Impact of Financial Rewards free essay sample

Topic: Impact of financial rewards on employee motivation in Kenyan Commercial Banks Thesis: Impact of financial reward system on employee motivation Thesis statement: Impact of financial reward system on employee motivation because employees are pillars of organization success and they must be motivated to contribute to organization success, organizations offer various reward systems to motivate employees. Outline I. Introduction3 A. Background 3 1. Motivation 3 2. Rewards3 3. Job Satisfaction4 4. Banks in Kenya5 I. Financial Rewards System on Employee Motivation5 A. Rewards and Recognition System5 B. Financial Rewards 7 C. Non-financial Rewards 7 D. Employee Motivation8 E. Remuneration9 II. Impact of Financial and Non-Financial Reward System on Employee Motivation 10 A. Employee Engagement10 III. Conclusion11 A. Recommendation 12 IV. Reference 13 I. Introduction A. Background 1. Motivation â€Å"Motivation is the desire to achieve beyond expectations, being driven by internal rather than external factors, and to be involved in a continuous striving for improvement†. (Torrington. et al, p. 276). Employees are motivated by both intrinsic and extrinsic rewards. To be effective, the reward system must recognize both sources of motivation. All reward systems are based on the assumptions of attracting, retaining and motivating people. Financial rewards are an important component of the reward system, but there are other factors that motivate employees and influence the level of performance. Several studies have found that among employees surveyed, money was not the most important motivator, and in some instances managers have found money to have a demotivating or negative effect on employees. Organizations are constantly looking for ways of enhancing their employee motivation. The employees of an organization are vital to the growth and success of the organization and in many cases, an organization success is defined by its employees (Bennet, 2002). This is also emphasized by Harvey Brown (2006) who argues that people are the foundation of every organization. Also, it is commonly said that people working for an organization, are the most valuable, the most costly, and the most volatile of all the resources that it can use to accomplish the organization’s objectives. Organizations need people to get things done (Bennet, 2002). 2. Rewards Flynn (1998) argued that rewards and recognition programs keep high spirits among employees, boosts up their morale and create a linkage between performance and motivation of the employees. The basic purpose of recognition and reward program is to define a system to pay and communicate it to the employees so that they can link their reward to their performance which ultimately leads to employee’s job satisfaction. Luthans Sommers (2005) and Edwards et al. (2006)` explained that rewards were received as an exchange of services between employee and employer. Traditionally employees’ job description and job specification determined rewards to maintain equity among employees within an organization and competitive in the marketplace Zain et al. (2009) The principle reward for performing work is pay received by the employee from the employer, many employers also have other reward packages of which wages and salaries are only a part of. The packages typically include bonuses, pension schemes, health insurance, allocated cars, beneficial loans, subsidized meals, profit sharing, share options and much more (Pitts, 2005). To ensure the reward system is effective and motivates the desired behaviors, it is essential to consider carefully the rewards and strategies utilized and ensure the rewards are linked to or based on performance. To be effective, any performance measurement system must be tied to compensation or some sort of reward. Rewarding performance should be an ongoing managerial activity, not just an annual pay-linked ritual. 3. Job Satisfaction Where job satisfaction, as defined by Lock (cited in Gruneberg, 1979, p. 3), is a pleasurable positive emotional state as a result of work appraisal from one’s job experiences. In order to maximize the overall performance of the company it is vital for an employer to understand what motivates the employees and how to increase their job satisfaction. It might however be challenging for a company to find out what motivates its employees, especially because different people are motivated by different things Different types of satisfaction will lead to different intentions and behaviors that arise from different types of motivation in getting different types of rewards (Luthans Sommers, 2005). Spector (1989) suggested that â€Å"employees can be satisfied with some elements of the job and simultaneously dissatisfied with others† (p. 10). Amabile et al. (1994) implied that employee who exhibits high job satisfaction is motivated by rewards and rewards supported work engagement (p. 950-967) Lin (2007) and Milne (2007)` recommended that rewards with outcome relationships were expected to vary based on employee satisfaction with their organization. 4. Banks in Kenya As at 31st December 2012, the banking sector comprised of the Central Bank of Kenya, as the regulatory authority, 44 banking institutions (43 commercial banks and 1 mortgage finance company MFC), 4 representative offices of foreign banks, 6 Deposit-Taking Microfinance Institutions (DTMs), 118 Forex Bureaus and 2 Credit Reference Bureaus (CRBs). Out of the 44 banking institutions, 31 locally owned banks comprise 3 with public shareholding and 28 privately owned while 13 are foreign owned as shown in Chart 1. The 6 DTMs, 2 CRBs and 118 forex bureaus are privately owned. The foreign owned financial institutions comprise of 9 locally incorporated foreign banks and 4 branches of foreign incorporated banks. I. Financial Rewards System on Employee Motivation A. Rewards and Recognition System â€Å"Reward is the benefits that arise from performing a task, rendering a service or discharging a responsibility. † (Pitts, 1995, p. 11. ) Pay is the most significant and motivating benefit that is received in return for performing a task or service. It is pay that motivates individuals to go out and seek work. Pay is also one of the few ways to set a mutually acceptable common value to the individual’s work contribution. Pay can also be a powerful de-motivator, if employees are not satisfied with the reward package, it will be hard for the company to recruit and retain good individuals. (Pitts, 1995, p. 11). Kenyan Commercial Banks are having problems in finding a suitable and functioning reward system that would motivate the employees in a proper way. The main problem has been the ability to retain experienced staff. In the banking industry employee’s retention is a key issue that affects all the players on an equal measure. Bank employees who are known as â€Å"bankers† hop from one bank to another looking for better pay. The reward types are decided by the upper management, and disseminated downwards to the line manager however decides how to implement the rewards to their juniors. The Kenyan Commercial Banks in today’s environment seek to determine the reasonable balance between employee commitment and performance to the organization. The reward and recognition programs serve as the most liable factor in keeping employees’ motivation high and passionate for their jobs. Oosthuizen (2001) stated that it is among the function of managers to motivate the employees successfully and influence their behavior to achieve organizational efficiency. La Motta (1995) is of the view that performance at job is the result of ability and motivation. Ability formulated through education, equipment, training, experience, ease in task and two types of capacities i. e. mental and physical. The performance evaluation and rewards are the factors that proved to be the bonding agents of the performance evaluation programs. According to Wilson (1994), the process of performance management is one among the key elements of total reward system. The reward system employed by most Commercial Banks consists of three types of rewards; profit sharing, personal salary increment and tangible recognition. All of these rewards have been in an out of use for the past five years, at some periods of time all three rewards have been in use at the same time. Profit sharing is paid out once an year together with the annual salary increment, which is determined by the appraisal system and the bank’s annual performance . B. Financial Rewards Financial motivation is the amount of effort other people (employers) gives to the person (employees) to motivate them. Financial motivators are efficient but the influence doesn’t last long. Non-financial motivators tend to have a longer impact as they are inherent and not imposed from outside. Entwistle (1987) is of the view that if an employee performs successfully, it leads to organizational rewards and as a result motivational factor of employees lies in their performance. Majority of the organizations require their employees to work according to the rules and regulations, as well as, job requirements that comply with full standards. The highly motivated employees serve as the competitive advantage for any company because their performance leads an organization to well accomplishment of its goals. Among financial, economic and human resources, human resources are more vital that can provide a company competitive edge as compared to others. According to Andrew (2004), commitment of all employees is based on rewards and recognition. Lawler (2003) argued that prosperity and survival of the organizations is determined through the human resources how they are treated. C. Non-financial Rewards Armstrong Murlis (2004) reflecting on non-financial motivation pointed out that money in itself has no non-financial meaning and acquires significant motivating power only when it comes to symbolize intangible goals. Kreitner Kinicki (2007) suggests that the effectiveness of money as an financial motivator depends on a number of circumstances, including the value and needs of individuals and their preference for different types of financial or non-financial rewards. Armstrong Murlis (2004) further commented that money is important to people because it is instrumental in satisfying a number of their most pressing needs. It is significant not only because of what they can buy but also a highly tangible method of recognizing their worth, thus, improving their self-esteem and gaining esteem of others. D. Employee Motivation Most of the commercial banks have gained the immense progress by fully complying with their business strategy through a well-balanced reward and recognition programs for employee. Deeprose (1994) argued that the motivation of employees and their productivity can be enhanced through providing them effective recognition which ultimately results in improved performance of organizations. The entire success of an organization is based on how an organization keeps its employees motivated and in what way they evaluate the performance of employees for job compensation. Managing the performance of employees forms an integral part of any organizational strategy and how they deal with their human capital (Drucker as cited in Meyer Kirsten, 2005). Today where every organization has to meet its obligations; the performance of employees has a very crucial impact on overall organizational achievement. In a demotivated environment, low or courageless employees cannot practice their skills, abilities, innovation and full commitment to the extent an organization needs. Csikszentmihalyi (1990) posts a view that the state of satisfaction and happiness is achieved by the employees only when they maximally put their abilities in performing the activities and functions at work. In this way motivated employees are retained with the organizations thus reducing extra costs of hiring. An intrinsically motivated individual will be committed to his work to the extent to which the job inherently contains tasks that are rewarding to him or her. And an extrinsically motivated person will be committed to the extent that he can gain or receive external rewards for his or her job. For an individual to be motivated in a work situation there must be a need, which the individual would have to perceive a possibility of satisfying through some reward. If the reward is intrinsic to the job, such desire or motivation is intrinsic. But, if the reward is described as external to the job, the motivation is described as extrinsic. E. Remuneration Good remuneration has been found over the years to be one of the policies the organization can adopt to increase their workers performance and thereby increase the organizations productivity. The performance of workers has become important due to the increasing concern of human resources and personnel experts about the level of output obtained from workers due to poor remuneration. This attitude is also a social concern and is very important to identify problems that are obtained in industrial settings due to non-challant attitudes of managers to manage their workers by rewarding them well to maximize their productivity. All efforts must be geared towards developing workers interest in their job so as to make them happy in giving their best to their work, this will ensure industrial harmony. In view of this, this study attempts to identify the influence that rewards have on workers performance in order to address problems arising from motivational approaches in organizational settings. For some reasons most organizations use external rewards to influence their workers. The assumption that workers tend to perform more effectively if their wages are related to performance which is not based on personal bias or prejudice, but on objective evaluation of an employee’s merit. Several techniques of measuring job performance have been developed; in general the specific technique chosen varies with the type of work. All these issues call for research efforts, to bring focus on how an appropriate reward package can jeer up or influence workers to develop positive attitude towards their job and thereby increase their productivity. Possibly the best means of understanding employees’ motivation is to consider the social meaning of work. In this respect, short-term goals and long-term goals of employees’ and employers’ may affect production variously. Giving attention to the manner in which rewards are distributed to employees’ are perceived is preferable to assume that reward means the same thing to all. Rewards that an individual receives are very much a part of the understanding of motivation. Research has suggested that rewards now cause job motivation and satisfaction, which leads to performance. It showed that though there was no significant difference in motivational level and job satisfaction across various categories of workers in different organizations. II. Impact of Financial and Non-Financial Reward System on Employee Motivation A. Employee Engagement Employee engagement is typically described as a high level of employee involvement, commitment to the organization and job satisfaction. Engaged employees value, enjoy and have pride in their work. They are more willing to help each other and the organization succeed; take additional responsibility; invest more effort in their jobs; share information with other employees; and remain with the organization than employees who are less engaged. Employee engagement and related variables, such as commitment and cooperation, have been found to be associated with organization performance. The primary focus of engagement efforts has mostly been on team-building programs, employee opinion surveys and non-financial rewards, egalitarian pay structures have been found to be related to employee cooperation, involvement, satisfaction and commitment. Considerable attention has been given to the identification of key drivers of Employee engagement and its linkage to the financial results. Engagement is creating prospect for human resources to attach with their managers, colleagues and organization. It‘s concern is to shape a milieu where employees are motivated and connected with their job in real caring manner to do a high-quality job. Engagement is a perception that places continuous improvement, change and flexibility at the empathy of what it means. Training and Career Development another important dimension in the process of engaging employees and this call for the dying need of formulating diversity conflict management policies. Performance of engaged employees lead the company towards customer satisfaction which ultimately direct an organization towards profitability or business outcomes (Bassi, 2010). They further argue that modern business anticipate their employees should be positive and take responsibility for developing their expertise. They are expected to be devoted to excellent performance appraisal standards. Organizations needed employees who are active, committed and enthralled to their job. (Ruth. et al,1998) promulgates that the management efficiently involve their employees in their works and receive high performance among employees. This can be done through right selection of candidates, proper training, power sharing, work-information sharing, knowledge or employee skills and performance rewards system. (Konard, 2006) claims in his study that how high-involvement work practices can contribute in effective employee engagement. High involvement work practices are the techniques used by the management to efficiently involve their employees in their works and receive high performance among employees. A company caring more for its customer contentment and is focused on customer than it can also drives employee to get more engaged. If there is no career progression or limited career advancement opportunities, then employees will definitely be disengaged at certain level and shall not remain committed with an organization. Organization’s repute as a good employer, availability of resources needed to perform job in high quality and communication of clear vision for long term success by the higher management are also critical factors in building employee engagement. (Paradise, 2008). III. Conclusion Employee motivation is one of the most essential parts in a company’s development and success. It is hence vital for an employer to understand what motivates the employees and how to maximize their overall job performance. I have come to the conclusion that there are two major factors that have a profound effect on work motivation in Kenyan Banks. One is intrinsic motivation which comes from inside the employee and is related to his or her feelings. Examples on this are personal growth, the feeling of achieving something, responsibility and freedom to act. The other factor is extrinsic motivation where outside factors such as salary, rewards and criticism motivate the employees. It is therefore important for a company to find out what motivates its employees so that it can plan a suitable reward system and gain better results. The right combination of immaterial and material rewards can boost up the employees work motivation and enhance their commitment to the company. A. Recommendation Managers in the organization must continually seek to understand the needs of their employees. Also financial rewards should be tied direct to the results that the employees achieve in the organization. Managers are also required to weigh up the advantages and disadvantages of each payment system and decide where to put the emphasis on. On the other hand, a total reward system which includes non-financial and financial reward system describes a reward strategy that brings components such as learning and development together with aspects of the work environment into the benefits package. The purpose of total reward is to create a cluster where all the different reward systems are connected, complementary and mutually reinforcing each other. In order to achieve internal motivation, the total reward strategies should be financial and non-financially integrated with human resource activities, business strategies.