This research is about the implications of pay for performance and reward system for organisations. This research has reviewed the motivation theories in context o pay based performance system. It also provides a detailed review of incentives and bonuses which could be used by the project based organisations. This research also reviews the performance management and analyses the pay for performance system along with its implications for employees and organisations. This research has used the secondary research findings where journal articles and books are mainly used for accomplishing objectives of this research. This research is conducted using the qualitative methods. The research has found that to motivate employees from construction industry should be provided with incentives and bonus. Further, the individual pay for performance is also quite useful for improving performance and keeping employees motivated. It is concluded that employees could be motivated with the help of monetary rewards while bonus and incentives are most commonly used in project based organisations and both types have many limitations which could not be ignored. Likewise, pay for performance is also useful for enhancing motivation of employees, but it also encounters certain limitations. At the end, future research recommendations are provided.
The phenomenon of pay for performance is widely debated across the globe and employers all across the world are interested in achieving the system that links pay with performance of individuals. It has been considered by the researchers that jobs with performance related pay are found attractive by the employees with higher capability and it enables them to put substantial level of efforts to achieve the underlying goals of the organisation (Blinder, 2011; Butcher and Sheehan, 2010). The exploration of effectiveness of incentive system has been considered as an important issue by the researchers as well as practitioners and it has been offered in the public literature that performance based incentive system is highly effective for boosting the motivation level of public employees (Brynjolfsson and McAfee, 2012). The same has been concluded by the researchers in private sector and they have offered that the reward is considered as the outcome of employee performance and when employees are rewarded financially, and then they feel motivated and valued within organisation (Della Torre, Giangreco and Maes, 2014).
It has further been highlighted by the scholars that organisations that link rewards with paper qualification of the employees are more likely to lead to dissatisfaction among employees. It can be justified by the fact that one employee might have higher level of qualification than other, but there could be difference in performance level of these two employees (Larkin, Pierceand Gino, 2012). The one with lower level of qualification might outperform than other. In such condition, when paper qualification serves as the basis of pay, then it might result in the declining morale and motivation of those employees who are more productive and less qualified (Sauermannand Stephan, 2013). Therefore, the solution of this problem has been sought in the performance based incentive system.
It has been explored and mentioned by the recent researchers that trend of linking performance with pay is increasing rapidly in all organisations and compensation is being decided and awarded based on the performance of employees with an aim of ensuring that objectives of organisation are fulfilled (Kondo et al., 2016). In order to support this system, the performance management system is being strengthened by the organisation and employers in engaged in seeking ways through which they can establish an effective performance management system (Jirjahn, 2015). The effectiveness of performance management system is viewed in the level of fairness and when employees are offered fair and justified rewards then they are likely to get satisfied and motivated. This satisfaction in turn leads to investment of employees’ efforts in improvement of their performance and thus overall productivity of organisation can improve to the significant level (Hon, 2012). In contrary to this, the organisations who are supporting their incentive system with ineffective performance management system are likely to experience dissatisfaction among employees and result can be seen in the form of lower productivity level of employees (Hewitt, 2012). Therefore, the purpose is to eliminate any kind of discrimination from the performance based pay system and to ensure that compensation of employee is independent of other factors and it is only the product of employees’ performance.
In the organisations which are working on project based structure, the relation between employee and employer is considered an exchange process where employee offers its services on the basis of his/her aptitude and skills while he/she is offering rewards from the employers for the services (Brynjolfsson and McAfee, 2012). As per the perspective of employees, pay is the crucial element as it has the potential to influence its standard of living and status. Likewise, the needs of individuals can be fulfilled through the pay they get from employers. These rewards could be in many forms like salary, allowances and incentives (Van De Voorde et al., 2012). For employers, the rewards are also an investment through which they can manage the behaviour and skills of employees. At the same time, it is also cost for them as they must have to utilise money to retain employees (Shields et al., 2015). In performance based pay system, the total compensation is divided into two main categories inducing; intrinsic rewards and extrinsic rewards. The first group of rewards is also considered as direct rewards and it refers to rewards that are awarded for time not worked by employees, such as pay for leaves (Hartmann and Slapni?ar, 2012). On the other hand, the direct rewards are termed as basic compensation of employees which is offered them for their work. In pay for performance based system, the rewards are offered for the individual’s and organisational performance and both intrinsic and extrinsic rewards depend upon the performance level of employees (Hamel, Rolandand Campbell, 2014).
It is widely accepted that organisational performance could be improved with the help of reward system. Drucker (2013) said that those employees who are happier are the ones who demonstrate higher level of productivity. Likewise, pay for performance is also offered to employees for showing higher performance which is eventually associated with improved organisational performance. Hartmann and Slapni?ar's (2012) said that organisational goals could be achieved with the help of understanding and setting rewards in an effective manner. Hence, pay and rewards offered to employees are considered drivers of organisational performance through these two aspects the employees’ commitment is also increased and they are encouraged to work with more dedication for organisational objectives (Hon, 2012). Many times, conflicts among employees take place when employees are not offered fair rewards which are matched with their performance. Therefore, it becomes obvious that pay and rewards could not be overlooked in a manner and every organisation must have to focus on them to achieve their organisational objectives. In all organisations, one of the important concerns is to have the workforce which is motivated, but to have the motivated workforce is not an easier task. There are many surveys which have already being conducted and many of them have reported the issue of employee motivation in their organisations. The authors like Lazaroiu (2015) and Della Torre, Giangreco and Maes (2014) say that pay based performance system is important for motivating employees. There exists plethora of theories and models on motivation, so this research intends to systematically analyse the theories which says that pay based performance system can help in motivating employees (Wagner, 2014; Kumar et al., 2015). In many organisations, pay based performance system usually have incentives and bonuses which are attached with the performance of employees, and their only purpose is to motivate employees (Porter, Riesenmy and Fields, 2016) and this research also critically examines bonus and incentives.
The focus of present research is on project based organisations and this research has selected only construction firms which also works on project based structure. In the economy of UK, construction industry is known to be one of the leading industries and it is due to its significance in making economy stronger. This industry works on the principles of project management (Butcher and Sheehan, 2010). The effective performance of construction projects remain centre of attraction for both managers and researchers. It is not wise to overlook the importance of productive performance of construction projects which includes the steps related to design, pre-construction, procurement along with few other related activities of construction. Like other industries, it is the performance of employees which matters and as told by many authors, this performance can be improved with the help of pay and rewards. Therefore, for all project managers, it is important to realise that they can achieve performance related objectives only when the needs of their employees are fulfilled (Gadde and Dubois, 2010). Therefore, this research is about rewards and performance management which is practiced in construction industry.
It has been highlighted by the researchers that within construction sector, the employers are highly interested in seeking ways through which they can motivate employees as employees’ motivation is considered as biggest challenge for them(Hamel, Roland and Campbell, 2014). The motivation of employees is considered as key for the success and competence of project based organisations as in its simplest form, the motivation of employees is the key aspect for ensuring that project is delivered on the mentioned time and all objectives of the project are accomplished (Gerhartand Fang, 2014). It has been considered by the professionals that employees’ motivation is generally influenced by the absolute as well as relative rewards. The construction companies that are managing effective performance management system and are linking employees’ performance with their performance are successfully reaping benefits of this system (Gaddeand Dubois, 2010). In spite of these evidences, the human resource managers in construction sector are perplexed about the benefits of pay based performance system and they are thinking that it might make employees materialistic and can lead to declining motivation levels in long run. In order to resolve this confusion, the underlying study has chosen to carry out an in depth analysis of benefits associated with pay based performance system, with an aim of making recommendations to project management professionals.
This research aims to examine implications of rewards and pay for performance in construction industry of UK.
Precise objectives of this study are:
This study which is about performance management and rewards in construction industry is of utmost importance as it has potential to help in existence of organisations and survival of firms in the environment which is quite competitive. Construction industry practitioners which include organisational managers, project managers and HRM managers can get benefit from this research as it will help them to select and design suitable reward systems. This research also sheds light on pros and cons of important component of reward i.e. bonus and incentives, so it will aid the managers to avoid the conflicts in the organisation (Hartmann and Slapni?ar, 2012; Drucker, 2013). This research also examines how the pay and reward systems are helpful in managing performance and improving the motivation level of employees working in the construction industry. Further to this, this research also has academic value as it is based on systematic review of up to dated research studies hence future researchers can take benefit from this research study. Moreover, this research is beneficial for enhancing the knowledge of researcher regarding reward system, bonus, incentives, performance management and motivation.
In the success of any organisation, it is reward system, motivation and performance management which are considered most vital (Blinder, 2011). Any of the efforts which employees put towards the organisations for fulfilment of objectives are not free of cost. The efforts which are put by employees along with their motivation which is demonstrated while working is based on the rewards they get for their improved performance (Hewitt, 2012). For organisations which are project-oriented, rewards including incentives and bonus are considered critical motivational factors which targets the performance and productivity of employees and organisations. Therefore, the present research is based on the implications of bonus and incentives in managing motivation of employees and improving their performance (Della Torre, Giangrecoand Maes, 2014).Both of these instruments can enhance the motivation level of employees and they can encourage them to invest their efforts for productivity improvement of the organisation. This research is about the implications of these aspects which include motivation, reward and performance management. Further to this, the scope of present research is only limited towards construction projects where it will strive to examine the literature which is about construction projects.
Moreover, scope can also be decided through the inclusion criterion which is used for secondary data. This research only focuses on those research studies which are up to dated. For getting recent information about the research issue, only those academic secondary sources are used which belonged from 2012 onwards.
There are seven chapters in this research where first chapter covers background of the research issue and discusses the significance of this research study.The chapter also focuses on offering research objectives of the study. Second chapter is comprised of study's research design and methodology including participants, procedure, limitations and data analysis approach. Third chapter pertains to the discussion of related work in the underlying area of research, along with theoretical justifications of underlying construct. It highlights the role of motivation theories in defining the underlying construct by mainly focusing on three theories, including; Maslow’s Hierarchy of need theory, Herzberg’s two factor theory and Expectancy theory. In fourth chapter, the analysis of monetary rewards i.e. bonus and incentives is done using the secondary data. The fifth chapter is about review of performance management and implication of pay for performance. In this chapter, the analysis of performance incentives related studies has been carried out. The results of the secondary analysis of study are detailed in the fifth chapter of the study. The sixth chapter concludes this research while seventh chapter provides recommendations.
This chapter presents the methods which are being selected for completing the research which is about the reward system and pay for performance system on productivity of employees within project management setting of UK. This chapter provides both explanation and justification for selecting particular methods. The section has mentioned details about the qualitative, quantitative and mixed methods of research and then shed light on the methods that are being implied in underlying research study. Along with this, the adoption of data collection methods has been detailed and selection criteria for secondary information have been mentioned. The details about analysis of data are also given and limitations of the study are detailed.
The present research is about reward system, motivation and pay for performance. For searching the relevant data about this research issue, the researcher used few keywords along with the synonyms which have helped in obtaining all secondary data which is used in this research. The key words which are used in this research are reward system, bonus, incentives, motivation, pay for performance, performance management, rewards in construction industry UK, bonus and incentives in construction industry UK and performance management in construction industry UK.
For systematic literature review, it is critical to do proper planning for obtaining the most reliable data. Therefore, to obtain the secondary data for this research various bibliographic databases, journals and libraries were considered. The journal articles are mainly used in this research and most of them are obtained from Elsevier, Taylor & Francis Group, Nova Science Publishers, Emerald Group Publishing Ltd, Science-Direct and Wiley Online Library. Most importantly, Google Scholar is used for this research and it has significantly helped in obtaining the relevant data.
In this research, those articles are considered which were published after 2012. After this, all of those articles were excluded which were having lesser citations. The articles cited by more than 50 authors were selected. For selecting the articles, abstracts of the journal articles were read. The literature was looked in a systematic manner for obtaining data about this research which is about rewards and performance in construction industry of UK.
There are three alternatives available of methods which could be selected for any research. The one is qualitative research method, second is quantitative research method and third is mixed research method.
Qualitative method:The qualitative method of research offers an opportunity to carry out in-depth investigation of any underlying phenomenon and it offers detailed insight of the research issue at hand. The totality of the situation can be investigated by making reliance on qualitative method of research and it helps to explore the information that might be new to the research issue (Taylor, Bogdan and DeVault, 2015). The reliance of qualitative method of research is mainly on the questions like how and why in contrary to focusing on what, where and when. The focus on why is making it highly feasible for the researcher to adopt qualitative methods when all contextual factors are not clear and underlying research issue is ambiguous. Qualitative research method might lead to completely new explanations of the phenomenon and thus detailed understanding of the contextual information can be obtained.
It has been highlighted by researchers that most significant benefits of using qualitative research methodology lies in the fact that it can be used as grounded theory approach (Scandura and Williams, 2000). It means that when research issue lacks already established theoretical grounds and direction of associations among variables are not clear then the most feasible and suitable method is of qualitative research methodology (Taylor, Bogdan and DeVault, 2015). Thus, the background information is obtained with the help of qualitative research method. In addition to numerous benefits of qualitative research methodology, its drawback lies in the notion that it lacks empirical investigation of the phenomenon. However, in case of requirement of in-depth investigation, this method is most suitable and it can help the researcher to interpret multiple realities in appropriate manner.
Quantitative method:On the hand the quantitative method of research involves statistical and empirical investigation of numerical data and provides valid conclusions about any specific research issue (Taylor, Bogdan and DeVault, 2015). It is termed as systematic investigation of research issue by making reliance on computational and mathematical methods. This method is widely implied by the researchers based on their suitability with the research issue and underlying research question. The quantitative method of research uses data in the form of figures and numbers and thus all information is based on some slid grounds that are clearly indicating reality and this reality remains same across different settings (Sogunro, 2002). The focus of quantitative research methods remains on the research question that focus on what, where, when and who.
Another aspect of different between qualitative and quantitative method of research is based on theoretical grounding aspects of these two methods. In contrary to qualitative methods, the quantitative method of research is based on grounded theory approach (Silverman, 2016). For instance, the research issue is based on strong theoretical foundation and then reliance is maintained on empirical investigation through quantitative methods for further validating the linkage and association of variables (Smith, 2015). The generalisability aspect of quantitative research method is high as it is one of the most suitable method for generating valid findings of the research. Thus, this method is largely suitable for generating findings that can be implied within industry and can benefit practitioners. Finally, the involvement of researcher is maintained to the limited extent in this method and chances of person related biased are lowered to possible extent.
Mixed Methods: The mixed methodology of research is based on the combination of qualitative and quantitative method of research. The term mixed methodology is referred for the investigation of research issue by making reliance on both qualitative as well as quantitative method at the same time (Smith, 2015). In this method, the research questions might be based on prior literature and it can also be ambiguous in nature, indicating that there is no compulsion for type of research questions (Taylor and Trujillo, 2001). There could be various situations or reasons for using mixed research methods. For instance, it could be used to serve the purpose of theoretical perspective in case where grounded theory perspective is missing. On the other hand, it could be used to test the hypothesised association in the presence of grounded theory.
The researchers have mentioned that mixed methodology is highly preferable in the situations where there is need to overcome weaknesses of single design. Different research designs can be complemented and by realising on their strengths, valid and generalisable findings can be generated (Scandura and Williams, 2000). In addition to it, the mixed research method is also utilised in the situations, where there is need to make investigation at different levels. For instance, at earlier level, qualitative method can help in exploring the situational information and can lead to in-depth investigation of research issue. While, at the later stage, this information can be tested empirically by relying on quantitative research design.
This research has selected qualitative research methods for implication of reward system and pay for performance on productivity of organisations from project management settings in UK construction sector. As said by Hennink, Hutter and Bailey (2010), this is a sort of exploratory research which intends to obtain the in-depth understanding of the underlying implications of the research issue i.e. reward and pay for performance influence on productivity of projects based organisations from UK construction sector. This research is useful for uncovering the trends, opinions and thoughts about the research issue and this allows to dig deeper into the research problem. Therefore, the reason for selecting this qualitative research method over quantitative methods is to develop an in-depth understanding about the reward system and pay for performance. Liamputtong (2013) said that this research method is preferred over other designs because it is appealing due to its ability to investigate the meanings which are attributed to the behaviour, actions and interactions. The alternative approach of quantitative method is adopted for those research studies in which researchers want to quantify the relationship or impact among variables. In addition to this, this research method has potential to enable the researcher to examine the reasons of the relationship which exists among variables.Sofaer (2002) said that this method helps in revealing the meaning of the results which are obtained through the quantitative research studies. So, with this intention to explore the reason of association among reward system and pay for performance on productivity of employees, the present research has selected the qualitative methods. Taylor and Trujillo (2001) mentioned that qualitative research methods investigate the symbols, processes, relations, meanings and interpretations; therefore, it is often about descriptive data which is interpreted and analysed by the researcher. Therefore, this method could not be questioned due to its descriptive data nature as most of the times, researchers use the rigorous analysis methods for interpretation and critical analysis. This critical analysis, rigorous and systematic methods of analysis are also adopted for this research. Smith (2007) said that using the inductive methods, the qualitative research studies emphasis on creating new theories which are left for testing and empirically validating by the future researchers and same will also be done in this research.
For this research, the researcher has relied on secondary data which is obtained from business report, peer reviewed journal articles and books along with the published reports related to the construction industry of UK. Further to this, non-academic data which include news and articles are also considered, but only at few places. The research uses secondary data collection method due to its extensive availability and its ability to provide increased reach of this study (Taylor, Bogdan and DeVault, 2015).
Within secondary data, there exists a list of type of data sources which are available to any researcher. Most commonly, it is preferred by the researchers to rely on academic sources; and similar is also done in this research. In case, when sufficient data is not available regarding the research issue, then non-academic sources could also be used (Cooper, Schindler and Sun, 2006). This research will also adopt the similar approach. Mainly, the following sources will be used.
For the collected data, content analysis technique is used. The descriptive data is extracted from the academic and non-academic sources. Once the data was collected, it is analysed and examined for finding out the similar patterns. The identified detailshas helped to complete the critical analysis of the secondary data in an effective manner (Saunders, 2011).
Although the adoption of research method has been carried out by carefully considering the suitability of methods with research issue, yet it might have fewer limitations. The qualitative method encourages involvement of researcher and might lead to biases. In similar way, the validity aspect of this method is low in contrast to quantitative method of research. This limitation does not question effectiveness of this method, as in case of underlying research, it was most suitable method.
In this chapter, motivation theories are critically reviewed to examine how motivation of employees can be influenced with monetary rewards. One of the objectives of this research is to review the motivation theories in detail. Therefore, the present chapter is dedicated to the first objective of this research.
The performance of employees and subsequent productivity of the organisation is generally the product of three factors encompassing; motivation, ability and environment. Based on the views of researchers, it is important to consider that motivation acts as the driving force for defining performance level of individuals (Hartmann and Slapni?ar, 2012). Motivation within an organisation can be defined as the desire of individuals to achieve certain goals that define standard of performance excellence. Highly motivated members of the organisation are usually engaged in accomplishing the goals of the organisation through their goals directed behaviour (Hewitt, 2012). Based on this increasing importance of motivation, it is the most heightened issue for the construction organisations to recognise the ways through which they can foster motivation of employees to enable them to meet performance standards of the organisation.It has been mentioned in the study of Magidson et al. (2014) that this question has always haunted the practitioners and researchers that why some employees work enthusiastically, while others merely count hours at work. The answer of this question has been seen in the theories of motivation.
There are number of motivational theories, which shed light on the factors that inspire and foster employees to work enthusiastically. Three theories has been considered relevant with the underlying research phenomenon of pay for performance, including; Maslow’s Hierarchy of need theory, Herzberg’s two factor theory and expectancy theory. Maslow’s theory and Herzberg’s theories are two most important need based theories, while expectancy theory comes under category of process based theories of motivation (Miner, 2015). The concept of motivation has remained consistent among all theorists and motivation is being defined as the predisposition which fosters specific behaviour of individual with an aim of achieving specific needs of individuals (Olafsen et al., 2015). It has also been explained as internal drive of an individual to satisfy unmet needs of individuals. The role of motivation is highly important for success of organisation as workplaces and business requirements are continually changing and in order to enhance competitiveness of businesses, the businesses are in greater need of people who are motivated and have strong drive to accomplish their underlying goals (Pardee, 1990; McDonald, 2014). Therefore, the motivated workforce is one of the most essential factors in construction organisations for ensuring that underlying goals of businesses are achieved in successful and competitive manner.
Hierarchy of need theory has been proposed by Abraham Maslow which is based on the notion that needs of human beings are hierarchically ranked and some set of needs are common to all individuals, which act as motivation and form the basis of their actions. Theory posits that satisfaction of basic needs act as motivating factor to seek for satisfaction of their higher order needs (Ramlall, 2004). The needs that are satisfied no longer act as motivator for individual and thus it is crucially important for management to identify that which stage of needs are acting as motivator for employees, with an aim of motivating them to achieve higher level of performance (Beck, 2003). There are five kinds of needs in the hierarchy of need pyramid that are ranked from higher to lower order such that physiological needs are in the base of pyramid and they are most important and high priority needs (Pardee, 1990).
Figure 1: Maslow Needs Theory
Source: Ramlall (2004)
The physiological needs are being followed by safety needs, social needs, esteem needs and needs for self-actualisation. It is highly important for management to exactly recognise that which needs are most important for employees with an aim of encouraging higher level of motivation.
It has been highlighted in the research of Olafsen et al. (2015) that pay and bonuses are highly important for those construction employees who are seeking to satisfy their basic physiological and safety needs. It is of huge importance to consider that pay for performance is one of an important phenomenon to motivate such employees who are looking to satisfy their safety needs. The pay of employees can help them to believe that their safety needs are also secured with the organisation and thus they feel motivated (Firestone, 2014). Therefore, fulfilment of monetary requirements is highly essential for employees to meet these two sets of needs. Likewise, the esteem needs might also be satisfied by the pay of the individual, as it can offer generous benefits in the form of insurance and retirement plans sponsored by company (Shields et al., 2015).
On the other hand, when the employees move upward pyramid, then the pay for performance based system is no more effective for motivating higher level of performance. In order to motivate such employees, they must be provided with good social atmosphere and they should be appreciated for the work they do, such that they feel valued and invest their efforts for accomplishing the goals of organisation (Garbers and Konradt, 2014). By gaining insight from the Maslow’s hierarchy of need theory, it can be considered that for gaining benefits of pay for performance system, firstly the recognition of high priority needs of employees is important and secondly it should be ensured that pay for performance and reward system is being designed in the manner that all underlying needs of employees are met for generating higher level of motivation (Olafsen et al., 2015).
The theory of Frederick Herzberg has undertaken a completely different approach to understand the concept of motivation. Theory is based on two set of factors, including satisfiers and hygiene factors. These factors are being classified based on the notion that presence of some factors lead to satisfaction of employees, while other might cause dissatisfaction among employees (Selviaridis & Wynstra, 2015). The researcher has mentioned that absence of hygiene factors mainly causes dissatisfaction among employees while their presence is taken for granted by employees. For instance, as highlighted in the study of Alshmemri, Shahwan-Akl & Maude (2017) that in the presence of well formulated policy of company, good working environment and good salary is just taken for granted by employees and they might not get motivated by presence of these factors. On the other hand, the motivators include achievement, recognition, growth and interesting work and advancement opportunities. Based on these factors, it becomes easy for human resource management professionals to recognise that which factors can help them to enhance motivation of their employees (Park & Ryoo, 2013).
Figure 2: Herzberg Theory of Motivation
Source: Park and Ryoo (2013)
It has been highlighted by researchers that when employees are being inquired about the factors which lead to their satisfaction, they mostly highlight the factors that are most important for them (Yusoff et al., 2013). These factors could include monetary rewards, compensation and bonuses for employees. However, such monetary and extrinsic factors are not considered as motivators for most of employees. In contrary to this, intrinsic factors are appreciated by all individuals and they act as highly motivating factors for all employees (Lin et al., 2015). Based on these evidences, it can be argued that in order to enhance motivation level among construction employees, the human resource management professionals need to focus on intrinsic factors.
Moreover, it has been highlighted by the researchers that presence of extrinsic factors is appreciated as it contributes in lowering the level of dissatisfaction among employees (Kondo et al., 2016). The underlying research study is focusing on finding the benefits of pay for performance and reward system in project management setting (McDonald, 2014). In order to ensure that pay for performance and reward system can result in positive performance level and higher productivity of organisation, it is important to consider that presence of higher level of pay and an effective rewards system can lead to absence of dissatisfaction among employees(Larkin, Pierceand Gino, 2012). This argument is in line with the view of Hygiene factors phenomenon of Herzberg theory. Moreover, it has been mentioned by the researchers of performance management system that in order to encourage higher level of performance among employees, it is highly important to ensure that output against employees’ efforts is being distributed in fair manner (Morris et al., 2015). According to the views of Herzberg, such performance based pay system can limit the level of dissatisfaction among employees and it can also encourage higher level of productivity within organisation (Pardee, 1990). In conclusion of Herzberg’s theory of motivation, it can be mentioned that pay and rewards might not lead to motivation of employees and thus performance based pay system should be designed in the manner that it allows the employees feel valued about their job and can also lead to higher level of productivity.
The expectancy theory posits that motivation of individual to decide the level of their efforts depends largely on the rational calculation which they make about the situation. There are three aspects of expectancy theory that can be seen in the figure 3 mentioned below (Miner, (2015). It can be seen that first aspect is expectancy, second is instrumentality and third is valence.
Figure 3: Summary of expectancy theory
Source; Magidson et al. (2014)
Firstly, the perception of expectancy indicates the question of individuals about the efforts that are employees willing to put in their job. As indicated in figure, the individuals inquire that whether their efforts can help them to attain higher level of performance (Park&Ryoo, 2013). Thus, when employees believe that their efforts can result in higher performance level, then they are likely to exert more efforts in their job. In order to generate benefits of higher productivity from such attitude of employees, it is required that human resource management professionals design job in the manner which helps them in ensuring higher performance level by their efforts(Ramlall, 2004).
The second perception of expectancy theory is labelled as instrumentality and in this perceptions, the inquiry is made about the outcomes that can result from the performance of employees (Frey, Hombergand Osterloh, 2013). This aspect of expectancy theory is highly relevant with the pay for performance and rewards system such that when employees receive outcomes against their performance, then they are likely to enhance the level of their efforts and thus they feel motivated to enhance the level of their performance. It has been highlighted by Garbers and Konradt (2014) that outcomes against the efforts of employees play the most important role in encouraging higher level of motivation of construction employees. Thus, it can be argued that higher and fair pay against the performance of construction employees leads to higher level of motivation and thus, it can help the project management professionals to ensure the higher level of productivity (Ederer and Manso, 2013).
The last perception of expectancy theory is referred as valence which posits that employees are concerned about the rewards that they get against their efforts and performance. This perception is labelled as valence and it is linked with the desirability of the outcomes associated with the performance of an individual (Gerhartand Fang, 2014). For instance, if the employees feel that rewards and outcomes of their performance are desirable for them then they are more likely to generate higher level of motivation. As highlighted in the research of Gittleman and Pierce (2015) employees might ask different questions from themselves such as, what are my feelings about the rewards that I am expected to receive from my performance? If answer of this question is positive and employees perceive higher value of reward associated with their performance, then that reward can act as the source of motivation for employees (Hamel, Rolandand Campbell, 2014). In such condition, the pay for performance can act as the source of motivation for employees if they feel that they are gaining desired outcomes against their performance (Hartmann and Slapni?ar, 2012). Therefore, it can be argued that according to expectancy theory, the pay for performance and reward system can act as the source of motivation for employees and thus, it can result in the higher level of productivity within project management setting.
To summarise, this chapter has reviewed three most dominant theories from the literature. The purpose of reviewing these theories was to conclude whether or not motivation could be influenced with the monetary rewards. As per Maslow’s Need Theory and Expectancy Theory, rewards can determine the motivation level, but Herzberg’s two factor theory does not say same.
This chapter is dedicated to the second objective of this research which is about reviewing literature about bonus and incentives. The previous chapter has concluded that role of monetary rewards is critical as per two theories, so this chapter focuses on those rewards which are most commonly used in project based settings, especially construction firms in UK. This chapter also sheds light on differences among bonus and incentives and it also examines the pros and cons of each of the rewards.
According to Schweiker and Groß (2017), this concept of offering bonus to employees is not technical as it is just about offering extra pay when they perform at any specified level. Once they know that certain reward in form of bonus will be given to them, they feel motivated hence they put more efforts to reach the specified level of performance. As also said by Pohler and Schmidt (2016), in all construction companies, bonus schemes are considered quite valuable. Despite the fact that after financial crisis of 2008, many of reward schemes are declined in their usage; however, it is observed that in all individual performance related schemes, these are most popularly used schemes in all industries of UK, including construction. The term ‘bonus’ is a boarder term and it includes further details; which must be considered by managers of the organisations.
According to Pikulina et al., (2014), there are two types of bonus i.e. discretionary and non-discretionary. Discretionary bonuses are offered as per the will of employers. In this type, it is not mentioned in employees’ contracts that they are entitled to any sort of bonus. In such cases, no rigours criterion is used for standard of performance and the amount of bonus; employers have the flexibility to decide everything. This system of discretionary bonus only work when employees know and trust employers that they will be provided with the bonus if they will perform well. Construction organisations of UK use the discretionary bonuses for linking the rewards with motivation and performance of employees. In opposite to this,Mukherjee and Sahay (2014) mentioned that non-discretionary bonuses are those which have their linkage with pre-specified criteria of performance of employees. There are higher chances that such bonus entitlement is also part of the content of contract of employment. In this type, employees have clearer idea that what performance level they need to demonstrate for being eligible for the entitlement of bonus. It cannot be avoided that such types of bonus are of legally binding nature, so even if there is shortage of finances due to other factors and performance criteria are met, firms are obliged to pay the bonus. These bonuses are not widely used in the construction organisations.
According to Anik et al., (2013), bonuses can also be classified in terms of individual, team and organisation wide bonuses. It is not mandatory to assume that bonuses are given to individuals when they perform well; these bonuses are also offered to all team members and all organisational members. Laddha et al., (2012) said that individual bonuses are used for motivating the individual employees to work on their set targets and achieve the goals as specified in performance management meetings and discussions. Conrad (2015) said that team bonuses are offered in such scenario where organisational members are divided into clear teams. Mukherjee and Sahay (2014) said that organisation wide bonuses are feasible in those situations when annual performance of all employees has to be recognised. Most of the times, organisation wide bonuses are considered appropriate to be discretionary in nature as there are numerous other factors which can influence the ability of organisations to pay.
Njanja et al., (2013) said that the private sector construction firms are most common to use the bonus schemes. There are 64% private sector firms which are using the bonus schemes for incentivising their workers. Authors also said that bonuses are most commonly used for managers and professional as compared to other employees. Agwu (2013) told that payment of bonus is other than the payment which is made as base salary of employees. The base salary is known to be fixed and bonus schemes vary as pr the criteria which are set for each period in which performance is measured. Goswami and Jha (2012) said that in construction industry, these bonus payments aid in motivating managers to attracts their personal interest and attraction for working for organisational aim and objectives. For pay for performance system in practice, bonuses are considered key elements and they are also working in an effective manner (Brown and Koettl, 2015).
According to Tetteh, Fentim and Dorothy (2015), incentives have the potential to influence the motivation level of individuals to put efforts for a certain action. In many economic activities including individual decision making, institutional structure and competition, incentive structures have gained the central importance. Jha and Say (2013) said that incentives are tools which are used by managed for rewarding good work of employees. These are also used for retaining employees for a longer term.Bennett and Levinthal (2017) said that when organisations want to increase the productivity or improve the performance of the employees, one of many available options is to use incentive schemes. Thibault Landry et al., (2017) said that such incentive schemes are used for rewarding the efforts and success of the construction employees through which they are provided opportunity to be recognised and earn more money.
According to Umali et al., (2013), in organisations, the type of incentives which are to be used differ as the organisations which are small have higher likeability to use the informal programs for incentives while the larger ones use the formal incentive programs. The most critical factor which defines the incentive is the ‘value’. It is not sufficient to recognise the good work only as incentive must always something which is perceived of significant value by employees.Garbers and Konradt (2014) said that it is not mandatory to ensure that value is monetary. The examples of non-monetary incentives are to give an extra paid day off to the employee who achieves the project goals; if weekly target is achieved, everyone can be allowed to dress casually in one specified day in a week; if project targets are achieved, there should be cookout planned for next month. These all are incentive examples which are valued by employees but these are not monetary. The good aspect about such non-monetary incentive schemes is that they do not have significant associate cost.
Indjejikian et al., (2014) has provided detail explanation on the key differences which exist among bonus and incentive schemes. A bonus is something to be paid to employees on the basis of backward looking. This is; majority of times, discretionary and employees do not always expect to receive the bonus. The management takes the final decision regarding it that whether it has to be paid to individuals, groups or all organisational members. As said by Kleinlercher, Huber and Kirchler (2014), in majority of cases, it is the management who decides how much amount of bonus is to be paid as per past achievements or other milestones for the organisation. Mostly, the cash bonuses are paid to employees and in very few cases cash equivalents could also be paid. The examples of cash equivalents are stock options and equity forms. It is on the spot and non-guaranteed sort of payment which is paid to employees.
In opposite to this, incentives have the nature of forward looking and payments which have to be paid to employees are linked with the accomplishment of pre-defined objectives and goals. These goals and objectives are communicated to employees, in advance (Yin and Ma, 2015). These incentives are used for influencing the behaviour of employees in a way that they could become better able to accomplish organisational objectives by working harder. The incentives can be paid both in monetary and non-monetary forms. The examples of non-monetary awards are gifts and travel packages (Yin, Chen and Sun, 2013). Horwitz, Kelly and DiNardo (2013)have clearly mentioned that there is no discretion of managers in offering incentives to employees. Once pre-set objectives are accomplished, it is mandatory on managers and employers to give incentives to employees.
According to Krzemie? and Wolniak (2007), incentives are very beneficial as they provide extra value to the working relationship. Having more benefits and good salary package is great, but getting incentives on doing the job in right way is even better. When workers get the opportunity to earn some promotion, vacation day, a raise, and then the workers feel more appreciated. The appreciation does translate into the desire of staying at the company for earning more of the rewards. This let a construction company to retain more good workers while saving the costs of training or to save the yearly hiring (Saleem, 2011).
According to Jha and Say (2013), these inspire a heightened sense of loyalty. Individuals tend to be social creatures and look forward to more relationships that do matter to them. When an employer gives more incentives for job, then this gives a sense of kinship or caring. It motivates each of the workers to develop good link with the company. With the development of relationship in worker’s mind, it enhances the loyalty of workers towards the organisation. Most of the individuals then even go beyond the daily needs, as they do invest more for the welfare of the organisation. Black (2015)said that it is a simple method of motivation. Incentives help in motivating workers to stay more productive because of the reason that there is tangible reward individuals look for, at the end of project. Faisal Ahammad et al. (2015) said that they are easy to include in any industry or working environment, including construction firms. Incentives can be added to any task or job. The major stipulation is that rules that govern that how incentives should be earned need to be precise and clear. Workers should be invited to ask questions related to items that are not interpreted by the workers.
Hopkins (2016) said that it is an easy way to create conflict within the working environment. Individuals who do not get incentives get jealous from the ones who get it. It does not matter when the worker had not worked hard for reaching the threshold of incentive. Because one of the workers has got an incentive, the attitude implies that everyone should get it too. However some of the conflicts can always be seen. These conflicts make the productivity more limited. Dur and Zoutenbier (2015) said that the focus of work becomes competitive instead of being focused on quality. Workers who strive to get more incentives provide more quality of work for beating other workers who look for similar incentives. Individuals try to work in accordance with the expectation levels, set for them. In case, when the expectation levels are not set higher, then it results into making the standards not higher too. According to Madison, Schmidt and Volpp (2014), incentive eliminates productivity from low-level performers. Generally, incentives are provided to only top performers. However some of the employees are seen being consistent with the performance, but talents and natural skills do not get well-defined. When the consistency of individual’s performance does not get rewarded, then it results into decreasing the confidence of workers, making workers more frustrated and to quit because the workers feel being un-appreciated. According to Bonner and Sprinkle (2012), incentives can become quite costly. Enhancements should be made on the cost scale for making them more effective. Receiving a thank you note from supervisor is not enough. Sometimes, there can be the need of piece of candy, then a vacation, or then vacation with some raise (James and Bolstein, 2012).
There are many advantages of bonus and these advantages motivate construction firms to use the bonus for motivating their organisational members. Della Torre, Giangreco and Maes (2014) said that for short period of time, bonus has the potential to increase the performance and productivity level of employees. The construction companies that have smaller projects like within a year are more likely to use bonus because of their short term implications. With bonus, instant gratification could be provided to employees regarding their better performance in the immediate previous period. Drucker (2013) said that the appeal of bonus is always higher than the non-cash incentives. Garbers and Konradt (2014) highlighted that these can be distributed in an easier manner i.e. can be added in employees’ paycheck or provided in cash. Gadde and Dubois (2010) told that bonus are widely used in project based organisations including construction firms because they are easy to handle and they seem more straightforward to influence the behavior of others. These do not need any customisation, hence simpler to manage. Providing bonus for improved performance, surely, improves the motivation, retention and morale of employees. Miner (2015) said that employee attitude can be improved with the help of monetary rewards like bonus. Moreover, a positive working atmosphere could be developed with the improved attitude, which is a result of bonus given to those employees who perform well. Gerhart and Fang (2014) said that in tough economic times and budget constraints of construction firms, bonus help to motivate high performers with extra compensation when firms are unable to offer permanent increments in their salaries or offer promotions. When extra effort is rewarded with bonus or other monetary incentives, a fair perception of the work environment could be developed.
There are also few disadvantages of using bonus and these cannot be neglected in any manner. According to Olafsen et al., (2015), when bonus is used in a continuous manner, they are considered entitlement which employees believe that they will receive irrespective of their performance. In this situation, these do not act as the motivator. Ang, Chen and Wuh Lin (2015) said that when employers are not clear about the behaviour they want to reinforce through bonus, there are more chances that there will be unintended consequences. Chen, Kuo and Lin (2016) found that when bonus is given in groups, they often lead towards frustration because many times this situation creates the perception of unequal contribution among group members. When bonus are just creating an environment of competition where employees are cutting out each other to be better than each other, it creates a culture which is not good for project based organisations like construction firms where everyone has to work collaboratively instead of competing with each other. In long term, the monetary incentives are considered less effective as compared to the non-monetary incentives (Hannan, Hoffman and Moser, 2015). Shields et al., (2015) said that motivational effect of bonus is quite short and this effect quickly disappears soon after receiving the bonus. Frequent bonus are not good for having a healthy culture in the organisations.Bova, Dou and Hope (2015) said that bonus can set unrealistic expectations of employees. When bonus is offered in one year and it is not offered in the next year, it only disappoints workers to work with motivation and dedication.
In this chapter, bonus and incentives are examined. The differences among bonus and incentives are studied. All definitions are discussed in the context of construction industry of UK. To summarise, it can be said that both reward systems are important to motivate employees. Other than motivating employees, they can increase the productivity, performance, motivation, commitment and retention of employees in project based settings. In opposite to this, it is also found that there are many limitations of both rewards hence they must be used with care.
This chapter is about reviewing the performance management in great detail and shedding light on pay for performance implications. Firstly, the performance management is analysed. Secondly, pros and cons of performance management are discussed. This performance management is done in general manner without focusing on any specific type of performance appraisal. As construction industry and other project based organisations are more likely to use pay for performance system, so the further discussion is about pay for performance and its implications.
Performance management refers to the systematic process through which employees of the organisation are used for improving the organisational performance such that the mission and goals could be achieved (Williams, 2016). According to Nankervis (2016), like other organisations, in construction companies performance management is an ongoing process of communication which takes place among employees and supervisors all over the year, with the intention to aid in accomplishment of organisational strategic objectives. In this process of performance management, expectations are clarified, objectives are set, goals are identified and feedback is provided after reviewing the results (Patanakul et al., 2015).
As said by Gong et al., (2017), to oversee construction employees’ performance and to provide valuable feedback cannot be looked as an isolated process. It is considered as an ongoing process which has to be continued throughout the years. It is a cycle which never stops and content might vary as per the changes in objectives (Memon et al., 2014). As said by Hung (2017), the construction organisations which manage the performance of their employees in an effective manner are the ones who achieve their organisational strategic objectives in a better manner than others.
There are many advantages of performance management system when it is implemented in any organisation. Zizlavsky (2014) told that it is due to the performance management system; a criterion can be set and used for the evaluation of productivity and contributions of the employees. With the help of this, organisational managers are in position to guide the performance of employees in the direction of goals and mission of the organisation. Adler et al., (2016) said that biggest advantage of performance management system is that a comparison of employees could be made in accordance with the goals and mission of the organisation. For instance, if an organisation wants to identify the productive workers of the organisation, it can implement a performance management system which can be used for dividing the workers which are competent, under performers and over performers. On the basis of this division of the workforce, appropriate treatment for all workers could be decided. For example, it can be decided that which group of employees need extra training and which should be rewarded with the extra bonus (Buckingham and Goodall, 2015).
Van Dooren, Bouckaert and Halligan (2015) said that performance appraisal systems are based on the objective criteria hence they act as a tool to remove subjectivity and bias during the evaluation process. When there are objective terms, there are lesser chances for nepotism and favoritism in the work processes. The objective criteria defined in the performance appraisal also guides the workers about the expectation of organisation and managers from them hence they are better able to show the performance improvements. They become able to have a better and objective idea that what are the performance standards on which all employees are working and being evaluated; hence they are better able to contribute positively.
Dewettinck and van Dijk (2013) highlighted one benefit of performance management system and it was asserted that performance based conversations could be fostered with the help of such system. In this busy routine in all organisations, the opportunities for coaching and mentoring are often neglected but when there is a formal performance management process, it obliges the managers to discuss the performance related issues and also help them through coaching, training and mentoring to improve the problem issues. Jaafaripooyan (2014) said that performance management system is helpful because they help to target the staff development objective of the organisation. When a performance management system is managed in an effective manner, it can become a source of development as developmental needs are often identified through the performance appraisal system. This further helps in succession planning process of the organisation. Mone and London (2014) said that when all good and positive things are celebrated, the performance appraisal becomes a source of encouragement for staff employees. Most importantly, Aggarwal and Thakur (2013) has highlighted that performance management system are important because they are often tied with the rewards and bonus of employees. When there exists a clear correlation among performance management and financial rewards, employees are motivated to work with more efforts and dedication.
There are various disadvantages which are associated with the performance management systems which are implemented in any organisation. Jaafaripooyan (2014) has mentioned that these performance appraisal which are critical element of performance management are considered time consuming. Managers have to spend hours for writing performance appraisal of one employee. When number of subordinates is higher, many useful hours from the duty are wasted in writing appraisals. Likewise, there are hours which go waste in reviewing the staff performance appraisal. Mone and London (2014) said that this performance appraisal process often becomes the source of discouragement for staff employees. When the process is not pleasant, overall experience unpleasant hence it discourages staff to work with more dedication and motivation. For performance management process to be successful, it is critical to ensure that this process acts as a tool for encouragement and reinforces the positive behaviour. For this, it is critical to ensure that all of the positive things of employees must also be documented in a proper manner along with the negative performance factors. The performance appraisal should have both positive and negative aspects but usually managers keep their focus on negative elements and in this way it becomes a source of discouragement for employees. Arena and Arnaboldi (2014) has also highlighted that one con of performance management is that they give inconsistent message to the employees. If managers are unable to record accurate employee behaviour, the whole purpose of performance management can go negative as if accurate record is not maintained and appraisal is done on subjective memory only, it gives inconsistent message to employees. It is not humanly possible to memorize each and every critical behaviour of all employees who are working under the managers; therefore, the only solution is to maintain the documents for all positive and negative issues. Tseng (2014) said that performance appraisal is considered problematic due to the biases which are attached with the process of appraising employees. To ignore the biases is not an easy task to do and a very structured and objective process and experience of the manager is mandatory for ensuring the unbiased performance appraisal. Cascio (2014) also said that rater errors in performance appraisal are common therefore the natural biases in this process cannot be ignored by any manager.
Aggarwal and Thakur (2013) said that when faulty criteria are used for evaluating the performance of employees, it only brings negative results for employees and the organisation. For example, when employees are evaluated on the basis of quantity and quality is not considered an important criterion, it only brings disastrous results for the organisation. Therefore, for getting maximum advantage of the performance appraisal, the best solution is to attach the performance management system with the organisational strategies and objectives. Hatry (2013) has discussed the issue of low morale which is also associated with the performance management. It was asserted that even the implemented system is largely fair, the things like internal competition and the strain of meeting rigorous standards can bring harmful consequences for employees. When there are very limited promotional opportunities in an organisation and performance appraisal has highlighted the corrective actions needed by many employees, a tendency of workers to focus on corrective actions is often observed where they start losing the focus on the job related activities. Tseng and Lee (2014) have asserted that creativity is discouraged with the performance management system as it fixates employees to focus on certain pre-defined performance dimensions. In this situation, there is limited room for solving the problems creativity which involves high risk along with the high returns. When employees creativity and initiative is not exploited by an organisation it is considered a more inefficiently run business.
In majority of construction companies, pay for performance is used which means that the rewards (i.e. incentives and bonus) are linked with the performance of employees. As said by Nyberg, Pieper and Trevor (2016), many times, performance management system is linked together with the compensation system and this is what helps organisations to achieve the organisational objectives. Though there are various ways to link performance with rewards, the research focuses on pay for performance system. In construction industry, for managing performance of employees, incentives are associated with the performance of employees. According to Gok and Alt?nda? (2015), one of the most commonly used compensation systems in construction industry is pay for performance which is also known as performance based, variable pay, merit pay or incentive based pay (Miller and Babiarz, 2013). These are nothing else but formal compensation systems which are associated with the individual or organisational performance. As said by Van der Linden et al., (2015), when performance quality and quantity is objective, these systems work in the most effective manner. This is different from performance related pay increments which are given to employees when they perform well as these increments are made in the base pay and salary of employees (Bardach et al., 2013). The pay for performance compensation system is considered effective in majority of cases because it helps in clearly communicating to employees that they will get increased incentives when they will perform as per their best potential (Abrahamson et al., 2015).
Gerhart and Fang (2014) have carried out very important researches. The research gives answers to two significant questions linked with pay for individual performance. First question is that what is the current amount of pay for performance and second question refer to the positive and negative effect of pay for performance. Positive effects of Pay for performance involve sorting effect and incentive; and negative effects states that pay for performance is basically not a motivator. It does not prove to be effective in terms of teams, and do not get fit into most of the cultures. This paper highlights the effectiveness of PAY FOR PERFORMANCE in companies and its effectiveness in some of the cultures. It depicted conceptual treatment of PAY FOR PERFORMANCE in company and its effectiveness in various contexts. Dependent on compression, it has been identified that pay for performance owns both benefits (incentive influence) and also other drawbacks (like sorting influence). The analysis has resulted that various positive activities of pay for performance tend to affect the effectiveness of company. It has been identified that pay for performance cannot be the major motivator for making effectiveness in the performance of an organisation. Sort influence of pay for performance does influence the performance in negative way (Sauermann and Stephan, 2013). Therefore in most of the cases, various economies, individuals and organisations get important organisational effectiveness through pay for performance. Prosper pay for performance technique tends to be more based over application and design. It has been identified that with the increment in pay for performance incentive intensity, the performance also gets incremented. It has been seen that gain comes with number of risks; therefore higher risks tend to have negative outcomes. Therefore, it has been concluded that balance between behaviour based plans and result based plans is important among individuals. In contrast to other researches, it defines pay for performance in the most diverse cultural context and in terms of teams. It uses a comparison survey strategy for defining the outcomes (Hartmann and Slapni?ar, 2012). From the proofs acquired through this research, it can be stated that pay for performance is the most significant approach for effective performance of organisations. It can be stated that positive influence (incentive) and negative influence impact the organisational performance. Pay for performance is termed as the basic motivator but not as the single motivator on which organisation relies. Same like this, it tends to be different in accordance with cultural context. Brehm, Imberman and Lovenheim (2017) have also present similar statements. Therefore, these proofs hold more significance as it tends to get more dependent over classic research.
Along with it, another research that has been done by Eijkenaar et al. (2013) holds the perspective to provide a complete image of influences of pay for performance in broader scope. The results of the literature review have proposed that pay for the performance can be efficient in terms of cost. However, researches have showed different outcomes (Kondo et al., 2016). It has been seen that there is weak influence of pay for performance in socio-economic groups. In some of the variations, the influence has been found as continual. Proofs define that accidental circumstances of pay for performance involve spill over impact. However, most of the positive influence of pay for performance has been identified. On contrary to this, the other research studies have targeted on shaping the outcomes based on past literatures. This study holds more literature on influences of pay for performance that are characterised in the most systematic way. This study can be taken as the most conclusive research which has reflected over the results of various studies. This research proposes that there is still a requirement to conduct more research in order to develop a conclusion related to the influence for pay of performance within the company. Unlike the researches of McDonalds (2014), this study has not provided consensus with positive influence of pay for performance approach. This research has maintained the statement that there can be some diverse influences of pay for performance, involving both negative and positive ones. In addition to this, it has also maintained its compliance with other researches involving the study of Jirjahn (2015) and Kondo et al. (2016).
Most of the techniques of compensation are dependent over economical agency theories. The study of Larkin, Pierce and Gino (2012) defines different psychological factors involving the pay for performance that gets neglected through the agency theory while doing the analysis of compensation. Authors have defined that how pay for performance of an individual gets influenced through the psychological cost (overconfidence, social comparison). A theoretical framework has been developed that defines more productive means to use performance dependent pay. It defines that compensation is not the only motivating factor; it also influences the productivity of organisation and group work. The research has developed a new and effective integrated and projected theory of compensation. The base of this theory is literature that has been obtained through psychology and economics. Agency theory is termed as the most dominant theory and is used for identify the compensation technique. In the literature of economics, issues linked with agency theory involve efforts, skills and results that influence the effectiveness of compensation strategy (Gittleman and Pierce, 2015).
The researcher has argued on different insights for developing compensation technique. The researcher has developed a framework that took two factors of agency theory into account (sorting procedures, provision of effort along with other psychological factors) (Jirjahn, 2015). Two of the psychological costs have been taken into account involving cost of overconfidence and social comparison that influences the performance of people and also of organisations. The outcomes of the previous researches have recommended that using these factors termed as sorting mechanisms and effort provision in compensation technique cause positive influence on individual’s performance (Weibel, Rost and Osterloh, 2009). The researchers have recommended that managers should take cost of overconfidence and social comparison into account while making some compensation technique to acquire the required results. These results are highly useful as it provides the description of theories linked with the pay for performance. Some other additions made through authors have also proven to be helpful for the research (Hewitt, 2012). The differentiated approach of these results lies in the notion that the context of psychology has been taken into account while investigating the pay’s effectiveness for performance (Doran et al., 2014). Some of the researches have been done that have connected psychological cost with the theoretical consideration (Della Torre, Giangreco and Maes, 2014). These researches recommend that inclusion of overconfidence, social comparison develop positive results of pay for performance. It makes this research quite different when compared with other researches. Along with this, the study of Gadde and Dubois (2010) has addressed aspect of justice in addition to other criteria for generating effectiveness of pay for performance and this aspect has asserted that in order to gain benefits from reward system, it is highly important to focus on maintaining justice within organisation. Overall, it is notable that there are contradictory views of researchers regarding effectiveness of pay for performance and reward system in projects handled in different organisations. Thus, the underlying study could offer and in-depth insight of the extent to which pay for performance, bonuses and incentives can be used for fostering the success of projects.
Along with it, the research of Frey, Homberg and Osterloh (2013) states that in various kinds of conditions pay for performance owns negative influence over the outcomes of organisations. It has been identified more in the public sector when compared with the private sector. These results have been acquired through using management control theory and behavioural economics. A lack of theoretical basis has been identified in public service management. Researchers have led more stress over utilisation of theoretical basis in governmental companies. The theory can be utilised along with other two factors termed as extrinsic and intrinsic motivation. Usage of these theory outcomes into the fact; that adopting pay for performance technique should differentiate various tasks. In accordance with this, the theory of management control has been implemented that helps in differentiating different tasks like efficient control systems that provide effective outcomes. The researchers have recommended that new public management should be used that consider applicable performance based pay and control system for acquiring the required results (Hartmann and Slapni?ar, 2012; Hon, 2012). Along with it, for motivating public services, performance based pay, justice, and inclusion of rewards also tend to be important. All of these motivators can be implemented through powerful theoretical base. The research of Brehm, Imberman and Lovenheim (2017) defines two different theories that do the incorporate of pay for performance in public sector. It highlights the practices of pay for performance that do increase the level of performance in public sector. Pay for performance and incentives are the most important approaches for the productive outcomes oforganisations. It has been identified through research that pays for performance is used for motivating construction employees in diverse cultures. For example, in accordance with the study of
Gerhart and Fang (2014), for developing positive outcomes of rewards system and pay for performance, the businesses should get aligned with particular context. Therefore, this research has suggested that pay for performance might not provide similar outcomes in various settings. Moreover, by moving onto the outcomes of Larkin, Pierce and Gino (2012), it has been identified that there are two major factors; overconfidence and social comparison. Therefore, research has recommended different ways with the help of which positive influences of pay for performance can be developed. Finally, the outcomes ofFrey, Homberg and Osterloh (2013) have targeted more over public sector. It has also provided that through depending over adoption of public management, public sector organisations can develop positive benefits.
By further exploring the secondary sources of information, it was found that organisations who align compensation with performance appraisals can successfully encourage their employees to attain higher standards of performance by aligning incentives with the level of their performance (Weibel, Rost andOsterloh, 2009). The consistency in application of pay for performance standards is considered as one core aspect of pay for performance system. Any inconsistency and inability of management to maintain fairness in distribution of bonuses and incentives against performance of employees can limited the positives of pay for performance system (Hamel, Roland and Campbell, 2014). Instead, it can lower the morale of employees and can result in declining performance level of employees.
It has also been explained by some of researchers that ineffective pay for performance system can create greedy culture within an organisation. In such culture, employees can become conscious about their performance unless they have received bonuses and pay raise. When performance review period is completed and employees are offered compensation, incentives and bonuses against their performance, then they might limit their efforts and thus inconsistent performance can result (Gittleman and Pierce, 2015). Such result of pay for performance can be considered as deteriorating in long run as it vanishes sense of citizenship from employees and thus leads to lower level of productivity in long run. These results are important to be considered while making any verdict about the effectiveness of performance based measurement system (Ederer and Manso, 2013). It is important to consider that mere reliance on performance based measurement system at expense of ignoring other approaches of employee motivation can prove to be disadvantageous for enhancing long term productivity of businesses and projects.
Moreover, by going through the evidences of secondary sources, it was found that pay for performance and rewards system based on performance measurement cannot work for all types of organisational cultures. In some cultures, objective performance criteria are considered as more valuable that cannot be easily and effectively tracked and rated for applying pay for performance standards (McDonald, 2014). In such cultures, performance based measurement system can prove to be counter-productive as it can give rise to negative competition and can create negative working environment. The sense of collaboration and team work can be ignored as a result of such un-productive behaviour and thus the ability of organisation to get along all of its employees can decline (Morris et al., 2015). It has also been supported by the evidences mentioned in the study of Shields et al. (2015)stating that lack of compatibility of reward system with organisational culture and values can through team work, cooperation, trust and normative behaviour out of the window and it can negatively affect the productivity of organisation in long run.
In addition to it, the views of researchers about effectiveness of pay for performance system within project settings have provided that over emphasis on pay for performance measurement can sometimes overshadow the value of reviews and feedback (Van De Voorde, Paauweand Van Veldhoven, 2012). The employees are likely to pay minimum attention to feedback when discussion of compensation, rewards and bonuses comes on the heels of performance reviews (Larkin, Pierceand Gino, 2012). The constructive feedback might be overlooked when employees witness limited prospects for pay raises and bonuses. Given this view, it can be considered important that when management offers limited attention to finding a best fit between the values and expectations of its members and implies pay for performance system without consideration, then its adverse consequences might be unavoidable and it might affect productivity of organisation (Weibel, Rost andOsterloh, 2009).
To summarise it can be said that performance management system is a detailed and systematic process adopted in organisations to manage the performance of employees through appropriate methods. It has many advantages and limitations which are discussed in this chapter. Further to this, project based organisations especially construction firms are more likely to use the pay for performance for motivating employees, so this chapter has provided both positive and negative aspects about how it can influence motivation level.
There were four objectives of this research and all four objectives are successfully accomplished in this research. This chapter concludes this dissertation.
This research has concluded that the motivation of employees is quite important because the performance of employees heavily depends on the motivation. It is concluded that driving force for defining performance level of individuals. Motivated employees are also highly engaged and work with more dedication for the organisation objectives. Construction organisations are finding the means through which they can motivate their employees such that performance objectives are accomplished. In this research, various theories i.e. Maslow’s Hierarchy of need theory, Herzberg’s two factor theory and expectancy theory are reviewed to examine the role of pay for performance in motivating employees, in context of construction organisations. After reviewing all of these theories, it is concluded that the concept of motivation has remained consistent among all theorists and motivation is being defined as the predisposition which fosters specific behaviour of individual with an aim of achieving specific needs of individuals. Hierarchy of need theory has highlighted five needs of individuals namely physiological, safety, social, esteem and self actualisation.
This research concludes that pay for performance is needed for those employees who are striving for fulfilling their physiological and safety needs. So when employees are at this level of fulfilling their needs, pay for performance becomes an important tool to motivate employees to work for getting better fulfilment of their physiological and safety needs. At higher level of needs, this monetary incentive for employees become less important and they become more likely to be motivated through other factors. As per theory of Herzberg, there are two factors which are important to be considered for motivation of construction employees and these are named satisfiers and hygiene factors. As per this theory, it is concluded that monetary rewards or pay for performance do not have potential to influence the motivating level of employees in construction companies. For enhancing performance and motivation, the focus must be on intrinsic elements.
From the expectancy theory, it is concluded that when employees believe that if their efforts are likely to result in good performance and their performance is going to be rewarded, then their motivation level increases significantly. Therefore it is concluded that fair pay for performance can increases the motivation level of employees in the construction organisations as well.There are many types of monetary rewards which could be used by organisations for motivating employees, but the most commonly used monetary rewards in construction sector are bonus and incentives. In pay for performance system, the concept of bonus is quite commonly used. It is concluded that two types of bonuses i.e. discretionary and non-discretionary could be used. In its true sense, these are discretionary bonuses which are part of individual pay for performance system.
This research has further concluded that incentives, a type of monetary rewards, have a significant potential to influence the motivation level of construction employees. These incentives indicate employees that their efforts are valuable for the organisations, therefore, these are rewarded. It is also concluded in this research that there exist significant differences among bonus and incentives, therefore, their use should not be mixed with each other. The most appropriate alternative should be selected for motivating employees. There are many pros and cons of incentives. The advantages and disadvantages of incentives have identified that the incentives can proven to be more motivational, but in case when they get incorporated in an inappropriate way, then the incentives cause destruction in the morale of team. All of the incentives should be used judiciously. Limits should be set on what can be awarded. Different ways should be identified for providing incentives to all team tiers, so that each of the individuals feel appreciated.
From the systematic literature review, it is found that performance management is a systematic and organisation wide performance which is used for managing the performance of employees and same is in the construction sector. Through this process, feedback is provided to employees and discrepancies could be handled in an effective manner. It is found that performance management system is important for construction companies because it has many advantages and most importantly, motivation level could be increased with this. It is concluded that performance management provides the criterion through which contribution and productivity of employees could be managed and tracked. The organisational objectives could be accomplished and appropriate treatment could be decided for better and worse performers. It provides an objective criterion to assess performance, appropriate actions could be taken and employees’ development could be ensured. It is also found that performance management and appraisal can also become problematic as it also has few cons. It encounters the issue of subjectivity and bias through which inaccurate assessment of performance is done. It is considered a time consuming process which have little effectiveness. If not effectively done, performance appraisals can be a source of low level of employee morale. Sometimes, these can also inhibit the innovation and creativity among employees.
There are many types of performance management systems and one of these is the pay for performance system. The focus of this research is on pay for performance, as construction companies use this system more commonly. It is concluded that pay for performance has both positive and negative impacts. From the analysis, it is concluded that the effectiveness of pay for performance is high due to the sorting effect and incentive which is given to construction employees when they work better. The analysis has also revealed that pay for performance is not a motivator; it is not effective in teams, and do not fit in many cultures. This research has concluded that deduced that pay for performance is an important aspect for organisation’s effective performance. Pay for performance is a source of motivation but it should not be neglected that there are also many other motivators. The analysis and reflection has shown that if only pay for performance is used as the motivator, results will not be positive. It needs to be used with other motivators. It is considered cost efficient measure for many of the organisations, but it is not reasonable to conclude that pay for performance is the best motivator of construction employees.
From this research, it is concluded that before using pay for performance in construction firms, the social and psychological aspects should also be considered. It is also found that public sector organisations are more likely to have the negative impacts of pay for performance; therefore, construction companies from public sector must be more proactive and vigilant if they have to use the pay for performance system for motivating employees. Overall, it can be concluded that when organisations from construction sector has to implement pay for performance system, they should proactively consider all consequences of this system. It can be a tool for motivation only if it is designed as per strategic objectives and culture of the organisation.
In this research, there were certain limitations which are encountered to the researcher. This research is completed using only the qualitative methods. This research has not used the quantitative methods because the aim and objectives were more aligned with this method. Nevertheless, this cannot be ignored that alone qualitative methods face many issues like subjectivist approach leading towards bias. Many of the experts in research methodology has asserted that to reduce the limitations of the qualitative methods, the best alternative is to combine it with quantitative methods. The mixed methods approach is considered more feasible in social and management sciences. Therefore, it is recommended to future researchers that while analysing the pay for performance, incentives and motivation in construction industry, they should use the mixed methods approach. The mixed methods will enable the future researchers to obtain more valid insights about this research issue. As per requirement of dissertation, secondary methods are used only in this research. During the analysis and data collection stage, it was found that the objectives of this research could be better accomplished by combining the primary data approach for this research. Therefore, it is recommended to future researchers that they should use the primary methods in combination with the secondary methods to examine the pay for performance, incentives, bonus and motivation in construction industry. Moreover, the secondary data collection process, in itself, faced few limitations. It was not possible to access all of the secondary data easily as all of them were not freely available. Few important sources were purchased by the researcher, but due the cost constraints, all could not be purchased. It is recommended to future researchers that they should use more secondary sources to get more valuable insights.
On the basis of the research findings, it is recommended to construction industry practitioners that they should use the pay for performance system as this can help better in fulfilling the physiological and basic needs of employees. Construction workers usually have majority of labours and they are the ones who hardly touch the upper level needs of the hierarchy and they strive to fulfil lower level needs. So, monetary rewards in form of incentives along with the bonus and pay for performance based pay will help to motivate these workers in the real sense. The managerial level employees of construction industry usually are more inclined towards the intrinsic motivation, so this should be targeted effectively. Most important implication is that firstly this needs to be investigated that what is the level or type of need and how the employees could be motivated. To be specific about types of bonus, discretionary bonus are more effective for motivating employees, so they should be used by managers if they want to have the higher level of motivation of their employees. While designing the reward strategy, mix of incentives and bonus should be used and this should not be overlooked that both have their own advantages and disadvantages. These must be carefully incorporated in the reward strategy. As found, performance management system should also be implemented in an effective manner. When an effective performance management system will be in practice, the performance of construction employees will eventually improve. Every performance management system has certain limitations, these should be considered and appropriate strategies should be used to minimize them. For example, the problem of bias could be solved by 360 degree feedback system or training could be provided for effectively using the appraisal system. When organisations from construction sector have to implement pay for performance system, they should proactively consider all consequences of this system. It can be a tool for motivation only if it is designed as per strategic objectives and culture of the organisation.
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