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Personnel Review,Vol. 31 No. 4, 2002, pp. 402-431.# MCB UP Limited, 0048-3486DOI 10.1108/00483480210430346

Retaining and motivatingemployees

Compensation preferences inHong Kong and China

Randy K. Chiu and Vivienne Wai-Mei Luk Department of Management, School of Business, Hong Kong Baptist

University, Kowloon Tong, Hong Kong, and

Thomas Li-Ping Tang Department of Management and Marketing, Jennings A. Jones College

of Business, Middle Tennessee State University, Murfreesboro,

Tennessee, USA

Keywords Compensation, Retention, Motivation, Employees, Hong Kong, People's Republic of China

Abstract This paper reports two studies involving data collected from 583 participants in Hong Kong and 121 participants in the People's Republic of China (PRC), and examines the most popular compensation components offered by organizations to employees and participants' perceptions regarding the five most important compensation components to retain and motivate people in Hong Kong and PRC, respectively. Results suggested that in Hong Kong, base salary,merit pay, year-end bonus, annual leave, mortgage loan, and profit sharing were the most important factors to retain and motivate employees. In China, base salary, merit pay, year-end bonus, housing provision, cash allowance, overtime allowance, and individual bonus were the

most important factors to retain and motivate employees. Results are discussed in light of economic, geographic, and culture-related factors.

For the last several decades, the growing integration of the world economy intoa single, huge marketplace has increased the intensity of competition in theworld market to cut costs and increase profits in a wide range of manufacturingand service industries (Hill, 1994). Only the most efficient and best-managedorganizations can survive. Money, benefits, and many different forms of compensation have been used to attract, retain, and motivate employees andachieve organizational goals in the USA and around the world (Barber andBretz, 2000; Chiu et al ., 2001; Lazear, 1998; Milkovich and Newman, 1999; Rynes

and Gerhart, 2000; Tang et al., 1998, 2000a,b).Organizations' reward systems involve monetary compensation and non-monetary rewards. Further, under monetary compensation, there are directcompensation and indirect compensation (benefits). In this study, we focus on

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Portions of this paper were presented at the Inaugural Conference of the Asia Academy of Management, Hong Kong, December 28-30, 1998. Correspondence concerning this article shouldbe addressed to Thomas Li-Ping Tang, P.O. Box 516, Department of Management andMarketing, Jennings A. Jones College of Business, Middle Tennessee State University,Murfreesboro, TN, 37132 (HK-PRCPAY.PR.rtf: 7/25/2001).



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monetary compensation in organizations. First, pay level is related to twoobjectives in compensation:

(1) controlling labor costs; and

(2) attracting, retaining, and motivating employees.

Other things being equal, the higher the pay level, the higher the labor costs.Organizations with a high pay level may attract and retain a qualified work-force (Williams and Dreher, 1992), and reduce training or recruiting costs(Holzer, 1990). Further, higher labor rates may lead to lower labor costs due toemployees' higher quality and/or quantity of performance (Pfeffer, 1998). Theorganization size, location, and the type of industry may influence the paylevels (Tang et al., 2000a,c). Second, employee benefit costs have jumped from25 percent of payroll in 1959 to just over 41 percent in 1993 (US Chamber of Commerce, 1994). Organizations also need to strike the balance between wages

and benefits in order to satisfy employees' needs and stay competitive.Money is the instrument of commerce and the measure of value. ``Money

isn't everything, but it is the best metric'' (Lazear, 1998, p. 379). It has beensuggested by researchers that money is a motivator (e.g. Lawler, 1973). Othersargue that money is not a motivator (i.e. a hygiene factor) (e.g. Cameron andPierce, 1994; Herzberg, 1987a, b; Kohn, 1993, 1998; Pearce, 1987; Pfeffer, 1998).Money does improve performance quantity and does not erode intrinsicmotivation (Gupta and Shaw, 1998). However, the jury is still out regarding theimpact of financial incentives on performance quality.

The meaning of money is `̀ in the eye of the beholder'' and can be perceived astheir ``frame of reference'' in which they examine their everyday lives (Tang et al ., 2000a, p. 217). On the one hand, it is possible to simply pay higher wagesand lower benefits to satisfy employees' needs. On the other hand, somebenefits are quite important to employees. The same benefit does not suit everyworker. Workers do differ in their valuation of various benefits. Thus, acafeteria plan, for example, which gives a worker more flexibility in benefitchoices, can provide the most value to the worker for a given amount of expenditure. Researchers and managers of human resources and compensationneed to identify the most important compensation components and satisfyemployees' needs.

A good match between resources (supply) and demands from both the

organizational and the individual perspectives will lead to a high level of needsatisfaction and job performance (Porter et al ., 1975). Numerous researchershave suggested that human need structures are virtually universal amongindividuals (culture-free, etic ) (e.g. Alderfer, 1969; Herzberg, 1987a, b; Maslow,1970). Others have argued that need structures are culturally bound (culture-specific, emit ) (Ali and Ali-Shakhis, 1985; Bhagat and McQuaid, 1982; Hofstede,1980; Nevis, 1983; Slocum, 1971; Smith et al., 1995; Tang and Ibrahim, 1998;Tang and West, 1997). Thus, we cannot assume that all employees haveidentical preferences for compensation components in organizations.



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Many studies have investigated the relationships between compensationcomponents and attraction, retention, and motivation of US employees (e.g.Barber and Bretz, 2000; Gerhart and Milkovich, 1990; Kahn and Sherer, 1990).Very little research, however, has investigated the various compensation

components in retaining and motivating people in the Chinese context,employees in the People's Republic of China (PRC) including Hong Kong, aSpecial Administrative Region of the PRC, in particular (cf. Roy et al., 2001).

The major purpose of this study is to achieve the following two-foldobjective:

(1) Identify compensation components currently being offered toemployees.

(2) Identify employees' perceptions of the most important compensationcomponents in retaining and motivating employees.

We will review economic, geographic, and culture-related factors and presentresults based on participants in Hong Kong (Study 1) and in the People'sRepublic of China (Study 2).

Study 1: Hong Kong Employee preferencesMany ``different lists'' of preferences have been examined in the literature. In astudy of 57,000 job applicants in a 30-year period using a list of ten items, Jurgensen (1978) has found that job security, advancement, and type of workare most important to men, whereas type of work, company, and security aremost important to women. For men, pay is ranked fifth and benefits eighth. For

women, pay is ranked seventh and benefits tenth. Employees have asignificantly higher concern for pay than job applicants. Participants considerpay as ``the most important factor'' for ``the other person'', a commonly heldbelief by most managers. In a survey of young people in the former SovietUnion, the most important factors to people between the ages of 16 and 19 areinteresting work, work in a friendly place, and good pay (in that order) (Phillipsand Benson, 1983). Money is not always ranked as the most important factor onthe list. In this paper, we will use a different list and examine employees'perceptions of 36 compensation components.

The economic condition of the USA, Southeast Asia, and Hong Kong

In the single world economy, manufacturing and service organizations in manycountries compete for the same customers in the market. When the economy inone region (e.g. the USA, Japan, or western Europe) sneezes, the economy inother regions catches cold. The unemployment rate in the USA has reached anall time low in 30 years in the late 1990s and in 2000, although it has increasedto about 4.1 percent in May 2001. With a low unemployment rate, employersmay experience difficulty in finding additional employees for theirorganizations, whereas employees may find it relatively easy to find better jobs. The currency and stock market turmoil in the later part of 1997 rocked the




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Southeast Asia region. However, long-term growth prospects remain bright.Some researchers predict a healthy and non-inflationary growth that willcontinue in the twenty-first century. The People's Republic of China (PRC)remains the most popular choice for steady growth in 2001 and beyond. HongKong has grown into a center of international trade and finance and has greatvalue for the Chinese economy. It is in the best interest of China to keep HongKong as prosperous as it was before the takeover in July 1997. Before thetakeover, people in Hong Kong also faced uncertainty about the future.

Geographic factorsHong Kong has over 7.1 million people on a piece of land that is about 400square miles. The majority of them live in the urban area and are Chinese.Great Britain gained control of Hong Kong Island in 1842, Kowloon in 1860,and the New Territories in 1898 (a 99-year lease). All were retuned back toChina in July 1997.

Hong Kong has maintained a strong western influence and economic systemfor more than a century. Most wealthy people live in luxury apartmentbuildings and in beautiful houses with gardens, while middle- and low-incomecitizens occupy crowded high-rise apartment buildings. Due to high demand, itis extremely expensive for people to own a flat (an apartment/condominium).The average property price for domestic premises (about 1,440 sq.ft) on HongKong Island is around HK$3,491/sq.ft (i.e. US$452/sq.ft) (Hong KongGovernment, 1995a). (That is, the average apartment cost was aboutUS$650,880.) The prices reached a peak in 1997 (close to US$1,000/sq.ft in someareas). According to Ming Pao (2000, p. D1), the average property price dropped

to HK$3,032/sq.ft (US$389/sq.ft) and in some areas to HK$2,500/sq.ft (US$320/sq.ft). Properties, bought in June to October 1997, dropped it value by morethan 50 percent ( Ming Pao, 2000). This shows the volatility of property value inHong Kong.

Further, it is also tough for people to buy any property due to high mortgageinterest rates and high down payment demands (30 percent of the purchaseprice). Some employers offer low-interest mortgage benefits and even 100percent of their mortgage for employees in the banking industry (White et al.,1998). Thus, low-interest mortgage loans do attract and retain many talentedindividuals. In return, the employers enjoy a rather stable and loyal workforce.This reflects the unique condition in Hong Kong. We predict that for Hong

Kong employees, low-interest mortgage loan will have a strong impact on``retaining'' employees but not ``motivating'' them because satisfied needs arenot motivators, according to Maslow (1970).

Industrial relations, human resource management, and culture-related factorsIt is beyond the scope of this study to review all the literature regardingindustrial relations and human resource management in Hong Kong (for areview, see Chiu et al., 2001; England, 1989; Everett et al., 1987; Moore and Jinnings, 1995; Redding, 1990). Despite the technological sophistication and



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apparent westernization of Hong Kong society, Hong Kong remainsoverwhelmingly a Chinese one in language, both public and private socialhabit, and the social consciousness of the people. In consideration of Chinesecultural norms, family and kin ties and family loyalties are the key. We willreview issues directly examined in the present study.

The refugee mentality. For the past several generations, many people movedto Hong Kong from different parts of China (e.g. Shanghai) and adjacentregions (Guangdong province) in order to avoid wars and/or natural andhuman disasters. A large number of Chinese fled to Hong Kong to escapeCommunist rule since 1949. According to the first 1961 Census, 33 percent of the working population entered Hong Kong after 1949, 13 percent had lived inHong Kong for five years or less, and only 47.7 percent of the total populationclaimed Hong Kong as their place of birth (England, 1989). Although manyresidents have lived there for a long period of time, some do not consider HongKong to be their permanent home. The workforce has been heterogeneous andtransitory.

In recent years, with the anticipation of China's control of Hong Kong, manypeople have fled to the West coast of the USA (e.g. Los Angeles), Canada (e.g.Vancouver), and Australia. Some, in fact, have returned since the changeover in1997. Due to the uncertainty and insecurity in the region, people tend to have ashort-term perspective and have a low level of trust, commitment, andconfidence in the company, the system, or any government. They do not puttheir roots deeply into the Hong Kong soil. Money is important and also allowsthem to have autonomy and freedom (Tang, 1992). This refugee mentality leadsto their cash mentality.

The cash mentality. ``The cash mentality'' has been used in Hong Kong todescribe work and money-related attitudes. The money-mindedness of theoverseas Chinese people is considered a virtue in the Chinese value system(Redding, 1990). For Hong Kong workers, pay is the most important aspect of a job (England, 1989). Cash remains king in Hong Kong among all othercompensation components (Carr, 1973; Chiu et al., 2001; Hong Kong Staff,1995a, b; Ward, 1972; The Wyatt Company (HK) Ltd, 1995), similar to their UScounterparts (e.g. Campion, 1991; Tang et al., 2000a). There is a Chinese saying:``Money can subdue even gods''. It is the income (not job satisfaction) that keepsHong Kong employees at work (Mitchell, 1983). What they like the most aboutwork is their income (England and Rear, 1975), i.e. ``the cash mentality''. We

predict that cash-related compensation will be important in retaining andmotivating employees.

Components of compensationEfficiency wage theory asserts that above-market pay can increase efficiencyand reduce unit labor costs (i.e. attract high-quality applicants, reduce turnover,``shirking'', and supervision and increase effort) (Campbell, 1993; Cappelli andChauvin, 1991). High pay influences employees' decisions in employmentacceptance and intention to leave (Armstrong and Murlis, 1994; Judge, 1993;




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Lawler, 1986; Lawler and Jenkins, 1992; Mobley, 1982). The most importantreason for voluntary turnover is higher wages and career opportunity(Campion, 1991). College students are more likely to pursue jobs that offer highpay levels and jobs with individual-based, fixed, job-based pay and flexiblebenefits (Cable and Judge, 1994).

Employers use benefits to attract and retain good people; employees rely onbenefits (e.g. medical subsidies, vacations, and retirement) to secure theirfinancial wellbeing. By linking benefits (e.g. pension and holidays) to seniority,workers will be reluctant to change jobs (Gerhart and Milkovich, 1992).Generous rewards tend to retain people because high reward levels lead to highsatisfaction, commitment, and loyalty:

H1. Hong Kong employees will view cash payments (such as base salary,year-end bonus, and merit pay) important components of theircompensation.

H2. Hong Kong employees will consider housing provision important inretaining employees but not in motivating employees.

Method ParticipantsQuestionnaires were sent to participants, randomly selected from members of the Chartered Institute of Bankers, the Hong Kong Management Association,and Hong Kong Industrial Relations Association, as well as MBA students of various universities in Hong Kong in 1996. They participated in this studyvoluntarily and their confidentiality was assured. We obtained 583 usable

surveys. No follow-up surveys and reminders were used due to anonymity andthe large sample. A recent study shows that Hong Kong has the lowestresponse rate among 22 countries (7.1 percent) (Harzing, 1997). Our responserate (9.7 percent) was slightly higher than that reported by Harzing (1997).Demographic variables of the participants are presented in Table I.

MeasuresWe modified the questionnaire designed by White et al . (1998) that consists of three sections:

(1) The demographic information of the participants (Table I).

(2) A total of 35 compensation components that were grouped into sixmajor categories: basic and variable payment, pensions, insurance,leave, allowances, and social benefits (see Table II).

(3) Benefits offered to them at the time of the survey.

Participants ranked the five most important items using the 35 components forretaining and motivating employees. Retaining employees is defined as one'sdesire to stay with the organization. Motivating employees is defined as one'sdesire to work harder and have higher work performance in the organization.



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Table I.Profile of participants

Variable Category Frequency Percentage

Type of industry Banking/finance 103 17.5Manufacturing 92 15.8

Food and beverage 38 6.5Garment and textiles 35 6.0Import/export 48 8.2Engineering/construction 34 5.8Transportation 39 6.7Retail/services 66 11.3Others 125 21.4

Gender Male 259 44.4Female 324 55.6

Age (years) < 25 59 10.125-34 360 61.735-44 144 24.745-55 14 2.4> 55 4 0.7

Marital status Single 335 57.5Married 244 41.9Others 3 0.3

Working experience < 5 106 18.2(years) 5-10 191 32.8

10-15 160 27.4> 15 124 21.3

Position level Senior management 37 6.3Middle management 177 30.4Supervisory 177 30.4Clerical/secretarial 138 23.7Others 53 9.1

Educational level Matriculated 198 34.0Undergraduate degree 114 19.6

Postgraduate degree 114 19.6Others 153 26.3Individual monthly < 1,900 135 23.2

income (US$) 1,901-3,800 294 50.43,801-6,400 116 19.96,401-8,900 24 4.18,901-11,500 5 0.9> 11,500 5 0.9

Type of housing Company provided 9 1.5Privately owned/mortgaged 387 66.4Rental 68 11.7Public estate 100 17.2Others 18 3.1

Intention to leave Next three months 42 7.2

Next six months 52 8.9Next 12 months 99 17.0No intention 390 66.9

Reasons for leaving Salary 19 3.3Benefit 5 0.9Career opportunity 95 16.3

Job satisfaction 28 4.8Human relations 8 1.4Migration 15 2.6Others 16 2.7




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Results Popular components offered to respondentsTable II shows that, based on frequency data, the participants were offeredbase salary (97.3 percent), annual leave (97.1 percent), paid sick leave (78.7

percent), year-end bonus (73.6 percent), maternity leave (63.6 percent),

Table Compensati

components offeredresponden

Components Percentage

Basic and various payment 01. Basic salary 97.302. Merit pay/bonus (performance related) 40.103. Year-end bonus 73.604. Profit sharing/share ownership scheme 11.005. Investment/saving scheme 9.9

Pension06. Contributory provident fund 50.6

07. Non-contributory fund 31.48. Pension scheme: lump sum payment 14.609. Widow's/widower's pension 1.4

Low interest loan10. Personal loan 22.111. Car loan 12.912. Mortgage loan 46.7

Insurance13. Life 42.914. Health 56.815. Disability 26.616. Accident 46.517. Travel 17.0

Leave18. Annual leave 97.119. Maternity leave 63.620. Paid sick leave 78.721. Paid compensation leave 36.922. Wedding leave 58.823. Paid casual leave 17.3

Allowances24. Overtime allowance 55.425. Responsibility allowance (shift, special assignment, etc.) 26.526. Housing provision (rental or quarters) 19.427. Expense reimbursement/hospitality allowance/entertainment expense 45.328. Subsidised travel/transportation allowance 36.7

29. Education allowance for training initiated by employee 60.430. Club/professional association subscription 18.031. Children's education subsidy 18.432. Childcare facility/subsidy 5.533. Subsidised meal/staff cafeteria 33.6Others34. Employee discounts 28.535. Company car 12.2

Note: n = 583



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educational allowance (60.4 percent), wedding leave (58.8 percent), healthprotection (56.8 percent), overtime allowance (55.4 percent), and contributoryprovident fund (50.6 percent). The least popular components were investment/saving scheme (9.9 percent), childcare facility (5.5 percent), and widow's/

widower's pension (1.4 percent).

The five most important componentsBasic salary, merit pay, year-end bonus, annual leave, and mortgage loan werethe most important factors to retain employees, whereas basic salary, meritpay, year-end bonus, profit sharing, and annual leave were the most importantfactors to motivate employees (Table III). The top three items were exactly thesame in retaining and motivating employees. ``Take home cash'' (base salary,merit pay/bonus, and year-end bonus) was ranked consistently high, whichreflected Hong Kong employees' ``cash mentality''. Mortgage loan was highly

important and desirable for attracting employees but not for motivatingemployees. H1 and H2 were supported.

DiscussionThe five most popular compensation components offered to employees are:base salary, annual leave, paid sick leave, year-end bonus, and maternity leave.The five most important factors in retaining employees are:

(1) base salary;

(2) merit pay;

(3) year-end bonus;

(4) annual leave; and

(5) mortgage loan.

There are some discrepancies between what the employees are being offeredand what the employees are looking for in an employment situation. Employeesconsider merit pay, mortgage loan, and profit sharing as more important thanpaid sick leave and maternity leave. This is not to say that paid sick leave andmaternity leave are not important and can be eliminated from thecompensation package. To these Hong Kong employees, merit pay, mortgageloan, and profit sharing have higher cash value and are more valuable than

Table III.Rank order of retentionand motivation of Hong Kong employees

Rank Retention Motivation

1 Base salary Base salary2 Merit pay Merit pay3 Year-end bonus Year-end bonus4 Annual leave Profit sharing5 Mortgage loan Annual leave

Note: n = 583




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paid sick leave and maternity leave in retaining and motivating employees. Wewill discuss our findings in more detail.

Base salary and year-end bonus

Base salary and year-end bonus were the first and the third most importantcomponents in retaining and motivating Hong Kong employees. Both are in theform of cash. Base salary is one of the main determinants that employees usewhen they make an employment decision (Gerhart and Milkovich, 1992). Bonusis not related to individual performance but organizational performance. MostHong Kong workers are entitled to an annual bonus equivalent to one month'ssalary in the private sector.

Merit payMerit pay is widely used to reward good work performance (Lawler et al., 1989;O'Dell, 1987). In this study, merit pay was considered as the second mosteffective component in retaining and motivating people. Respondentsappreciate performance-related rewards for two reasons:

(1) Hong Kong workers' positive work attitude and high work ethic (Chiuand Kosinski, 1995); and

(2) Chinese workers' belief in the relationship between performance andreward (i.e. the expectancy theory (Lawler, 1973) and the cause-and-effect concept in the Chinese culture (Koller, 1985)).

To retain good employees, employers must make sure that their workers aretreated equitably and that procedural and distributive justice exist.

Low-interest mortgage loanLow-interest mortgage loan creates loyal Hong Kong employees. Employeesenjoying a low interest rate on their mortgage are not likely to leave theinstitution unless they can find another employer who could offer the same orbetter benefit. The mortgage interest rate offered to the employees is usuallylower than the local prime rate. Some Hong Kong employers offer 3 percent to 6percent per annum, while the standard rate is about 9 percent to 10.75 percentper annum (White et al., 1998). According to the Census and StatisticsDepartment of Hong Kong Government, the best lending rate for 1998 (periodaverage) was 9.94 percent per annum; for 1999, it was 8.49 percent. The prime

rate in 2000 was 9.5 percent. Further, about 66.4 percent (387) of therespondents reported living in a self-owned property, as opposed to 11.7percent in rented accommodation. This figure (66.4 percent) was much higherthan the average of the general population (12 percent) in Hong Kong (HongKong Government, 1994).

Respondents in rented or public housing tend to be younger, not yet married,in junior positions (20.2 percent) and/or earn less than US$3,000 per month (23.4percent), relatively speaking. They are members of the sandwich class (thosewho are too wealthy to be qualified to live in public housing and yet too poor to



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purchase their own property). They neither need a property of their own nor areentitled to the low-interest mortgage loan benefit offered by their employers.They do not have enough savings to pay for the down payment of the propertythey wish to buy. It is interesting to note that a low-interest mortgage loan isimportant in retaining employees, but is not important in motivatingemployees. Our results support the notion that satisfied need is no longerimportant in motivating Hong Kong employees (Maslow, 1970).

Annual leaveAlmost all Hong Kong employers offer annual leave to employees. Just likebasic pay and year-end bonus, annual leave for employees is stipulated in theHong Kong Employment Ordinances; therefore, by law, employers shouldprovide such a benefit. Hong Kong people are hard working individuals, theymay consider play as important as work. People enjoy a well-deserved vacationevery year.

Profit sharing Profit sharing ranked quite high in the ``motivation'' dimension and not in theretention dimension. Long-term reward (profit sharing) is important tomotivate employees. Profit sharing motivates employees to become betterperformers and links with organizational performance (Weitzman and Kruse,1990). It educates employees about the financial performance of the business,increases their interest in learning about profits and organizationaleffectiveness (Foulkes, 1991), motivates employees to act in the best interestof the organization, helps employees identify with the organization,

encourages employees to think like owners, and taps on organizationalperformance, and adjusts them based on the organization's ability to pay(Weitzman, 1984).

Our present findings show that Hong Kong employees are highly motivatedby the `̀ cash mentality''. Among all other compensation components, cashremains the king in Hong Kong. Their keen appreciation of cash compensation(Carr, 1973; Hong Kong Staff, 1995a, b; The Wyatt Company (HK) Ltd, 1995) issimilar to that of people in the USA (e.g. Campion, 1991). Other ``typical fringebenefits'' such as leave, allowances, and employee discounts, etc. are notconsidered as important as cash in this study. It is possible that employees arenot very knowledgeable about and less interested in benefits than cash

(Tangand et al., 2001). Everybody in the organization may have the same orsimilar benefits that are common within a labor market (Heneman and Schwab,1979).

There are three possible explanations for the prevalence of this cashmentality. First, we collected our data in 1996. Due to the changeover of HongKong to China in 1997, ordinary people may have experienced some free-floating anxiety and fear. In the era of uncertainty, having money in the bankmay increase one's feeling of security and allows one to ̀ `buy'' more alternativesin times of difficulty. They can migrate to another country if the political




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atmosphere in the territories turns sour. Second, in the Chinese culture, adultsare brought up to be self-reliant, ahead of others, financially independent,socially successful, and to save face (Bond and Hwang, 1986; Chiu and

Kosinski, 1994; Lau and Kuan, 1988). Even though ancient Chinese values donot condone the thinking that being rich will take care all of the above, in socialreality it usually is the case. Finally, people living in international metropolitancities like Hong Kong can be very materialistic, capitalistic, individualistic, andegoistic (Chiu and Kosinski, 1995; Hofstede, 1980).

Moreover, many Hong Kong people do not consider Hong Kong as theirpermanent home. In 1984, when the relationship between the UK and PRC wasat the bottom, many people considered leaving the territories. Right after 1989,there was another major flux of emigration. A survey, reported in the Hong

Kong Standard on May 19, 2000, showed that Hong Kong people's intentionto leave was at an all time high again due to their dissatisfaction over thecurrent situation in Hong Kong. Hong Kong Baptist University's TransitionProject Director Dr Michael DeGolyer described it as `à shocking increase''.These facts help us understand the `̀ refugee mentality'' and the `̀ cashmentality'' of Hong Kong people.

Hong Kong employees have been considered as loyal and hard working formany years. A recent government survey has found that, in 1999, nearly 40percent of companies cut bonuses. Only 25 percent of companies increasedbonuses. The Secretary for the Civil Service, Mr W.K. Lam, announced on May30, 2000 that civil service pay should again be frozen in 2000-2001 (Hong KongGovernment, 2000). So the largest employer in Hong Kong, the Hong KongGovernment, will continue to freeze pay two years in a row. These changesmay cause some morale problems in Hong Kong. Hong Kong employees' work-related satisfaction is also at an all time low, since base pay and year-end bonusare important to them. In a recent article, Bowman (2000) has reported thatHong Kong workers are among the least loyal in Asia, suggesting an urgentneed for bosses to boost staff morale. These data indirectly support the notionthat compensation and pay will attract, retain, and motivate employees andthat pay will have a significant impact on employee behavior, performance, andeffectiveness in organizations.

Compared to the 1997 HKIRA pay survey, the 1999 HKIRA survey showedthat many employers began to make good use of the variable pay system (e.g.irregular bonus, incentives, and commissions). Furthermore, foreign companiestend to use the variable pay system more than the local companies. It appearsthat after 1998, Hong Kong employers began to reduce their manpowerexpenditure by controlling base pay. Nowadays, organizations try to motivateemployees to work harder by using pay for performance practices (White et al .,2000). Thus, employers do consider strategic compensation approaches toreduce costs and increase productivity and profits.



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Study 2: China People's Republic of China (PRC)For several decades since 1949, China's state-owned enterprises (SOEs) haveemployed 57.4 percent of the entire urban labor force and possessed 52.2

percent of total investment in industrial fixed assets. However, SOEs' share inChina's total industrial output has declined from 77.6 percent in 1978 to 28.8percent in 1996. More than 45 percent of the SOEs in China have lost money in1996. The `ìron rice bowl'' ( tie fan wan ) (a lifetime employment regardless of performance) is fading away (Tang and Tang, 2001). Since 1978, the People'sRepublic of China has abandoned the socialist economic model in favor of acapitalist market economy. In order to attract more foreign investment andstrengthen economic collaborations with other countries, the PRC establishedspecial economic zones at Shenzhen, Zhuhai, Shatou, and Xiamen in 1980,along with 14 other coastal cities (Hannan, 1995), and opened to foreigncompanies and sparked economic development.

Industrial relations and human resource management. There are severallandmark studies and books on industrial relations and human resourcemanagement in China. It is beyond the scope of the present study to reviewthe literature (for a review, see Child, 1994; Hui and Tan, 1996; Lindholm,1999; Naughton, 1995; Wang, 1990; Warner, 1995). We will summarize thekey points below. During the post-1949 `ìron rice bowl'' employment policyera, Chinese people have developed their own industrial relation systembased on a combination of the Soviet model and the direct urban laborallocation. The system was intended to protect skilled workers. `̀ Anydiscussion of China's dramatic changes since the death of Mao Zedong in

1976 must also take into account Deng Xiaoping's policies of the ÒpenDoor' to the West (and Japan) and the `Four Modernisations' (of Agriculture,Industry, Science, and Technology, as well as Defence) which first got off the ground in 1978-1979'' (Warner, 1996a, p. 196). Dengist reform was tointroduce greater efficiency into the system by the use of marketmechanisms. Naughton (1995) also has explained the Chinese approach toeconomic transition that is based on maintaining elements of the plannedeconomy while concentrating economic growth in the market-orientedsegments of the economy, outside the government plan. The Chineseexperience shows that gradual change away from a command economyis feasible.

From 1979 to 1983, the transfer of self-government to enterprises marked thefirst stage. Material rewards have become more predominant. The secondphase was from 1983 to 1986. The focus was to create fair competition amongenterprises. In 1986, the third phase of responsibility system reform started. By1987, about 80 percent of `̀ China's enterprises had adopted the DirectorResponsibility System and their output value had risen by 13 percent andprofits and taxes by 16 percent'' (Wang, 1990, p. 196). Since the 1992 enterprisereforms, this approach has been further extended to selected SOEs and by 1995to all large and medium-sized ones (Warner, 1996a, b).




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In the 1990s, the most popular wage systems in China were the rank fixedwage for enterprise employees and the structured wage system based onpositions for employees at universities and government organizations(Wang, 1990). The equalitarianism in wage management systems has beenmaintained. In 1995, pay in foreign firms was about 33 percent above that inSOEs and more than double that in township firms. The average financialcompensation in international joint ventures (IJVs) is considerably higherthan that in local firms (Lu and Bjorkman, 1998). Chinese regulationsstipulate that the wage level of a joint venture is to be set at 120-150 percentof that of state enterprises in the same line of business and same locality(Tsang, 1994). The complete wage package consists of the basic wage,bonuses and subsidies. Take home pay (basic wage and bonuses) amountsto about 75 percent of the package.

Many urban Chinese employees receive bonuses (tied to productivity orprofitability) that account for as much as 40 percent of their pay package.Many regard bonus as one of the strongest motivators in the PRC. Unfairdistribution of rewards and bonuses has been also considered as theparamount factor that dampens employees' work motivation. Only 4percent of the participants in one study preferred an equal distribution of rewards (Yu, 1992). Chinese people also prefer to distribute rewards equally(egalitarian) when the amount to be allocated is perceived as unlimited, butprefer to distribute rewards based on contribution (merit) when a constantsum is to be divided (Hui et al., 1991). Based on these findings, it isreasonable to expect that Chinese people value bonus, individual bonus, andmerit pay.

Economic changes for the past three decades. The amount of foreign directinvestment (FDI) increased from US$1.12 billion in 1978 (Chi and Kao, 1995) toUS$4.37 billion in 1991, and to US$90.30 billion in 1995 (Mulrenon, 1997). Thetotal foreign capital inflow has increased from under 11 percent to over 38percent between 1978 and 1991 (Chi and Kao, 1995). There were over 2,000,000foreign invested or joint venture agreements and the foreign invested firms in1994 grew by 95.6 percent each year (Warner, 1996a,b) and 37,011 approvedcontract agreements (with 20,455 joint ventures, 4,787 contractual joint ventures,and others) in 1995. According to China Monthly Statistics published in October1998, from January to June 1998, there were 3,732 contract agreements involvingUS$8.33 billion of foreign capital (China Statistical Information Consulting

Center, 1998). GDP grew in real terms at 11.6 percent and the industrial growthrose by an annual average of 19.9 percent from 1990 to 1994, peaking at 27.7percent in 1993 (Warner, 1996a, b). According to the Almanac of China's Foreign

Economic Relations and Trade (1999), the number of direct investment projectsfrom Hong Kong was 7,830 (accounting for 39.5 percent of the total number of foreign investment projects of the mainland in the same period) in 1998.

Hong Kong has long been China's window to the world and the third largesttrading partner (behind Japan and the USA) of the PRC. Hong Kong handled26.7 percent of China's exports in 1994 and 24.1 percent in 1995. Hong Kong



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accounted for 15.9 percent of the PRC's national total trading in 1995 and 14percent in 1997 (China's Customs Statistics, 1996). In 1995, 58.2 percent of thePRC's foreign investment came from Hong Kong, and about 80 percent of HongKong manufacturers have set up production facilities in the PRC ( Almanac of

China's Foreign Economic Relations and Trade, 1995).Hong Kong accounted for 56.8 percent (US$46.9 billion) of the direct

foreign investments, 51.8 percent (US$24.6 billion) of the foreign investmentprojects, and 45.9 percent (US$19.8 billion) of the utilized capital of thecountry ( Almanac of China's Foreign Economic Relations and Trade, 1995).Hong Kong accounted for 53.5 percent (US$20 billion) of the direct foreigninvestments, 22.2 percent (US$1.7 billion) of the foreign investment projects,and 42.4 percent (US$2.0 billion) of the utilized capital of the country.According to the Almanac of China's Foreign Economic Relations and Trade(1999), the total import and export trade volume between China's mainlandand Hong Kong reached US$45.412 billion in 1998. For the first four monthsin 1999, the re-exports by main origin from the USA reached US$18.310billion, while the re-exports by main destination to the USA reachedUS$92.865 billion (Hong Kong Government, 1999). In 1993, Hong Kongfirms, including only those operated in the southern part of the country,employed more than three million workers (Farh et al., 1995). In 1994, therewere over 118,000 Hong Kong invested enterprises in China, accounting fortwo-thirds of the foreign-funded enterprises in China (Hong KongGovernment, 1995b).

Due to this massive influx of foreign investment from Hong Kong as well asother countries, western management philosophy and practices have beenbrought into China, compensation systems in particular. Fixed wages arereplaced by reward systems in a market economy (Chow, 1992). These changesattempt to provide incentives that may lead to higher productivity and allow``some people to get rich first'' (Chow, 1992, p. 43). Other changes of the rewardsystems include:

. higher wage differentials;

. a new wage system including base wages, position wages, floatingwages, and subsidies (Shenkar and Chow, 1989);

. a performance-based pay; and

. other benefits such as cash bonuses, promotion opportunities, paid

vacations, and priority claims on welfare benefits.

The cash mentalityTang et al. (2000) have argued that due to the economic growth and higherincome, people in developing countries are becoming more materialistic in a``developing economy''. Very little research has been done on the changes inpayment systems in China (see Takahara, 1992; Child, 1995) and employeeattitudes towards pay (Chow, 1992). For Hong Kong employees, what they likethe most about their work is their pay (England and Rear, 1975).




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Housing Housing provision appears important to the local Chinese for several reasons:First, there is a serous housing shortage in all parts of China. In the past, Chinahas employed a very strict system in that each person is registered at a specificaddress. People did not have the freedom to move away from the registeredaddress. Housing is simply not available. Now, China allows people to havelimited freedom to move in specific areas of China. Employees coming fromother provinces need a place to stay. Second, overseas companies provide betterhousing facilities than state-owned companies (Greene, 1991). Third, somecompanies allow local employees to own their apartments when they reach acertain seniority level. Finally, employees in general cannot afford the ever-increasing real estate prices.

The importance of housing provision can be best explained by thefollowing example. Alan Hornish, HR Director of Johnson Wax, stated: ``Wehired a secretary at 2,000 RMB (renminbi) per month (i.e. US$240/month).Now, two years later, she was earning 17,000 RMB per month as a manager.To keep her, we have just bought her a house'' (Johnson, 1998, p. 51). Thevalue of the house was ``250,000 RMB (US$31,250)'' (Johnson, 1998, p. 53).Landry (1997, p. 9) has also stated, in Harvard Business Review, that in PRC,`èmployee benefits such as housing allowances have won favor at manycompanies''.

In Study 2, we will examine pay and benefits packages offered by overseascompanies operating in China and the most important compensationcomponents in retaining and motivating supervisors and workers in China. Wepredict that the cash mentality (Luk and Chiu, 1998) and housing provision will

also be very important for people in China. H3. Chinese employees will view cash payments such as base salary,year-end bonus, and merit pay as very important components of theircompensation.

H4. Chinese employees will consider housing provision as highlyimportant and desirable for retaining employees but not formotivating employees.

Method ParticipantsSurvey questionnaires were mailed to Hong Kong-owned and foreign-owned

companies that have either manufacturing or retailing operations in thePRC and were randomly selected from employer organizations and businessdirectories such as Hong Kong Industrial Relations Association (HKIRA),Hong Kong Manufacturers Association, and Hong Kong Chinese Chamberof Commerce in 1996. The general manager (or human resources manager)completed the survey. They participated in this study voluntarily and theirconfidentiality was assured. Completed surveys from 121 companies(representing 233 operational locations) were obtained. Most Chinesemanagers have never completed mailed survey questionnaires, surveys sent



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to them from Hong Kong, in particular. This was a brand new experience forthem. The return rate was relatively low (6.37 percent), but not atypical.

Table IV shows the operational locations of these companies. For

example, 48 factories/offices are operated in Dongguan. Most of theinvestors set up their establishments in southern China, supportingprevious findings (HKIRA, 1999; The Wyatt Company (HK) Ltd, 1996).Table V presents the type of business, years of operation, and form/optionof investment in the PRC ( n = 121). Among the 121 companies, 53.7 percent

were in the manufacturing sector and 66.9 percent were less than eightyears old. A large number of these foreign companies went into China after1985 for its cheap labor, land, and transportation costs. Regarding the formsof investment, 29.8 percent and 37.2 percent of the participating companieswere wholly foreign-owned enterprises and equity joint ventures,

respectively.

Measures

A similar survey questionnaire used in Study 1 was also used in Study 2. It hasthree sections:

(1) The demographic information of the participating companies (e.g.operational locations, type of business, years of operation, form of investment in PRC, the number of employees, and percentage of benefitsprovision, job tenure, and turnover rate for managers, supervisors, andworkers).

(2) A total of 37 compensation (remuneration) components offered to theirrespective employees in three different levels: managers, supervisors,and workers.

(3) The top five items in terms of their perceived effectiveness in retainingand motivating supervisors and employees, respectively.

Table IV.Operational locations of respondents

Location Frequency Percentage

Beijing 18 7.7Shanghai 23 9.9

Tianjin 5 2.1Dongguan 48 20.6Guangzhou 33 14.2Shenzhen 46 19.7Zhuhai 8 3.4Wuhan 5 2.1Guangdong Province (except Dongguan and Guangzhou) 26 11.2Others 21 9.0

Note: n = 233




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ResultsTable VI shows the mean and standard deviation of the number of employees, years of service, turnover rate, and percentage of benefits

provision for managers, supervisors, and workers. These 121 companies, onaverage, had about five managers, 18 supervisors, and 990 employees.Managers had 3.68 years of service, while supervisors and workers had 3.40and 2.34 years, respectively. Almost 30 percent of the participatingcompanies had less than four years of history in China. The respectiveturnover rates for managers, supervisors, and workers were 4.49 percent,9.86 percent, and 31.11 percent. Labor mobility was high, especially insouthern China. Many workers are free to change jobs. These resultsseem to support previous findings (i.e., turnover rate of 27.2 percent,(HKIRA, 1996); 23.6 percent (HKIRA, 1999)). Popular reasons for turnoverincluded personal reasons, unfavorable working conditions, unsatisfactory

Table VMean and standa

deviation of number employees, years

service, turnover raand benefits provisi

Managers Supervisors Workers

Number of employees 4.63 (7.86) 1 8.47 ( 28.41) 989.89 (2,675.21)Years of service 3.68 (2.67) 3.40 (2.06) 2.34 (1.46)Turnover rate (%) 4.49 (11.64) 9.86 (12.68) 31.11 (70.81)Percentage of benefits provision (%) 26.41 (52.25) 23.60 (35.83) 27.76 (31.68)

Note: n = 121

Table Profile of tparticipatin

compani

Variable Category Frequency Percentage

Type of business Industrial material and products 2 1.7Construction 2 1.7

Computers and electronics 1 0.8Textile and clothing 15 12.4Real estate 2 1.7Professional services 1 0.8Manufacturing 65 53.7Retail 4 3.3Restaurant/food services/catering 5 4.1Sales and marketing 13 10.7Others 11 9.1

Years of operation < 4 years 35 28.94-8 years 46 38.08-12 years 30 24.8> 12 years 10 8.3

Form/option of Wholly Hong Kong-owned capital 23 19.0investment Wholly foreign-owned capital 36 29.8

Equity joint venture 45 37.2Processing supplied materials andassembling supplied parts

17 14.0

Note: n = 121



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compensation, and poor health (HKIRA, 1996, 1999). There was no obviousdifference in the proportion of benefits coverage among the three levelsof employees (i.e. 26.4 percent for managers, 23.6 percent for supervisors,and 27.7 percent for workers). Employers consider take home cashas the most essential factor for local employees regardless of level of position.

Table VII reveals that about 88.4 percent of the respondents thought thattheir reward policy was related to their corporate strategy. The maincriteria of their compensation management strategy, in descending order,were motivating employees (71.9 percent), retention of staff (56.2 percent),recruitment of potential employees (53.7 percent), and the company's abilityto pay (50.4 percent). The most important factors considered for base salaryincreases, in descending order, were individual performance andcontribution, market comparison, cost of living, and company performance.

These findings are identical to the results of HKIRA (1996, 1999).

Components offered by responding companiesTable VIII shows the percentage for each of the 37 compensation componentsbeing offered to the local Chinese managers, supervisors, and workers. Themost popular items included base salary, year-end bonus, annual leave, mealsubsidies, overtime allowance, and housing provision. The least essential

Table VII.Reward managementphilosophy andpractices of theparticipatingcompanies

Variable Response option Frequency %

Compensation system Yes 107 88.4related to corporate strategy No 12 9.9

Determinants of the reward Recruitment 65 53.7management strategy Retention 68 56.2

Motivation 87 71.9Organizational financial condition 61 50.4Organizational image 16 13.2Others 5 4.1

Determinants of base Cost of living 69 57.0salary increases Profitability and company performance 62 51.2

Individual performance andcontribution 106 87.6Work group performance and

contribution 22 18.2Comparisons with competingorganizations 71 58.7Pressure from employee organizations 4 3.3Seniority 43 35.5

Frequency of salary review Once a year 90 74.4Twice a year 24 19.8Others 7 5.8

Note: n = 121




42

components were widow's/widower's pension, non-contributory provident

fund, laundry allowance, clothing allowance, showers allowance, childcare

facility, and school for workers' children.

Table VICompensation syste

for local Chineworke

Components Manager Supervisor Worker

Basic and variables payment 01. Base salary 86.8 95.0 95.002. Merit pay (performance related) 44.6 54.0 57.903. Year-end bonus 83.5 90.9 71.904. Individual bonus 30.6 32.2 38.005. Group-based bonus 5.0 14.0 22.306. Cash allowance 47.1 46.3 40.5

Pensions07. Contributory provident fund 19.8 20.7 15.708. Non-contributory provident fund 11.6 9.9 6.609. Contributory pension scheme 15.7 15.7 14.910. Widow's/widower's pension 0.8 0.0 0.0

Insurance11. Life 9.1 9.9 8.3

12. Health 40.5 43.0 39.713. Accident 48.8 54.5 55.414. Disability 27.3 32.2 32.215. Medical clinic 25.6 28.9 27.316. Hospitalization 25.6 28.1 24.8

Leave17. Annual leave 79.3 86.0 78.518. Paid maternity leave 55.4 56.2 45.519. Paid sick leave 63.6 61.2 47.920. Paid compassionate leave 40.5 42.1 35.521. Paid wedding leave 53.7 52.9 41.322. Paid rest days 35.5 37.2 28.123. Paid visiting relative leave 26.4 24.8 14.9

Allowances24. Overtime allowance 28.9 64.5 90.125. Responsibility allowance (shift, special assignment) 13.2 24.8 39.726. Sickness allowance 19.0 23.1 21.527. Transportation allowance 38.0 38.8 30.628. Clothing allowance 6.6 7.4 10.729. Laundry allowance 2.5 3.3 3.330. Showers allowance 2.5 2.5 3.3Social benefits31. Housing provision (rental or quarters) 64.5 70.2 72.732. Childcare facility/subsidy 4.1 2.5 2.533. Subsidized meals/staff cafeteria 78.5 86.8 88.434. School for workers' children 5.8 2.5 1.7

35. Provision for holiday/entertainment facilities 39.7 44.6 45.536. Provision of medical center 21.5 24.8 26.437. Unemployment compensation/severance payment 24.8 25.6 24.0



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Relative importance of various compensation componentsManagers indicated the top five most important factors of the 37 compensationcomponents in retaining and motivating local Chinese supervisors andemployees. Table IX indicates that base salary, merit pay, and year-end bonuswere the three most significant factors in retaining and motivating supervisorsand workers. The fourth and fifth places were related to different factors forretaining and motivating supervisors and workers. For retention, housingprovision and cash allowance were important to supervisors, whereas housingprovision and individual bonus were critical to workers. To motivateemployees, individual bonus and housing provision were important tosupervisors, while overtime allowance and individual bonus had played animportant role for workers. H3 was supported. H4 was partially supported.

Discussion

Our results suggest that base salary, merit pay, and year-end bonus are themost important compensation components in retaining and motivatingsupervisors and employees. Base salary, merit pay, year-end bonus, individualbonus, cash allowance, and overtime allowance all are cash-basedcompensation. There is one exception: housing provision. These findings revealthat cash compensation has a substantial impact on retaining and motivatingemployees in China. We will discuss this briefly.

Cash mentalityCash-based compensation components (base salary, merit pay, year-end bonus,

and individual bonus) are the most important factors in retaining andmotivating the local Chinese employees. Money is perceived to be veryimportant in the minds of Chinese people (Chiu and Kosinski, 1995). Annualpay increases for employees across the board do not offer motivational forcesfor employees. As the traditional egalitarian approach of compensation is beingchallenged, local Chinese employees also prefer employers to make

Table IX.Rank order of retentionand motivation of PRCemployees

Rank Retention Motivation

Supervisor 1 Base salary Base salary

2 Merit pay Merit pay3 Year-end bonus Year-end bonus4 Housing provision Individual bonus5 Cash allowance Housing provisionWorker 1 Base salary Base salary2 Merit pay Merit pay3 Year-end bonus Year-end bonus4 Housing provision Overtime allowance5 Individual bonus Individual bonus




42

compensation decisions based on equity rather than seniority and/or equality(Becker and Yang, 1989; Fan, 1995). This is quite similar to American people.

Merit pay is one of the most widely used methods to reward outstandingindividual performance (Gerhart and Milkovich, 1992). Chinese people inTaiwan tend to endorse the Protestant work ethic (Tang and Baumeister, 1984;Tang et al., 2000) and think money represents their achievement and money isinherently good (Tang and Gilbert, 1995). Males, white-collar employees, highperformers, achievement-oriented employees, and those who already workunder a merit plan tend to favor merit pay or the `èquity'' approach (Heneman,1992). Thus, the Chinese in this study seem to reflect these values.

Year-end bonus is a traditional/popular form of compensation, especially inthe manufacturing and retailing sectors. In urban areas of China, manyemployees receive bonuses up to 40 percent of their pay. Individual bonus isquite popular in motivating supervisors and workers and retaining them. The

majority of Chinese employees prefer a bonus system that is based onindividual performance (Chow, 1992).

Housing Our results clearly support the notion that housing provision is important toretain Chinese supervisors and workers. Housing provision is important tomotivate Chinese supervisors but not workers. It is possible that Chinesesupervisors are more motivated to move up to larger and bigger houses thanworkers. In PRC, ``housing allowances have won favor at many companies''(Landry, 1997, p. 9).

The economic perspectiveIn the past, rewards and benefits have been distributed equally to maintainwork relationships and societal harmony (Becker and Yang, 1989; Child, 1994,1995). In the market economy, the `ìron rice bowl'' began to fade away (Chow,1992). In a developing country such as China, the ``newness of having money''results in obtaining ``respect'' in the community that is lost after one becomesaccustomed to having money in a developed country (Tang et al., 2000). Withrecent exposure to the western fashion of capitalism and consumerism, theChinese are disenchanted with ideological `̀ moral'' incentives and areincreasingly interested in money (Child, 1994, 1995).

As a result of the fast-growing market economy, the soaring consumer priceand the inflation rate in China reached over 24 percent in 1994. Both localemployers and employees in the PRC are very concerned about their take homecash since the purchasing power of the Chinese dollar (RMB) is consistentlygoing down. The real picture is much worse as government officials fail to puttheir fingers on the figures accurately. As the recent economic developmentthat sparked the entrepreneurial spirit, the amount of money one gets not onlyreflects the ability of the person at work, but also his or her economic and socialstatus. Money is how they keep score in China.



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The cultural perspectiveAccording to traditional Chinese culture, one is successful in life when one isfinancially independent (Chiu and Kosinski, 1995; Redding, 1990). Moneyrepresents one's success and achievement in life (Tang, 1992). The head of afamily has to provide food, shelter, as well as other psychological needs to his/her family members. Money can satisfy many different needs. It would beshameful if one could not provide the material needs for one's family (Chow andLuk, 1996; Luk and Chiu, 1998). Chinese people are known to be low onuncertainty avoidance (Hofstede, 1980) and on trust (Fukuyama, 1995). Theytry to make and save as much money as possible due to the uncertainty of thefuture. They do not trust the government, employers, business partners, andpeople outside of their immediate family because of corruption. Thus, Chineseemployees are less interested in indirect benefits, such as life insurance,education subsidy, and vacation leave as well as long-term benefits such asprovident fund and severance pay.

Keeping high quality employees is a major issue encountered by manufacturersin China today. The turnover problem is quite serious for production workers.Finding ways to retain good workers are some of the major tasks PRC humanresources professionals are facing today. A strategic compensation system,designed appropriately to the local labor environment, will achieve humanresources and organizational goals (Armstrong and Murlis, 1994). Cash appears tobe the most effective element in attracting, retaining, and motivating the localChinese employees, the existence of `̀ the cash mentality''.

Since pay for performance is well received by the local employees in thePRC, managers may want to incorporate performance-based monetary

incentives (merit pay and bonuses) to attract, retain, and motivate employees.However, the struggle for financial performance and performance-basedprograms may lead to unethical behaviors (e.g. Sears, Roebuck & Co., Beech-Nut Nutrition Corporation, etc.) and lower cooperation among team members inan organization. Thus, caution is warranted for these programs. Our resultsreflect the general trends of the compensation systems employed by foreigncompanies, mostly in the manufacturing sector, operating in the PRC. Researchshows that compensation practices are slightly different from one location toanother across the country (HKIRA, 1996, 1999; The Wyatt Company (HK) Ltd,1996, 1999). Future research may focus on companies in different locations inChina and examine possible regional differences.

In 1997, the GDP per capita for the USA, Hong Kong, and China was $30,054,$26,160, and $736, respectively. Hong Kong employees have more money thanthose in China, relatively speaking, and the former are more likely to considerother non-cash related needs (e.g. `ànnual leave'') as an important factor tomotivate them than the latter. Chinese employees, on the other hand, still valuecompensation items that will satisfy their basic needs (e.g. cash and housing)and do not seem to value non-cash related needs (e.g. annual leave). Now theleisure industry is a big three trillion dollar business in the USA. For example,the National Golf Foundation claims that 26.5 million Americans played golf in




42

1997. Due to Tiger Woods or other forces, total golf equipment sales rose nearly10 percent to an estimated $3.92 billion in 1997. Apparel and shoe sales rose 2.7percent to an estimated $1.89 billion in 1997 (Maguire, 1999). Other developedand developing countries will soon follow. Thus, ``high pay alone will not leadto job (or life) satisfaction'' ( Work in America, 1973, p. xvi) and quality of lifemay become more important when basic needs are satisfied. More research isneeded in this area.

ConclusionWe reported two studies that are not completely comparable in this paper. Inthis paper, we offer useful new empirical data and analysis: employees in HongKong and the People's Republic of China do have a cash mentality. Thesefindings are different from previous findings (e.g. Jurgensen, 1978; Phillips andBenson, 1983) but support other studies (Mitchell, 1983; Redding, 1990).Mortgage loan (Hong Kong) and housing provision (PRC) are important toretain people and satisfy their basic safety and security needs. In order tomotivate people, profit sharing and annual leave are important to people inHong Kong, whereas individual bonus, housing provision, and overtimeallowance are the main concerns of people in China. Human needs are notexactly the same across cultures and countries. These differences show theeconomic and cultural conditions of Hong Kong and China. Money obviouslycan satisfy many needs. People in Hong Kong have more money than those inChina. Hong Kong employees do consider `ànnual leave'' more important thanChinese employees. People's needs and preferences do change over time as theirincome changes (Tang and Ibrahim, 1998). As they have more money, they

may also turn their attention to leisure, play, consumption, and the satisfactionof higher-order needs in society (Tang and Baumeister, 1984; Tang and West,1997).

There are some limitations. First, although the sample size for these twosamples is reasonably large, the return rate is quite low. Future researchersmay want to identify ways to increase return rate in studies using surveyquestionnaires. Second, the participants are limited to certain specificindustries examined in this study. A caution is warranted when generalizingthe present findings to Chinese in other regions and industries.

Some researchers suggest that extrinsic reward may undermine intrinsicmotivation on a task (Deci and Ryan, 1985). Money may motivate people to work

harder, to some extent. Beyond that point, money may be a hygiene factor. Peopledo want to become the masters of money rather than the slaves of money. Theturnover rate for Chinese workers is high. Researchers and managers of humanresources management need to focus on strategic pay policies to ensure internalequity, external competitiveness, and individual equity in order to retain andmotivate key employees and stay competitive in the market. Future research mayfocus on the effects of Chinese employees' cash mentality and money ethicendorsement (cf. Tang, 1992; Tang et al., 2000a) on their turnover, life satisfaction, job satisfaction, and intrinsic motivation.



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