This section will review the academics literature necessary to study the study topic. The key areas for discussion are on intrinsic & extrinsic rewards, rewards techniques & strategies and theories on inspiration.
2. 1 Intrinsic and Extrinsic rewards defined
Rewards can be treated as some offerings in addition to pay. Traditional compensation systems were based on positions and longevities. However now a day's profit sharing, gain posting and stock option plans are being used as a reward. Modern compensation systems include stock grants, certificate of understanding, even personal many thanks notes (Nelson, 1994).
According to Walker et al (1979), rewards are grouped into extrinsic and intrinsic rewards. Extrinsic rewards include basic salary and allowances which is required to fulfill mental health and safety needs. Intrinsic rewards help individuals' feelings and perceptions about the work situation which is needed to gratify self-esteem, competence, self-actualization etc. There are several financial rewards commonly within sales organizations are salary and commission, bonus, fringe benefits, commodity, pension plan which fulfills both extrinsic and intrinsic needs of employees.
Coli (1997), identifies classification of compensation and reputation under three types of rewards. They may be monetary, accolades and developmental rewards. Monetary rewards includes specific bonus for task completion, stock grants or loans, skill-based pay, gain posting, targeted total cash, special specific increase, non-discretionary incentives for the beginning of the project etc. According to Lyons & Ora (2002), financial performance includes basic salary, changing pay, other compensations, perquisites and benefits.
Different people have different perceptions of rewards. For example, some individuals may consider cash as a sufficient and adequate prize for their attempts at work, while others may consider getaways and material bonuses (such as a car) as more rewarding in exchange because of their work. Others still, may consider a shift in the treatment that they get from their market leaders to be a more rewarding experience. For instance, some employees consider being recognized by their innovator as more rewarding than financial incentives (La Belle, 2005).
2. 1. 1 What are Financial Rewards?
Zammit (2004), best referred to financial rewards. A reward strategy can be an integrated approach to reward employees according to their contribution, skill and competence and their market value.
The author categorized four types of financial prize.
Performance related pay
Other financial rewards
The basic salary is determined corresponding to management position, quality lifestyle, job market, qualification of the receivers. The dimensions of performance contain bonus items, commissions and special skills. Allowances are most commonly provided for substitution, workstation transfer and vehicles, free or discounted benefits, ethnic or religious holidays, telecommunications. Other financial rewards are generally employed by offering commodity, pension plans.
2. 2 Reward strategy
Reward strategies provide answers to two basic questions for an organization 'Where do we want our reward practices to maintain a few years' time?' and 'How do we plan to get there?'. Therefore, they deal with both ends and means. 'Ends' they describe a eyesight of what reward processes can look like in a few years' time and 'means' on the expectation of how the eyesight will be noticed.
2. 2. 1 Pay back strategy defined
Reward strategy is ultimately a way of convinced that you can connect with any reward concern arising in your company, to see how you can create value from it (Brown, 2001). Praise strategy is a declaration of intent which defines what the business wants to do in the long run to build up and put into action reward policies, methods and processes which will further the success of its business goals and meet the needs of its stakeholders. It offers a feeling of purpose and path and a framework for growing reward policies, methods and process. It really is based on a knowledge of the needs of the business and its own employees and exactly how they can best be satisfied. Additionally it is concerned with expanding the ideals of the business on how people should be rewarded and formulating guiding guidelines that may ensure that these principles are enacted.
Reward strategy is underpinned by an incentive philosophy which expresses what the organization believes should be the basis upon which people are respected and rewarded. Reward philosophies tend to be articulated as guiding rules.
2. 2. 2 This content of praise strategy
Reward strategy may be considered a broad-brush affair simply indicating the general direction where it is thought reward management should go. Additionally or otherwise, reward strategy may lay out a list of specific intentions working with particular aspects of compensation management.
Broad-brush praise strategy (Armstrong (2007), pg. 635)
A broad-brush pay back strategy may commit the organization to the pursuit of a complete rewards policy. The essential purpose might be to attain a proper balance between financial and non-financial rewards. An additional aim could be to use other methods to the development of the employment marriage and the task environment that may enhance commitment and engagement and offer more opportunities for the contribution of people to be valued and known.
1. Introducing a far more integrated approach to pay back management - encouraging continuous personal development and spelling out career opportunities;
2. Developing a more flexible approach to reward which includes the reduction of artificial barriers because of this of over-emphasis on grading and promotion;
3. Generally rewarding people according with their contribution;
4. Supporting the introduction of a performance culture and building levels of competence
5. Clarifying what conducts will be rewarded and why.
2. 2. 3 Specific incentive initiatives
The replacing of present ways of contingent pay with a purchase contribution system;
The benefits of a fresh class and pay framework, e. g. a broad-graded or profession family composition;
2. 2. 4 Growing reward strategy
1. The prognosis phase, when pay back goals are decided, current policies and practices evaluated against them, options for improvement considered and any changes arranged.
2. The specific design stage when advancements and changes are detailed and any changes examined (pilot tests is important).
3. The ultimate testing and planning phase.
4. The implementation phase, accompanied by ongoing review and adjustment.
2. 2. 5 Implementing incentive strategy
The goal of implementation is to make the incentive strategy an operating truth by building the capacity of the business to put into practice the proposals exercised in the development stage. As Armstrong and Brown (2007) stress: 'It is often necessary to design with execution in head'.
Purcell (1999), believes that the focus of strategy should be on execution. As explained by Thompson and Strickland (1990): 'Implementation entails switching the strategic plan into action and then into results'. A highly effective prize strategy is a living process and, in what of Rosabeth Moss Kanter (1984), an 'action vehicle', formulation is easy; execution is hard. A pragmatic strategy is required - what's good is exactly what works.
Implementing prize strategy is a lot more about process than design - how it will be done alternatively than what will be achieved. The principles of procedural and distributive justice apply.
People must believe that the steps used to find out their grades, pay level and pay development are reasonable, equitable, applied constantly and transparent. They need to also feel that the awards allocated to them are just in terms of their contribution and value to the business.
2. 3 Rewards management strategy defined
Reward management can be involved with the formulation and execution of strategies and guidelines in order to encourage people reasonably, equitably and consistently relative to their value to the business.
As Duncan Dark brown (2001) emphasizes, the 'position of your praise practices with staff prices and needs is every bit as important as position with business goals, and critical to the realization of the latter'. It deals with the introduction of incentive strategies and the look, execution and maintenance of pay back systems (incentive processes, techniques and strategies) which aim to meet the needs of both organization and its own stakeholders. Rewards can be thought to be the fundamental expression of the occupation relationship.
2. 3. 1 The seeks of incentive management
Armstrong and Brown (2006), pg. 33, recognizes the next;
Reward people regarding to what the organization values and desires to pay for.
Reward people for the worthiness they create.
Reward the right things to present the right communication in what is important in terms of behaviours and results.
Create a performance culture.
Motivate people and obtain their determination and proposal.
Help to attract and retain the high quality people the organization needs.
Develop a positive employment romance and psychological deal.
Align compensation practices with both business goals and staff values.
Operate rather - people feel that they are cured justly relative to what is anticipated to them because of their value to the organization (the 'felt-fair' process of Eliot Jacques (1961)).
The basic principles of pay back management
Recognizing the value of the part played by line managers in implementing reward strategy and the necessity to ensure they are committed and also have the required skills;
Paying close and ongoing attention to interacting with employees and affecting them in the development as well as the execution of praise strategy;
Being absolutely clear about the objectives of the strategy and resolute about analyzing its performance.
The following Prize strategies & theories can be employed when developing a reward scheme in an organization.
Pay people right (Zingheim and Schuster)
1. Produce a positive and 'natural' pay back experience.
2. Align rewards with business goals to accomplish 'a win-win relationship'.
3. Extend people's 'brand of vision' between effort and outcome, motivating 'smart working' over simply expending extra work.
4. Integrate praise with strategic goals and the type of contribution desired.
5. Reward individual ongoing (suggestions) value to the organization with foundation pay.
6. Reward results (outputs) with adjustable pay.
Dynamic pay (Flannery, Hofrichter and Platten)
Flannery, Hofrichter and Platten (1996) expounded the concept of 'energetic pay' and advised that the nine ideas that support a successful pay strategy are:
1. Align settlement with the organization's culture, worth and strategic business goals.
2. Link reimbursement to the other changes.
3. Time the payment program to best support other change initiatives.
4. Integrate pay with other people processes.
5. Democratize the pay process.
6. Demystify reimbursement.
7. Solution results.
8. Refine. Refine again. Refine even more.
9. Be selective. Don't take to heart everything you hear or find out about pay.
2. 3. 3 The different parts of an effective prize strategy
An effective strategy is one in which there are plainly described goals and a well-defined link to business aims; well-designed pay and pay back programmes, designed to the needs of the business and its own people, and constant and included with one another; and effective and supportive HR and reward processes set up.
1. They need to have clearly identified goals and a well-defined link to business objectives.
Recognize the value of everyone who is making an effective contribution, not simply the exceptional performers.
Allow an acceptable degree of flexibility in the operation of reward operations and in the decision of benefits by employees.
Devolve more responsibility for praise decisions to sections managers.
2. There need to be well-designed pay and praise programmes, customized to the needs of the organization and its own people, and steady and integrated with one another.
3. Perhaps most important & most neglected, there needs to be effective and supportive HR and incentive processes set up.
Appreciating that a good strategy is one that works and for that reason focusing on implementation programmes;
'Planning with implementation in brain' - recognizing through the design process that programs have to be converted into certainty and taking steps to foresee the problems included;
Aligning incentive strategies with the business enterprise and HR strategies;
Ensuring that incentive strategy meets the culture and characteristics of the business, satisfies business needs and requires account of specific needs and choices;
Being aware of good practice somewhere else but not being seduced by the idea that it's best practice, i. e. universally applicable and easily replicated;
Paying more attention to using strategic reward initiatives to support the engagement and commitment of people in order that they are motivated and productive, rather than focusing on the technicians of new praise 'fads';
Bearing at heart that the development and implementation of praise strategy can be an evolutionary process - it is about doing things better at a workable pace rather than extraordinary new improvements;
Providing 'versatility within a construction', i. e. developing a flexible approach to the reward of differing people but always in just a framework that provides for steady treatment;
Appreciating that implementing reward strategy will require a thorough change management program.
2. 4 What is Motivation?
Many modern-day authors have identified the concept of motivation as; the psychological process that gives behavior purpose and path (Kreitner, 1995); a trend to act in a purposive solution to achieve specific, unmet needs (Buford, Bedeian, & Lindner, 1995); an internal push to gratify an unsatisfied need (Higgins, 1994); and the will to perform (Bedeian, 1993).
In this review, drive is operationally thought as the inner pressure that drives individuals to accomplish personal and organizational goals. Understanding what motivates employees is one of the key challenges for professionals. Though it is extremely hard directly to motivate others, it is nonetheless important to learn how to influence what others are motivated to do, with the overall goal of having employees identify their own welfare with this of the business (Bruce and Pepitone, 1999).
While motivation depends upon both financial & non-monetary factors, money has come to play an overly important role in our thinking about the causes of behavior. In most companies, very limited time & effort are spent on considering non-monetary sources of motivation (Gratton, 2004). For organizations to address these expectations a knowledge of employee motivation is required (Beer et al. , 1984). Carnegie (1975) stresses the human aspects of management. They postulate that as it is people who make an enterprise do well - or fail - it's the organization's main responsibility to encourage their people so that they will assure success. The writer believes that each human being gets the potential for creativeness, contribution and accomplishment of business goals.
Therefore, the infinite question is how organizations reach this potential and exactly how they stimulate creative imagination and foster in their people the desire to succeed and achieve self-fulfillment through their work. The normal theme of all the above authors is the perception that people need to be respected and treated as precious human being capital, more necessary to an organization's effectiveness than its financial capital.
Organizations are under continuous pressure to improve and enhance their performance and are knowing that an interdependent relationship is accessible between organizational performance and employee performance. In the following section the target will be on the motivational theories and the impact these ideas have on improving employee performance.
2. 5 Ideas on motivation
The procedure for motivation as explained below is broadly based on lots of motivation ideas that try to explain in more detail what it means. A number of the distinctive ideas will be reviewed below.
2. 5. 1. Needs (content) theory
The basis of this theory is the belief that an unsatisfied need creates pressure and disequilibrium. To restore the balance a goal is identified that will meet the necessity and a behavior pathway is decided on that will lead to the success of the goal. All action is therefore motivated by unsatisfied needs.
The best-known contributor to needs theory is Maslow, A (1954). He formulated the idea of a hierarchy of needs, which begin from the essential physiological needs and lead through safe practices, social and esteem must the necessity for self-fulfillment, the highest need of all. He said that 'man is a desiring creature'; only an unsatisfied need can motivate patterns, and the dominating need is the best motivator of patterns. This is the best-known theory of needs, but it hasn't been confirmed by empirical research.
2. 5. 2. Herzberg's two-factor theory
Herzberg's two-factor model theory states that the factors supplying surge to job satisfaction (and drive) are distinct from the factors that lead to job dissatisfaction. It is sometimes called the 'motivation-hygiene theory'.
There are two sets of factors. The first includes the satisfiers or motivators, which are intrinsic to the job. These include accomplishment, recognition, the work itself, responsibility and expansion. The second group includes what Herzberg telephone calls the 'dissatisfaction avoidance' or 'hygiene' factors, that are extrinsic to the work and include pay, company insurance plan and supervision, personal relations, position and security. These cannot create satisfaction but, unless preventive action is considered, they can cause dissatisfaction. He also known that any feeling of satisfaction resulting from pay rises was likely to be short-lived weighed against the long-lasting satisfaction from the work itself. Among the key conclusions derived from the study is therefore that pay is not really a motivator, except for a while, although unfair payment systems can result in demotivation.
Herzberg's two-factor model attracts focus on the distinction between intrinsic and extrinsic motivators, and his contention that the satisfaction resulting from pay increases will not persist has some face validity. But his research and the conclusions he come to have been attacked - first because, it is asserted, the original research is flawed and fails to support the contention that pay is not really a motivator, and subsequently because no try out was designed to measure the marriage between satisfaction and performance.
As Visitor, D (1992) has written: 'Many managers' knowledge of motivation has not advanced beyond Herzberg and his era. This is unfortunate. Their theories are actually over thirty years old. Intensive research shows that as standard theories of desire the theories of Herzberg and Maslow are wrong. They have been substituted by more relevant approaches'.
2. 5. 3. Collateral theory
To make clear how employees assess the fairness of rewards received in proportion to resources spent for completing an activity by examining one's on investment-reward percentage "Equity theory" (John Stacey Adams) can be used, This theory is likened against the proportion of another colleague positioning a similar position (McShane et al. 2000 pg 79).
Outcomes (Individual) = Results (Other)
Inputs (Person) Inputs (Other)
Above formula can be discussed, that employees seek to keep up equity between your inputs that they put in to employment and the outcomes they obtain from it contrary to the perceived inputs and final results of others. The belief in collateral theory is that individuals value good treatment which in turn causes them to be determined to keep carefully the fairness retained within the interactions with their co-workers and the business.
The main concern however is "payment"; this therefore is the cause of equality or inequalty in most cases. In any position within the organization, an employee desires to believe that their efforts and work performance are being rewarded with the pay. Matching to equity theory, if an employee feels under-paid then it will cause the employee sense hostile towards the organization and perhaps their co-workers, which may result the staff not accomplishing well at the job anymore.
But Adams' Collateral Theory is very much more complex & complex motivational model, in this model more than merely assessing effort put in (inputs) and rewards (outputs). Equity Theory offers prominence to yet another perspective of assessment, were employees compare themselves with others (people who consider in a similar position). 'Referent' others are being used to describe the reference things or people who have whom we compare our own situation, which is the Highlight part of the theory.
"Collateral norm"- Where Employees expect a good come back for what they add in their careers.
"Public comparison"- Employees determine what their equitable go back should be after evaluating their inputs and benefits with those of their coworkers.
"Cognitive distortion" - Employees who understand themselves as being within an inequitable situation will seek to reduce the inequity either by distorting inputs and/or outcomes in their own thoughts, by directly changing inputs and/or outputs, or by giving the business.
2. 5. 4. Vroom's expectancy theory
Vroom's expectancy theory fundamentally separates effort (which arises from determination), performance, and effects. Its assumption is the fact action results from mindful options among alternatives. Vroom noticed that an employee's performance is based on specific factors such as personality, skills, knowledge, experience and ability. He mentioned that effort, performance and inspiration are linked in someone's inspiration. He uses the parameters Expectancy, Instrumentality and Valence to account for this.
Expectancy is the fact that increased work will lead to increased performance i. e. if I work harder then this will be better.
Having the right resources available (e. g. recycleables, time)
Having the right skills to do the job
Having the necessary support to complete the job (e. g. supervisor support, or right information face to face)
Instrumentality is the fact that if you succeed that a respected end result will be received. The degree to which an initial level outcome will lead to the second level results. (i. e. easily execute a good job, there is something in it for me personally. )
Clear understanding of the relationship between performance and benefits - e. g. the rules of the pay back 'game'
Trust in people who will take the decisions on who gets what outcome
Transparency of the process that decides who gets what outcome
Valence is the value that the average person places upon the expected outcome. For the valence to maintain positivity, the individual must prefer achieving the outcome to not attaining it. For instance, if someone is principally motivated by money, he or she may not value offers of additional time off.
The three elements are essential behind choosing one aspect over another because they are clearly identified: effort-performance expectancy (E>P expectancy) and performance-outcome expectancy (P>O expectancy).
E>P expectancy: our diagnosis of the likelihood that our attempts will lead to the required performance level.
P>O expectancy: our evaluation of the possibility that our successful performance will lead to certain benefits.
Crucially, Vroom's expectancy theory works on "Perceptions" - so even if an workplace thinks they have provided everything appropriate for motivation, and even if this works together with most people for the reason that organization, it doesn't mean that someone won't understand that it doesn't work with them.
Thus, Vroom's expectancy theory of motivation is not about self-interest in rewards but about the associations people make towards expected results and the contribution they feel they can make towards those results.
2. 6 Theoretical framework
2. 6. 1 Romance between Financial Rewards and Performance
Financial rewards practiced by a business play an important role in motivating employees to perform depending on kind of business its involved with and require their employees' to be employed in. . Therefore, organization's financial performance is finally dependent on the employees' performance. It is also considered that incorrect reward procedures may result below average financial performance of organizations. Most agree that reward practices become motivators that condition the employees behaviours. According to prior researches, it is often presumed that if financial rewards are effectively used, employees are determined to execute high and that ultimately results financial performance.
Financial performance is better if there is a carefully constructed pay back practice (Allen & Helms; 2001). It really is difficult to relate financial praise with organizational financial performance (Kerr, 1999). Prize must positively influence performance (Nelson, 1994). Irrespective to 'team-based reward', individual praise is still important as individuals could observe that their activities are making difference to the business.
According to Zingheim& Schuster (2000), a few businesses design their prize system for the search engine optimization of company performance. Basic salary and incentives matches competitive practice and stresses performance results. Incentive strategies are often found in employment settings to encourage superior performance. While such inducements are found to have results on job performance concerns have been brought up over rewards' affect on task interest and creativity. (Bartol & Locke, 2000; Fay & Thompson, 2001)
In a study, it is found that employees stock ownership plans and revenue sharing are widely used compensation practice (Lawler et all, 1995). Hale (1998) and Lawler (1981, 1987) acknowledged rewards have critical importance as a means of employee desire. Organizations and director acknowledge pay back and recognition consistently as a motivator of specific employees. Employees' understandings and satisfactions with incentive system lead to specific actions and activities, finally results functional and financial results (Cacioppe, 1999). According to Saxby (2007), it is an avoidable problem of management for not rewarding employees for a well done job. Tangible rewards are nicer and much more meaningful regarding staff motivation rather than intangible praising and acknowledgement.
Safety vs. Efficiency: Sometimes, employees do not understand that whether he\she is receiving prize for working safely and securely or for the firm's output or for the quality of services rendered.
2. 6. 2 Marriage between Financial Rewards, Inspiration and Performance
It can act as a goal that folks generally shoot for although to different diplomas.
It can become an instrument that provides valued results.
It can be considered a symbol that implies the recipient's value to the business.
It can act as an over-all reinforce since it is associated with valued rewards frequently that it takes on praise value itself.
But concerns have been cast on the effectiveness of money as a motivator by Herzberg et al (1957). As mentioned, he claimed that, while the lack of it may cause dissatisfaction, money will not result in lasting satisfaction. There is something in this, especially for people on fixed wages or rates of pay who do not profit directly from a motivation scheme. They could feel great when they get an increase, as, in addition to the extra cash, it is impressive means of making people consider they are appreciated. But the sense of euphoria can swiftly expire away. However, it must be re-emphasized that differing people have different needs, and Herzberg's two-factor theory has not been validated.
Some will be more encouraged by money than others. What can't be assumed is the fact money motivates everyone in the same way and to the same magnitude.
But do financial bonuses motivate people? The solution, matching to Kohn, A (1993) is absolutely not. He challenges what he calls the behaviourist dogma about money and desire. And he promises that 'no managed scientific study has ever before found a permanent enhancement of the grade of work consequently of any praise system'. After you take a look at how people are motivated, remarks Kohn, 'It becomes disturbingly clear that the more you utilize rewards to "motivate" people, the more they have a tendency to weary in whatever they had to do to find the rewards. ' He quotes research that has 'regularly shown that the more salient or reinforcing the compensation is, the more it erodes intrinsic interest' and highlights that 'various devices can be used to get people to take action, but that is a very far cry from making people wish to accomplish something'.
Pfeffer, J (1998) also contends that: 'People do work for the money - nonetheless they work even more for meaning in their lives. In fact, they work to have fun. Companies that disregard this simple fact are essentially bribing their workers and will pay the price in insufficient loyalty and commitment. ' He believes that pay cannot substitute for an operating environment 'high on trust, fun and significant work'.
In comparison, Gupta, N and Shaw, J. D (1998) emphasize the instrumental and symbolic interpretation of money. The instrumental meaning of money concerns that which you get for this - better properties, clothes, autos, etc. The symbolic interpretation of money concerns how it is looked at by ourselves yet others - money signs our status in and worthwhile to world. They take the essential behaviourist lines on money: 'When certain behaviours are accompanied by money, they will be repeated. Which means that employees can do the things for which they are really rewarded; it also means that they ignore the things that they aren't rewarded. '
The views expressed by Kohn, A (1993) are convincing except that he seems to think that the one types of rewards to be looked at in this controversy are financial. He does not recognize that non-financial rewards can encourage if completed properly. Pfeffer, however, makes this point when he emphasizes the importance of trust and significant work. Gupta and Shaw weaken their argument by implementing a crude behaviourist point of view.
To believe that financial incentives will always stimulate people to perform better is really as simplistic concerning presume, like Kohn, that they never encourage people to perform better. Some people will be more motivated by money than others and, if handled properly, an incentive scheme can cause them to become perform more effectively as long as they can web page link their effort to the pay back and the compensation will probably be worth having. Sometimes cash amounts (bonus items) can be more effective rewards because they could be immediately changed into things that folks want. But others may be less thinking about money and will react more to intrinsic or non-financial rewards. It appears likely that almost all will react positively to a judicious mixture of both financial and non-financial rewards, although how favorably will depend on their own needs and aspirations.
What is clear is that simplistic assumptions about the energy of money to stimulate may lead organizations into producing simplistic performance-related pay strategies or other forms of bonuses. And we can be moderately certain that multiplicities of interdependent factors are involved in motivating people. Money is only one of those factors, which may work for many people in a few circumstances, but may not work for other people in other circumstances.
It also needs to be kept in mind that, while a rise in pay arising from a contingent pay scheme may motivate people who obtain it, for a restricted period perhaps it'll almost certainly demotivate those who don't get it or feel that they are not getting enough weighed against other people. The likelihood is that the quantity of people demotivated in this manner will be bigger than the numbers who have been motivated.
Paradoxically, therefore, contingent pay plans are at risk of increasing the amount of demotivation existing in the business rather than boosting motivation.
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