Effect of Incentives and Reward Programs on Employee Performance


Effect of Incentives and Reward Programs on Employee Performance

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18th, January 2013

 The human resources department is important in a company, compared to the other departments, as it deals directly with employees and issues affecting them. Employees are the core of a company, and the performance of any company is influenced by the nature of employees it has. Depending on different aspects of employees, a company can be successful or compete unfavourably in the market. Motivated employees are more likely to perform better in their job, hence boosting company productivity. On the other hand, employees with low motivation and poor attitude toward their jobs will lead to the downfall of a company, as their job performance level will be low. The human resources department is therefore, charged with ensuring that employees stay motivated, as well as retaining the company’s best employees. Motivation of employees results from different aspects, including rewards and incentives by the company. The rewards and incentives by a company have a positive influence on employee’s job performance, and companies should invest in these to boost employees’ performance and company productivity.

Danish (2010) notes that motivation is an important factor, as it determines the drive behind people’s work and actions. This comprises different processes that affect people’s behaviour toward the achievement of set goals. This is a crucial factor in today’s world of business, which is full of different goals that companies aim at achieving. With motivation, the employees in a company can be committed and dedicated in their work, thus influencing positively the company productivity. Motivation is dependent on both intrinsic and extrinsic factors, which work together to produce committed employees. Incentives that are tangible in nature play a big role in the performance of employees. These also influence employees to work smarter, and produce quality goals in their work. Incentives and rewards are the major factors behind employee motivation. When employees experience motivation, they enjoy doing their jobs, and experience a form of satisfaction in their work. Rewards and incentives are therefore, the major drivers of motivation in employees (Danish, 2010).

A manager ensures that they create a conducive work environment for their employee. This way, their company will meet the needs of its employees, and the employees on the other hand, will meet the company’s needs.  This will result in a successful business environment, where the employees will be motivated to work effectively. Everyone in the company will then work toward the achievement of a common goal. There are different incentives and rewards that a company can offer its employees to motivate them. However, a manager must be sure that the choice of these rewards and incentives are appropriate, accepted, and appreciated by the employees. A manager can therefore, establish the most appropriate rewards and incentives for their employees by getting the employees’ views. This is through conducting surveys, where employees answer questionnaires on the subject.  This gives a manager a chance to come up with a list of incentives and rewards that will be effective in ensuring motivation and job satisfaction of employees.       Different companies have their own ways of motivating their employees. However, it is important that employees are equally involved in the discussion about the various available options of incentives and rewards a company can offer (Pincus, 2004).

When employees are rewarded and given incentives, this boosts their morale, gives them satisfaction in their work, and makes them be more productive in their work.  There are different forms of reward systems and incentives a company can offer its employees. First, there is the aspect of profit sharing. In this case, a company comes up with a profit sharing plan, which is more suitable for the company. The company gathers information about every employee, including their opinions so that the plan is favourable to all employees. Although this is an old-fashioned method, it is still effective at ensuring that employees are motivated, hence increasing their productivity at work (Pincus, 2004).

Providing employees with time off is also necessary as a motivational factor. Time off can be used by companies as a reward and incentive for employees who perform well on the job, since most employees today value their time out of work. This time off still comes with the pay, and is a great instrument of motivating employees. This will lead to job satisfaction, as employees will be happy with their work; thus, get motivated to perform even better. Another form of reward and incentive to employees is trips to exotic locations. Many big companies today take their employees on annual trips, where the company caters for the cost. This motivates the employees to work best and excel at their jobs (Pincus, 2004).

Most employees will appreciate free merchandise offered to them by their employer. This merchandise can include some of the products produced by the company or can be acquired from an external source. Many companies today motivate their employees by offering them free merchandise, some that are found in their catalogues. Additionally, a company may reward the best employee of the month or year. These can be given special rewards for performing beyond the call of duty. These employees can be offered special parking space on the company premises, they can be given special listing in the company newsletter, or even given additional time off. All these will be motivating to the employee, as they will work harder to maintain the position. The other employees will also be challenged to work harder so that they may as well be rewarded. This generally increases the productivity of employees in their jobs (Pincus, 2004).

Rewards and incentives in a company can be in form of money or non-monetary rewards. It is true that money does not mean everything to employees, yet at the same time means everything to them. Employers should therefore, be careful to ensure that they use the most appropriate forms of rewards and incentives when motivating their employees. Salary is in form of money; therefore, employers may include more monetary incentives in addition to their employees’ salaries. A company with an attractive pension or retirement plan boosts employee motivation to greater lengths. Most employees are concerned with their security of their financial future, therefore, a company that secures their financial future, is one that most employees will choose to stick with. Health insurance for employees is also motivational to them. This is affordable by even small companies, as long as the company identifies the most appropriate health plan. Additionally, a company that values employee motivation and their job satisfaction may also choose to offer the employees life insurance. All these will increase employee loyalty to their company, which will be reflected in the increase in their productivity in work (Pincus, 2004).

Tuition reimbursement for employees is an incentive that some companies use to motivate their employees. By reimbursing their tuition, a company shows its support for the intellectual advancement of its employees. This in turn boosts employee job satisfaction and motivation, which will be reflected in higher job performance. Paid vacations are also important incentives. All employees like to have vacations at the end of every year. Most companies offer this to their employees based on their achievements in their work. This makes employees to work harder toward the achievement of their work objectives in the following years. Finally, apart from the official Family Medical Leave, an employer may choose to offer a leave of absence to their employees. There are special circumstances that may require an employee to miss work. An employer can therefore, have this provision for their employees. This will motivate then to perform better in their job as assign of appreciation. All these incentives and reward systems can work in some companies and not in others, depending on different factors. Therefore, before a company decides on the type of rewards system and incentives to offer their employees, it is important for a collaborative consultation to be done between human resources experts and the employees. If companies address the needs of employees while having realistic expectations of them, this ensures a positive relationship between employees and the management, which is a foundation for high employee job satisfaction and work performance (Danish, 2010).

In the current world, the global market is characterized by immense competition among different companies. For any company to therefore, compete favourably in the market, it must identify and adopt the best market strategy, which will be effective in improving the performance of the company. All companies depend on their employees to achieve their objectives and remain competitive in the market. Therefore, these employees must exhibit a high level of commitment and dedication to their work, in a way that will boost the productivity of the company. To achieve this, the employees must first be productive in their work. Their collective productivity will be responsible for boosting the overall productivity of their company. For employees to be productive, they need to be motivated. They can be self-motivated, or draw motivation from external source, and in this case, their company’s reward systems and incentives. Therefore, a company must ensure high employee performance by motivating them by rewards and incentives (Palmer, 2007).

As seen earlier, incentives can be in the form of monetary and non-financial incentives. These affect employee performance differently, basing on various factors. However, most companies today have used the financial incentive to motivate their employees. Like other incentives, the financial incentive aims at increasing the performance of employee. Most employers believe that the higher the value of this motivational tool, the higher the level of employee performance. However, apart from the role of incentives and rewards as motivational tools, most contemporary theories argue that motivation should also be inherent. Therefore, employees must as well experience internal motivation in order to equally experience motivation from their external environment. Internal motivation is greater and of more value than external motivation such as rewards and incentives (Danish, 2010).

According to Deadrick and Scott, financial incentives in most cases serve to increase the employee performance. This is through the various effects these have on the employees’ attitude and perception of their job. For instance, the PT. Telkom, one of the largest telecommunication companies in Indonesia, uses financial incentives to motivate its employees. This has transformed employee attitudes and perceptions of their job, thus increasing their work performance.  This company offers its employees both individual and group incentives. Individual incentives offered include employee bonuses, best employee, best innovator, employee premium, among others. The group incentives this company offers include most disciplined units, best cash collectors, and best innovators, among others. Results show that these incentives have had a positive impact on the performance of employees in this company, as the perspectives of employees on their job have changed over time. This was established using questionnaires on employees as they answered questions relating to their views on the reward system and incentives employed by the company. The questionnaires also aimed to establish if the incentives had any impact on employee behaviour and discipline. All the 30 employees interviewed agreed that the incentives and rewards offered make them perform better in their work, be more discipline, and uphold strong work ethics. This research conducted by Deadrick and Scott also established that the program of Merit Pay has considerably lowered the rate of absenteeism among employees by 35 per cent.  This case of PT. Telkom shows that incentives and reward systems, if used by companies can have a positive influence on employee performance. In this company of study, the incentives and rewards used had a 96 per cent positive effect on employee performance (Deadrick & Scott).

Financial incentives do not work in the same way in all companies to produce similar results. These require different important conditions in order to work effectively. In addition, some financial incentives cannot be applied and work in certain companies or public sector. Regarding incentives on the public sector, a research was conducted to determine how these work. The research confirmed that financial incentives have a positive impact on the employee task performance. This impact varies from moderate to significant. However, they also affirmed that the effectiveness of the incentives highly depends on the conditions of the company. Only the right organizational behaviour will lead to a positive impact of the incentives on employees (Simon & Propper, 2004). In this research, it was noted that individual incentives are not effective in the traditional public sector settings. Individual incentives only cater for a significant motivation of an individual employee. This is due to the lack of sufficient funding, absence of organizational characteristics, and managerial characteristics, which can pay for performance work in traditional government settings. Their third discovery in their research was that the group incentives are effective, though their impact on the public sector is not clear. The lack of measures of organizational performance in the public sector settings limits the effectiveness of group incentives to be determined (Simon & Propper, 2004).

According to Palmer (2007), not all incentives are going to work, as these also depend on a variety of factors. He identified cases where incentives may fail to achieve results in employees, or achieve only little results. First, when the employee lacks the capacity to achieve a desired goal, no matter the amount of incentives they are given, their work productivity will remain poor. Another case is when the employee in question does not have the important skills or knowledge needed for the accomplishment of a task.  In this case, for the performance of the employee to increase, they will need the necessary skills and knowledge, and not incentives and rewards. Finally, some incentive and reward systems are complicated such that an employee may fail to understand the clear-cut boundary between their work performance and their rewards. In such a case, the employee will not perform to their best because their rewards are not well defined. For this, it is therefore, important that companies clearly define their reward systems to their employees and faithfully adhere to them. These cases point to the fact that incentives and reward systems in companies affect individual employees, as well as the company in different ways. The job performance of an employee and the overall productivity of a company can be influenced negatively or positively with the introduction of incentives and reward systems. Organizational behaviour and the design of the incentives and reward systems must be considered to ensure positive effects on employee performance. Incentives and reward systems must be well designed to ensure effectiveness as poorly designed rewards and incentive programs lead to negative results and fail to produce motivation in employees. This in turn is detrimental to the company considering the time and cost incurred in developing the reward systems (Palmer, 2007).

Based on employee performance, incentives and rewards can be given to those individual employees and groups of employees who exhibit high ability, good attitude, and accomplishment in their work. However, different companies base on different aspects while rewarding employees in relation to performance. Some companies tie the performance with the company goals, while others tie this to employees’ individual accomplishments. For instance, a company that rewards in relation to its goals and objectives may offer its sales representatives incentives in order for them to have good customer relations, as good customer service is one of the company’s objectives. By linking rewards with organizational goals, employees take full ownership of their job and positions, thus boosting their morale and job performance (Danish, 2010).

Rewards and incentives are popular among companies that are highly involved with sales and marketing. This kind of job is demanding, and requires employees to be enthusiastic and have a high drive. Sales work therefore, is among the jobs that need a high level of motivation for employees due to their nature. Most companies today offer a salary and commissions for their sales people, unlike in the past, where only commissions were offered. Non-monetary rewards and incentives as compared to monetary rewards are believed to produce higher levels of motivation in employees. These include employee trainings, provision of a flexible work schedule, and conducive work environment, among others. Therefore, companies must balance between monetary rewards and incentives and the non-monetary rewards and incentives. The nature of employees also matters in deciding between monetary and non-monetary incentives. If a company strikes a balance and identifies the best rewards system, it will be a satisfying program capable of boosting employee performance and company productivity, since the needs of employees and those of the company will have been met appropriately (Danish, 2010).

Today, some of the most competitive companies have highly invested in their employees, as these are the main force behind company productivity. Google Company is a well performing company that is known to have the best strategies that ensure its employees find satisfaction in their jobs. Google ensures that its employees are highly motivated in order to work effectively. This company does this in a variety of ways, including the provision of both rewards and incentives to its employees. These incentives vary to comprise both monetary and non-monetary incentives. The monetary incentives Google offers its employees include a death benefit scheme, which is considered the best in all companies. Here, 50 per cent of a deceased employee’s salary is still payable to them for the next ten years after death, in addition to separate benefits for the spouse and each child (Casserly, 2012).  Google also offers non-monetary incentives to its employees. These include flexible working periods, and trainings for the employees. The employees at Google consider Google as the best company in the world, and are satisfied with their work. All these have resulted in increased work performance by the Google employees, thus influencing the productivity of the company, as it ranks among the top companies globally. This is a strong reward system that Google utilizes, and this shows the level of commitment, value, and interest the company has in its employees’ job performance, as it goes extra miles to motivate them (Casserly, 2012).

In conclusion, incentives and reward systems are important aspects that boost employee job performance. Therefore, a company requires to include this in its marketing strategy to see to it that its employees are motivated and perform better in their jobs, consequently raising the company level of productivity. However, different companies will use different incentives and reward systems as these cannot have a similar effect in all companies. Both monetary and non-monetary incentives are important to boost employee motivation; therefore, companies should equally use these. However, companies must strike a balance between these two categories of incentives, to avoid over-reliance on one category, as these have different effects on the employee and company productivity. Investing in employee performance by offering incentives and rewards is worthy for employers, as this will in return result in increased productivity of their companies. Nonetheless, wise companies realize this fact, and consider investment in work performance of their employees as their greatest priority.




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