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RELATIONSHIP BETWEEN TOTAL REWARD AND EMPLOYEE PERFORMANCE
Paper PresentedonRelationship between Total Reward andEmployee Performance in Organisationsin KenyaPresented by David M.Mwakidimi
Abstract• The nerve center of any organization is its human resource, the people whowork for it. Progressive organizations are constantly working towardsachieving increased high performance through various tools and strategiescharacterized by increased investment by employers in their employees.Reward and related practices is one of the fundamental tools through whichorganizations invest in their employees, with the main objective being to beable to procure, maintain and retain good, efficient, motivated and highperforming employees.• The aim of this study is to investigate the relationship between total rewardsand employee performance and it is based on secondary research data fromannual reports, internet, journals and books. The literature review attempts toidentify and explain the concepts of reward, total rewards, and motivation andtackle the complexity of defining and measuring employee performance.• Based on the study, the research findings indicate a strong and positivecorrelation between total rewards and employee performance.• KEY WORDS: Total Rewards, Reward Management, Reward SystemsIntrinsic and Extrinsic Rewards
Introduction• Main objective of most organisations – to attract, maintainand retain , good, efficient, motivated and high performingemployees• Approaches adopted to do so include:- goal setting,feedback, job design, increased involvement ofemployees in decision making and appropriate rewardingamong others.• With this approaches its expected the relationshipsbetween employees and employers to be stronger andmaximization of employee performance
Objective of Study• This study seeks to find out the relationship between totalrewards and employee performance
Literature Review• Reward is the “oil” of the entire HR process” Shields(2007)• Reward is the• Reward Management is concerned with theformulation and implementation of strategies andpolicies that are to reward people fairly, equitably andconsistently in accordance with their value in theorganisation. (Armstrong & Murlis, 2004)• Other components of reward systems includea) Organisation strategyb) HR Strategyc) Pay and Grade structured) Performance Managemente) Total Remuneration
Reward Management System :Elements andInterrelationships (Armstrong:2007)Non-FinancialRewardsPerformanceManagementAllowancesEmployee BenefitsBusiness & HRStrategyReward StrategyContingent PayMarket RateAnalysisGrade & PayStructureTotalRemunerationTotal RewardJob EvaluationThe Reward Management System : Elements & Interrelationships(Source Armstrong – 2007)
Total Rewards• End product of a reward system and consists ofa) Direct/Extrinsic/Transactional Rewards e.g. Base pay, benefitspackages inline with pay.b) Indirect/Intrinsic/Relational Rewards e.g. Opportunities for careeradvancement, upgrading of skills etc• Total rewards typically encompass not only traditionalquantifiable elements like salary, variable pay benefits butalso intangible non-cash elements like scope to achieveand exercise responsibility among other, Thompson(2002)• Since organisations & HR practitioners have toaccommodate and address the diverse needs ofemployees in organisations and the diverse ways in whichindividuals are motivated to work thus the importance oftotal reward.
Motivation• Goal Directed Behaviour• People are motivated when they expect that a course ofaction is likely to lead to the attainment of a goal and avalued reward, one that satisfies their needs and wants.• Types of Motivationsa) Intrinsic motivation – motivation not generated by factorsexternal but by aspects such as work itself.b) Extrinsic motivation – this occurs when things are doneto or for the employees that motivate them e.g. Increasedpay.
Theories of Motivations• Maslow’s Theory-Employees always behave in order to work their way up thehierarchy.-Higher order needs are only influential when lower order needsare met.
Theories of Motivations cont....• Implication of theory to total reward – Employers need toclarify at which level of needs each employee is thenaccordingly build reward systems and propositions.• Criticism of Maslow’s theory – weak and inconsistentfoundation in its arguments on satisfying of needs on thehierarchy.
Herzbergs Two-Factor Theory• Created two lists of factors with regard to motivationa) Hygiene factors – this prevent dissatisfaction amongstemployees but cannot be used to create long lastingmotivation.b) Motivators – are the main source of deeper and longerlasting employee satisfaction
Herzbergs theory contd......• Implication to total rewarda) Hygiene factors – related to extrinsic rewards in totalrewards.b) Motivators – related to intrinsic rewards in total rewards.
Job Characteristic Model: Hackman &Oldham• Put emphasis on job characteristics as the source of theintrinsic elements of rewards which then lead to positiveoutcomes both at the organisational and individual levels.
Employee Performance• This is the accomplishment, execution , carrying out ofanything ordered to undertake.• Employee performance is the timely, effective and efficientcompletion of mutually agreed targets by employees asset out by the employer, Charity Tinofirei (2011).• Employee performance can be looked at on 3- levels ofa) Personal level – results in terms of quality and quantityof individual workb) Group level – in terms of quality of group output and alsoits productivity.c) Organisational level – in terms of profitability of theorganisation, market share , customer satisfaction etc
Conceptual Framework• The following conceptual framework is formulated toillustrate the relationship between total reward andemployee performanceIndependent variable Dependant Variable• Total rewards that are comprehensive in considering thevarious motivators of employees in the organisation areexpected to lead to increased job satisfaction and triggerthe desired behaviour which will push employees to seekattainment of certain goals by taking specific actions. Thisactions are the desirable performance.Total Reward-Extrinsic Rewards-Intrinsic RewardsMotivation EmployeePerformance
Research Methodology• This study is a desk – study research based on the surveyof the literature and contributions by other scholars andwriters on the relationship between rewards and employeeperformance. Sources include papers presented inacademic and management journals and books.
Reward and its Significance in EmployeePerformance• Tze San Ong and Boon Heng Feh (2012), in study of 105manufacturing firms in Malaysia found positivecorrelation/relationship between intrinsic rewards andfinancial performance of the organisations• However negative relationship observed between extrinsicreward and financial performance of the organisations.• Sigler K.J. (2011), in study of 280 in NSE found a positiveand significant relationship between the C.E.O’s rewardsand organisation performance• Namasivayam et al (2007), conducting online survey of1223 US hotels concluded there is a positive relationshipbetween salary and individual benefits and organisationalperformance
Reward and its Significance in EmployeePerformance contd...........• Qureshi M.I. Et al (2007), where they studied therelationship between rewards and employee performancein cement industry in Pakistan, from the results theyconcluded that there is a direct relationship betweenextrinsic, intrinsic rewards and employee performance
Conclusion• In conclusion, its clear from the study that:1. Reward is very critical and central activity in the humanresource management function in any organisation.2. There is a general direct/positive relationship between totalrewards and employee performance.3. Extrinsic rewards are however limited in terms of being ableto satisfy and motivate employees to perform better in thelong –run.4. Through embracing a total reward approach tomanagement of rewards, organisations are able to addressdiverse needs of employees in their organisations and thediverse ways in which individuals are motivated to work.
Recommendations• Consequently organisation management and hrpractitioners:1. In designing reward systems should ensure that suchsystems are linked to the overall business and hrstrategies of the organisations for effectiveness and long-term success of the organisation.2. Should ensure that they develop rewards strategies,systems and products that are able to cater to the diversemotivation needs of their employees.3. Should ensure that they put more emphasis on intrinsicrewards besides the monetary rewards in order tomotivate and improve employee’s job performance.
ReferencesArmstrong, M. (2004).A Handbook of Human Resource Management Practice, 9th Edition. London: Kogan Page.Armstrong, M. and Murlis, H. (2004). Reward Management: A Handbook of Remuneration Strategy and Practice,4th Edition. London: Kogan Page.Manus, TM. And Graham, MD. (2003). Creating a Total Reward Strategy. New York: American ManagementAssociation.Mathis, R.L. and Jackson, J.H. (2008). Human Resource Management. 12th Edition. Mason OH. United States ofAmerica.Murlis, H. (2004). Managing Rewards. In: Rees, D. and McBain, R. Editor. People Management Challenges andOpportunities. New York: Palgrave MacmillanMurphy, KS. And Murrmann, S. (2009). The research design used to develop a high performance managementsystem construct for US restaurant managers. International Journal of Hospitality Management, Vol. 28, pp. 547– 555.Namasivayam, K. Miao, L and Zhao, X. (2007). An Investigation of the relationship between compensationpractices and firm performance in the US hotel Industry. Hospitality Management, Vol.26, pp 574 – 587.Ong, T.S. and Teh, B.H. (2012). Reward System and Performance within Malaysian Manufacturing Companies.World Applied Sciences Journal.pp 1009 – 1017.Pfeiffer, J (1998). Six dangerous myths about pay. Harvard Business Review, pp 109 – 119.Pratheepkanth, P. (2011). Reward System and its Impact on Employee motivation in Commercial Banks of Sri-Lanka Plc in Jaffna District. Global Journal of Management and Business Research, Vol. 11, pp 84- 92.
References contd.............Qureshi, M.I. Zaman, K. and Shah, I.A. Relationship between Rewards and Employee’s Performance in the CementIndustry in Pakistan. Journal of International Academic Research. Vol10. No. 2, pp 19-29.Shields, J. (2004). Managing Employee Performance and Reward Concepts, Practices, Strategies. New York: CambridgeUniversity Press.Sigler, K.J. (2011). CEO Compensation and Company Performance. Business and Economics Journal, Vol. 2011.Thompson, P. (2002). Total Reward, (CIPD), London.Tinofirei, C. (2011). The Unique factors affecting employee performance in non-profit organizations. Available as:http://www. [Accessed on 25th February 2012].Vroom, V.J. (1964). Work and Motivation, New York: Wiley