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Human resources within an organization may constitute the most important resource of the organization. As such it seems that the ways employees are motivated and rewarded for their work could be an important factor influencing the organization's success. Research has brought about a number of reward system theories which focus on employee motivation for the purpose of organizational success.
Based on several theorists, Maslow, Herzberg, Edwin Locke, among others, this paper will explore the type of reward systems used in an organization and assess the benefit of these for the business. It argues that organizational success depends upon the adequate utilization of both, extrinsic and intrinsic reward systems. Touching upon the different theories it will link these to both, organizational culture and organizational objectives. Also discussed will be the extent to which different reward systems may lead to employee attitudes of individualism and the role it could play in group behavior. The paper will conclude that a combination of intrinsic and extrinsic reward systems is of importance.
As Armstrong (1996, p.4) points out, "a reward system consists of financial rewards (fixed and variable pay) and employee benefits, which together comprise total remuneration. The system also incorporates non-financial rewards (recognition, praise, achievement, responsibility and personal growth)". From this it can be seen that a reward system is based on awarding employees on their efforts within the business in form of monetary or non-monetary benefits, monetary benefits being salary and wages, and non-monetary benefits being for instance recognition and possibly flexible working hours. Therefore the reward system acts as a motivation strategy, pushing employees to perform effectively with a reward goal in mind. Alternatively it can be seen as a mental or behavioral strategy, as the rewards and their benefits would be chosen to direct employees towards achieving the professional objectives. The following are the different reward systems an organization can choose from.
Intrinsic Rewards are individually based rewards acted upon a goal of self-development of skills, knowledge as well as experience. Allowing employees to explore their potential further to achieve self-actualization without expectation of beneficial rewards but only because they wish to and enjoy doing it. It could be said to be a self-generated award as Ryan and Deci (2000) as cited in Wlodkowski (2011). "Intrinsic motivation is entailed whenever people behave for the satisfaction inherent in the behavior itself". Intrinsic reward falls on a number of motivational theorists based theories.
For instance, Douglas McGregor is responsible for the theory X and theory Y. While Theory X states that workers do not like work, for Theory Y he states that, "the higher-level needs of esteem and self-actualization are continuing needs in that they are never completely satisfied. As such, it is these higher-level needs through which employees can best be motivated" (Douglas McGregor, 1960). Therefore it appears that the organizational reward system should be built in a way that allows the satisfaction of higher level needs: it should foster intrinsic motivation.
David McClelland, responsible for the McClelland theory, states that employees are self-motivated based on self-growth desires and achievements. Accoring to McClelland's theory of needs, there is three needs focus, namely: achievement, power, and affiliation (Robbins, 2009). This could mean giving employees tasks that empower and challenge them to improve and once they feel more involved it might motivate them to do better. Example techniques are job enrichment and job rotation.
Abraham Maslow, popular for the Maslow's hierarchy on needs theory, stating humans are motivated by self-internal needs other than monetary rewards, "He believed that people are inherently good, are free to act, and possess unlimited potential for learning, growth and development", (Seel, 2011, pg.1472). Thus, extrinsic rewards alone would not be sufficient for organizational success.
It appears that not all employees are driven by monetary rewards but rather by the desire to learn, the wish to exceed their potential, to better themselves, and to be empowered by the responsibilities and duties bestowed upon them. An example for this would be people who volunteer in non-profitable organizations in order to gain the working experience, to develop and to add to the skills they already have.
Extrinsic Rewards are beneficial rewards that can be displayed for work well done and thus act as motivators. They prove employees are more efficient when there is a compensation for their work, these involve pay, promotions availability, recognition, "extrinsic motivation, which means being moved to do something because of some specific rewarding outcome", (Bramer, 2007, p.131). This reward theory can be based on a number of scholars, but most notably on Vroom (1964) and his Expectancy Theory which argues that "motivation depends on individual's expectations about their ability to perform tasks and receive rewards" (Mukherjee, 2005, p.120). Thus the theory is extrinsic oriented, for employees are motivated by outcomes and rewards other than self-driven desires.
Thus there is a direct link between reward system and employee performance, which organizational success to a large extend depends upon. Organizational success may be defined as the success of the business, implying any set goal an organization sets out to achieve. These goals can be internal and external or financial and non-financial goals, dependent on the set objective. With the business world constantly changing, organizations are forced to adapt, which leads to changes of the set goals as well. These changes and adaptations an organization needs to undergo require flexibility in employee performance, i.e. working extra hours in periods of high demand, which is to be facilitated through an efficient reward scheme. In this way, while organizational success is linked to the organizational objectives, its mission and its culture, these are shaped and determined by a reward system that drives employee performance.
For instance, the organizational objectives give employees as well as employers clarity on the organization's goals or at least their expectations. To achieve this, organizations are meant to be willing to invest on the resources, which in this case are the employees, to achieve set goal. "Human resource management is particularly concerned with all the activities that contribute to successfully attracting, developing, motivating, and maintaining a high performing workforce that results in organizational success.", (Sim, 2002, pp.2-3 ).
A reward system that drives employee performance has an effect on organizational culture, which in turn is important, as "a positive culture can work for an organization by creating an environment conducive to performance improvement and the management of change"(Armstrong, 2000, p.33).
Dependent on these factors, organizations could be able to select appropriate reward systems to motivate employees to drive the organization to success. Yet different business organizations are involved in different business fields, which mean that not all reward systems can apply to all business organizations. Dependent on the nature of the business whether a service based sector business or a production based business, organizations are to be strategic on the rewarding system they put in place, through strategic options that can help the organization achieve its goals within its competitive environment, (Daft, 2009). The reward system should motivate employees, from which in return, employees will show loyalty and commitment to the organization and leading the organization to success by reaching its set goals. The use of intrinsic rewards, by enriching and contributing to the employee's professional growth in form of feedback on their performance, can lead to organizational success, as "employees who feel they are recognized for excellent performance outperform companies whose employees do not", (Deeprose, 2007, p. 5). Such rewards can be well adapted by organizations with McGregor's theory Y mindset managers. With these rewards being linked to job enrichment and job rotation, this will sharpen the employee's skills and add new ones to the ones the employee already has. This could help to insulate the organization from skill shortages and avoid excess costs such as recruitment and training. Thus, an intrinsic reward scheme may allow the organization to be successful in having skilled human capital, reduce organizational cost and maintain quality in their production.
Extrinsic rewards on the other hand, "doled out by supervisors to ensure that work is done properly and that the rules are followed, include things like salaries, bonuses, commissions, perks, benefits, and cash awards"(Thomas, 2002, p. 6). The use of these rewards is more in sync with organizations adapting McGregor's theory X, saying employees are self-motivated. With such rewards in place, employees are to be as productive as expected since they are clear on the achievements of their efforts. Yet with extrinsic rewards the "organization has large degree of control over the nature and monetary cost of the rewards with which it intends to compensate the efforts of its employees and can therefore manipulate the use of these external rewards to affect employee behavior" (Erasmus, 2008, p.476). Thus it may be necessary for organizational success to adapt and choose the reward system to meet employment realities and requirements. The adoption of systematic reward systems has led to most organizations to become more individualistic in their rewards, as "typical reward and recognition systems favor individual and functional work" (Earley and Gibson, 2002, p.161). And what these techniques similarities are that rewards are based on workers standing out as individual achievers over their co-workers (Cox, 1994), where those who are able to meet the required standards are able to be rewarded and those who cannot are not. Such 'individualism' might have a dividing effect within the organizational climate and culture.
With intrinsic rewards, where the whole centralization of awards is self-generated, these rewards are self-explanatory as to how they are individualistic, employees seek to better themselves for themselves, "These people often put their own success through competition over the good of the group, and they tend to assess decisions in terms of how those decisions affect them as individuals" (Shong, 2004, p.72).
As much as this has led to positive growth of employees' skills and productivity, it has also had its drawback, as the use of both rewards in an individualistic manner has led to disputes among employees, "an individualistic system values star performers and has an unbalanced pay profile" (Keidel, 1995, p.78). Thus an individualistic approach to the reward system may lead to resentment, especially when employees attend to the same task but are been rewarded differently. Rewarding of individual achievement breed a culture of competition and conflict (Axelrod and Johnson, 2005). This could lead to some employees, average performers, being laid off since their efforts are clouded by the high performing employees. For the "individualistic system a few "heavy hitters" are crucial, while virtually everyone else, especially those whose performance is average or below average is expandable" (Keidel, 1995, p.79). However, when "reward systems are designed in such a way that subordinates could earn more than superior this would not be tolerated" (Brewster and Harris, 2004, p.123). Thus when lower level employees are being paid more than the higher up it could prove unsettling for those employees with more experience and more qualification. This could hinder the success for organizations.
The usage of the reward system within organizational strategy could bring a collective dimension to a seemingly individualistic system. "Managers ought to do what they can to create an organizational culture that is supportive of collectivistic and team based values" (Earley and Gibson, 2002, p.161). Extrinsic rewards (payment by results and piecework schemes) can be attributed to group workforce performance. By using "group incentive schemes which tend to work on the same principle as individual schemes, either through measurement of physical output or through additional payments for time saved on tasks" (White and Druker, 2000, p.111), organizations are able to not only motivate one employee to be productive for the organization's success but groups of employees. Further, intrinsic rewards such as recognition, praise and positive feedback, other than being done individually, can be done collectively. "The intrinsic motivators can work equally well in teams that feel they are accomplishing something worthwhile and have a proper degree of autonomy to manage their own affairs and to make operational decisions" (Armstrong, 2000, p.27). By recognizing groups' inputs, efforts and results, and giving feedback for further improvements the group will feel as part of the organization and strive to achieve other than feeling as just part of the work space.
Despite the organizational and employee benefits from team based reward systems, the usefulness of group reward systems might need to be regarded critically, as "the best source of security for individuals is their market value and they will therefore prefer performance related rewards" (Brewster and Harris, 2004, p.125). Thus individualistic employees will feel the need to stand out to show their worth, leading to a group instability, because they might "feel strongly that their pay should be related to their own efforts rather than being dependent on the performance of other people" (Armstrong, 2002, p.25).
As much as employees might be efficient and successful as a group, there will be no knowledge of their improvement individually, "inequality dimension believe people vary in their ability and skill" (Brewster and Harris, 2004, p.123). With this in mind, most employees could be getting more work done than others and at the end of the day be rewarded the same.
Reward systems are essential to the organizational success, no man or woman would accept her efforts not to be rewarded. "Few psychologists would quarrel with the notion that people act in the direction of their own perceived self-interest, hence organizational reward systems" (Keidel, 1995, p.58). For organizations to be successful, both, extrinsic and intrinsic reward systems should be put into play. Much as employees would be motivated by being recognized and praised for their work while bettering themselves in their performance, other rewards are essential to keep their spirits up and put them in a well off position to continue being productive without worry. Theorists like Herzberg and Maslow support this fact with their two factor and hierarchy of needs theory.