Why Reward Systems Are Important

Published Date: 02 Nov 2017

Dissertation Title

1. Introduction 4

1.1 Reward Management 4

1.2 Monteco Creations Ltd. 5

1.3 Rationale for the Research 6

1.4 Research Aim 6

1.5 Research Title 6

1.6 Research Questions 7

1.7 Research Objectives 7

1.8 Summary of Chapter 1 7

2 Literature Review 8

2.1 Reward Management 9

2.1.1 Reward Type 9

2.1.2 Reward Systems 9

2.1.3 Reward Criteria 9

2.1.4 The Aim of Reward Management 10

2.1.5 Why Reward Systems are Important 10

2.2 Motivation Theories 11

2.3 Maslow’s Hierarchy of Needs 11

2.4 Hertzberg’s Two Factor Model 13

2.4.1 Hygiene Factors 14

2.4.2 Motivators 14

2.5 Expectancy Theory 15

2.6 Equity Theory 16

2.7 Goal Theory 17

2.8 Theory X and Theory Y 17

2.9 Reward Systems at Monteco Creations Ltd. (MCL) 17

2.10 Summary 18

3 METHODOLOGY 19

3.1 Introduction to Research Methodology 19

3.2 Research Design 20

3.3 Research Philosophy 21

3.4 Research Strategy 23

3.5 Data Collections Methods 24

3.6 Secondary Research 24

3.7 Data Analysis 25

3.8 Research Ethics 26

3.9 Resources and Limitations 26

3.10 Summary 27

4 ANALYSIS 28

4.1 Analysis 28

Introduction

Reward management equates pay and other benefits to the overall objectives of a company and also of its employees. In relation to good management, it is an important factor as without it an organisation can be faced with a workforce that is unsatisfied, thus leading to a lack of motivation in completing assigned task and in ultimately achieving the organisations goals.

As employees are one of the main assets of a company, the objective of reward management is to recognise the value that employees create for their employer.

To ‘reward’ good performance and encourage continued performance companies usually establish programmes to recognise employees whether individually or in groups. These rewards are usually separate from an employees’ basic salary and can be either monetary in nature, or it can be in some other form, eg. plaque, gift card, gift basket etc.

In today’s world, reward management is an important factor in a company’s attainment of its organizational goals.

Reward Management

Reward management is concerned with the strategies, policies and processes required to ensure that the value of people and the contribution they make to achieving organisational, departmental and team goals is recognised and rewarded (Armstrong 2010).

It is about the design, implementation and maintenance of reward systems (interrelated reward processes, practices and procedures) that aim to satisfy the needs of both the organization and its stakeholders and to operate fairly, equitable and consistently (Armstrong 2010).

There are three main objectives to reward management – reward types, reward systems and reward criteria.

Monteco Creations Ltd.

Monteco Creations Limited (MCL) is a SME that was incorporated in Trinidad and Tobago in 2008. The company is involved in landscape maintenance and landscape construction, handling only corporate clients such as the Hyatt Regency Hotel and the National Academy for the Performing Arts (NAPA) and a few select high end domestic customers.

The company also specialises in sports field construction and has renovated and built a number of sports fields throughout the country on behalf of the Sport Company of Trinidad and Tobago. They also maintain on a monthly basis the prestigious Queen’s Park Oval cricket infield and outfield. The company currently employs approximately forty-five (45) employees who work in either the landscape maintenance or landscape construction division.

The company’s Mission Statement "To be the sporting surface and landscape construction Company of first choice in the minds of customers and potential customers by surpassing expectations and producing a quality product on time and within budget" is a testament to the company’s vision of being the best in their field.

Rationale for the Research

Currently at MCL there is no formal policy in place for reward systems for their employees. The company has been selected for this research as the performance of their employees reflects greatly on the company’s reputation and success.

The company’s business of landscaping leaves them no room for error in the delivery of their product. Landscapes are a visual statement, if the employees are unhappy in their job it will be reflected in the work that they put out. As such, it is important that management recognise this and put measures in place to motivate the employees and encourage them to perform at their best to ensure that the company always puts out a quality product to the satisfaction of their clients.

Research Aim

To propose a reward strategy that can heighten workplace motivation.

Research Title

An Analysis of the Reward Systems within Monteco Creations Ltd.

Research Questions

What reward initiative can best inspire employee motivation at MCL?

How can reward systems be tailored to inspire optimal employee motivation at MCL?

Research Objectives

To critically investigate/examine/assess the reward practices at MCL.

To determine/critically assess the reward factors that best motivate staff within the MCL environment.

To systematically explore how the literature will link reward and motivation as a basis for making recommendations to the organization.

Summary of Chapter 1

To better understand the link between employee performance and reward management a literature review of various strategies and approaches taken will be examined to understand the need to maintain the needs of employees in the company so that an improved product, quality and service can be achieved.

Literature Review

"Technology can be replicated, capital can be acquired, and distribution channels can be created through new alliances, but the actions of people (what they do or fail to do) have become the critical factor in achieving enduring success." Wilson (2002)

In today’s competitive business world firms need to invest in their most important resource; people, as they are the backbone of any organisation. All organisations, regardless of size, must be concerned with attracting and retaining employees. One of the most important factors of high employee turnover is low job satisfaction, appreciation and non-competitive benefit packages.

There are many ways to retain employees and keep them happy. Appreciation, recognition, incentives and rewards are several motivations tools that are used by organisation to keep employee morale high. Reward strategies, when properly implemented, can attract and retain employees and motivates them to fulfil the goals of the organisation. Companies like MCL that are in the service sector must have a skilled and committed workforce as it is important for them to provide good service to their customers. This is especially important for MCL because its business is based on aesthetics and what the customers and public see is a direct reflection of the company.

Reward Management

Armstrong (2006) states that reward management relates to Human Resource Management (HRM) functions to enhance motivation, job engagement and commitment by introducing policies and processes that ensure that people are valued and rewarded for what they do and achieve and for the levels of skill and competence they reach.

Reward Type

This refers to the type of reward to be given, that is, financial and non-financial and extrinsic and intrinsic. Financial rewards usual include an additional monetary figure added to an employee’s basic pay. Non-financial rewards are usual attached to the job and can include both extrinsic and intrinsic rewards.

Reward Systems

Reward systems are the method used to determine how and if employees should be rewarded. It is almost always based on an employees’ job performance, but in some instances it is also based on other criteria such as years of service or seniority.

Reward Criteria

The criterion for reward management often refers to the basis for which rewards will be considered. For most companies it is usually tied to quality of work, customer satisfaction, employee attendance and setting and achieving the organisations goals.

The Aim of Reward Management

According to Armstrong (2005) the aims of reward management are to reward people according to what the organisation values and wants to pay for, to reward people for the value they create, to reward the right things, to express the right message about what is important in terms of behaviours’ and outcomes, to develop a performance culture, to motivate people and obtain their commitment and engagement, to help attracting/retaining the talented people the organization requires, to create a total reward process which identifies the value of both financial and nonfinancial rewards, to develop a positive employment relationship and psychological contract, to link the reward practices with both business goals and employee values, to operate in ways that are fair, equitable, consistent and transparent.

Why Reward Systems are Important

In today’s global market the majority of a organisation’s value comes from its human resources. It is important for a company to align the company’s goals with those of the employee and as such reward systems are usually developed around this.

Some advantages of implementing reward systems are:

Reward systems improve organizational effectiveness by attaining the goals and strategies necessary to maintain competitive advantage.

Reward systems help to achieve integration in the organization.

Reward system helps to motivate employees to achieve high quality performance.

It helps to attract and retain highly skilled workers.

Reward systems promote fairness and equity by rewarded employees according to their contribution and effort to the organization.

Reward system helps to raise competence, also encourage personal development, and helps to achieve high quality performance.

Reward systems improve cooperation and effective team working at all levels.

Motivation Theories

According to Armstrong (2005), one of the most important concerns of reward management is how rewards can be used to motivate people to perform better. As such, it is important to understand what motivates people and why. Motivation is derived from the word motive, which is something that initiates or sustains activity. Theories concerned with motivation explains why people at work behave in the way they do and provides guidance on how to develop effective reward systems (Armstrong, 2005).

Maslow’s Hierarchy of Needs

Psychologist Abraham Maslow classified human needs into five categories and placed them in hierarchical order as shown in Figure 2.1. illustrating that lower level needs must be fulfilled before achieving the higher needs. Kaufmann (2005) says it is of no use to speak to someone about a meaningful job if the persons most basic biological needs are not fulfilled through what he or she earns by working.

Figure 2.1 Maslow’s Hierarchy of Needs Pyramid

Source:

In the diagram biological and physiological needs are the basic stage of the model. These are the biological drivers. These are fundamental for the individual's survival and ability to adapt. Examples of these are air, nutrition, water, roof above once head etc. In work life, this is the minimum wage required to meet these needs .The next level is the safety needs which come after physiological needs. These are surroundings that protect the individual from physical and psychological damage. Except for basic safety measures in the physical work environment, it is foremost the certainty about keeping the job which can be fundamental for satisfying this need. The next level above the safety needs are the love needs. It is about the need for social connections in the form of good friends and colleagues, a partner and a social environment that supply support and acceptance. Organizations can do much in order to facilitate the fulfilment of such needs by, for example, create good conditions for cooperation .Level 4 is the esteem needs which is the wish to perform, gain prestige, having success in life and receive the respect of others. According to Kaufmann, showing people elementary appreciation for the work they have performed is easy, encouraging psychology, and in practice one can achieve much with modest means in such contexts. Ways of doing this includes small gatherings to show a co-worker who has performed well appreciation, diplomas, articles or notices in internal bulletins etc. Of special importance is to show visible gratitude for undertakings that have been performed outside the formal undertakings. The last level states the need for self actualization. This need is to understand the world, acquiring wisdom, achieving independence developing creativity and individuality etc. In general, people perform their very best under such conditions, which will benefit both the individual and the organization (Kaufmann, 2005). As shown in fig 2.1 the higher levels are attainable only after the lower ones are fulfilled. The needs that have not been fulfilled have a motivating effect on all these steps except for the highest one (Kressler, 2003).

Hertzberg’s Two Factor Model

In order to better understand employee attitudes and motivation, Frederick Herzberg performed studies to determine which factors in an employee’s work environment caused satisfaction or dissatisfaction. In publishing his findings Herzberg drew the conclusion that that the factors that in most cases were given as the reason for satisfaction, were different from those that were regarded as the cause for dissatisfaction (Kaufmann, 2005). Hertzberg's findings showed that these two concepts referred to two independent dimensions. With that, he found reason to differ between motivators which promote job satisfaction, and hygiene factors which have effect through the absence of negative work conditions. Hygiene factors can create dissatisfaction when they are absent but they do not lead to satisfaction when they are present and motivators create satisfaction if they are present but they do not lead to dissatisfaction if they are absent (Kaufmann, 2005).

Hygiene Factors

Hygiene factors refer to physical and social working conditions, pay, status and work security. These factors can be found in the lower part of Maslow’s pyramid and when conditions are good, dissatisfaction disappears.

Motivators

Motivators are conditions that are connected to higher needs in Maslow’s pyramid such as performance, appreciation, growth and development possibilities. When these factors are absent it leads to a neutral state but if favorable they have an active and promoting effect on job satisfaction and productivity (Kaufmann, 2005). The hygiene factors are extrinsic to the job and the motivators are intrinsic. Hertzberg noted that any satisfaction resulting from an increase in pay is likely to last considerably shorter than satisfaction resulting from work itself. According to Armstrong (2005), one of the key conclusions that can be drawn from Hertzberg's research is that pay is not a motivator except in the short term. It is therefore a hygiene factor which, if absent, might lead to demotivation (Armstrong, 2005). Kressler (2003) explains that here is a great difference between not being dissatisfied and being satisfied and that the intrinsic and extrinsic factors run on two different tracks where the extrinsic leads from dissatisfaction to not being dissatisfied and intrinsic from not satisfied to satisfaction (Kressler, 2003).

Expectancy Theory

The expectancy theory (Vroom, 1964 and Porter and Lawler, 1968), which is also called the cognitive theory, states that motivation will be high when people know what they have to do to get a reward, expect that they will be able to get the reward and expect that the reward will be worthwhile.

The Expectancy Theory includes three basic elements; expectancy, instrumentality and valence. Expectancy refers to an individual’s perception that his effort (E) will result in performance (P), such as higher productivity or increased sales. Instrumentality refers to a person’s perception that performance will result in outcomes (O) that are either positive or negative; e.g. increased wages, greater fatigue, inter-personal isolation, or promotion. Valence (V) refers to the value that a person attaches to various outcomes, i.e. either a positive valence to a promotion or a negative valence to fatigue. Victor Vroom theorized "that Motivation = Expectancy x Instrumentality x Valence".

For example, a worker may have high expectations that his effort, such as working longer hours, will result in higher productivity. A lack of equipment or training would affect his performance and subsequently impact negatively on expectancy and motivation. High instrumentality would exist for the employee if his work hours were reduced, positively affecting his production and as a result he was promoted. The reverse is also true, i.e. poor reward systems can also reduce effort and motivation.

A promotion may have both high valence and fatigue a low valence. As either of these elements increases, so does motivation and if any decreases, motivation would also decrease.

Equity Theory

The distribution of awards within the organization has important behavioral consequences. Adams (1965) proposed that employees are seldom passive observers of the events that occur in the workplace but rather they evaluate these events.

This theory can be used to understand these evaluative processes with the basic assumption being that individuals are motivated to maximize their rewards and minimize their costs. The theory also suggests that individuals evaluate the relationship of their inputs to outcomes for a given job, in relation to that of other employee benefits from their efforts.

Equity is said to exist whenever the ratio of inputs and outcomes is equal to the ratio of the other person’s outcomes and inputs. Inequity is assumed to exist if the ratios are not equal.

Goal Theory

Goal theory (Latham and Locke, 1979), states that motivation and performance are higher when individuals are set specific goals, when goals are difficult but accepted, and when there is feedback on performance. According to this theory, the intention to work towards specific goals is a central motivational force. The most important principles in this context are that specific goals promotes performance more than general goals, difficult goals, if accepted, have a larger motivating effect than easy goals and feedback leads to better performance compared to the lack of feedback (Kaufmann, 2005).

Theory X and Theory Y

McGregor's theory is based on the premise that there are two types of managers. Managers who subscribe to Theory X have a pessimistic view of their employees. They are of the opinion that the employees are people who will evade their job at the least opportunity and thus need to be closely monitored. On the other hand, those managers who subscribe to Theory Y are of the view that employees are motivated and they just need further motivation to work effectively.

Reward Systems at Monteco Creations Ltd. (MCL)

At MCL the reward schemes are structured to reward employees on two levels, performance and attendance. The more prominent reward scheme is the monthly incentive bonus which is a monetary rewards amounting to five percent (5%) of the employees wage or salary which is only achieved if the employee is not absent from work for more than one day in any given month. This scheme has proven effective in reducing the level of absenteeism the company was experiencing.

The company’s other scheme is based on performance. This is specific to the landscape maintenance division of the company where the sites are judged on a monthly basis. The crew at the site with the best maintained landscape, which is judged by the company and also based on customer reviews, are rewarded for their efforts. This reward is usually intrinsic.

Summary

Reward management plays a vital role in the success of an organisation. To satisfy employees, employers have to ensure that the reward schemes are structured according to the needs of the employees so as to satisfy their various motivation factors. Once an employee’s motivation factors are being met they will be more willing to stay with the organisation.

METHODOLOGY

Introduction to Research Methodology

Research methodology is defined as the theory of how research should be undertaken including the theoretical and philosophical assumptions upon which research is based and the implications of these for the method or methods adopted (Saunders et al, 2009).

This chapter will describe the methodology used in this research. The selection of methodology is based on the research problem and stated research question. The definition of research design and the qualitative approach of the study follow, and then the researcher present methods of data collection for the research conducted along with each method’s strengths and weaknesses. This chapter concludes with discussion on data analysis and the limitation issues with data collection

Figure 3.1 The Research ‘Onion’

Source: © Mark Saunders, Philip Lewis and Adrian Thornhill 2008

Research Design

Collis and Hussey (2003) states research is ‘a process of enquiry and investigation’. It may be considered as a way of increasing knowledge by using a systematic and methodical process. Whereas, Aaker, Kumar and Day (2003), describe it as the "detailed blueprint used to guide a research study toward its objectives".

Research design is therefore the researcher’s overall strategy for conducting this study. In other words it is the glue that holds the research project together. Illustrating how all of the major parts of the research project -- the samples or groups, measures, treatments or programs, and methods of assignment -- work collectively in an attempt to address the central research questions. This blueprint is the determining factor in the choice of research paradigm and the instruments to be used for data collection.

Research Philosophy

Collis and Hussey (2003) identified the main research philosophies as positivistic and phenomenological, although they do conceive that these represent two extremes on a continuum. In support, Saunders et al (2003) added that research rarely falls neatly into one philosophical domain.

The positivistic paradigm, which is associated with quantitative research, argued that only phenomena, which are observable and measurable, can be validly regarded as knowledge.

The phenomenological philosophy, on the other hand, is associated with qualitative research and attempts to minimize the distance between the researcher and that, which is being researched (Hussey and Hussey, 1997).

Qualitative research examines more intangible things like values, attitudes and perceptions. It is often used to gain understanding of social and human activities. The qualitative method is more subjective in its nature (Collis and Hussey, 2003). Criticism to this approach involves that it is easy to challenge and that it might be difficult to interpret and present findings (Collis and Hussey, 2003).

Quantitative research is about collecting and analyzing numerical data statistically. This method has an objective nature and it is very detailed and structured, even though it might be more difficult to design to begin with. It is easy to collate results and present data with this method. (Collis and Hussey, 2003)

Since this study is concerned with discovering meaning and understanding rather than to verify truth or predict outcome, a phenomenological approach was adopted for this study.

The researcher’s ontological perspective was phenomenological. A phenomenological ontology was more appropriate in this research paper as the researcher’s subjectivity and own interest added to the value of the study. When compared to a positivistic ontology; which was not chosen because reality is neither objective nor separate from the researcher.

The researcher’s epistemological perspective is also phenomenological. The researcher interacted with what was researched in the study which allowed for the derivation of conclusions based on investigation conducted.

POSITIVISTIC

PHENOMENOLOGICAL

Produces quantitative data

Use large samples

Concerned with hypothesis testing

Data is highly specific & precise

Location is artificial

Reliability is high

Validity is low

Generalize sample to population

Produces qualitative data

Uses small samples

Concerned with generating theory

Data is rich & subjective

Location is natural

Reliability is low

Validity is high

Generalize from one setting to another

Figure 3.2 Comparison of Positivistic and Phenomenological Philosophies

Source: Saunders (2009)

Research Strategy

According to Yin (1994) there are five primary research strategies, in the social studies; experiments, surveys, archival analysis, histories and case studies. Each strategy has its own advantage and disadvantages depending on three conditions:

The type of research question posed

The extent of control an investigator has over actual behavioral events

The degree of focus on contemporary, as opposed to historical events

The purpose of this study is to analyse the HRM strategies of MCL to find out whether the reward management policies play a vital role in the employees behaviour towards the organisation. Due to fact the researcher does not require control over behavioural events, experiment as a research strategy is not suitable. Surveys and analysis of archival records are advantageous when the research goal is to describe the incident or prevalence of a phenomenon or when it is to be predictive about certain outcomes (Yin, 1994). This is not the objective in this research. This leaves us with only one research strategy, the case study. In case studies, data collection is treated as a design issue that shall enhance the construct and internal validity of this case study of MCL as well as the external validity and reliability. Case studies can be able to enrich the theory, confronting a real-life problem (Yin, 2003).

Data Collections Methods

Data can be collected from two sources; a primary and a secondary source (Collis and Hussey, 2003). For the purpose of this research project both primary and secondary data was collected. To satisfy the objectives questionnaires have been adopted as the preferred method of collecting data and an analysis of the current rewards schemes being offered by the company will follow.

De Vaus (2002) defines a questionnaire as a technique for data collection in which each person is asked to respond to the same set of questions in a predetermined order and are used for descriptive or explanatory research.

The researcher was able to gain first hand insight on the opinion of employees and subsequently, the effectiveness of the reward management system at MCL. Two advantages of this form of collecting data are that the responses are gathered in a standardized way, thus questionnaires are more objective, and information can be collected from a large portion of a group as long as it is delivered and responded to at the most appropriate time. The major disadvantage is that it can take a long time to design and analyze.

Secondary Research

Secondary data refers to data that already exists. The theoretical framework in this study is based on secondary data in the form of literature and peer reviewed academic articles.

The Internet, journals, textbooks and magazines will be utilized in gaining knowledge on reward management strategies, concepts and theories as it relates to reward management and employee retention.

When conducting a qualitative study of a company, secondary sources can help to triangulate findings based on the primary data collected (Saunders, Lewis and Thornhill, 2003). If two or more sources explain a phenomenon in the same way one can conclude that the information is reliable (Jacobssen, 2002). According to Jacobssen (2002), the result can be controlled and supported by using both primary and secondary data as they can provide a wealth of data beneficial to the research.

Data Analysis

Data analysis consists of "examining, categorizing, tabulating, or otherwise recombining the evidence to address the initial propositions of a study" (Yin, 1994). The researcher relied on the questionnaires to present the analysis using various interpretations. The methodology adopted helped the researcher to achieve the research objectives and helped structure the analysis and provide some insight into what factors keep the employees loyal to MCL. The data was analyzed in depth to interpret the employees’ perspective regarding the reward management practices at MCL.

The data collected data was manually sorted and presented in the form of tables and charts and various techniques used to form a preliminary analysis. This facilitated the comparison and analysis of the data in conjunction with the secondary data received. The limitations encountered in conducting this study was also highlight and accounted for discrepancies between the findings and the hypothesis advanced.

Research Ethics

Coolican (1992) warned that the welfare of participants must be protected in the conduct of research. Therefore the researcher did not overlook ethics during this study. The research will be conducted in a professional manner by requesting consent from all persons involved in the research process. Data will be treated in the strictest of confidence and will respect the anonymity of persons involved in the study.

Resources and Limitations

Reliability and validity, in research, refer specifically to the measurement of data as they will be used to answer the research question. In most cases, the instrument that measures variables is the central issue in determining the reliability and validity of the data; however the data analysis process often is also an issue if the data is unstructured. Whatever data collection method is used, the intent must be accuracy. The reliability of data collection refers to its consistency, stability, and repeatability-all of which determine how much you can rely on the results (Nettom, 2006).

The researcher ensured that she was unbiased as she collected data without any personal changes or biased analysis. The researcher provided assurance that the data collection and analysis was done in a manner that would be reliable and valid for future references by providing an ethics consent form. Qualitative research has been criticized on grounds of reliability and validity; however, it was the most appropriate approach for the research and was carried out religiously and sincerely.

The method used for primary data collection was the use of questionnaires. These questionnaires were a self-administered, delivery and collection type.

semi-structured interviews and due to time constraints, only a few interviews could be conducted. There was not sufficient time and word availability to have multiple case studies for the research. In addition, conducting a further detailed study requires highly expensive data collection and thus, this was beyond the researcher’s financial reach.

Since qualitative research is characterized by subjectivity, interviewees might have been biased in their responses. However, the author was sensitive to this issue and adopted all the possible measures to counteract this aspect.

Summary

This section covered the literature on research methods and design and explained the approach adopted by the researcher for data collection. Primary and secondary data was collected has been analyzed and interpreted in the following section with the reliability and validity issue being kept in mind. The following section leads the reader into the study and analysis which shall provide the reader with valuable knowledge on factors as it relates to the research objectives based on the researcher’s findings. The limitations of the data collection have been mentioned briefly.

ANALYSIS

Analysis