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Ever since the financial scandals that rocked the business world and the worldwide financial crisis that followed, the debate on the effects of bonuses on the performance of especially managers and the role of reward systems in organizations has divided academics and practitioners alike (Sikula, 2001). The divergence of opinion among academics becomes clear when studying scientific research into bonuses and reward systems. On the one side are the proponents of bonuses who state that use of bonuses and emphasis on monetary rewards increases productivity and organizational performance.
One of important attributes of work organization is the ability to give reward to their members. Pay, promotions, fringe benefits, and status symbols are perhaps the most important rewards. Because these rewards are important, the ways they are distributed have a profound effect on the quality of work life as well as on the effectiveness of organization.
An Organization typically relies on reward system to do four things:
1. Motivate employees to perform effectively.
2. Motivate employee to join the organization.
3. Motivate employee to come to work, and
4. Motivate individuals by indicating their position in the organization structure.
There are several principles for setting up an effective reward system in an organization:
Give value to reward system. Employees must have preference for the type of rewards being offered. Many employees prefer cash reward and plaques. Some employees like to see their name in company news letter. Others like the public recognition surrounding award ceremony.
Make the reward system simple to understand. Elaborate procedures for evaluating performance, filling out forms, and review by several levels of management lead to conclusion. The system must be easy to understand if it is to be used effectively.
Lay down performance standards within the control of the team.
Make the reward system fair and effective.
Ensure participation in the reward system.
Involve people in the reward process and empower them to do the needful.
Lazear and Oyer (2009) recently provided an overview of research into the effect of incentives in organizations. Many of the studies reviewed by them showed that incentives can be a powerful managerial tool for affecting individuals' behavior in a positive way. Specifically, productivity can be increased using incentives like piece rates. Yet, Lazear and Oyer (2009) also discussed studies that showed that even though incentives worked, in the sense that they had a positive effect on results, they did not always work consistently or with prolonged effects and sometimes even had unintended and unwanted consequences like manipulation of results.
On the other side are the opponents of bonuses and monetary rewards. For instance, Bloom (1999) showed that companies with higher pay inequality suffer from greater manager and employee turnover. It seems that the benefits to the high performers are outweighed by the costs to the low performers, who apparently feel unfairly treated and reduce their effort as a result. Also, Gneezy and Rustichini (2000) found that introducing new incentive schemes in which employees are offered monetary incentives could cause them to perform more poorly than those employees who were offered no compensation. Siegel and Hambrick (2005) showed that high-technology firms with greater pay inequality in their top management teams because of the use of bonuses have lower average market-to-book value and shareholder returns than firms with more equal management pay. Stone et al. (2010) plainly stated: financial incentive effects are unreliable. Finally, there are also studies with mixed results. One example is Bonner et al. (2000), who found that the type of task being performed and the type of incentive scheme being employed affect the efficacy of financial incentives. Another is the study by Samuels and Whitecotton (2011), who found that the effects of incentives depend on contextual factors.
Most organizations use different types of rewards. Examples of recognitions and rewards include money, plaques, trophies, certificates/citations, public recognition, official prerequisites, special assignments, parties or celebrations or other meaningful celebrations. The most common are wages or salary, incentive systems, benefits and prerequisites, and awards. For majority of people, the most important rewards for work are the pay they receive. For one thing an effectively planned and administered pay system can improve motivation and performance.
Money may not actually motivate people. Surprisingly, there is no clear evidence that increased earning will necessarily lead to higher performance. A great deal of research has been done on what determines whether an individual will be satisfied with the rewards he or she receives from a situation. The following five conclusions can be reached about what determines satisfactions with rewards.
1. Satisfaction with reward is a function of both how much is received and how much the individual feels should be received. When individuals receive less than they feel they should receive, they are dissatisfied. When they receive more that they should, they tend to feel guilty and uncomfortable.
2. People's feelings of satisfaction are influenced by comparisons with what happens to others. These comparisons are made both inside and outside the organizations they work in, and are made similar people. Individuals tends to rate their inputs higher than others.
3. In addition to the obvious extrinsic rewards individuals receive (e.g. pay promotion, status symbols), they also may experience internal feelings that are rewarding to them. These include feelings of competence, achievement, personal growth, and self-esteem. the overall job satisfaction of most people is determined both by how they feel about the intrinsic rewards and how they feel about their extrinsic rewards.
4. People differ widely in the rewards they desire and how much important the different rewards are to them. One group feels money is most important, while other group feels interesting work and job content is. Both groups, of course, are able to find examples to support their point of view.
5. Many extrinsic rewards are important and satisfying only because they lead to other rewards, or because of their symbolic value.
Brief about the organization referring
Our organization ECO-CARE AND AWARE is a no-profit organization providing training and support service/consultancy to Developmental Sector. Support services includes planning and formulation of developmental projects, technical support during implementation, Monitoring & Evaluation, Training and Capacity Building, Research & Study, Micro Planning & PRA (Participatory Rural Appraisal).The organization caters its best services for the judicious use of Natural, Human and Physical resources.
The areas of activities include Environment, Watershed Development, Biodiversity, Sanitation, Minor Irrigation, Biotechnology, Sustainable Agriculture, Horticulture, Capacity Building, Training and Awareness. The organization has professionals from all the above fields and for each professional their role is clearly defined. And some cases we need to have interaction and mutual dependency within the organization for completing the specific project or assignment.
Reward system as followed by our organization
Our reward system always link reward to performance. Workers who work hard and produce more or give better quality results would receive greater rewards than poor performers. Also the criteria for receiving rewards are clear and employees know whether they are going to receive rewards for quality performance, innovation, effort or attendance.
Our management must ensure that workers perceive distribution of rewards equitable Furthermore, our organizations to attract, motivate and retain qualified and competent employees, they be offered rewards comparable to their competitor.
Our organization following the following type of reward systems:
1) Incentive and Rewards:
Our organization design financial incentives which are designed to provide direct motivation - do this and you will get that. Financial rewards provide a tangible form of recognition and can therefore serve as indirect motivators, as long as people expect that further achievement will produce worthwhile results.
Financial incentives aim to motivate people to achieve their objectives, improve their performance on enhance their competence or skills by focusing on specific targets and priorities. Financial rewards provide financial recognition to employees for their achievement in the shape of attaining or exceeding their performance targets or reaching the level of competence skill. Achievement bonus, team based lump sum payment our organization provides in this category.
In a worldwide study into the correlation between employee attitudes and financial success, Maister (2001) found that these employee attitudes are positively influenced by reward systems that pay out a fair compensation. In research of Taiwanese high performing organizations, Huang (2000) concluded that these perform better than low-performing organizations among others because they stress internal equity when designing their compensation systems. Corby and White (2003) discovered, while researching the introduction of performance pay in England's National Health Service, that the new reward system in theory was viewed favorably but that there was a big fear that the system would not be used fairly and equitably and therefore would be ineffective. Underwood (2004) found that good performing international companies used reward systems that value their employees. Sirota et al. (2005) in their research of what motivates employees to excel, discovered that equity was very important to them: to be treated justly in relation to the basic conditions of employment and having a sense of elemental fairness in the way they are treated, which could be achieved by for employees satisfactory compensation and fringe benefits. Holbeche (2005) called this 'a fair employee deal' which is important for creating the impression of a fair compensation system among employees, as Prinsloo et al. (2007) also found. Burney et al. (2009) found that tying the reward structure directly to a strategic performance measurement system increases the feeling of fairness employees have toward the reward system.
2) Competency related Pay:
Competency related pay may be defined as a method of rewarding people wholly or partly by reference to the level of competence they demonstrate in carrying out their roles. This definition has two important points: (1) pay is related to competence (2) people may be rewarded with reference to their level of competence.
Competency has been defined by E.G. Bogeley as "demonstrable characteristics of the person, ncluding knowledge, skills, and behaviors, that enable performance." The emphasis in this definition is on the characteristics of the person.
This plays as prominent factors because competencies are independent of a job or a position. Our organization endorses competence-related that pay for an effective use of competence to generate a good value. Competence related pay works through the process of competence analysis of not only individual competences but also multiple level of competence.
3) Skill Based Pay:
The skill based pay is totally based upon skills that are used in job. Sometimes it even depends on achievement and application of getting additional skills by a person who's actually carrying out the job. On the other hand, skill based pay usually depends on skills such as follows:
Our organization evaluates the potential cost of skill-based pay as well as its benefits rigorously before its introduction.
4) Team based rewards:
Hammer in 2001 has reviewed emerging business concept which was developed only through best companies. And found that these organization employed reward system on group performances over individual performance. The same was found by Guthrie in 2001 intended for New Zealand organizations and found that productive benefits are induced by group incentives which are used in medical partnerships offset reductions in output which are connected with free-riding in addition to efforts devoted to monitoring.
The team based rewards connected to our organization payments which are linked to the performance of team and they are only shared among the team. These all schemes are conducted to encourage and to influence team members for a better organization and they are not that easy to manage.
5) Profit sharing:
As our organization is a no profit based organization it keeps no profit or shares all the profit to employees and growth of the organization. Profit sharing is better known, older and more widely practiced which is associated with participative management theories. Profit sharing is a group based organization plan. The fundamental objectives of profit sharing are as constrained below:
(a) To give confidence in employees to identify themselves more closely with an organization in developing a common concern for its development. s
b) To encourage a greater interest among employees in an organization.
(c) To get a better co-operation among management and employees.
6) Merit Pays:
Pay for performance
Bee and Lawler in 2000 came to know that Korean organizations used a high involvement HRM strategy to accomplish better results than ever before, and that performance based pay was an integral part of that HRM strategy. The same results were found by Challis et al. in 2005 and Knight-Turvey in 2005 intended for Australian companies, Kok and Hartog in 2006 for Dutch small as well as medium-sized companies. Chang in 2006 let South Korean firms and Origo in 2009 for Italian metalworking organization. Joyce et al. in the year 2003 identified that successful US companies used eight management practices, among which pay-for-performance systems. This result was similar to that of Martel in 2002 a study of some of American best companies.
Pay and incentives linked to long-term performance.
Captivating part in a literature review into characteristics of high performing organizations, Kling in the year 1995 found that connecting employee pay and incentives to long-term performance of an organization had a positive relationship by means of productivity. Weller and Reidenbach argued that, in the light of the recent recession and ponderous economic recovery, a better balance in the incentives intended not only for short-run but also long-run performance has to be achieved as currently corporate managers have stronger incentives to practice short-term profit seeking activities to invest in longer-term productive activities.
Rewards based on relative performance.
One of the prominent key factors is rewarding success based upon their total performance. Another form of relative performance is discussed by Guojin et al. in 2011, which is peer performance within an organization, in which incentives are paid out after a comparison of an individual's performance with that of his peers in the same function.
The merit pay is widely used in our organization that which are intended for paying performance. The merit pay is totally based upon their performance and to improve motivation. The organization itself takes care of employee transport.
7) Employee Ownership:
There are number of plans that exist to help in getting some or all the stake ownership of our organization into the hands of employees. Nothing like companies which tender stock option plans, stock purchase plans and employee stock ownership plans; our organization always provides an opportunity to competent, loyal and high performing employee to be included in the board of Directors. And giving special description as Promoters and therefore these benefits are always there. This is a great motivation for our employees to contribute fully to organization.
8) Employee benefits:
The Employee benefits are fundamentals of remuneration that are given in addition to various forms of cash pay. Our organization endow with a quantifiable value intended for individual employees and that would be in the form of contingent like a pension scheme, insurance cover or sick pay, or may cater with immediate benefit like a organization vehicle. It also includes elements that are not strictly remuneration, such as annual holydays. Benefits in general do not exist in separation. They are a part of comprehensive compensation package that which are offered by an organization.
The main objectives of employee benefits are as follows:
(a) To increase the assurance of employees to an organization;
(b) To make obvious that the organization cares for needs of its employees.
(c) To get together personal security and also personal needs of their employees.
(d) To make sure that these benefits are cost-effective in terms of commitment along with their improvement in retention rate.
These benefits play a vital role in representing a large share of total compensation. On the other hand, they have a very good capability in influencing employee, unit and organization outcome variables. The empirical literature takes aim that benefits would affect on employee attitude, retention, and perhaps job choice. Additionally it appears that sole preferences may play a particularly prominent role in determining the employee reaction to benefit.
The Statutory and Voluntary Benefits: our organization provides not only statutory but also voluntary benefits. Statutory benefits are given to employees by organization despite the consequences of whether it wants to or not. And some of them are termed below:
social security benefits
Provident fund etc.
Voluntary benefits as provided by organization and they are as follows:
Credit cards etc.
Financial Reward Systems
The enticement and financial rewards are under financial reward system. These incentives are forwarded in retrospective. The financial incentives are designed to provide direct motivation. Financial rewards give a tangible form of appreciation and therefore it mainly serves as indirect motivators.
The main aim of financial incentives is to motivate in obtaining their objectives, enhance their competence or skills in concentrating their targets and priorities.
Conclusion, Limitation and Further Research
The literature review described in this paper showed there are twelve characteristics, found in research studies into high performance organizations that have a bearing on the type of bonuses and reward systems that organizations can apply to achieve high performance. However, eleven of these twelve characteristics seem to have a minor role compared to other characteristics found in the literature review (which have to do, among others, with organizational structure, quality of management, quality of workforce, information technology and communication) and did not make the cut into the empirical study. In the empirical study, the remaining characteristic A fair reward and incentive structure did not show a significant relation with organizational performance. The conclusion therefore is that using bonuses or implementing certain types of reward systems does not have a positive nor a negative effect on organizational performance. A possible explanation for this result is that reward systems are a hygiene factor for an organization. If the organization does not have an appropriate reward system, with or without bonuses, it will run into trouble with its employees. If it does, which employees expect and consider being normal, it can start working on improving its performance.
This research result puts the ongoing debate on the use of bonuses and reward systems to improve the results of organizations in a different light. Putting a lot of effort in introducing bonuses or a certain type of reward system and then expecting the organization to improve its results and maybe become an HPO is unrealistic. The reward system is not a determining factor for high performance. There may be other arguments for designing a reward system though. For instance, an organization should not differ too much from other organizations in its sector (Dimaggio and Powell, 1991) or, for equity reasons, internal pay dispersion should not be too large. The practical implication of this study is that organizations should not spend a lot of time on designing and implementing elaborate and sophisticated reward systems to improve performance. They just have to make sure an appropriate reward system is installed that is considered to be fair and equitable by employees. This creates a good foundation for building an
There are several limitations to this study. Despite the fact that the literature search was extensive, potentially valuable studies may not have been included. In this respect, also it should be noted that predominantly published studies were taken into account, which created a potential bias as unpublished studies may contain different outcomes (Ashworth et al., 1992). Another potential bias is the presence of subjectivity in the choice of literature sources that were included in the study (Ashworth et al., 1992). This problem has been alleviated by including literature from many different disciplines during the selection process. As common in questionnaire-based research and self-reported scores, there is the possibility of attribution. Is it possible that the respondents reporting high performance and those reporting low performance make implicit attributions of characteristics, and in fact, causation. The studies used in the descriptive literature review by definition looked at what organizations did in the past and the results are therefore not necessarily valid for the dynamic future (Morton, 2003).