industry.H1: There is significant relationship between workplace environment andemployee loyalty in Hotel Industry.Hypothesis 5H0: There is no significant relationship between independent variables(career development, compensation and rewards, job security, andworkplace environment) and dependent independentvariables(career development, compensation and rewards, job security, andworkplace environment) and dependent variable.1.6 Significant of StudyThis study can benefits several areas of the hotel industry. First of all, the studywould be able to benefit the development of the hotels because cultivating theemployee loyalty can improve the productivity of the company. Productivityresults from how hard and how smart the employees work. Therefore, the satisfiedPage 7 of 136

A Study of Employee Satisfaction and Its Effects toward Loyalty in Hotel Industryemployees can give a better external service quality that received and evaluated bythe customers which can increase the customer satisfaction.Employee loyalty may arise from many different sources which are includinglevels of role ambiguity, autonomy, quality of supervision, quality of socialrelationships, and level of support in the workplace. Besides that, employees’attitudes and behaviours play a vital role in the quality of work. In this regard,employees are primarily responsible for providing a sustainable competitiveadvantage for the hotels.Apart from that, higher employee loyalty can helps the hotel industry to retain theemployees because employees have high satisfaction toward their jobs. Accordingto the Weaver report states that an improvement of employee satisfaction canreduces an employee turnover rate of 45 percent which is almost half of theindustry rate. Therefore, hotel industry should maintain higher employee loyalty inorder to reduce absence and turnover rate of employees. Apart from that, retainingemployees can play a critical role in an organization’s financial health becausereplacing employees can cost 150 percent or more of an employee’s annual salary(Bliss, 2001).Moreover, this study will be helpful to the hotel industry understand the factorswhich can increase the employee loyalty and the management can focus on thearea of improving the employee loyalty in order to achieve the company objectivesand goals. The factors are researchers’ independent variables such as careerdevelopment, compensation and rewards, job security, and workplace environment.It will also serves as a future reference for other researchers on the subject ofemployee loyalty.1.7 Chapter LayoutChapter 1 is briefly discussed about th

university, or other institutes of learning. (3) Equal contribution has been made by each group member in completing the research project. (4) The word count of this research report is 22912 words. Name of Student: Student ID: Signature: 1. Chan Soo Yin 09ABB08018 _ 2. Chan Yee Fen 09ABB07488 _ 3.