Literature Review of Motivation and Reward Systems

Since workers are human beings and being human means that employees have the ability to think which represents a huge array of problems for the employers because these factors can not be quantified nor understood completely through objective means. Additionally, what one person thinks and feels can not be generalized for other individuals. Workers bring this dilemma to the workplace which the employers need to solve. Even if they are paid on time, workers may still be dishonest, dissident, rude or sluggish and it may hard to determine why. The problem lies in the fact that it is very hard to detect and measure behaviors like dishonesty, sluggishness etc which are indicative of a de motivated employee (Ritter and Taylor, 1997).

Owing to the increasing complexity of the work place and the inevitability of rewarding employees, organizations have been forced to taking on a holistic approach in the for of a total rewards system that serves as a fulcrum for balancing employee as well as organizational needs and takes care of the regulatory requirements like employment and tax laws. Although total reward systems have much in common with their traditional counterparts, the total reward system draws on the work of certain motivational theorists such as Maslow, Herzberg, Alfie Kohn, Jeffrey Pfeffer, Huselid to name a few (Thompson and CIPD 2002). This has led to recognition of the importance of linking rewards with the overall strategy of the organization.

A total reward system is designed in such a way so that it departs from the conventional reward procedures and incorporates other intangible factors such as its characteristic of being holistic, takes on a contingency approach, integrates the rewards with the other functions and overall objective of the company, is more employee oriented, offers a personalized or customized approach, is distinctive and evolutionary so that it has the ability to adapt to the necessary changes (Martin, 2010).

Total rewards system is one of the recent developments in the field on human resource management and this concept is defined as using all the gears available to the company in order to magnetize, retain, encourage and gratify these employees and includes all forms of investments made in things that lead to employee satisfaction and are valued by the employees (Armstrong, 2002). He further elaborates about the components of a total reward system and says that it consists of both financial as well as non financial rewards. Financial rewards encompass factors such as base and variable pay, employee stock ownership and financial benefits while on the other hand non financial rewards include acknowledgment, prospects to develop skills and quality of life.

The concept of a total reward system originated from the US and represents the recognition of the statement that money is not everything as it recognizes the importance of other factors besides money such as offering flexible working hours to employees, trainings and working from home opportunities (Perry, 2007). As the twentieth century progressed, a vast body of literature regarding total rewards developed and the organizations moved from offering just compensation towards offering total rewards and now instead of offering homogenous rewards, organizations offer heterogeneous rewards that address the modern day situations in a better way (Chowdhury, 2003).

The reward systems were simply known as pay and compensation packages however this term has evolved considerable over the years and has been termed as total compensation or total rewards. Tropman (2001) has coined an innovative term for this total reward system and calls it cafeteria pay which is much more employee drive than its traditional counterpart. Reward systems should be viewed as a way in which the employees can be energized as even the most talented employees may not be able achieve full potential if they are not properly guided.

A company’s commitment to a total rewards system is a sign the company has recognized employees as its most important resource and that financial or tangible rewards alone are necessary but not enough to motivate employees. Total rewards are a broad concept and it has implications related to leadership, growth opportunities, and recognition and job enablement. These systems have been developed in response to factors such as the constant war for keeping employees and a diverse workforce with diverse needs (Jensen, McMullen and Stark, 2007).

The main advantages of following a holistic approach towards reward system include enhancement of recruitment and selection activity, reduction in the fixed portion of the rewards system, developing employees, and increase in cooperation, inculcating creativity and innovation and reinforcement of good performance (Worldatwork, 2007). Organizations that foster such a program are in a better potion to attract and retain employees and remain more prominent in the eyes of the employees which is advantageous especially in a rigid labor market. Such a system helps in customizing rewards, is cost effective and may develop to become a competitive advantage for the company (Thompson and CIPD 2002).

Developing and designing a total rewards strategy is a five stage process (Manas and Graham, 2003). The first stage in the development is to craft a meticulous understanding of the key success factors of the business so the most important resources can be identified. The next phase involves conveying this knowledge to the employees so that they work on it and make the business successful. The third phase involves connecting employees with these success factors through a total rewards strategy. The fourth phase is concerned with leveraging the potential of employees using these reward systems while the last phase relates to evaluation and feedback so that the necessary changes could be made to the strategy.

A good reward system should be able to cater to the human needs of the employees so that they have some value for it. It should be perceived as being a fair compensation for the amount of contribution made. The rewards system should also be able to meet the minimum standards set by the government so that it has no legal loopholes in it. In addition to this, the system should be cost effective and should be evaluated that whether that investment made in the form of rewards is generating the required return in terms of performance. Last but not the least, the rewards system should be able to support the corporate as well as business objectives of the company (Shields, 2007).

There has been debate regarding the objective of a rewards system and the most important functions a reward system should be able to fulfill are that it should be inline with and support the overall objective of the company, it should be an offshoot of the goals of the business, it should be based on judging the performance of employees, it should be able to encourage and reward preferred behaviors, it should complement the management style of the company, it should serve as a source of attracting and retaining the best talent and should be able to cater to the needs of the labor market (Cowling and Lundy, 1996).

Motivation has been defined in various ways and majority of these definitions refer to motivation as the aspiration of an individual to accomplish further than what is expected from them and this desire is propelled by internal factors rather than external factors and it creates a desire in the individual to become implicated in a constant urge for perfection and advancement (Torrington, Hall, Taylor & Atkinson, 2009). From this definition, it can be inferred that motivation is the innate condition or state that leads to the creation of a behavior that helps the individual in become directed towards a specific goal.

Franken (1994) has taken this definition to the next step and says that motivation is not just limited to stimulation and direction; it also encompasses persistence or permanence of that behavior. According to this view point, there are three basic components of motivation which are direction which decides what the person is trying to achieve, effort which defines the level of effort applied by that individual and persistence which relates to how long the individual keeps trying to achieve a result.

Various definition of motivation are available however these definitions are restrictive and can not define the motivation of an employee because they do not take into account the various challenges facing an employee. Career motivation has been defined as a function of certain factors which are the individual characteristics of the employee, the situation that the employee is facing, the career decision that the employee has made and the behaviors exhibited by the employee. Career motivation should be therefore viewed as a multidimensional phenomenon (London, 1983).

Hull (1943) came up with one of the initial contributions in explaining motivation and presented the drive theory that said that as human beings, we all possess needs which steer our stimuli that urge us to take action and try to satisfy the applicable needs. Because of the premise that it draws on, drive theory is therefore also famous as Drive Reduction Theory. The importance of this theory is that it forces us to consider factors that motivate an employee to take action and what are the drives that s/he wants to reduce.

Motivation is often termed to be a supposed construct that attempts to explore the reasons behind what people do and it relates to the study of instigation, strength, perseverance and worth of a goal directed behavior and motives are the requirements and desires that stimulate people to achieve something (Brophy, 2004). The study of motivation revolves around the concept of energy which relates to the power of needs and desires to generate an urge and direction which helps give meaning to the behavior in relation to the external and internal stimuli (Deci and Ryan, 1985).

Various research studies have revealed that motivation because of its very nature is intrinsic because it relates to the very basic human behavior and when employees clearly understand what they are supposed to do, they are deeply motivated which leads to higher level of performance at work (Bruce and Pepitone, 1998). Studies have shown that approaches that involve the use of fear, manipulation or in other words, using a carrot and stick approach to motivate employees seldom works and may have negative consequences on the performance of employees while on the other hand, employees appreciate adopting a motivation approach that helps in attaining personal growth and a sense of purpose (Bruce, 2006).

Regarding the equity in wages, Adam (1965) argued that employees do their utmost to maintain equity between them and their colleagues and equity is accomplished when the ratio of employee output and inputs is equal to other employees’ ratio. This serves as a standard of comparison and when they are compensated according to this criterion they feel that the rewards are just and fair and this leads to an increase in motivation. Incase employees believe that they have not been compensated justly in comparison to other employees then they may feel de motivated. A similar study was conducted that tried to link wag equity with employee motivation in profit and non profit sector employees. The study uncovered that there exists a strong relationship between employee motivation and wage equity which is a part of the total reward system (Leete, 1998).

The theories regarding employee motivation can be divided into four broad approaches; paternalistic approach, scientific management, management through participation and combination approach. The paternalistic approach argues that if the employer pampers and takes care of the employee’s needs then the employees will be motivated to work hard while scientific management is the opposite extreme and believes in the systematic soldiering of the employees. The third approach believes that in order to get the employees motivated, it is best to get participation form them in determining their rewards. The fourth approach is a combination all three previous approaches and advises to develop reward systems that are able to achieve a balance of all three (Lawler, 1973).

Motivation is a very relevant concept in the workplace as well as it determines the persistence, intensity and quality of work that the employee performs and it is a psychological course that an employee takes when s/he interacts with the work environment and affects the level of keenness of an individual to do work. Whether an organization is operating at the national or international level, all face the challenge of developing incentive plans that cater to conflicting interests as the organization’s goal is to maximize profits while the employees are more concerned about maximizing their personal wealth (Gunkel, 2006).

Among the humanistic theorists who have investigated motivation, Abraham Maslow is one of the most prominent. Maslow (1954) presented his famous hierarchy of needs theory that attempted to divide human desires as growth and deficiency needs. According to this concept, an employee cannot fulfill growth needs unless his deficiency needs have been taken care of and therefore there will be a difference in the factors that motivate an employee trying to fulfill deficiency needs and the one trying to fulfill growth needs.

Alderfer developed his ERG theory on lines quite similar to Maslow and categorized the needs of an individual as existence, relatedness and growth needs. Existence needs are essential to the survival of the individual, relatedness need are fulfilled when a person achieves a sense of belongingness’ and relates to those around the individual while growth needs are related to personal and self development of the individual. Unlike Maslow, he believed that a person may be motivated to fulfill more than one category of needs simultaneously and therefore be motivated by various different factors at the same time (Koontz and Weihrich, 2006)

Another theory often cited to explain the motivation of employees at work is Herzberg’s two factor theory and supports the argument that factor that de motivate employees are different from those that motivate employees. The factors that impact the motivation of the employee were categorized as motivators which referred to factors such as recognition, enjoyment of the work, responsibility, sense of authority and achievement while those that de motivate employees he termed as hygiene factors which refer to money, relationship with boss and colleagues, working conditions and the like (Lingard and Rowlinson, 2005).

Another theory that tried to explain why certain individuals are more motivated than others in achieving a task is known as McClelland-Atkinson need achievement theory. According to this theory, the intrinsic motivation of every individual is to succeed while the extrinsic motivation that works against this is the motivation to avoid failure. Individuals in whom the motivation to achieve is higher that motivation to avoid failure appear to be more motivated and passionate while achieving a task (Jarvis, 1999).

Vroom’s expectancy theory also attempts to define what factors pay an important role behind motivating an individual. According to him, motivation level of an individual would vary from one situation to another and it is dependent on that person’s desire to achieve an outcome, the degree to which the individual believes that performance can affect the outcome and the perception that exerting more effort will lead to the desired results. For example for some employees, promotion would be a strong motivator however for others it may not be so because it would require more commitment and time that they are not willing to provide (Borkowski, 2009).

McGreggor also presented his view regarding employee motivation in this theory x and y managers. According to him, managers can be categorized as belonging to category X or Y. Those belonging to category X believe that employees are basically lazy and want to avoid work and the best way to motivate them is through coercion and strictness. On the other hand category Y managers believe that employees will do a good job when they enjoy it and ant to achieve something. So a category X manager would employ a different motivational tool as compared to a theory Y manager (Newell, 2002).

As discussed previously, an important factor that determines the level of motivation is direction and the goal setting theory tries to explore this factor. Performance management and reward systems often evaluate performance in relation to goal achievement and goals have to be stated in a manner that they motivate employees. For a goal to be motivating, it should be challenging, clear and achievable. In case the goal is unachievable, it can have a negative impact and de motivates an employee rather than motivating him/her (Locke and Latham, 1990).

Motivation is generally considered to be of two types; extrinsic motivation. Extrinsic motivation happens when an individual, or in this case is motivated to perform because of external factors and rewards rather than the enjoyment of the work for example Lepper, Greene and Nisbett (1973) conducted experiments with school children and divided them into two groups and were asked to draw. One group was promised to be given a medal if they performed well while the other group was not promised anything. One group was awarded the medal and they were asked to repeat the activity and the group that had not gotten the medal worked harder than the group that had gotten the medal previously. This shows that the group not having the medal was motivated by the extrinsic reward and same is applicable in the workplace. Intrinsic motivation happens when the employee is motivated by internal factors and the enjoyment or pleasure of the work itself.

From this discussion, it can be inferred that motivation is a process in itself that makes an employee want to achieve something and points in a certain direction and the organization is the context within which this process takes place. The process of motivation has four stages; initially, the employee has a motive or in other words a drive or need that needs to be fulfilled, the next step is that the employee shows a certain behavior to fulfill that need and that leads to the third stage which is goal fulfillment. The final stage relates to feedback and it may lead to decrease in the urge in case the need is satisfied and intensification if it is not fulfilled (Tulsian and Pandey, 2009).

Individuals are more influenced and motivated by a caring approach rather than a carrot and stick approach. Pennebaker and Sanders (1976) conducted a research and presented a theory called the reactance theory which said that people often do tasks that they are forbidden to just to prove that they posses freedom of choice. In case an organization tries to coerce employees in complying or achieving a certain goal, the result may be opposite to what is expected and may lead to employee de motivation.

Some researchers have found that extrinsic motivation is not very effective and in some cases even corrosive and damaging to the employees. Excessive use of extrinsic rewards can lead to unhealthy competition and the employees, instead of focusing on enjoying the task at hand start focusing too much on the reward and as a result the performance is negatively affected in the log run and this decline in performance is permanent rather than temporary as it brings about a modification of behavior (Kohn, 1992).

Some researchers have investigates the importance of extrinsic factors, specifically pay and found that there exists a discrepancy between what employees say and do regarding the importance of pay. Even though employees may rate pay as being of a very high importance but in reality it is not equally important for all employees and in certain situations, the importance given to a good salary may also decline (Rynes, Gerhart and Minette, 2004).

Pfeffer and Sutton (2000) adds another perspective to the study of motivation and employee performance and says that employees should not be labeled into groups such as good and bad performance because once the have been branders as bad, their motivation to work will be reduced and as a result, there will be a decrease in the performance of employees therefore a rewards system needs to treat employees fairly and not judge them on preconceptions.

The level of performance of employees in an organization is a function of three interrelated factors namely employee skills, motivation and strategic focus of the employees. Employee skills and strategic focus are of no use unless employees are motivated to apply these skills and focus on the job (Becker, Huselid and Ulrich, 2001). Schwartz (2006) believes that while devising reward systems for your employees, there can never be a one size fits all approach and the factors that motivate one employee may not be able to motivate another one as motivation comes from within and an organization can only do so much to provide and environment and reward system that encourages the process of motivation in an employee.

A study asked the employees to point out the ways in which the organization could help make the work more meaningful for them and the results revealed that the factors that employees mentioned were both extrinsic as well as intrinsic and therefore a total reward system needs to focus on and address both these issues (Podmoroff, 2005). Another research study carried out to study the factors that lead to employee motivation revealed similar results that employees rated exciting work and excellent pay as keys to higher levels of employee motivation and based on these findings, the researchers suggested designing reward systems which cater to factors such as job enlargement, job enrichment and promotions (Lindner, 1998).

A study was conducted to test the employee motivational factors in European employees over a period of time. This longitudinal study examined the researches done in the years 1946, 1980, 1986 and 1992 and revealed that the factors that motivate employees have changed over time and the latest studies show that employees have become more extrinsically motivated than they were in the initial survey and they rated high wages as the most important motivating factor (Wiley, 1997).

Ross Gardner (2010) argues that even though over the years, the reward systems and categories have expanded the reward types have boiled down to tow basic types; transactional and relational. Transactional rewards are the tangible or extrinsic rewards such as compensation and benefits that are given to the employees while relational rewards are the ones that deal with prsonal development. These rewadrs can be given directly or indirectly to the employees. For example direct transactional rewards are pay and incentives while indirect transactional rewards can include retirement benefits and health benefits. Direct relational rewards could be offering a training program while indirect relational reward can be culture and climate of the organization.

Another effort was made to link employee’s career motivation with the rewards system and even though rewards may be able to improve the performance and motivation of a few employees, to make this improvement organization wide a broader approach is needed so that even the average employees can realize their full potential. The key is to foster and encourage such an environment that people to become more goal directed and policies should be developed keeping in mind organizational needs (McNaughton, Carlson and Dietz, 1992).

A survey was conducted in the year 2009 in which 763 organizations were studied across 66 countries of the world. This survey showed the only 40 % of the organizations were considering measures of employee engagement as performance measurement tools and 57% of the organizations showed a commitment to plans to evaluate the total remuneration system holistically rather than focusing on individual components. This showed the increased focus on organizations on taking a holistic approach towards reward systems (GBN, 2009).

According to another study, banks have started to focus more on employee motivation and view rewards by taking a holistic approach. Banks have now stated to view rewards as an investment rather than a liability and the performance of employees as a return on the human capital. The goal therefore is to leverage this investment in rewards in way to achieve employee motivation (Bush, 2003).

A study was conducted to study the impact of Reward and recognition programs on the level of motivation and job satisfaction among employees. The research studied employees from Unilever Company and comprised of 80 respondents. The study identified that factor such as promotion and working conditions have a significant and positive impact on employee motivation (Ali and Ahmed, 2009).

Various studies have been conducted to study the factors that have an impact on employee motivation. One such study revealed that employee motivation can be enhanced by creating a fostering culture and that the most important factors that affect it are recognition and feedback and just offering more money does not necessarily increase productivity. Another important factor is helping employees focus on a goal which only works when employees have the proper skills and training to achieve those goals (Fuhrmann, 2006).

Public sector organizations are large and employ a large number of employees and studies have been conducted to investigate how public sector employees are motivated tow work. The study showed that there is a positive relationship between employee motivation and the rewards offered but there exist differences between the levels of influence as compared to the private sector employees. In addition to this, the study also showed that this level of motivation is also related to commitment to the organization in the public sector (Crewsen, P. E, 2010).

Another study that was constructed along similar lines studied the differences between motivating factors between public and private sector employees. The study had a sample of 629 organizations and it revealed that at the managerial level, the same factors motivate employees’ but at the lower levels of the hierarchy, motivating factors become entirely different and ethic is ranked as a very high motivating factor by the private sector employees (Jurkiewicz, Massey, Jr. and Brown, 1998).

Locke and Latham (1990) have developed a model called the high performance cycle that incorporates the findings of all these theories. According to them, when the employees face a challenging and difficult task and they are able o achieve that goal because of high level of efficacy, internal locus of control and the related concepts which leads them to deliver a high level of performance. The mechanisms employed to achieve this performance level are focusing attention in the right direction, hard work, perseverance and coining strategies and plans for achieving tasks. Such high performance if turns out to be rewarding for the employees results in increase in job satisfaction as well as motivation.

A review of the literature has established the importance of rewards in the motivation of employees. Rewards systems have gradually evolved form being one dimensional financial reward to an integrated system that encompasses all tangible and intangible aspects in the form of a total rewards system. Motivation is influenced more by intangible rewards such as recognition. Total reward systems play an important role in determining the level of motivation of employees.