The relationship between extrinsic rewards and job satisfaction

2.1 Introduction

This section of the thesis is the literature review. It discusses the theories and models which were used as references in this research. Also included in this section are the discussions of previous researches, both local and international, which were related to the topic of this study. Lastly, at the end of this section, a model of this research is proposed based on the study and discussion of other associated models.

2.2 Theories and Models

The following subtopics discuss the theories and models which were used as references in this research. The theories and models were Maslow’s hierarchy of needs, Herzberg’s two-factor theory, Expectancy theory, Equity theory and ERG theory.

2.2.1 Maslow’s Hierarchy of Needs

In 1943, psychologist Abraham Maslow introduced his concept of a hierarchy of needs titled “A Theory of Human Motivation”, which was later published in his book, Motivation and Personality (Maslow, 1954). His hierarchy of needs is as shown in the figure below.

Figure 2.1 Maslow’s hierarchy of needs (Maslow, 1954)

Source: Maslow, A. (1954). Motivation and Personality. New York: Harper.

Maslow proposed that people need to fulfill their basic needs before they can move on to achieve other needs. In his hierarchy, the lowest level of the pyramid consists of the most basic needs, which are physiological, safety, love and belonging/social and esteem. These needs are also known as deficiency needs or D-needs, as they arise due to deprivation. By satisfying these lower-level needs, one can avoid the unpleasant feelings or consequences caused by the deprivation. The top of the pyramid consists of the more complex needs, known as growth needs or being needs (B-needs). These needs stems from the desire to grow as a person in order to achieve individual potential or better known as self-actualisation (Maslow, 1954).

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As shown in Figure 2.1, there are five different levels of needs in Maslow’s hierarchy of needs. The first and most basic needs required to sustain life are physiological needs such as water, food and sleep. Once these needs are fulfilled, one can then move on to fulfill safety needs. A person would seek for security by living in a safe area, having a steady job, acquiring a health insurance and more in order to feel less threatened from physical and emotional harm. The next level of needs includes friendship, romantic attachments and families which fulfills the need for companionship and acceptance (Simons, Irwin and Drinnien, 1987).

The next level of needs is esteem needs. These needs can be categorised as external motivators and internal motivators. Esteem needs such as self-esteem, accomplishment and self-respect are examples of internal motivators, whereas reputation and recognition are examples of external motivators. Deprivation of these needs may lead to inferiority complex, weakness and helplessness (Maslow, 1954). Finally, after fulfilling the four basic needs, one would be motivated to achieve self-actualisation. Unlike the other level of needs, this need is never fully satisfied as there are always new opportunities to continue growing when one is emerging psychologically (Simons, Irwin and Drinnien, 1987).

The Maslow’s hierarchy of needs can be implemented into business management in order to enhance workplace motivation. Employees can be motivated through several methods as shown in the Table 2.1 (Russell and Russell, 2009a).

Table 2.1 : Motivation methods to achieve employees’ needs at workplace

Needs

Motivation Method

Physiological Motivation

Provide sufficient breaks for lunch and recuperation and pay salaries.

Safety Needs

Provide safe working environment and relative job security.

Social Needs

Create feelings of acceptance, belonging and community by reinforcing team dynamics.

Esteem Motivators

Give recognition for achievements, assign important projects and provide status to make employees feel valued and appreciated.

Self- Actualisation

Provide challenging and meaningful work assignments which allow innovation, creativity and progress according to long-term goals.

Source : Russell, D., Russell, T. (2009a). Maslow’s Theory of Motivation: Hierarchy of needs. Retrieved on August 8th, 2010, from http://www.envisionsoftware.com/articles/Maslows_Needs_Hierarchy.html#Self_Actualization

In general, these methods are widely applied in organisations. However, the efficiency depends on the employees’ needs as various employees are motivated by completely different needs at various points in their lives and careers. Thus, it is crucial for leaders to recognise each employee’s needs before implementing the motivators (Russell and Russell, 2009a).

2.2.2 Herzberg’s Two Factor Theory

Frederick Herzberg concluded that there are two factors to influencing employee’s motivation and satisfaction, which are hygiene factors and motivation factors (Aamodt, 2010). Hygiene factors are elements that result from the job itself while motivation factors are job elements that are concern with the actual tasks and duties of a job. For example, pay and benefits are consequences of work (hygiene factors) whereas responsibility, achievement, growth and challenge are related to the work itself (motivators). Table 2.2 illustrates the examples of both hygiene factors and motivators as proposed by Herzberg (1966).

Table 2.2 : Examples from Herzberg’s two-factor theory

Hygiene Factors

Motivators

Pay

Responsibility

Security

Challenge

Co-workers

Growth

Working conditions

Achievement

Company policy

Interesting work

Source : Aamodt, M.G. (2010). Industrial/Organizational Psychology: An applied .approach. California: Cengage Learning.

Herzberg stated that fulfilling hygiene needs would avoid unpleasantness at work. Hence, if employees find that they are inadequate of these needs, they would be dissatisfied with work. Motivator factors on the other hand are based on one’s need for personal growth. The existence of these needs would create job satisfaction and subsequently motivate an individual to achieve above-average performance and effort. This theory is similar to Maslow’s hierarchy of needs (Figure 2.2), although Herzberg argues that only the higher needs in Maslow’s hierarchy act as motivators while the other needs would cause dissatisfaction if absent (Herzberg, 1966).

Figure 2.2 Comparisons of Maslow’s and Herzberg’s theory

Source : Herzberg, F. (1959). The Motivation in Work. Retrieved on August 8th, 2010, from http://limkokwingmba.wordpress.com/management-mco101-unit-8b-motivation-leadership-groups-and-teams/

2.2.3 Expectancy Theory

The expectancy theory, as proposed by Victor Vroom, is about the mental processes regarding choice. It is the processes that an individual undergoes to make choices. This theory predicts that employees in an organisation will be motivated when they perceive that putting in more effort will yield them better job performance which will then lead to more organisational rewards (Montana and Charnov, 2008).

Victor Vroom specified three variables in his model of expectancy theory, which are valence (V), expectancy (E) and instrumentality (I). Referring to Figure 2.3, expectancy (E) is the perceived relationship between the amount of effort an employee puts in and the outcomes he will receive. Instrumentality (I) is the extent to which the outcome of an employee’s performance would be noticed and later resulting in a particular consequence. Lastly, valence is the extent to which an employee values a particular consequence (Aamodt, 2010).

Expectancy:

Perceived probability that effort will lead to good performance.

Instrumentality: Perceived probability that good performance will lead to desired outcomes.

Valence:

Value of expected outcomes to the individual.

Figure 2.3 Vroom’s model of expectancy theory (1964)

Source: Vroom, V.H. (1964). Work and Motivation. New York: John Wiley.

The product of these variables is the motivation to work. In an organisation, the performance-outcome tie is strengthened when managers use systems that tie rewards very closely to performance. Additionally, they need to ensure that the rewards provided are deserved and wanted by the recipients. As to improve the effort-performance tie, managers would engage in training to improve their capabilities and believes that added effort would in lead to better performance (Montana and Charnov, 2008).

2.2.4 Equity Theory

The Equity theory was first developed by John Stacey Adams in 1963. The theory states that an employee will consider that he is treated fairly if he perceives the ratio of his inputs to his outcomes are equivalent to his co-workers (Carrell and Dittrich, 1978). This can be illustrated by the following equation in Figure 2.4.

Figure 2.4 Equity theory (Adams, 1965)

Source : Adams, J.S. (1965). Inequity in Social Change. In L. Berkowitz (Ed.) Advance in Experimental Social Psychology. New York: Academic Press.

The inputs in this equation are the personal contributions or efforts put in by the employees at work. These contributions can be divided into two categories, the obvious, which comprises of time and effort spent at performing tasks at work, education and experience, and less obvious, which includes the money spent on child care and distance to work (Aamodt, 2010).

The outcomes or outputs in this equation are elements that an employee obtains from his job. Outputs can also be divided into two categories, with the obvious being pay, benefits and challenges whilst the less obvious ones are friends and office furnishings (Aamodt, 2010).

As shown in the equation above, the ratio is acquired by dividing a person’s outcome value by input value (Adams, 1965). Referring to this ratio, an employee will be able to perceive if he is being treated fairly if his outcomes are equivalent to those around him. For instance, if an employee notices that his co-worker is getting more recognition for his contributions, even though both have contributed equally, this would persuade the employee to be dissatisfied. Due to this dissatisfaction, the employee would either be motivated to make the ratios equal by directly altering the inputs and/or outputs or by leaving the organisation (Carrell and Dittrich, 1978).

2.2.5 ERG Theory

Based on Abraham Maslow’s hierarchy of needs, Clayton Alderfer proposed a new theory on human needs named the ERG theory in 1969 (Russell and Russell, 2009b). Figure 2.5 is an illustration of Alderfer’s ERG theory.

Satisfaction Progression

Frustration Regression

Figure 2.5 Clayton Alderfer’s ERG theory (1969)

Source : Russell, D., Russell, T. (2009b). ERG Theory of Motivation. Retrieved on September 11th, 2010, from http://www.envisionsoftware.com/articles/ERG_Theory.html

As shown in Figure 2.5, the letter ‘E’ in the ERG theory refers to the existence needs, whereby humans are motivated to acquire physiological needs for survival. ‘R’, on the other hand, refers to relatedness needs which are the needs humans have to maintain interpersonal relationships. Lastly, ‘G’ refers growth, an intrinsic desire humans have for personal development (Russell and Russell, 2009b).

Figure 2.6 shows the similarities between the ERG theory and Maslow’s hierarchy of needs. Despite the similarities, Alderfer proposed that more than one need may motivate at the same time. He argued that one can still move on to higher motivators even though the lower motivated had not been substantially satisfied. Moreover, Alderfer accounted the differences in need preferences between cultures in his theory. Thus, a wider range of observed behaviours could be explained based on his theory, such as the “starving artist” who may place growth needs above other existing needs. Lastly, Alderfer’s ERG theory states that an individual may regress to increase satisfaction of lower-level needs, which are easier to satisfy, when higher-level need is frustrated. This situation is known as the frustration-regression principle (Russell and Russell, 2009b).

Growth

Relatedness

Existence

Figure 2.6 The similarities between ERG theory and Maslow’s hierarchy of needs

Source : Russell, D., Russell, T. (2009b). ERG Theory of Motivation. Retrieved on September 11th, 2010, from http://www.envisionsoftware.com/articles/ERG_Theory.html

2.3 Previous Researches

The following subtopics are local and international case studies conducted by several researchers. The researches were conducted in order to obtain information on employees’ job satisfaction level and the influence of different types of rewards towards job satisfaction.

2.3.1 Local Researches

Sek and Teoh (2009) conducted a case study to investigate the factors influencing job satisfaction among 200 faculty members from two major universities in Kuala Lumpur, Malaysia. Based on Herzberg’s two-factor theory, ten major factors (policy and administration, salary, achievement, growth, interpersonal relations, recognition, responsibility, supervision, work itself and working conditions) corresponding to job satisfaction were selected to determine how they are related to faculty members’ job satisfaction. Survey questionnaires were distributed among the random sample in order to obtain the primary data for the study. Analysis of mean and variance, Scheffe test, t-test and F-statistics were used in the process of analysing the data collected. The findings of the study indicated that salary and policy and administration were the two major contributors to the satisfaction of the faculty members while the other factors contributed more to dissatisfaction than satisfaction.

Another study was conducted by Noordin and Jusoff (2009) to investigate the levels of job satisfaction among Malaysian academic staffs. A total sample size of 237, comprising of staffs from ten faculties, one academic center and ten branch campuses from the selected public university, was used in this study. Survey questionnaires containing seven-item general satisfaction scale on the staffs’ perception towards their co-workers, superiors, job, organisation, pay and opportunities to grow, were distributed randomly and a series of two-tailed independent group t-tests and one-way between groups ANOVA with post-hoc comparison analyses were conducted in order to obtain results for the study. The findings of the study showed that the academic staffs of the university have a moderate level of general satisfaction. Additionally, the study indicated that the academic staffs have different levels of job satisfaction, thus, different management styles and motivational strategies may be required in order to optimize organisational effectiveness.

Santhapparaj and Syed Shah Alam (2005) conducted a research on the job satisfaction level among 173 academic staffs in three private universities in Malaysia. Questionnaires were distributed online to acquire the primary data in order to examine the relationships between pay, promotion, fringe benefits, working condition, support of research, support of teaching, gender and job satisfaction of the staffs. Multiple regression analysis was used to study the key factor which significantly affects job satisfaction. Additionally, the relationship with overall job satisfaction and the gender groups was identified using a non-parametric Friedman test and Mann-Whitney U test. The results obtained showed that there is a significant association exists between pay, promotion, fringe benefits, working condition, support of research and support of teaching on job satisfaction. Nonetheless, the results of Mann-Whitney U test indicated that female staffs are more satisfied than their counterpart.

2.3.2 International Researches

Rizwan and Ali (2010) conducted a study to investigate the impact of reward and recognition on job satisfaction and motivation of 220 employees from private and public sectors in Gujranwala, Pakistan. In this study, self-administered questionnaires were distributed among the employees and the data collected were analysed using Pearson’s correlation coefficient. The purposes of using this correlation were to determine the relationship between the different dimensions of work motivation and satisfaction, and the relationship between rewards, recognition motivation and work satisfaction. The findings of the study showed that different dimensions of work motivation and satisfaction are significantly correlated. Moreover, reward and recognition were found to contribute a great impact on employees’ motivation level. This implies that even the most minor form of recognition and appreciation from the superiors in the organisation would motivate their juniors. In addition, regular salary increments, allowances, bonuses, fringe benefits and other compensations would keep the employees’ morale high and make them more motivated to work.

Another research was conducted by Muhammed et. al. (2010) to study the relationship between work rewards and job satisfaction with moderating effect of age differences among 84 full time employees of FESCO (Faisalabad Electric Supply Company), Pakistan. Questionnaires consisting of four sections assessing intrinsic, extrinsic rewards, job satisfaction and demographics were self-administered to 44% of the 125 participants and the remaining participants received their questionnaires via mail. The statistical tools used were Pearson correlation to measure the association of variables, and multiple regression analysis, to measure the relative strength of independent variables’ on dependent variables and the significance of the model. Results of the analysis showed that extrinsic rewards influences job satisfaction more than intrinsic rewards. Hence, this means that FESCO employees are more concerned with their pay. As for the age factor, the findings proved that older employees are more satisfied with their job if they are given extrinsic rewards more than intrinsic rewards.

Reena and M. Shakil (2009) conducted a study to investigate the impact of rewards and recognition programs on employee’s motivation and satisfaction in Pakistan. 80 questionnaires were distributed to employees of UNILEVER companies in Pakistan, with a return rate of 65. The questionnaire consisted of nine dimensions (work content, payment, promotion, recognition, working conditions, benefits, personal, leadership or supervision and general) influencing employees’ job satisfaction and motivation. Data analysis was conducted using descriptive statistics and inferential statistics (Pearson Correlation). Based on the data analysis, the employees’ satisfaction towards their job depended greatly on their pay, promotion, working condition and personal.

In a study conducted by Droussiotis and Austin (2007) to investigate the job satisfaction of managers in Cyprus, questionnaires were mailed to 300 organisations, but only 72 surveys were usable. The questionnaire consisted of 14 job satisfaction and several demographic questions. Examples of questions asked in the survey were questions related to the job itself (autonomy, empowerment) remuneration and working environment (working hours, quality of colleagues, company practices, security). As for data analysis process, the Principle Components Factor Analysis was used to evaluate the 72 participants’ job satisfaction based on their answers to the 14 statements. The results from the factor analysis indicated that self-fulfillment, independence and job environment are the most important factors influencing job satisfaction. Thus, managers are found to be more satisfied with their work when they are provided with good pay and benefits, highly skilled subordinates and opportunities for personal growth and advancement in the company.

Lastly, a study by O’Driscoll and Randall (1999) was carried out to investigate the role of perceived organizational support and satisfaction with rewards in explaining job involvement and two forms of organisational commitment (affective and continuance commitment) among 350 employees in four dairy co-operatives in Ireland and New Zealand. Questionnaires were mailed to a contact person within each company for internal distribution. The questionnaire consisted of demographic questions and questions focusing on the respondents’ levels of organizational commitment and job involvement, perceptions of support provided by the organisation and their satisfaction towards the intrinsic and extrinsic rewards. Using descriptive statistics, Pearson correlation and multiple regression, the findings of the study indicated that job involvement and affective attachment are strongly influenced by the employees’ perceived organizational support and satisfaction with rewards. Additionally, intrinsic reward satisfaction was found to affect job involvement and affective commitment more compared to extrinsic reward satisfaction.

2.3.3 Summary of Researches

Based on all the previous researched discussed, it is obvious that job satisfaction is greatly influenced by both extrinsic and intrinsic rewards. Therefore, it can also be said that there is a relationship between both extrinsic and intrinsic rewards towards job satisfaction. However, only the relationship between extrinsic rewards and job satisfaction was studied in this research.

2.4 Research Model

EXTRINSIC REWARDS

Salary

Bonus

Medical Benefits

Vacations

Job Promotions

JOB SATISFACTION

Figure 2.7 The research model on the relationship between extrinsic rewards and job satisfaction

Figure 3.2 shows the research model that was used in this study. The figure explains that the elements in extrinsic rewards (salary, bonus, medical benefits, vacations and job promotions) are capable of influencing job satisfaction among employees.

As mentioned earlier, Locke (1969) defined job satisfaction as a positive emotional feeling, resulting from one’s evaluation towards his job and his experience by comparing between what he expects from his job and what he actually gets from it, while Porter et. al. (1975) stated satisfaction as a feeling about a job that “is determined by the difference between the amount of some valued outcome that a person receives and the amount of outcome he feels he should receive”. Thus, from these statements, we can conclude that when an employee’s needs are achieved, the employee would be more likely to feel satisfied or accomplished in his job.

However, based on the theories and models studied in chapter two, it was found that various employees have different needs. Hence, they are motivated by completely different needs at various points in their lives and careers. For example, based on Maslow’s hierarchy of needs, Herzberg’s two-factor theory and Alderfer’s ERG theory, an employee earning sufficient monthly salary may prefer to work on getting a promotion to achieve his self-esteem needs.

Additionally, when an employee works hard but fails to achieve the reward he wants (eg. promotion or raise), he would most likely feel dissatisfied with his job, making him unmotivated to work. This situation explains Vroom’s expectancy theory.

In short, based on the theories and models studied, the types of extrinsic rewards would meet different needs of the employees. This research aimed to investigate the relationship between these rewards and job satisfaction, and determining which rewards has the highest impact on the job satisfaction.