Rewarding employees for corporate performance improvements

Abstract

Given that financial rewards constitute more than 40 percent of payroll budgets, total reward is a most important and complex notion that organizations seeking to accomplish set purpose(s) must pursue. Vying to sustain themselves and to gain competitive advantage, business enterprises and other societal organizations increasingly care for their employees’ well-being. Ergo, employers face two decision options, namely financial and non-financial rewards that make employees content. Unfortunately, most firms emphasize one option more than the other, depending on their prevailing circumstances. Using a mutual-investment framework as a guide, this article explores the influence of employees’ total rewards on corporate performance.

Analyzed are the influences of both financial and non-financial employee rewards on an educational institution performance and how such rewards improve performance. When provided, total rewards can entreat employees to retain their positions, while remaining loyal to their respective organizations. Yet the implementation of total rewards in an educational institution calls for employees’ bravery, especially concerning non-financial rewards, which render employees semi-autonomous.

Keywords

Employee performance motivation intrinsic organization reward

Ama Foriwaa Karikari is the Vice Rector and a full time lecturer at Valley View University Techiman in Ghana. Her research interests are in the field of Business and Management studies.

Portia Opoku Boadi is a PhD Candidate at the School of Management, Harbin Institute of Technology. She obtained her Master’s degree at Xiamen University, China and her Bachelor degree at Valley View University, Ghana. Her research is in the field of Management, Marketing, Economics, Strategic Management, E-commerce and Social commerce.

Andrew Adjah Sai is a PhD candidate, a lecturer at Estonian Business School and Analyst at Microsoft. His research interests include strategic management, change management, business information systems management, finance and accounting, resources for human development.

1 Introduction

Worker self-development is seen as very essential to an organization’s sustenance, growth and development, and as such one of the elements of production that cannot be ignored. Handling employees’ well-being in organizations has become an essential issue in sustaining overall performance. Researchers tell the significant role played by employees in improving organizational performance [7] just because they make achievement of set targets happen. Even though [26] affirms that we live in an era that is very difficult to tackle the problem of how committed employees are to the organization. Luthans and Stajkovic [25] believe that “an organization’s valued human assets cannot be copied” and as such an executive expressed that “machines do not make things, people do.”(p. 49). Therefore, it is presumed that worker self-developments are treasured assets when it comes to achievement of set purpose(s) as well as having a competitive edge over rival companies.

Management of people (which includes seeking their well-being by giving incentive packages) can play a decisive role in employees’ contributions to the organization [1 , 19]. Thus, “when employers signals their ability to cater for the well-being of employees, they will in turn react with more goodwill, commitment and willingness to cooperate” [24]. Accordingly, among the elements of production, a person is the critical consideration. In a review, [25] mentioned that “personnel self-development are still the major force for creating distinctive core competencies” in organizations. It is no wonder that the CEO of Chrysler (now Daimler-Chrysler) said: “The only way we can beat the competition is with people.” (ibid, 1999, p. 50).

In this article, the researchers addressed the issue of whether total rewards given to employees pay off. The question is: “what could happen to an employee’s contribution to an organization with/without both financial and non-financial rewards?” According to [14, 17], management must make the conscious effort to provide employees with their basic needs to give them a conducive working environment so as to reduce employee turnover rate. The basis for the total rewards process is the mutual-investment framework, which implies that when the employer takes good care of employees, they will reciprocate. Consequently, the concept of motivation sets in, despite the fact that employees are sometimes faced with management of “absolute despotism” [16].

2 Total rewards and mutual-investment framework

2.1 Motivation

Guay et al. [18] define motivation as “the reasons underlying behavior”. Other researchers described motivation as “the attribute that moves us to do or not to do something” [8]. Gleaning from both definitions, motivation pushes employees to exert efforts to accomplish assigned tasks and even at times go the extra mile. As a result, the concept of motivation is significant in business operations. It is expected that effective management of employees also depends on the level and how motivational packages provided are designed [27]. How can an organization motivate employees effectively? Motivation comes in different forms; basically intrinsic and extrinsic. Intrinsic motivation is one that is animated by personal enjoyment, interest, or pleasure [23]. This motivational type is inherent of employees, which energizes and sustains organizational activities. It is “manifested in behaviors such as play, exploration, and challenge seeking that people often engage in for external rewards”[12]. Intrinsic rewards focus on psychological rewards that employees get from doing meaningful work. Extrinsic motivation is often financial – salary increment, bonuses and other monetary benefits - in nature given to employees. This is outside the work itself and its size are controlled by other people. Managers often determine whether or not it should be granted. With complexity associated with motivational issues, researchers often contrast intrinsic motivation with extrinsic motivation, which is motivation governed by reinforcement contingencies [23].

Conventionally, intrinsic motivation is welcomed by corporate industries due to non-monetary aspects related to it. Thomas [37] argues that “most of today’s workers are asked to self-manage to a significant degree – to use their intelligence and experience to direct their work activities to accomplish important organizational purposes”. Self-management of tasks assigned gives such employees the opportunity to be innovative, to solve challenging problems and to come out with unique strategies for organizational growth and development.

Related studies on organizational rewards revealed the following findings:

Pay satisfaction studies consistently affirms different benefits characteristics. As a result, several variables may be used to describe benefits characteristics [15, 21]

There is a relationship between employees’ perceptions about rewards and job satisfaction and organizational commitment [3 , 41]

There is a distinction between benefit level satisfaction and benefit process of satisfaction [27]

Benefit process features have both direct and indirect effects on benefit knowledge and use, affective and continuance commitment. Researchers suggested improvement of organizational communications on given benefits [34]

Tinofirei [38] indicated “that a holistic and multi-faceted approach is essential in addressing, mitigating and where it is beneficial, accentuating the unique elements that affects employee performance in non-profit organizations”.

The study findings above clearly indicate that there are diverse ways in addressing rewards in an established organization and institution to measure its influence on the performance of employees. The attention of this research is on the total rewards available for educational institution workers. As a result, the basis for the total rewards process is on the mutual-investment framework [40] which acknowledges that employees will reciprocate when employers takes care of them in the organization.

2.2 The mutual-investment framework

The mutual-investment framework concerns the employee-organization (employer) relationship [39 , 42]; whereas the employee-organization relationship (EOR) construct describes the formal and informal, economic, societal and psychological connections between an employee and an employer (Fig. 1). Ideally, there must be a dynamic balance in both participants’ expectations and inducements, hence the mutual investment EOR notion.

Fig.1

The EOR as adapted from [40].

According to [40], mutual investment and over investment EORs entail high or broad offered inducements. The former requires the employer and employee to invest in each other for a longer time frame, whiles the latter involves higher levels of investment in employees but no auxiliary duties are required of them. With regards to underinvestment EOR, spending on employees are lower but much is expected of them in a “broad-ranging” prospects [32], whiles the quasi-spot contract requires the employer to give out a momentarily encouragement in monetary terms as the employee follows a strictly defined set of inputs. Jia, Shaw and Park [22] affirms that employees react positively to the mutual investment EOR than any other EORs.

A balanced employer-employee relationship concept propounded by [40] is also termed to as the mutual-investment framework. This framework suggests that employers have high expectations about employee performance whereas employees perceive employers from paternalistic perspective. “Employers may expect employees to trust organizational decision makers enough to learn skills that are not easily transferred to other organizations and to rotate over job assignments or even physical locations when needed” [32]. Extant research has confirmed that mutual investment EOR can improve “employee reactions such as affective commitment, organizational citizenship behavior (OCB) and job Performance” consistent with the results of [2], and this improves profitability of the organization. The authors disagree with Tsui et al’s argument on employer-employee relationships. Their ideology seemed one-sided; that is, shifting responsibility to the employees only. However, mutual responsibilities should be shared. Employers should be committed enough to make employees content in order to minimize the imbalances in terms of expectations and inducements. Employees might neglect the rules of the organization [16] and rather slow down in terms of productivity when management adopt the autocratic kind of government.

In addition to the mutual-investment framework, the universalistic approach could enhance performance of employees. In support of the prior framework identified, [13] prescribed the “best practices” (universalistic approach) in organizations. It is so because it ensures high commitment and high involvement on the part of employees in every organization. By implication, the “best practices” equally appears to be biased against employees because it enforces the argument raised by Tsui et al. (1997). Both mutual-investment framework and the supposed best practices put the organizational burden on employees and that is unfair. Thus, it results in an imbalanced relationship between the employer and the employee. Though an unfair situation as the authors argued however, research has proven positive effects between employee-organization relationship and performance (Prof. Karin Sanders, Organizational Psychology, n.d.). Perhaps, organizational rewards process influences both employee and the overall organizational performance.

2.3 Organizational rewards

The research classifies the reward classification of the organization as part of benefits package. The dictionary meaning of benefit is “an advantage, help, sake or aid from something”. Different researchers have studied on diverse aspects of process of benefits. Sinclair, Leo, and Wright [34] identified four attributes of benefit process that are thought to influence employee attitudes and behavior. They are employee participation, organization quality, communication quality, and benefit importance. Further on benefits issue, [20] encouraged employers to adopt the customer service approach in managing benefit processes. He described five service-related dimensions that employees are evaluated with, with respect to benefit processes namely; dependability, knowledge, convenience, efficiency, advocacy. Dependability involves delivering what is promised when promised. Knowledge refers to the accuracy and amount of employees know about the processes. Convenience stipulates that the term should be easy to use. Efficiency involves providing timely communications and claims processing. Finally, advocacy requires the benefit process to be responsive to and considerate of employees’ needs.

Analysis of the benefit processes may serve as a bait to come out with the reward types instituted in organizations. Reward is defined as something of value given in return for an act. That is, it includes anything an employee values and desires that an employer is able and willing to offer in exchange for employee contributions. According to [35], rewards are outcomes in an organization that satisfy work-related needs. To that, [11] defined motivation as the willingness or desire to do something, conditioned by the activity or the ability to satisfy some needs and such needs are often associated with work.

According to [30] “total rewards take a holistic approach to rewards by going beyond the strong focus on pay and benefits which has been the hallmark of traditional compensation practice” [38]. These rewards are perceived to be a promising approach to rewards management as experimented by IBM, Microsoft, Astra Zeneca, and Johnson & Johnson [30]. They mentioned that total rewards takes care of all compensation benefits available at the workplace, which includes intrinsic rewards like opportunities for learning and development, and quality work environment. However, the researchers also shared that total rewards work well for R&D and other technical personnel. This article sought to describe total rewards from both financial and non-financial perspectives.

Financial rewards – this reward comes in two folds – direct and indirect financial rewards. Direct Financial rewards consist of the pay an employee receives in the form of salary, wages, and commission. This reward has its own challenges to deal with. Das [10] argued that “one of the most difficult yet highly desirable aspects of managerial pay is the establishment of a direct linkage between pay and performance.” By implication, organizations are troubled in determining how much payments are measured with an employee performance. Through observation in the corporate industry, certain payments are made to employees that employers find it difficult to link directly to their economic contributions. Indirect financial rewards consist of all the tangible and financially valued rewards that are not included in the direct compensation. Examples of indirect financial rewards are social security, maternity/sick leave, vacation time, free meals, medicals, flexi-time, retirement plan, child education, and gym facilities. These rewards add up to the financial burdens of organizations, even though fiscal money is not paid to employees. The indirect financial reward increases expenditure of every organization. Traditionally, organizations work so hard to minimize expenses and maximize revenue/profit.

Non-financial rewards consist of employee rewards and incentives that are not financial in nature. These include flexible work schedules, development opportunities, the physical work environment, organizational culture, organization reputation, and challenging/interesting job.

Total rewards are perceived to be attractive packages to employees, because it gives the impression that the organization is ready to address the basic needs of employees. However, in effect it might not be so. Organizations’ ability to cater for the physical, monetary and psychological needs of employees is relevant in inducing them to work willingly. It should be recognized that such well-being packages come with huge costs to organizations. Therefore, some organizations, depending on their size and purpose of existence vary incentive packages given to employees [10]. Seemingly, this author suggests that internal evaluation of productivity and performance should be in place to match financial rewards given to employees.

Total rewards are so vital to keep organizations and its constituents. Therefore, a properly administered total rewards may serve as an incentive for quality workmanship and employee performance [9]. It can possibly attract other skilled and qualified persons to join the organization. However, the reverse might lead to an unproductive performance and even to a high incidence of staff turnover. Due to the sensitive nature of compensation packages, [29] shared that “financial reward has always been important in managing an employee’s performance, but over the last 25 years other elements of compensation have been developed to provide employers with more scope to reward, and thus, motivate employees”. The other elements of compensation could be intrinsic rewards that may drive employee engagement [36].

According to [30], total rewards seek to fully utilize a firm’s available ‘reward offers’ to yield the greatest returns. Thus, it integrates diverse activities/events - flexible working hours, reducing voluntary turnover with career advancement or training opportunities, and increasing employee engagement - that are not necessarily thought of as rewards by everyone. Practices such as achieving greater employee productivity as a result of a robust performance management framework are integrated with the monetary compensation procedures to yield optimal results for the broad reward process as a whole. Thus by reducing or preventing the tendency of “free riders” parading in organizations it would be needful for employers to strengthen measures to determine employees’ performance.

2.4 Employee performance

Performance of employees is defined as “the way to perform the job tasks according to the prescribed job description” [31]. Thus the work of employees is fallen in line per the given organizational hierarchy, which determines the communication flow as well as line of authority. Simply, performance is the art to complete the task within the defined boundaries of every organization.

The growth and development of every organization is tied to the job performance of their employees. It is clear for employees to realize that individual successes translate into institutional success. Much of employees’ success may be observed during recruitment and hiring process. At said times; observant employers can predict the attitude of candidates for employment. Good attitude of potential employees may have bearing on their performance at work.

It is worth mentioning that the dynamic business environment coupled with keen competition can affect employees’ performance. Hence, firms are required to set and reach given standards by improving organizational operations. Muda, Rafiki, and Harahap [28] commented that “this performance relates to the firm or individual level which sees the employees becoming the most determining element to achieve the organizational purposes”. Therefore, seeing the essential role(s) played by employees implies how strong employees’ performance can be reached. The research suggests that organizations should tighten appraisal measures and resolve problems identified by the exercise as soon as possible.

In enhancing organizational success, Muda et al. stressed on three characteristics influencing the performance of employees namely job stress, motivation and communications (2014). Job stress may emanate from the nature of job, personal lifestyle and family related issues. Feddock et al., (2007) aver that “each individual is exposed to a range of stressors both at work and in his or her personal life which ultimately affects work performance [28].

Motivation: Employee motivation is obviously important and it is believed to work magic. In fact, it is one of the most important and essential component for the achievement of employees, and ultimately the organizational targets and purposefulness [5]. Communication gives organizations the opportunity to have good coordination among teams or unit heads whereas absence of it can even lead to closing down of a firm. Aside the three prescribed elements above, other researchers argued that manager’s attitude, organizational culture, personal problems, job contentment and financial rewards stimulate employees performance [31]. Undoubtedly, the focus of this study is credible to have a relationship with employees’ performance.

3 Methodology

Diverse literature has been produced on motivational packages given to employees but the influence of total rewards on an employee’s contribution to an educational institution seems very scanty. This research, therefore, analyzed the various variables of total rewards and how they influence employees’ performance, in the form of contribution to an educational institution. Since this study is largely exploratory, the purpose is to throw more light on the interpretation of total rewards and its influence of employees’ performance. Subsequent studies can therefore gather empirical data to test total rewards influence on employees’ performance.

4 Conclusion and recommendation

Every organization is unique because of its ranking which determines flow of communication. The organizational hierarchy influences different functions of jobs created, line of authority and communication flow, which invariably contribute toward the attainment of organizational purposes. Yet, given the costs associated with compensation packages, it is surprising that there is relatively little research on specific compensation packages used in organizations. It is assumed that firms that address the well-being of their employees are able to attract, retain and motivate them. Therefore, all possible benefits packages should be unearthed to induce employees’ loyalty and commitment to assigned tasks in the organization.

Consequently, the authors recommend both employers and employees to first deal with trust issues well enough to strengthen workplace relationships which in the long-run translates into organizational performance.

Footnotes

Acknowledgments

We would like to offer our sincere thanks to the reviewer for his contribution through suggestions and comments that guided the improvement of the manuscript.

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