Employee Reward: A Degree of Satisfaction and Job Involvement of Employees - Literature review Example

Employee reward Introduction: A Company’s productivity has been shown to be directly proportional to the degree of satisfaction and job involvement of its employees. Job involvement is the degree to which the total job situation is perceived to be the major source of satisfaction and interest in an individual’s life (Saleh and Hosek, 1976). Job satisfaction is directly related to lower absenteeism and lower employee turnover which in turn increases productivity; as a result, managers in various organizations have also devised incentive and reward systems to motivate employees to attend work regularly (Cole and Kleiner, 1992). Allan (1966:15) defines motivation as the “force that drives people to do things.” Organizational culture and reward systems affect performance as stated by Hannagan (2003:275): “Organisational culture significantly affects company performance. A culture of concern for employee welfare is by far and away one of the most striking predictors of increased performance.” Gibson (1995) points out that in contrast to organizations existing in the earlier part of the century that adopted highly leveraged incentive plans at 15 to 30% of the base pay as reward strategies, the organizational climate in the present has changed to one that focuses on strategic mission, capital conservation and small workforces, thereby placing more emphasis on other kinds of reward systems that are “more broad-based, including cash flow return on investment, economic value added, and other nonfinancial measures.” New reward systems, which are distinctive, flexible and performance driven are increasingly being adopted by organizations (Reilly, 2003). Reward and worker motivation: Vroom’s expectancy Theory (1964) is the dominant model in predicting whether rewards are likely to affect worker motivation and performance. His theory is based upon three salient beliefs (www.valuebasedmanagement.net): (a) Valence: refers to the emotional outlook that people hold towards outcomes or rewards. An employee values to a certain extent, either intrinsic rewards such as satisfaction at his workplace or extrinsic rewards such as more salary, bonus or promotions, paid leave, etc and if management must motivate its employees properly, it must understand the rewards that the employee seeks. (b) Expectancy: is the level of confidence that employees have in their abilities and the expectancies that they hold from their jobs, such as the kind of resources, training and facilities that are available to help them do their jobs better. (c) Instrumentality is a measure of the perception of the employees as to whether management is actually providing what they want. It is possible to calculate this motivational force using the formula: Motivation = Valency x Expectancy (Instrumentality) This mathematical formula can also be used to predict things about an employee, such as how long he will stay on the job, the extent to which he will be hard working and his job satisfaction. Luthans And Krieter’s (1975) organizational behavioral model is based on the premise that at most workplaces, the general assumption is that an employee is already being paid to do his job correctly and therefore needs no additional reinforcement. They advocated behavioral modification through positive reinforcement rather than negative feedback to improve performance behaviors. One factor that has always been believed to increase motivation of employees at the workplace is increased salaries or other monetary benefits. Menefee and Murphy (2004) have examined various kinds of reward systems offered for top performers and have highlighted one salient difference in the best rated reward schemes from employee and employer points of view. While employees’ rate cash based incentives highly – a mixture of long term and short term incentives, employers favor short term incentives, being unwilling to invest in the longer run programs with a deferred payout, such as cash based LTI and stock options. However, Herzberg explored the aspects of positive and negative KITA (kick in the ass) strategy for use as a motivational strategy. In his article titled “One more time” How do you motivate employees?” he argued that “employees were more likely to be motivated by factors such as achievement and the work itself rather than simply money.” (Redman and Wilkinson, 2001: 101). Moreover, positive reinforcement through rewards has been found to be counter productive, according to the Cognitive evaluation theory. New research confirms the Cognitive Theory which states that rewarding an employee for work that he finds intrinsically rewarding is actually counterproductive (Kohn 1995). For example, an elaborate study taken up by the Human resource department of the Minneapolis Gas Company between 1945 to 1965 revealed that most employees rated job security as the most important factor, while the kind of work they did and the reputation of their Company was more important to them than the salary amount or the incentives on the job (Grimes 39). This case study supported the belief that money is not the main motivator for employees in eliciting a good performance. . However, it must be remembered that this survey was carried out during an era just after the World War II which could in some measure explain the emphasis most employees placed on job security. It is possible that even now, in the present day context, with increased outsourcing, most employees may rate not job security as highest on their list of motivating factors towards good performance, but incline towards monetary benefits and job satisfaction. Contingent pay scheme: A contingent pay scheme works on the basis of making the allocation of rewards contingent upon performance – some of its trendier forms include competence based pay and team based pay. (CIPD Symposium Report, 2005:7). The Contingent pay scheme was first mooted in the Mackinson report on the Civil Service in the UK, which was published in 2000 and recommended that pay bonuses offered as a reward is made contingent upon performance, skill, competence, contribution or length of service (CIPD report, 2005:12). This is found to be beneficial in enhancing employee performance – not merely through financial incentive, but largely through improved goal setting and appraisal measures demanding better performance at work, as also concluded in a comprehensive study conducted on the performance based or contingent pay reward measures used in the British Public Service.(Marsden et al, 2001). But in a survey conducted earlier by Bacon (1999) on a non union steel company which used such contingent pay reward measures, no noticeable improvement in performance was observed. Although ideally, the introduction of contingent reward schemes should enhance motivation, in reality they may have a dysfunctional effect through the workers’ lament of such programs not being fair. Adams (1963) has explained this perception of unfairness in rewards by employees as a function of the comparisons they make with a “referent other,” (for example, employees of other firms) in terms of his inputs (for example, his educational qualifications) and his corresponding outputs (salary, bonuses). In this comparison, a worker may not respond satisfactorily to a contingent reward scheme but express dissatisfaction instead. For example, a survey in the United States showed that most employees did not rate performance management programs very highly (Robinson, n.d.). The survey covered 1190 employees and of those surveyed, 44 % felt that their company held employees accountable for their performance while only 30% of those surveyed felt that a performance management program had helped them to improve. While a performance management program is designed to improve overall performance of the firm, it is effective only when used in conjunction with performance appraisal that is geared towards assessing individual employee performance (Ivanoevich, 2001.) While performance appraisal has been shown to be associated with higher levels of satisfactory performance on the part of employees (Cawley, 1998), a specific performance appraisal technique that may be very effective in the particular circumstances of one organization may not be as effective in another. For example, self appraisal is a part of the appraisal process. The introduction of self appraisal can produce high levels of employee perception of fairness, enhance overall satisfaction with the appraisal process and reduce defensive behavior (Roberts 1992). However, the extent to which self appraisal will be successful and the degree to which the employees implement the process and this will vary in accordance with the individual employees of every organization. In general, rewards in pay offered on a contingent basis are applied mostly to executives or employees among the upper echeleon, who may be predominantly male, thereby generating further dissatisfaction and resistance from employees in lower grade jobs to contingent reward schemes. In the case of public sector enterprises in the U.K. for example, the concept of contingent pay is opposed to the spirit of public service that is supposed to motivate performance. Moreover, the dominant psychology conditioning public sector service is that pay is dependent upon the post rather than being conditional upon other elements (Bevan and Horner, 2003). The prevailing belief in the UK public sector is that employees should be rewarded through increments depending upon the length of their service rather than being conditional upon competence to performance on the job, therefore contingent pay schemes are unpopular and not well received. Employees on the lower grade scales are mostly women, while contingent schemes are targeted at higher grade employees, who are mostly male, thereby generating further resistance to such schemes. Flex payment schemes: According to a Flexible Benefits survey carried out by Hewitt Resources, a global Human resources services Company, the number of organizations offering flexible schemes and salary sacrifices has increased from half of the total number surveyed in 2005 to two thirds of organizations surveyed (www.payroll.butterworths.co.uk). According to the Charity Times, over 400 employers in the U.K. now provide structured flexible benefit schemes for their employees, including 35% of the FTSE 350 (www.charitytimes.com). Flex reward schemes do not pay the employees only in terms of specific allocations for salary and for perks, rather employees are given their money and they may use their salary as they wish, purchasing only the benefits or perks that they need in accordance with their requirements (Taylor, 2006). Moreover, flexible benefit plans are based upon “salary sacrifice” and as a result of the online management of benefit schemes, both employers and employees are able to benefit – employers by using national insurance savings to manage risks, while employee benefit arrangements are streamlined and tailored to their individual requirements rather than being generated on a rigidly compartmentalized basis. Flexible benefit and reward schemes therefore offer employees a far wider leeway in the manner in which their salary and perks are to be utilized and they are able to also allocate their monies as they wish, in the proportion and time frames that they desire. For example, travel benefits that are not specifically availed of by an employee in a requisite time period can be eschewed for a later period or saved by the employee, and salary sacrifices may be similarly beneficial in enabling an employee to be able to draw upon monies due through salaries and benefits at his or her own convenience. As a result of the flexibility and savings afforded to both employers and employees in the use of funds, flex schemes are being adopted by an increasing number of organizations. Legislation: Recent legislation in the U.K. such as the Equal Pay Act 1970, has focused upon introducing some equity in salary and pay being allowed to men and women. On this basis therefore, reward schemes functioning on the contingent basis may violate this criterion, since lower grade employees, especially in the public sector may be primarily women who are not provided such facility of contingent reward. The Sex Discrimination Act of 1975 is geared towards addressing inequity in the workplace between men and women, while the Disability Discrimination Act 2004 and the Race relations Act of 1976 are aimed at protecting members of minority groups who may not be able to easily ascend to higher positions within organizations due to the proverbial glass ceiling. Moreover, the Human Rights Act of 1998 also mandates the implementation of the freedoms and protections provided to individuals through the European Convention of Human Rights into UK law. For example, the introduction of an EU Time Directive that mandates rest breaks for employees is now to have precedence over the Working Time regulations 1998 in the UK that does not mandatorily require employers to ensure that workers take a 20 minute break if they work more than six hours. (www.payroll.butterworths.co.uk). In the context of such laws, reward schemes based upon contingent elements may further exacerbate the notion of unfairness existing among employees in one firm as opposed to another, or by lower grade employees as opposed to higher grade employees who receive such contingent rewards more often. Moreover, as the pool of skilled staff diminishes and there is a greater degree of competition among employers for the skilled employees, the introduction of flex benefits offers a key recruitment tool for use by employers, while also offering better incentive and flexibility to employees.. 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