The rationale of a Reward System


The meaning of rewards is somehow related to the field of motivation because motivation is usually defined as the drive to achieve the organizations' goal. This brings the question that why people should develop such a drive and why they should care whether the organizations' goal is achieved or not (Maltby and Day, 2001). The answer is the person who develops such a drive desires the rewards and benefits as a return when they achieved the goal of the organization (Lefton et al., 1977). Moreover, the rewards are strongly related to the level of job motivation, leading to the research question: Discuss whether reward systems are related to motivation at work?

The objective of the present research is to investigate the relationship between intrinsic and extrinsic rewards and motivation at work. The empirical evidence of Tziner (1983) reveals that the better the correspondence between rewards and needs, the better the employees motivation and satisfaction. Furthermore, this study is accounting the relationship, between monetary and non-monetary rewards and motivation at work, realizing that human needs can be recognized as tangible and intangible. Therefore, correlating goals and needs provides a coherent understanding toward reward strength and motivation at work.

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The research would perform for Banking Industry in New Zealand. As long as the demographic factor of the employee's questions would significantly affect research findings, the relationship of the demographic factors and motivation at work will also study.

Aim and Objective of the research

The aim of this study is to gain a greater understanding on whether reward systems are related to motivation at work of Banking Industry in New Zealand employees. A classification of rewards in extrinsic and intrinsic, are presented to provide a ranking indicating the relationship strength between types of reward and motivation at work. The findings of this research would go to be communicating to the management of Banking Industry in New Zealand, with relevant information needed, in order to improve its existing reward system and sustain the motivation of their employees.

The objective of this study is to survey the relationship between rewards and motivation at work. It may be outlined as the following:

The first objective of this study is to investigate the relationship between rewards (intrinsic rewards, extrinsic rewards) and motivation at work.

The second objective of the study is to examine the relationship between intrinsic rewards and extrinsic rewards.

The third objective is to determine whether demographic factors such as age differences and gender differences affect perception about intrinsic rewards, perception toward extrinsic rewards and motivation at work of Banking Industry in New Zealand employees.


The work motivation part consists of definition of motivation, process of motivation, theories of motivation. The rewards systems part comprises of types of rewards which are intrinsic and extrinsic rewards. Moreover, the analysis of the relationship between motivational theories and rewards will analyze both content and process theories namely Maslow's Hierarchy of Needs, Herzberg's Two Factor Theory, Alderfer's ERG Model, and McClelland's Learned Needs Theory; process theories including Vroom's Expectancy Theory and Adam's Equity Theory.

Work motivation

The globalization and the rapid technological revolution have an impact on the business competitive environment. This leads to the recognition that human capital is the most essential capital of the organization (Lewis, 1996). Therefore, much attention has been given through what motivates employees and how individuals can best be motivated through both intrinsic and extrinsic motivation (Armstrong, 1999). It is also important to understand that motivation in the workplace is essential in building up an efficient organization with effective management.

In order to explain what motivates employees, it is important to give a definition of motivation. Also, motivation has been described as one of the most critical concerns of modern organizational research (Baron, 1991).

"Motivation is a psychological concept related to the strength and direction of people." (Torrington and Hall, 1987, p.351).

"Motivation is the process whereby goals are recognized, choices are made (consciously or not) and energy is directed towards achieving the goal." (Hunt, 1992, p.5-6).

Process of Motivation

It could be argued that most managers need to motivate a diverse unpredictable group of people. The diversity results in different behavioral patterns that are related to different needs and goals (Ivancevich and Matteson, 1996). So, it is helpful to look at the process of motivation as describe below.

Figure 2.1: The process of Motivation

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Rewards or punishments

Source: Adapted from Ivancevich and Matteson (1996)

The figure above, process of motivation, demonstrates that it is a need-related model that is initiated by the conscious and recognition of unsatisfied needs. In addition, needs concentrate on the deficiencies which an individual experiences at a particular time such as physiological (i.e. a need for food), psychological (i.e. a need for self-esteem) or sociological needs (i.e. a need for social interaction). Needs are considered as energies for behavioral responses. When the need deficiencies are present, the individual is more prone to a manager's motivational efforts. These needs create selected wants, which individual believed that it might satisfy their needs and wants, and it is expected that these will influence goal direct behavior.

Needs deficiencies energize a search process for ways to reduce the tension caused by these deficiencies? Managers then evaluate the behavior and performance in order to assess suitable types of reward or punishment for employees. However, each individual will have different unique characteristics as Robbins (1990) said:

a) Each individual develop different patterns of needs, values, and perceptions.

b) Each individual characteristic is not constant, but continue to develop as they encounter new problems and experiences.

Theories of Motivation

Curtis and Curtis (2005) stated that theories of motivation originate from two main approaches including ideas about what motivates individual to work in the past as well as research about payment systems and how they affect people's willingness to work. There are many motivational theories that attempt to provide explanations of the relationship of behaviour and outcome. Individual theories can be classified into two contrasting approaches which are the 'Content' and 'Process' Theories as shown in Table 2.1

Table 2.1: Theories of Motivation

Content Theories

Theorists (Year)

Key Points

Hierarchy of Needs

Abraham Maslow (1943)

- Five levels of needs:

physiological, security, social, esteem, and self-actualization motivate people.

- Move up when lower

need satisfied.

Two-Factor theory

Frederick Herzberg (1957)

- Intrinsic job factors


- Extrinsic factors only

prevent dissatisfaction.

ERG Theory

Clayton Alderfer (1972)

- Three basic needs:

Existence, Relatedness,

and Growth needs.

Learned Needs Theory

David McClelland (1975)

- Three needs: Power,

Affiliation, and


- Higher need to achieve

relates positively to

higher work


Process Theories

Theorists (Year)

Key Points

Expectancy Theory

Victor Vroom (1964)

- Motivation is a function

of valence of effort-

performance reward


- Individual's

behaviour is affected by

the strength of the

person's desire.

Equity Theory

Stacy J. Adams (1965)

- Employees' own

assessments of whether

they are being fairly

treated are a major

motivational factor.

- Pay satisfaction is

closely related to

feelings about equity

and fairness.

Source: Adapted from Dessler (1988), Adair (1990), Steers and Porter (1991), Donnelly et al. (1992) and Armstrong (1995)

Content Theories of Motivation

Content theories focus on what motivates (Naylor, 2004), and imply an understanding that motivation based on an understanding of human needs (Certo, 2003). There are four major content theories of motivation which include:

I. Maslow's Hierarchy of Need Theory

II. Herzberg's Two Factor Theory

III. Alderfer's ERG Model

IV. McClelland's Learned Needs Theory

I. Maslow's Hierarchy of Need Theory

According to Maslow, people work up to the hierarchy needs but each level links with the previous level (Beardwell et al., 2004). Maslow's hierarchy of needs consists of five types of needs as illustrated in figure 2.2

Figure 2.2: Maslow's Hierarchy of Needs


Esteems needs

Source: Certo, S.C. (2003, p.359)

From the figure above, it shows needs were being organized in a hierarchy with a basic physiological needs at the bottom, ranging up through safety, social, and self-esteem needs to self-actualization needs at the top. When the first level has been satisfied, the individual will attempt to satisfy the second level needs, and then move up the hierarchy before the higher needs come into play (Torrington and Hall, 1987). As a result, once a need is satisfied, it is not considered a motivator since it cannot influence behaviour (Torrington and Hall, 1987). One of the implications of Maslow's theory is that the higher-order needs for esteem and self-actualization provide the greatest impetus to motivation; therefore, managers should strive to create an organizational climate which provides opportunities for independence, recognition, and responsibility (Steers and Porter, 1991).

II. Herzberg's Two Factor Theory

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Herzberg et al. (1959) developed a content theory of job satisfaction related to work motivation. This theory includes two different sets of factors: Hygiene Factors and Motivators as shown in figure 2.3

Figure 2.3: Representation of Herzberg's Two Factor Theory


Job security

Working conditions

Level and quality of supervision

Company policy and administration

Interpersonal relations

Sense of Achievement



Nature of work

Personal growth and advancement

Motivators and Growth Factors

Source: Mullins, L.J. (1999, p.422)

Hygiene Factors or Dissatisfiers

The hygiene factors include "money, working conditions, job security, company policy and quality of supervision and interpersonal relations." (Beardwell et al., 2000, p.508). Naylor (2000) also stated that hygiene factors need to be reaching the expected level. This can be explained as the pay should be adequate, the office should be comfortable and the working environment should be clean and quiet.

Motivators and satisfiers

The motivators include "a sense of achievement, an opportunity for personal growth, the sense of having done a job well, having responsibility, and achieving recognition for your work." (Beardwell et al., 2000, p.508).

III. Alderfer's ERG Theory

Alderfer's theory follows an 'open system' approach which helps to understand human personality (Armstrong, 1999). The concept of an open-system, developed by Maltby and Day in 2001, suggested that an individual can be viewed as a system of biological need, psychological motives, values, and perceptions (Armstrong, 1995). Alderfer managed to refine Maslow's theory successfully by reducing Maslow's hierarchical model from five to three needs. ERG is an acronym for Alderfer's (1972) theory:

Existence Needs concern the physical existence of the organism including food, clothing, and shelter and the means provided by work organizations to attain these factors. Examples are hunger, thirst, pay, fringe, and working conditions.

Relatedness Needs are the interpersonal needs that are satisfied through interactions with others both on and off the job. These needs include acceptance, understanding, confirmation and influence.

Growth Needs are personal-development and improvement needs. They are met by developing whatever abilities and capabilities, important to individual, for instance, drive people to make creative or productive efforts for themselves.

IV. McClelland's Learned Needs Theory

McClelland believed that needs were learned or acquired by the kind of events people perceived in their culture. He developed three majors needs (Steers and Porter, 1991; Armstrong, 1995).

Power Needs: the need to exert control over or influence others. This need plays a dominant role for success in senior management jobs.

Affiliation Needs: the desire for friendly and close interpersonal relationships.

Achievement Needs: the need for competitive success measures against a personal standard of excellence. This is important in junior and middle management positions.

Comparison of Four Contents Theories:

Figure 2.4: Relationship among Four Content Theories of Motivation

Source: Ivancevich and Matteson (1996, p.16)

There are some slightly differences among the four content theories, but the main concept is that they are all try to explain human behaviour (Ivancevich and Matteson, 1996). However, Maslow's hierarchy of needs and Herzberg's two factors theory can represent the major concept of content theories, since they cover the main ideas of motivation, compared with the other two theories as shown in figure 2.4 (Ivancevich and Matteson, 1996). For example, the three need categories of Alderfer's ERG theory are similar to Maslow's hierarchy of needs.

Reward Systems

Motivation is the choice to channel energy into certain activities in the expectation that valued goals will be rewarded. As McKenna (2000, p.555) states that "Reward systems are at the disposal of managers in order to attract, retain, and motivate people in the desired direction." It could be said that rewards are the most useful factor to motivate people in organizations. Motivational theories are directly relevant to reward systems and they often distinguish between intrinsic and extrinsic rewards (Naylor, 2004). However, it is important to first look at the rewards valued by individuals because most people will put in little effort unless the reward has value (Vecchio, 1995). Both intrinsic and extrinsic rewards are described as follow:

Intrinsic Rewards

Franken (1988, p.470) stated that "Intrinsic motivation simply means that a task or activity is enjoyable, independent of any extrinsic rewards." It can also be defined as internal drivers that influence people to behave in particular ways and directions. In other words, this type of motivation refers to psychological rewards, which include responsibility, a sense of challenge and achievement, freedom to act, opportunity for advancement, development of skills and abilities and interesting, and challenging work (Calder and Staw, 1975).

Intrinsic reward is achieved by satisfying individual needs for achievement, responsibility, variety, challenge, influence in decision making, and membership of supportive team. As Gruneberg and Wall (1984) pointed out, individuals do not seek compensation or benefits but also seek intrinsic rewards such as feelings of competence, achievement, responsibility, personal growth, and meaningful contribution. Intrinsic rewards, which are less visible, relate to the design of jobs, which plays a significant role in creating opportunities for this kind of reward (Wiersma, 1992).

Extrinsic Rewards

This factor is relevant to tangible rewards, for instance, salary, fringe benefits, promotion, status symbols, security, and the conditions of work, provided by the organization to motivate its employees (Wiersma, 1992).

Extrinsic rewards derive from sources that are external to the individual, are provided by organizations, and are achieved by recognition, skills development and learning and career opportunities. These include salary, wages, bonuses, commission payments, working conditions, company car, and pension (Vecchio, 1995). Some extrinsic rewards are explained as the following:

Consequences of Motivation

There are close relationships between motivation and job performance. According to Spence et al (1956), increased motivation may improve performance; however, increased motivation may cause lowering of the level of performance, as there should be other factors that affect employee performance. This means that motivational factors alone cannot guarantee that people will perform well. Since performance level is not a single measure of motivation, there are some other factors such as acquired skills, knowledge, abilities, socio-cultures, tasks, and organizational factors, which should be taken into consideration when assessing the performance as shown in figure 2.7 (Maehr and Braskamp, 1986).

Figure 2.7: Motivation and other factors that affect work performance

Source: Maehr and Braskamp (1986, p.11)

However, Go et al. (1996) believed that motivation plays a significant role in achieving high performance in an organization. In addition, intrinsic reward is more likely to be relevant to job performance than extrinsic reward since the extent of the relationship relies on the nature of job (Osterloh et al., 2002).

According to Milkovich and Boudreau (1995), the best performing employees might not always be worth to the organization if they miss work frequently. Thus, it is important for the management to regard withdrawal behaviour. Generally, withdrawal behaviour occurs when employees are absent and separated (Milkovich and Boudreau, 1995).

McKenna (2000) suggested that lack of appropriate motivation can be the main cause of absence and turnover. Moreover, satisfaction with both intrinsic and extrinsic motivation directly influences employee turnover and Porter et al. (1975) supported that providing higher intrinsic and extrinsic rewards might be a way to reduce turnover rate. Nevertheless, reward offering cannot guarantee that employees will continue to be a valued staff member or attend because it depends upon other factors as well (Porter et al., 1975).



This part will present research framework, research design, and research methodology that this research will use, based on the analysis of the motivational theories in Banking Industry in New Zealand to determine the research objectives. Also, data collection methods, questionnaire design and sampling will be discussed. Additionally, a pilot study will be used to give reliability and validity to the study.

Data Collection Method

To attain the objective of this research, both primary and secondary data were used to provide accurate results. The researcher will start with secondary sources in order to find relevant information for writing the research questions. This is because these data would easy to collect also a huge time and money saving. These data could obtain through various review of literature. The literature review would base on past research, journals, articles, and text book from libraries and the internet.

There are four major ways to gather primary data: questionnaires, interviews, measures, and observations (Ghauri and Gronhaug, 2002). However, Oppenhiem (1992) and Chrisnall (1997) suggested that questionnaires are among the most popular methods of data collection in social and business surveys. Therefore, questionnaires were used for the purpose of this study because they are effective in measuring the facts, knowledge, and opinions and easy to use. Moreover, they allow data to be standardized, whereas other approaches such as experimentation and observation provided a limited amount of useful, but mostly inappropriate information (Hussey and Hussey, 1997; Saunders et al., 2000).

The personally administrated questionnaire approach was adopted to collect the primary data, because the use of self-administered questionnaire allows the respondent to record their own answers. Also, self-administered questionnaire allows collection of a large amount of data from a number of individuals, which is less time- consuming doubt, can be clarified and almost 100 per cent response rate ensured (Sekaran, 2003).

Research Plan:

The entire research consists of five phases.

Phase 1: Literature Review; Proposed Duration 12 Months

Phase 2: Data Collection; Proposed Duration 06 Months

Phase 3: Data Analysis/Research Design, Structure; Proposed Duration 06 Months

Phase 4: Results/Findings; Proposed Duration 06 Months

Phase 5: Writing-up Research; Proposed Duration 06 Months