The Effect of Reward Management System on Employee Performance. The Case of IE Network Solutions Plc


Master's Thesis, 2020

78 Pages, Grade: 3.87


Excerpt


Table of Contents

Acknowledgement

Acronyms

ABSTRACT

List of Tables

List of Figures

CHAPTER ONE
1.Introduction
1.1.Background of the study
1.2.Statement of the problem
1.3.Research Questions
1.4.The Objective of the study
1.4.1.General Objective
1.4.2.Specific objectives
1.5.Significant of the Study
1.6.Scope of the Study
1.7.Limitation of the study
1.8.Definitions of Terms
1.9.Organization of the Study

CHAPTER – TWO
2.Review of theoretical and empirical Literatures
2.1.Introduction
2.2.The Concept of Reward Management
2.2.1.Aim of Reward Management
2.2.2.Importance of reward management
2.2.3.Reward Philosophy
2.3.Theories of Work Motivation
2.3.1.Process theories of motivation
2.4.Reward and Employee performance
2.5.The effect of Reward on performance
2.6.Reward Management process
2.7.Types of Reward System
2.7.1.Financial reward Variables
2.7.2.Non-financial Reward Variables
2.8.Empirical Literature Review
2.9.Research hypothesis
2.10.Conceptual Framework

Chapter Three
3.Research Methodology
3.1. Research Approach
3.2.Research Design
3.3.Research Strategy
3.4.Time Horizon
3.5.Population and data collecting Procedure
3.5.1.The Nature of target population
3.5.2.Data collecting Procedure
3.6.Methods of data collections
3.7.Validity and Reliability
3.7.1.Validity
3.7.2.Reliability of the measurement
3.8.Methods of Data Analysis
3.9.Research Model

CHAPTER FOUR
4. Result of the study, Interpretation and Discussion
4.1. Introduction
4.3.Descriptive Analysis of Measurement items
4.3.Correlation Analysis of the data
4.4.Regression analysis
4.4.1.Assumptions underlying regression analysis
4.4.2.Multiple regression
4.4.3.Hypothesis Testing
4.5.Discussion of result of the study

CHAPTER FIVE
5.Conclusion and Recommendation
5.1. Conclusion
5.2. Recommendations
5.3. Suggestion for Further Studies

References

APPENDIX 1: Questionnaires

APPENDIX 2: Interview Questions’ (Only for HR manager)

APPENDIX 4: Test for Normality

APPENDIX 5 : Test for Multicollinearity

APPENDIX 6 :Test for homoskedascity

APPENDIX 7 : Gender of participants

APPENDIX 8: Age range of respondents

APPENDIX 9: Educational Qualification

APPENDIX: 10 Job Category

APPENDIX: 11 Year of service and experience

APPENDIX: 12 Employee’s position

APPENDIX: 13 Salary scale

APPENDIX: 14 Model Summaryb

APPENDIX: 15 Correlation Matrix

List of Tables

Table 3. 1Target population.

Table 3. 2 Reliability Statistics

Table 4. 2 Description of items of reward practices of the company

Table 4. 3 Descriptive Statistics: Reward practice of the company

Table 4. 4 Description of items in employee performance

Table 4. 5 Descriptive Statistics: Employee performance

Table 4. 6 Description of items of Salary

Table 4. 7 Descriptive Statistics: Salary

Table 4. 8 Descriptive Statistics: Benefit packages

Table 4. 9 Description of items of Promotion

Table 4. 10 Descriptive Statistics: Promotion

Table 4. 11 Descriptive Statistics: Recognition

Table 4. 12 Description of items of work condition

Table 4. 13 Descriptive Statistics: Work condition

Table 4. 14 Summary of descriptive Statistics of all variables

Table 4. 15 Pearson Correlations among all variables

Table 4. 16 Collinearity Statistics

Table 4. 17 Model Summaryb

Table 4. 18 Summary of ANOVAa

Table 4. 19 Multiple regression Coefficientsa

Table 4. 20 Summary of research questions, hypothesis and research findings

List of Figures

Figure 2. 2 Reward management

Figure 2. 3 Conceptual framework.

Figure 4. 1 Correlation coefficient scale

Figure 4. 2 Linearity test

Figure 4. 3 Normality test

Figure 4.4 Test for homoskedascity

Acronyms

ANOVA Analysis of Variance

HR Human Resource

HRM Human resource management

IT Information technology

PLC Private Limited company

RF Regression function

SPSS Software package for Social science

Std. Dev Standard deviation

Acknowledgement

Foremost my gratitude goes to Almighty God for giving me strength and good spirit in all circumstance of my life and to complete this thesis. Second, my great thank goes to my Advisor Dr.Tsegabrhan Mekonen (PhD) for his valuable criticisms, comments and corrections, understanding and support in the entire course of the research. Third, I would like to thank Mr. Dereje Mesfin- the Facility and people Manager and all the staff members of IE Network Solution PLC for their endless support through the data collecting process. I would like to thank my brother from another mother Berhanu Abera (PhD) for his valuable advice, encouragement and limitless support. Bire you are really great. I wish to thank Mr. Gashaw Aytenfsu for his kindness and inspiration.

Last but not least, I would like to express my sincere gratitude and gratefulness to my beloved families, specially my mother Bezunesh Chemeda, my sisters Sayish Kefiyalew, Wegene Esubalew and my brothers from another mother Agegnehu Abebe and Berhanu Chekol and all those who were beside me with their prayers and support to accomplish this study. I thank you all.

Esubalew Ginbar Amente

ABSTRACT

In current highly competitive business environment, having well performing and inspired employees are the main success factor for any organization. In realizing that, in one hand researchers argue well-designed reward strategy plays the major role through enhancing the performance of employees. In the other hand, other scholars claim that rewards have nothing to do with employees’ performance. The aim of this study was to examine the effect of reward management system on employee performance in the case of IE Network Solution PLC. in Addis Ababa. This study was conducted through a mixed research approach with in both a descriptive and explanatory research design. A total of 80 self-administered questionnaires were distributed to the all staff members of the company. 77 questionnaires were returned which gave response rate 96.25%. It was valid to run the data analysis. Therefore the descriptive, correlation and multiple regression analysis were computed through SPSS version 23. The correlation analysis result shows that promotion and employee recognition positively and moderately associated with performance of employees. However work condition salary have a positive but weak relation with employee performance. The multiple regression analysis revealed promotion (β=0.313), employee recognition (β=0.319), work condition (β=0.256), and salary (β=0.189) has a significant effect on employee performance. However benefit packages have no significant effect on performance of employees. Additionally the regression analysis shows , p<0.05 ) which indicates 57.9% variations in employee performance is explained through a change in the reward system variables. Generally this study indicated that there is a positive and significant relationship between total reward management system and performance of employees in IE Network Solution PLC. The study recommended that company should evaluate and redesign its reward system to be integrated with overall strategies of the company for enhanced performance of employees and productivity of the organization.

Key words: Reward, performance of employees, financial reward and non- financial reward

CHAPTER ONE

1. Introduction

This part of the research consists background of the study, statement of the problem, research questions, objective of the study, significance of the study, scope/delimitation of the study, limitation of the study, organization of the study and basic terms with their definitions.

1.1. Background of the study

In the current globalized World, Companies are operating in dynamic and challenging business environment. Resources are scares, competition is so strong and the customer preference is changing. That is why; firms are using the combination of different resources effectively in order to achieve their strategic organizational goals.

Human capital is the core element and the most responsible actor to achieve organization goals even under challenging conditions. It is not only the individuals in the company, it also what those employees bring and contribute to the institutional success. That is the reason Robert, Jackson and Mathis (2010) explained human resource as synergy of the most valuable capabilities, knowledge, skills, life experiences, and motivation of an organizational workforce. Jackson et al. (2010) argued human capital as multi-dimensional unique institutional resource that include problem solving thinking, creative idea, knowledge and decision making ability that employees contribute to the company.

Whatever it is, employees should have to be motivated in order to exert all possible effort through combining their skills and experience to perform well. Managers use several mechanism to motivate employees and to increase their performance. But from all, reward is one of the fundamental method to motivate employees to perform well in their work activity in the company and enhancing their effort to be creative and productive that lead to better business functionality (Aktar, Ali, Serena and Sachu, 2012).

Reward management is a system that consists all financial and non-financial compensation packages of the organization. It is a way designed to retain employees, attract new talent and most importantly to increases employees’ performance.

If companies are unable to reward staffs, it has its own adverse effect on the performance and productivity of employees in the company. However efficient reward system can be a good motivator but an inefficient reward system can lead to demotivate the employees in terms of low productivity, internal conflicts, absenteeism, high turnover, lack of commitment and loyalty, lateness and felling grievances (Kalkidan, 2017).

Wang (2004) believes that rewarding employee shows not only benefit to employee but increase performance of his/her job. The authors argued that reward system plays various roles, such as to develop and sustain employee commitment towards firms or in other words to maximize employee performance and loyalty. However, other researchers claims that rewarding employees are nothing to do with employee performance in the work place. Garlick study (as cited in Kibet, Njanja, Maina, Njagi, 2013) showed that offering monetary reward like cash bonus and other monetary benefits has no impact on employee performance, despite the fact cash bonuses are the most preferred reward for employees.

A review of the relevant literature reveals that there is inconsistent findings in the effect of the reward system on employees’ performance. Therefore this study is very important through filling above mentioned literature gaps and prior’s studies limitations by examining the relationship between reward systems and employees performance in light of IE Networks Solution. The researcher chose this company because of two reasons. One, IE Network Solution PLC has well organized human resource management system relative to others company in IT sector. Second, the company has a good reputation in IT and tech industry of Ethiopia through working with giant financial and public service institution including many public universities.

Understanding the relationship between reward system and employees performance add to the scarce documented knowledge in Ethiopian tech firms context and it might enable the firm to improve its human resources management systems.

Furthermore, this study might open other opportunities to researchers and practitioners to investigate the general reward management and their effects on the performance of employees.

1.2. Statement of the problem

Human capital is the most competitive asset for any company. In order to get the efficient and effective result from human resource motivation is necessary (Khan, Waqas, and Muneer, 2017). It is the most important factor which brings competitive advantage by contributing their knowledge, skills and capabilities to the organization. Organizational performance is a function of employees’ performance and the combination of other non-human resources. Therefore there is no doubt employees are the critical asset for the success of the organization. Khan et al. (2017) argued that human capital can be retained and exert their extra effort in the organization through applying an integrated reward management system. Which includes all financial and non-financial reward packages designed by the organization to motivate and enhance employees’ performance.

Several studies have conducted on the relationship between reward system and employee performance. However there is a contradictory finding on the impact of a reward system on employee performance. Aktar et al. (2012) clearly showed that there is a positive and significant relation between reward system and performance employees. This indicate reward system play great role through enhancing the performance of employees (Philips, 2014). In line with this finding Nnaji and Nnadozie (2015) argue the way companies design and implement their reward system can determine the performance employees in the work place. However other studies finding shows there is no relation between reward system and employee performance. A study conducted by Ajila (2004) and Kibet et al. (2013) revealed absence of significant relationship between reward system and employees performance.

In organization employees have varied preference as far as the types of reward is concerned. Therefore companies and managers should have to know the most effective reward type and reward system which support employees through increasing their performance. Otherwise the reward management system become a cost than a benefit for the organization. Well-designed reward system help to create a good attitude and motivation in employees in the job. It’s the way to give a credit for their extra effort for employees by the organization. Looking at the above research findings and reviewing many other literatures, the researcher has identified two main research gaps. One the inconsistency of findings between many researches with in similar issue i.e. the relation between reward system and employee performance. There is, therefore, a great need for additional evidence to support whether reward system has an effect on employee performance or not. Two most of the studies have not holistically addressed the relationship between performance of employees and reward system as far as Ethiopian IT and tech firms concerned.

Therefore, in order to address these research gaps, the researcher is interested to conduct this study on the effect of reward system on the performance of employees through examining the impact of different reward variables in relation with employee performance through special reference of IE Network Solutions PLC. In order to address the research problem the following questions were developed to be answered by this study.

1.3. Research Questions

The research attempt to answer the following questions.

How does promotion affect employee’s performance in IE Networking PLC?

To what extent recognition affect employee’s performance in IE Networking PLC?

Does work conditions have an effect on employee performance in IE Networking PLC?

What is the effect of salary on employee performance in IE Networking PLC?

Does benefit packages significantly affect employee performance in IE Networking PLC?

1.4. The Objective of the study

1.4.1. General Objective

The general objective of the study is to examine the effect of reward management system on employee performance in IE Network Solutions PLC.

1.4.2. Specific objectives

In order to achieve the main purpose, the researcher addressed the following specific objectives. These are:

To examine the effect of promotion on employee performance.

To investigate the effect of recognition on employee performance.

To analyze the impact of work condition on employee performance.

To evaluate the effect of salary on employee performance.

To examine the impact benefit packages and employee performance.

1.5. Significant of the Study

The findings of the study is expected to be significant for the following issue. One, more importantly, the study will help managers to evaluate how the reward management system affects the employee performance, and provide possible solution for identified challenges and problems. It will help the company policy makers to formulate suitable reward management policy. Additionally, the study will serve as stepping stone for other researches, which may focus on similar topics and issues related to the effect of reward management system on employee performance.

1.6. Scope of the Study

Even though, there are a number of IT & computer Network Company in Ethiopia, this study focused only IE Network solution PLC which is geographically located in Addis Ababa. Reward system has broad concept and large scope.

Additionally, this study was conceptually delimited to examining the effect of reward management system on employee performance by considering selected types of reward elements and by testing the hypothesis formulated to prove whether or not there is a link between the selected reward system variables and performance of employees.

1.7. Limitation of the study

Like any study this research was not free from limitations. Though the quantitative data was collected successfully from the respondents, due to the pandemic Covid-19 the researcher faced challenges to collect enough qualitative data as planned. Therefore the qualitative data analysis was based on the information collected from two experts only through very few and limited interview questions. Another limitation of this study was due to time and other resource constraints this study did not include all other reward system variables which potentially have an effect on performance of employees except promotion, recognition, and work condition, salary and benefit packages.

1.8. Definitions of Terms

Reward: Financial, non-financial compensations and other benefit packages provided by the company either for increase employee performance or to appreciate an extra effort of employees (Bratton and Gold,2000).

Reward Management system: It includes designing compensations structure and plan through creating, maintaining and implementing of an integrated system of reward to fulfill the demand of both for the organization and employees (Armstrong, 2009).

Financial Reward: any financial compensation can be expressed in monetary value provided to employees by the organization for their performance, extra effort and contribution in the work place (Armstrong, 2012)

Non-financial reward: It is a reward other than financial compensations designed and provided by the organization to its employees.

Employees’ performance: It deals with the overall achievement of employee in relation with work standard in the organization (Muchar, Pawirosumatro and Sarjana, 2017)

1.9. Organization of the Study

This study organized through five major chapters that constitute varied sub chapters under each. The second chapter includes review of theoretical and empirical literatures that support the research. The research methodology is presented in the third chapter of this study. Chapter four present the result of data analysis with their interpretation. In the last, chapter five provide data discussion and conclusion of the research followed by recommendation given by the researcher.

CHAPTER – TWO

2. Review of theoretical and empirical Literatures

2.1. Introduction

In this chapter relevant theoretical literatures about reward management, reward system and related practices are presented. Furthermore the empirical studies about the relationship between employee performance and rewards also examined and explained.

2.2. The Concept of Reward Management

The term reward and reward management has been defined by several authors through different ways. Bratton (2000) explained rewards as financial, non-financial compensations and other benefit packages provided by the company either for increase employee performance or to appreciate an extra effort of employees. Friedman & Gross (2004) summarized as total compensation, benefit packages and other advantages designed by the companies to motivate employee for the purpose of increasing their performance in the work place.

Rewards is also defined as one of the important elements to motivate employees for contributing their best effort to generate innovative ideas that lead to better business functionality. Aktar et al. (2012) argued that reward is an investment of the company on employee for better contribution of employees for the company. Therefore, a reward can be anything that attracts an employee’s attention and stimulates him to work. Or it is the compensation which an employee receives from an organization for his or her service and contribution to the organization.

Likewise, reward management has been defined through many scholars. According to Kibet et al. (2013) reward management is a methods, procedures and strategies designed by human capital manager to retain and attract employees to the company.

In line with this, Armstrong (2009) gives a more compressive definition of reward management system. According to him it includes designing compensations structure and plan through creating, maintaining and implementing of an integrated system of reward to fulfill the demand of both for the organization and employees. Therefore, reward management as a system consist interrelated different reward methods, practice and process including the procedure. Studies and human resource experts claim that performance management links with reward strategies of the company.

2.2.1. Aim of Reward Management

According to Aster (2017) the aims of managing rewards are achieved by creating and designing and executing reward strategies, methods procedures with well-articulated reward philosophy to enhance employee performance and organizational productivity. The aims of reward management

Armstrong (2010) has explained the following as the aim of reward management

- providing a mechanism for retention and attraction of skillful and experienced people to the company
- increasing employees commitment and involvement and engagement
- Creating a productive organizational culture.
- Achieving organizational objectives through better performance

2.2.2. Importance of reward management

Reward management has a diverse importance for the success of the organization. It helps to retain talented, experienced and skillful employees in the institution. This value adds to the achievement people and to the success of the organization. It also helps to recognize best performer in the work place. The integration between human resource policies and reward strategies support to improve the working condition and enhance the ethical treatment of peoples in the organization Armstrong (2010). The importance reward management is not limited to short run organizational achievement but also extend to through business life of the company.

2.2.3. Reward Philosophy

Any business strategies have a guiding philosophy for designing and implementing its strategic plan. Therefore, reward philosophy is a set of thinking that properly guide the execution and effectiveness of reward management in the organization. Additionally it specifies the way and the mechanism of valuing the effort of employees and their contribution to the institution in the work place (Armstrong, 2010). It help to determine how to invest in people of the organization.

2.3. Theories of Work Motivation

Motivation can be described as an internal guiding force which drives individuals to act or do anything without any coercion and pressure (Hume, 2000). Several theories have been used to explain the link between employee reward systems and organization performance. These theories are classified in to two main categories. These are process and content theories of motivation.

2.3.1. Process theories of motivation

The most common process theories of motivation are Vroom expectancy theory, Adam’s equity, goal setting theory and Skinner theory reinforcement. The process theories of motivations are a contemporary and most widely used for business organization. Therefore process theories of motivation are selected as the guiding theories because the theories are directly or indirectly related to the factors of rewards and performance of employees.

2.3.1.1. Theory of Reinforcement

The Skinner reinforcement theory is one of the oldest but the most widely used theory of motivation. It is considered a motivation theory as well as a learning theory. Reinforcement theory posits that motivated behavior occurs as a result of reinforces, which outcomes are resulting from the behavior that makes it more likely the behavior will occur again. This theory suggests that it is not necessary to study needs or cognitive processes to understand motivation, but that it is only necessary to examine the consequences of behavior. Behavior that is reinforced is likely to continue, but behavior that is not rewarded or behavior that is punished is not likely to be repeated.

According to this theory employees in the organization would be inspired and motivated through well designed reward strategies and work conditions in the organization and backed through compensation for best performance and denying reward for low result (Scott, 2018).Generally this theory reflect that the management of the company can enhance and increase the performance of employees through the response they provide to employees activity in the organization. The mechanism is providing financial and non-financial rewards to behavior which achieved the specified goals of the organization and punishing the undesired behavior and weak performance.

This theory is good through providing clues to motivation. Because reinforcement theory is based on external conditions. Within the workplace, organizational management theorists look to the environment to explain and control people's behavior. Because of this, it may be easier to motivate a group of workers through external factors such as pay raise, promotion, etc. Additionally reinforcement theory has an advantage over other work motivation theories through keeping employees involved in the organization, it can be easily applied in organization and has Impressive research support. However this theory has its own limitation. For instance it disregards internal motivation, difficult to identify rewards/punishments and hard to apply to complicated forms of behavior.

2.3.1.2. Equity Theory

Adams theory of equity deals with the existence of equality and fairness in the treatment of employees by their organization or by their subordinates. According to Moorhead and Griffin (2004) the way how to treat our people and their perception towards it may positively or overly affect their performance or contribution in the organization. Adam believed if employee are not treated equally, they will decide undesirable action to the organization.

The theory equity has been widely tested empirically and it has been discovered that employee fairness perception in terms of job supervision, pay and promotion are major predicting factors for employee workplace behavior and job performance Ndungu (2017). Most importantly for managers, equity theory emphasizes the importance of a reward system that is perceived as fair by employees.

However this theory does not predict overpayment conditions; how people handle those conditions and does not account for individual differences that have an impact upon equity.

Additionally Redmond (2009) criticised the theory for proving several strategies for restoring equity but does not predict in detail which an individual will select. Furthermore, Redmond (2009) criticised the theory for its little practical value; arguing that there are various factors which are not under administrations, managers, and/or organizations control can lead to inequity.

2.3.1.3. Goal Setting Theory

A motivation theorist Locke and Latham (1990) argued that setting clear, specific and challenging goals can determine employees’ motivation and inspiration in the workplace. As Moorhead ibid. (2004) described employees are motivated through difficult goals but reasonably to be achieved and they know what effort needed to accomplishment. This theory suggest that through understanding employee capability and setting clear and challenging goals managers can motivate employee for good performance.

However, this theory has its own drawbacks. One it may create unnecessary pressure and stress. It makes employees less open to other opportunities and possibilities. Additionally it is result-focused rather than progress-focused.

2.3.1.4. Expectancy theory

This theory was formulated through Victor Vroom in 1964. According to this theory an individual performance is a function of its own expectation about the result of the work. The strength of employees’ beliefs about their work and their expectation about the outcome determine their level of motivation and gradually affect their performance positively or adversely. Thus, managers should attempt, to the extent possible, to ensure that their employees believe that increased effort will improve performance and that performance will lead to valued rewards.

This theory has an important implications for employees’ motivation and management. One the theory implies that management should endeavour to increase the belief that employees are capable of preforming the job successfully. It provides the required training and clarify job requirements; provide sufficient time and resources.

However theory does not provide specific solutions to motivational problems and only attempts to mirror the complex motivational process Luthans (1998). Robbins and Judge (2013) criticized the theory for its narrow applicability; arguing that the theory is only valid in situations where individuals clearly perceive effort-performance and performance-reward linkages. Additionally, this theory won't work in practice without active participation from managers. The theory assumes all components are already known. In reality, leaders must make an effort to find out what their employees value as rewards (valence).

2.4. Reward and Employee performance

Performance of employees refer the productivity of employees in the work place against predetermined standard (Chaundary & Sharma 2012).The summation of individual performance determine the overall achievement of the organization. Therefore institution and companies should have to clearly design achievable reward strategy for organizational benefit and for employees’ motivation. This can be applied through a well-managed financial and non-financial reward system through creating a link between employees’ desire and organizational goals (Aktar et al, 2012).Furthermore the implementation reward system should be accurate and clearly communicated to the employees.

2.5. The effect of Reward on performance

Performance is determined and explained through different factors. However the most determinant factor of performance of employees is reward (Ermias, 2017). It positively affects the employee performance and contributes to the company. However the effectiveness of the rewards still depend on how the management is designing its reward system in relation to the business strategies of the organization for the benefits of employees as well as for the organization. If employees are perceiving that the reward system is very help full to benefit them, their performance in the work place will be enhanced, therefore organization should have to design in the way that keep both the interest of people and the organization. Most of the work motivation theories argued that there is a significant relationship between reward and employee performance through assuming other condition remain constant (Addisu, 2018). For instance the theory of reinforcement articulated that the work performance and behavior of employees can be influenced by reward and punishment. Furthermore, employees’ expectation towards what they get from the company will determine their performance according to expectance theory. This theory stressed employee beliefs about the rewards matters in the expected achievement of the employees (Vroom, 1964).

2.6. Reward Management process

Abbildung in dieser Leseprobe nicht enthalten

Reward management consists all factors which directly or indirectly affect the process of reward system. Reward strategies take in to account external business environment and company overall strategies. Reward polices, practices and procedures are additional element of the reward system (Armstrong, 2010).

Abbildung in dieser Leseprobe nicht enthalten

Figure 2. 1 Reward management (Armstrong, 2010)

2.7. Types of Reward System

Reward management system is a composition of sub reward system variables. The sub reward system can either financial or non-financial, it can be intrinsic or extrinsic rewards. According to Armstrong (2009) extrinsic rewards are tangible rewards and these rewards are external to the job. Intrinsic rewards are intangible rewards or psychological rewards that inherit from the employees itself perhaps due to work achievement. The other well-known classification of rewards are financial and non-financial rewards. It briefly discussed below.

2.7.1. Financial reward Variables

This reward category includes all monetary compensations or any reward that can be expressed in monetary value or can be measured which are intentionally designed with the reward system to enhance performance of employees for benefit of both the organization and its work force. From all the two main financial compensations are salary and financial benefit packages.

Salary

Salary is formal payment to the employees for his or her job activity in organization. The management set the amount of salary to be paid for employees. It can be determined by market price or through job design in setting the pay structure (Armstrong, 2010). Performance related pay directly impact the workers performance creating the output through pay and workers are able to give more pay structure according to the performance (Nagaraju and Pooja, 2017). Salary can be paid to employees in two ways. One the base pay and two in the form of variable pay. Usually the base pay is fixed. And the variable pay includes cash bonus and other compensation and benefits.

Employee Benefits packages

Zaliha (2008) described benefits of employees as any financial or monetary compensations other than salaries and wage which is provided to the employees from their respective organization. It consists bonus and allowance with other wide range of variety of employees’ compensation packages. Employee benefits packages are designed by the company to enhance the employee's productivity to lead a sustainable living so the employee feel comfort in working (Sastera and Mauludin, 2018).

2.7.2. Non-financial Reward Variables

It consists a non-monetary compensations packages. As Armstrong (2009) explained non-financial rewards are compensation sometimes that may not directly involve payment rather emanate from the job itself. Most of the time non-financial rewards includes the intrinsic rewards and they are hard to quantify in financial or monetary value. Which includes personal growth, career development, recognition work condition and achievement and promotion. For the purpose of this study only three of them presented here.

Employee recognition

Employee recognition refer an appreciation and acknowledgment of employees for what they are achieved and successes in the organization. According to Kibet et al (2013) recognition signify gratitude and respect for employees to their successful performance in the organization. It also encourages others team members to do in such a way. It is a cost effective way of encouraging employees in the work place for increasing performance an effort of employees in the organization (Brun and Dugas, 2008).

Promotion

Gohari (2013) explained promotion as mechanism of individual growth with lots of responsibility and higher rank. It is very essential for employee performance because it allows and guide them to be responsible in performing their activities. Robbins (1998) argues a reward system that consist promotion as its element contribute a lot for performance of the employees and productivity of the organization.

Work condition

Conditions in the work place refers the overall working and job environment including the organizational framework with the physical activity setup in the company. It consist a wide ranges of elements that affect the work activity directly or indirectly (Ruddy, 2007).It has an effect not only the productivity and performance of employee additionally It will affect the even the behavior and working culture of the team members. Therefore well-designed working condition based on the nature of the business has its own important for the effectiveness of employee in their job (Karami, Dolatabadi and Rajaeepour, 2013).

2.8. Empirical Literature Review

Many studies have conducted one the relation between reward management system and employee performance in the work place. According to most of the research result, it is possible to anticipate, explain and examine the performance of the employees in the organization. One of the influencer or predictor of performance is the reward system of the organization (Betelehem, 2015).

Ermias (2017) did his study to investigation whether reward system has an impact on performance of employees at national bank of Ethiopia. His multiple regression analysis showed there is a positive relationship between monetary and non-monetary rewards with the perceive employee performance in the bank. But the study lacked qualitatively analyzed result though he argued his study is triangulated based on mixed research approach. This indicate he did not keep his research approach to be integrated with his data analysis methods. In line with Ermias (2017) finding, Nigatu (2015) recommended the mix of financial and non-financial reward methods is more important to increase the employee’s performance based on his study in public financial institution. Significant relationship between performance of employees and salary have been well established in studies by Heneman, Kochan & Locke (1995).They indicated that financial reward is one of the most significant variables in determining better employee performance. Ibrar et al. (2015) explained how employee performance is influenced through reward in private school with special reference of Malakand private school. His study indicated that there are significant relationship between compensation and employee’s job performance. The study of Waruni and Ayesha (2014) identified different reward packages on perceived performance of employee with special reference of Electrico. It was a quantitative research with only regression analysis. This study proved that there is significant relation between salary payment and employee performance. Additionally, this study indicated from the non-financial reward variables recognition has the highest correlation coefficient with performance. The two authors recommended appreciation of staffs and employees are an important element of reward to enhance employee’s performance.

Agwu (2013) conducted study on the effect of equitable system of compensation on employees performance in Nigerian Agip Oil Company limited Port-Harcourt. The research tried to examine the implementation of the reward system in relation employees’ job performance in the above mentioned company. The study concluded that the existence of fair reward system in have significantly affected the employees job. However, it has been observed that company is not providing right amount of financial rewards to employees.

The study Aktar et al. (2012) focused to investigate financial and non-financial compensation in relation with performance of employees. This research identified different influencing variables which determine performance of staffs in the company of in financial industry. The result revealed that there is an important relationship each explanatory variable with performance of the employees in the banking sectors.

Subekti and Setyadi (2016) did a study to find factors to create a link between compensation, employee satisfaction, and performance at individual level. The study came up with identification of variables which affect performance through the mediating function of satisfaction. Finally they conclude that reward system has a significant relationship with performance of employees

Moreover a study conducted by Gungor (2011) tried to examine the relation between the reward management system and staffs performance of bank employees on global banks in Turkey Istanbul. Multiple regression analysis was used to observe the relation of reward and performance. Based on his conclusion, the reward system significantly influence the performance of the employees in the Global banks. This study revealed that the non-financial reward and compensations have more predictor performance of employees than the non-financial rewards.

The study conducted by Kibet et al. (2013) on Kenya Power and Lighting Company (KPLC) Ltd focused on the examination of whether cash bonus has an effect on employee performance. The study was conducted through correlation research design. Descriptive and chi-square analysis was used to investigate the relation between cash bonus with performance of employees. The result showed that cash bonus has no significant impact on employee performance (p=0.8).This finding shows there are conditions where reward may not affect the employees performance though the study was conducted through one reward element.

Furthermore a study conducted by Ajila et al. (2004) tried to investigate the effect of reward and compensation on employee’s performance of central Bank Nigeria, Abuja. The data were collected through a self – designed questionnaire. They tested their finding at 95% degree of confidence. The result indicated that there is a positive relation between extrinsic reward and compensation with the staffs’ performance in the bank. However no relationship existed between intrinsic rewards and performance of workers. Omokorede (2017) investigated the impact of financial rewards on employee performance in selected Nigerian manufacturing. The regression analysis shows R2 = 0.002. This implies that salary and wages have a 0.2% influence on employee performance. The p =0.421 at 0.05 alpha level and 95% confidence level. This proved that salary and wage have no significant impact on employee performance. However the study of Cable, Higgs and Judge (2000) and Tsai (2005) identified salary as most effective reward method to maximize the productivity of employees.

[...]

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Details

Title
The Effect of Reward Management System on Employee Performance. The Case of IE Network Solutions Plc
College
Addis Ababa University  (College of Business and Economics)
Course
Business Administration
Grade
3.87
Author
Year
2020
Pages
78
Catalog Number
V986244
ISBN (eBook)
9783346353016
ISBN (Book)
9783346353023
Language
English
Keywords
Reward, reward managementperformance of employees, financial reward and non- financial reward
Quote paper
Esubalew Ginbar (Author), 2020, The Effect of Reward Management System on Employee Performance. The Case of IE Network Solutions Plc, Munich, GRIN Verlag, https://www.grin.com/document/986244

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