The Concept And Definition Of Reward Management Essay

Published Date: 23 Mar 2015

2.1 Introduction

Reward is the generic term for the totality of financial and non-financial compensation or total remuneration paid to an employee in return for work or service rendered at work.

Reward, which is sometimes been refer to as compensation or remuneration, is perhaps the most important contract term in every paid-employment. Its impact on workers (or employee's) performance is in most instance greatly misinterpreted. The understanding of this term is very important; this is because the incentive scheme given to an employee will influence the behaviour and level of engagement to the organisation.

With the unique features of services provided in the First Bank Nigeria Plc, most of the employees are highly skilled and the attractive rewards they receive are dictated by the competitive labour market, which places high premium on requisite skills.

Reward strategy, in practice, is beyond the obligatory compensation or remuneration package it is a package of motivational incentives that guide actions in manipulating and controlling the behaviour of employees towards the achievement of an organisation's goal (Armstrong and Murlis 2004 sited (Stoner, Freeman and Gilbert 1995). it is in the recognition of the importance of reward as motivational technique that most organisations invest heavily in them (reward) in order to gain control of the behaviour of their employees. (Shields 2007).fracture

2.2 The Concept and Definition of Reward

According to Armstrong (2010) reward management is defined "as the strategies, policies and processes required to ensure that the value of people and the contribution they make to achieving organization, departmental and team goals is recognized and rewarded".

Armstrong and Murlis (2004 p3) defined reward management "as the process of formulating and implementation of strategies and policies that aim to reward people fairly, equitably and constantly in accordance with their value to the organization. It also deals with the design, implementation and maintain of reward processes and practices that are geared towards the improvement of organizational, team and individual performance".

Literally, according to the above definitions reward management is a motivational tools use in appreciating employees on the efforts contributed to the organisation. Which means reward could be interchanged as compensation or remuneration or explicit price of labour. Reward management is more concerned with people (employee) and the value they create in the organisation (Schneider 1987). For organisations to achieve a highly committed business environment and its overall business goal, a reward strategy must be developed to ensure that the contribution people make to achieving organisational or team goals are valued, recognised and rewarded (Armstrong 2010;p8).

2.2.1 Financial and Non-Financial

According to Byars and Rue (2005), rewards are of two types, the extrinsic reward and the intrinsic reward.

Extrinsic rewards are the tangible rewards in form of pay and benefits while intrinsic rewards are intangible rewards internalised by individual employees as a result of their participation in specified activities. Another word to extrinsic and intrinsic is Financial and Non-financial some texts also refer to them as monetary and non-monetary. The list of intrinsic and extrinsic rewards as stated by Byars and Rue (2005) also indicate the structure of rewards as follows:-

Intrinsic reward include- Achievement, feeling of accomplishment, recognition, job satisfaction, personal growth and status, job enlargement, job enrichment, team working, empowerment.

Extrinsic rewards also include formal-recognition; base wage or salary, incentive payments, fringe benefits, promotion, social relationship and work environment. This study will explain and define different type of pay and non-financial scheme use in today's organisations.

According to Torrington el at (2009), "since 1940s payment scheme have had two underlying philosophies; First is the service philosophy (experience).It imply that people become more effective as they remain in a job, so their services should rewarded through incremental pay scales. Second is "fairness philosophy" that organisations must have standard structure of reward strategy that with promote fairness". This study will describe the payment schemes which are basically in use in Nigerian.

Basic Pay- It is a straightforward payment scheme which may not provide incentives to individual workers because they are not based on output or performance. This pay is often in relation to a given period like an hourly rate, weekly wage or annual salary. It's also an established rate for all workers in one category. This type of pay scheme is mostly in use in Nigeria. Skilled, Semi-Skilled and some of unskilled labour are paid monthly but sometimes unskilled workers are paid weekly or daily

Individual Pay scheme which includes; Payment by result, it's establish a link between reward and effort, this imply that individual employee will be pay according to their contribution and output regardless of their level of experience or the post. According to Marchington & Wilkinson (2005), PBR schemes vary in practice; they can be related to the whole employee's pay or part of an overall package. Performance-related pay, this payment scheme involves paying of people according to their performance. "These are always inform of increase to basic or cash bonuses which are link to an assessment" (Torrington el al 2009).individual pay scheme is mostly in use in the manufacturing, marketing and financial sector in Nigeria.

Incentive for group, Plant/enterprise-based it is refer to as grain sharing within large group or the whole organisation. This pay scheme is use in organisations where the workforce can clearly see the results of their efforts.

First Bank Nigeria Plc, payment scheme is the basic pay which is equals for all employees in the same category. Bonus is based on a plant performance over a given period. Other banks in Nigeria mostly pay their employees base on individual performance. Along with the financial incentive reward First Bank Nigeria Plc uses non- financial incentive such as Job enrichment (giving workers more interesting, challenging and complex tasks) , Job enlargement (giving workers more tasks to do of a similar nature or complexity), Empowerment (delegation),Teamwork, Recognition, suitable working environment.

2.3 Reward System; Policies, Objectives and Condition

Reward System is an" integration of the sources and the course of actions that inform the selection of a mix of rewards aimed at facilitating the attraction and retention of employees, and to encourage employees' effort, cooperation as well as willingness to learn new skills and to adapt to change" (Torrington el al (2009) sited (Cowling and Mailer, 1998). In a simple word Armstrong (2010) defines reward system as "the interrelated processes and practices that combine to ensure that reward management is carried out effectively to the benefit of the organisation and the people who work there". This indicates that the reward strategy adapted by any organisation must fix into the Human Resources and business strategies of the organisation.

"Reward strategies direct the development and operation of reward practices and processes and also form the reward policies, which in turn affect reward practices, processes and procedures" (Armstrong 2010 p28).

Reward policies are the guidelines and course of actions formulated for successful reward system with the greatest impact on the motivation and performance of individual employees. For reward system to be effectively administered, Byar and Rue (2005) suggest that the policies should clearly indicate; The minimum and maximum levels of pay considering-The worth of the job to the organisation, ability to pay, government regulations in the labour market, other market pressures. General relationship among levels of pay between senior operating management and between operative employees and supervisors, the division of total reward into various portions, for instance base pay, Incentive programmes, benefit, Lastly, how much should go into pay increases for the next year and who should recommend how raised should be determined.

The primary aim of reward system is to reinforce the drive to improve organisational effectiveness and productivity. The productivity depends on the capability to attract, retain and motivate with financial and non- financial reward incentives people of the quality required by the enterprise (Shields 2007)

Armstrong (2010 p10) sited (Ghoshal and Bartlett, 1995) that "the overall aim of reward management should be to add value to people". In addition to this, other aims are; to support the achievement of business goals through high performance, develop and support the organisation's culture, define what is important in terms of behaviours and outcomes, reward people according to the value they create; reward people according to what the organisation values; align reward practices with employee needs; help to attract and retain the high-quality people the organisation needs and win the engagement of people.

According to a Nigerian author Atiomo (2005), the aims of reward management could be specified on three main areas - the organisation, the individual employees and collectively the union of employees

For the organisation, reward should aim at; recruiting the quantity and quality required, encourage suitable staff to be loyal and remain in the organisation, provide rewards for good performance and incentives for further improvement in performance, maintain appropriate differentials relative to values of different levels of job, the reward adopted by organisation should be flexible enough to accommodate changes in the market rate for different skills and should be cost effective.

For individual employees the reward system should be fair and equitable in valuation of the worth in comparison with others.

The third which is the union of employees, the system should ensure maximum benefits for members without undue prejudices to their future security by making their reward to pace with the cost of living and the prosperity of the organisation.

In order to meet the above listed aims and objectives, a reward system must satisfy the following pre-conditions which Byars and Rue (2005) called the desirable pre-conditions for implementing a reward for performance ,commitment and engagement;

"Trust in management- Since rewards communicate the desired goals of an organisation, the management should be consistent in relating rewards to the performance of such goals.

Absence of performance constraints-Meaning there should be no management or organisational roadblock rather the organisation should empower and strengthen the capability of employees.

Trained supervisors and managers to measure employees level of commitment and performance

Goal measurement system must be appropriate in setting achievable goal targets

Ability to pay: This indicates that the payment should be within the budget limit of the organisation, which reflects in its prosperity.

There should be a clear distinction between cost of living, seniority and merit-related rewards to avoid wrong assumption of basis for rewards by the employees

Communication of the reward system must be adequate for formal pay structure in order to be equitable and fair when compared

Flexible reward schedule must be provided especially where the pay structure is informal, in order to keep appropriate differentials with changes in the market rate worth of employees".

Considering the discussion so far, the question is: will financial reward engage employees better than non- financial reward?

According to Armstrong (2010), he suggested that "reward management is not just about financial rewards, pay and employee benefit, it also concerns non-financial rewards such as recognition, learning and development opportunities and increased job responsibility". Certainly pay is a factor that can motivate employees to work but not withstanding many people are motivated to work hard regardless of financial reward and for some, the level of monetary reward is important symbolically as recognition of worth (Marchington and Wilikinson 2005)

2.4 Motivational Theories and Rewards

The theories of motivation is been grouped by most social psychology texts into "content" theories and "Process" theories of motivation (Marchington and Wilikinson 2005)

Content theories focus on what motivates individual that is the fundamental human needs that motivate man in his environment. This theory is hinged on the pioneering work of Taylor who tagged man as an "economic man" who is lazy and must be motivated by management through pay system. His conception is that "if employees are expected to be only motivated by economic incentives, the management approach used to deal with them is to train them to behave exactly in that way" (Marchington and Wilikinson 2005).Among these category, is Maslow's hierarchy of Need and Herzberg's dual factor theory.

In the Maslow's hierarchy are five ordered needs-from physiological, safety, social esteem, to self - actualisation. Maslow suggests that the order is interpreted in a way that category of needs becomes activated only after the lower is relatively satisfied.

The dual -factor theory does not only specify the needs but improved on Maslow's theory to indicate the relationship between the needs and high job performance. The lower level need are the 'hygiene' factors which reflects the three lower level needs in Maslow's hierarchy ,while the motivators in the high level needs reflect two high level needs in the Maslow's hierarchy. The content theories establish the types of rewards which could be employed as a means to motivating individual employees for high performance.

In contrast to the content approach, process approach relates to how the knowledge of motivating factor could be applied to influence the behaviour of individual employees in a desired way. Popular among the process approach is Expectancy theory

2.4.1 Expectancy Theory

The expectancy model states, "People are motivated to work when they expect to achieve things they want from their jobs. A basic premise of the expectancy model is that employees are rational people. They think about what they have to do to be rewarded and how the rewards mean to them before they perform their jobs" (Hellriegel, Slocum and woodman 2001)

Expectancy theory is" based on the expectation that people bring with them to the work situation, and the context and way in which these expectations are satisfied" (Marchington and Wilkinson 2005 sited Vroom 1964).

The expectancy model was originated from the argument that the management of an organisation has a responsibility to both motivate its employees through daily tasks, and to produce at its most effective level.

Employee engagement is strongly tied to motivation and it can be argued that there is a direct effect of management styles employed by an organisation on the employee engagement level of the organisation.

In consideration of the management styles within organisation and how they affect the commitment of the staff to the organisation, it is also necessary to take into consideration the expectations of the staff when they enter the organisation. This premise is supported by the third & fourth assumption of the theory Y view of human behaviour according to McGregor which states:

People will exercise self direction and self control in service of objectives to which they are committed.

People have potential and under proper conditions they learn to accept and seek responsibility, they have imagination and creativity that can be applied to work.

In addition, expectancy theory implies that "management need to demonstrate to employees that their effort will be recognised and rewarded, in both financial and non-financial" (Marchington and Wilkinson 2005). The expectancy model holds that work motivation is determined by individual beliefs regarding effort-performance relationships and the desirability of various work outcomes associated with different performance levels" ( Hellriegel, Slocum and woodman 2001)

2.4.2 Justifications of the Expectancy Model

Hellriegel, Slocum and woodman (2001) argued that members of staff of an organisation can enter into the work contract with a moderate level of expectancy, and an emotional connectedness to the reward they expect. However, the organization's management can and will have transformational effect on that emotional contract and influence their staff positively or negatively.

The process approach explores the psychological contract that is when a worker voluntarily makes an agreement with an employer to provide services for compensation, there is a negotiated contract. The worker agrees that his or her material or non-material compensation is of equal or more value than the time, energy and effort, he will supply to the organisation. Similarly, the organisation agrees to compensate employees in return for their resources, time, talent and energy. Therefore, the need for interviews and discussions before the signing of an employment contract cannot be overemphasized.

In order for the organisation to retain their services, (and thus reduce escape or high cost of turnover) organisation must be able to properly evaluate these emotional or psychological contracts and negotiate them successfully with the employee. Also, "management must establish schemes to reward the behaviour it want" (Marchington and Wilkinson 2005).

2.4.3 Argument against the Expectancy Theory

An implication of expectancy model is that there is such a thing as good and bad management, good management creates engagement through expectancy theory because employee's efforts will be highly recognised and target to a reward system which will motivate them to action but bad management destroys it.

The expectancy theory places a lot of importance on management style and because engagement is a function of how managers treat their staff, there are no short cut solutions; engagement depends on building relationships with the members of staff, one person at a time. Also, it is possible that the staff members are not willing to be engaged, if they believe that management are not reliable.

In addition, expectancy theory is criticised based on its focuses on three relationships

Performance outcome expectancy-this is the degree in which employee belief that performing at a particular level will attain or attach foreseeable congruence.

Valence- this is based on the value employee place on outcome deriving from behaviour or the degree to which organisation rewards satisfy employee's individual goals and needs.

Effort- performance- the likelihood perceived by individual that exerting a given amount of effort will lead to performance.

The above expectancy theory relationships explain employee's actions towards motivation and level of engagement at work. The criticism on these relationships are; some employees with deficient skills level may think no matter how they tried their maximum efforts will not be recognised, some employees also perceives that no matter how hard they work, a chance of getting a good performance is low because their boss does not like them, the reward an employee desire might not be the reward given by the management. (www.citeman.com-expectancy-theory).

2.4.4 Relevance of Expectancy Theory to this Study

The expectancy model justifies the influence of reward on employee engagement is that an employee's expectation of his/her "recognition & benefits" would directly affect that employee's level of commitment to the organisation, which is a direct measurement of an employee's engagement level to an organisation.

The expectancy theory also gives insight in the role that perception plays in choices, expectancy and preference. Therefore it can be strongly argued that employee "perception" of reward structure in an organisation can influence the levels of engagement in an organisation.

2.5 The Meaning of Employee Engagement

The concept of engagement was first described by William Kahn in 1990.He argued "that engagement occurs when a person's identity and job role exist in a dynamic relation in which a person both drives personal energies into role behaviours displays the self within the role" (Vazirani, 2010). The Institute for Employment Studies (IES, 2004), defines employee engagement as "a positive attitude held by employee towards the organisation and its values. An engaged employee is aware of business context, and works with colleagues to improve performance within the job for the benefit of the organisation. The organisation must work to nurture, maintain and grow engagement, which requires a two-way relationship between employer and employee".

Bakker et al (2008) argued that employee engagement is a unique concept that is best predicted by job resources and personal resources. "The terms job satisfaction, motivation and commitment are being replaced now in business by engagement, because the terms appeal to have more descriptive force and face validity" Reilly and Brown (2008). According to Vazirani 2010 (kahn 1990) defines engagement in terms of four components; cognitive (the role is consistent with a person's identity; emotional (the person like the role); physical (the person will work at the role); existential (the role provides personal meaning).

Most organisations presently are working on maintaining their workers sincere commitment also to increase the level of engagement because organisation with an engaged staff stand to gain a comparative advantage over their competitors. Bakker et al (2008). "Some of these interests have been generated form management observation that turnover during the early years of employment is often very high". Marchington and Wilkinson 2005 argued "that 20 percent of workers leave within the first 12 month, a further 12 per cent leave during the second year of their employment and thereafter it falls to under 5 per cent per annum"

According to Armstrong (2010), employee management is important to employer because high levels of engagement that result in behaviours such as maximizing discretionary effort ,taking initiative, wanting to develop, or aligning actions with organisation needs deliver a range of organizational benefits such as higher productivity, lower staff turnover, better attendance and improved safety.

2.6 Reward Strategy and Employee Engagement

Employee engagement is a direct/indirect derivate from employee satisfaction, organisation commitment and even productivity, some author like Bakker et al argued that employee engagement assumed to produce positive outcomes, both at the individual level (personal growth and development) as well as at the organizational level (performance quality) because employee put much effort into their work and identify with it.

Armstrong (2010) explains "that rewards given by an organisation can have an effect on their attitudes and behaviour towards their organisation". According to him, he explained that "financial incentives may increase engagement for some people in the short run, but the greatest impact on engagement is made by non-financial rewards especially when they generate intrinsic motivation through the work itself and the work environment".

According to Kyle LaMalfa (2007) he state that employer sometimes refer to reward as the labour payment for the employee's service, but for employee it is more that. It represents the recognition of their performance. Reward is a standard, which can measure how much an organisation can satisfy its staff work value and aspiration; it can satisfy their personal ideal and hope of progress; it can describe the accomplishment that the employee want to achieve in terms of position and way of living.

He concludes that when employees can feel considerate care and warmth through the fairness in reward management, they develop a sense of belonging, responsibility, obligation, recognition and loyalty to their organisation.

In 2006, the conference board published "employee engagement; a review of current research and its implications". According to this report, twelve major studies on employee engagement had been published over the prior four years by top research firms such as Gallup, IES, Tower Perrin and others

Each of the studies used different definitions and, collectively, came up with 26 keys drivers of employee engagement. For example, some studies emphasized the underlying cognitive issues, others on the underlying emotional issues.

Other key findings include the fact that larger companies are more challenged to engage employees than small companies, while employee age drives a clear difference in the importance of certain drivers. For example, employee under age 44 rank "challenging environment/career growth opportunities" much higher than do older employees, who value "recognition and reward for their contributions".

CIPD (2010) highlighted "reward as a key retention factor for organisation engagement". Money is still the primary incentive used by most organisations. Reward as an independent variable showed strong and significant relation to organisation engagement. According to Shields, J (2007) "high salaries are not essential, but "good" and "fair" salaries showed strong correlation with the intention" indicating that as long as the reward is competitive but financial rewards are not the primary factor in retention. Macey, et al (2009) support this statement that "motivation to engage follows from treating people with respect ,providing a suitable working environment which shows they are highly valued and thereby establishing a basis for them to reciprocate through their voluntary engagement".

From Macey et al (2009), they believe that pay does not motivate employee toward engagement. In addition, they stated that people may come into the organisation for money but get engaged in the process because they work for managers who are competent, have upward influence and are fair. They backup their argument by giving an example of sales people who are paid base on incentive-based that is pay base on how much they sell, they tends to " focus on the very specific behaviours necessary to get the incentive"(Macey et al,2009).

However the focus of this study will be on the impact and how reward could be used to ensure employee engagement at work. This study will consider below the work of

Macey & Schneider (2008) on engagement at work.

2.7 Macey & Schneider's tripartite concept of employee engagement

Macey and Schneider (2008), proposed a tripartite conceptualisation of employee engagement state, trait and behavioural. This state that employees' level of engagement is based on three major components;

State Engagement, which are a strong affective "emotional" component including- positive effect, energy, absorption and passion,

Trait engagement is based on the premise that individuals with similar personalities can be found in the same work setting/environment and as such employee engagement is also influenced by social climate and social learning in an organisation.

Behavioural engagement involves the influence of strategic organisational climates such as working conditions, conditions of service on an employee's engagement level in an organisation. Engagement here is defined as a set of related behaviours.

Macey &Schneider (2008) incorporated the organisation level approach to their definition of employee engagement as it is consistent with their tripartite construct, indicating traits such as positive effect, feelings of empowerment and behaviours showing organisational citizenship .According to Macey &Schneider (2008), "the antecedents of engagement are located in conditions under which people work, and the consequences are thought to be of value to organisation effectiveness".

2.7.1 Justification of Macey & Schneider's Tripartite Concept of Employee Engagement

The behavioural engagement concept of the tripartite theory of employee engagement which involves the influence of strategic organisational climates such as working conditions, conditions of service on an employee's engagement level in an organisation bears an argument that compensation policies of an organisation can have a strong influence on an employee's level of engagement in an organisation.

Contrary to Robert Hogan's view on Macey & Schneider's tripartite concept of employee engagement, Pugh & Dietz (2008) argue that Macey & Schnieder's tripartite view of employee engagement. This argument examined "affect" at the group and organisation level is strongly supported by the similarity of state engagement to the idea of collective mood or group effective tone of George (1990) ,Kelly & Barsade (2001) and Totterdell (2000).

Niven et al (2007) asserts that "groups develop collective mood because; (a) group members experience similar workplace events and thus have similar reactions; (b) emotional contagion processes lead to a convergence of mood in groups"

Pugh & Dietz (2008) also see trait engagement as a viable organisational level concept citing the attraction-selection-attrition (ASA) framework which suggests that individuals will be found in the same work setting and this argument extends to trait positive affect, proactive personality and conscientiousness.

Behavioural engagement can be seen as an organisation level concept as representative such as organisational citizenship and role expansion have been conceptualised at the group and organisation level of analysis. This argument is being supported by Erhart (2004), and other behavioural outcomes of strategic organisational climates, such as service and safety behaviours.

According to Weibo, Kaur & Jun (2010) the analysis of Macey & Schneider's tripartite theory of engagement also bears strong relationship with theories on organisation commitment by Allen & Meyer (1990).which states that there are three types of organisation commitment .Attitudinal or affective commitment (which is strongly related to trait engagement), Behavioural or continuance commitment, which is based on the recognition of the profit associated with continued participation, this at the other hand show a strong relationship with the feeling of state engagement showing involvement ,commitment and employment, Normative commitment, is a feeling of obligation to the organisation which is related to the behaviour engagement of organisation.

Employee engagement is a term strongly related to employment commitment and various author like Armstrong (2009), Reilly & Brown (2008), Bakker et al (2008) term job satisfaction, motivation and commitment are generally being replaced now in business by engagement because it appears to have more descriptive force and face validity. This implies that the word employee engagement is like an "old wine in a new bottle".

Macey & Schneider's tripartite concept of employee engagement also incorporates both organisational and individual influences on employee engagement in an organisation. It defines engagement as a Trait (individual influence), as a state (environmental/organisational influence and as a set related behaviours (linking environmental, organisation & individual influences)

2.7.2 Argument against Macey & Schneider tripartite concept of employee engagement

It has been argued that the Trait engagement which focuses on engagement which focuses on engagement representative traits such as ;initiative seeking, positive affectivity and conscientious makes the responsibility of being engaged that of the employee and deviates from the organisation context of engagement .The highlighted representative traits are more of personality characteristics than organisational induced engagement behaviours.

Due to individual difference, some people are definitely easily engaged than others. For example, it can be safely assumed that an individual with an extrovert personality will be more readily engaged in a marketing company than some who is an introvert. While such introvert personality can be easily engaged in a finance function.

Hogan (2009), argued against the tripartite theory of employee engagement where he states that;

Firstly that employee engagement is not job satisfaction. Hogan argues that measures of job satisfaction correlate positively with measures of self esteem and negatively with measure of neuroticism. Job satisfaction is merely a trait and not a measure of employee engagement. (Argument against trait engagement)

Secondly, employee engagement is not involvement. He also argues that Job involvement concerns attitude toward a specific task or job independent of the broader organisation and is focused on task outcomes not organisational outcomes. Therefore, involvement can occur without engagement. (Argument against state engagement)

Finally, employee engagement is not organisation commitment. According to Hogan, organisational commitment is a cognitive pledge to an organisation. Therefore it is impersonal as engagement is of positive affect.(Argument against behavioural engagement)

2.7.3 Relevance of Macey & Schneider's Tripartite Concept of Employee Engagement to this Study

The relevance of tripartite concept of engagement to this study is in its definition of employee engagement as a trait (individual influence/attitude) as a state (environmental/organisational influence) and as a set of related behaviours (linking environmental, organisational & individual).

Employee engagement as a trait (individual influence/attitude) is supported by the fact that an employee's perception of job importance is a key influence on that employee's level of engagement. According to Seijts and Crim (2006) "employee's attitude towards their job is importance and the company had the greatest impact on loyalty and customer and customer service than all other employee factors combined". It has been severally argued that employee's perception of his or her job importance is greatly influence by the "reward" attached the job.

Armstrong (2010), "an incentive to reward good work is a tried and tested way of boosting staff morale and enhancing engagement".

Armstrong (2010) argument is supported by the second and third part of the tripartite concept which defines employee engagement as a state (environment/organisational influences) and a set of related behaviours on an employee's level of engagement.