Motivating employees is a key determinant of success or failure of any given organization. This motivation directly influences the organization’s elements of production such as productivity levels, profits, morale and product & service delivery. In the absence of such motivation these production element are adversely affected and therefore for any organization to remain competitive, it must invest in strategies that are effective towards motivating its entire workforce. Individuals and teams are motivated differently by various factors. Some of the common motivating factors includes; money, opportunity for professional development, flexible schedules, and a sense of accomplishment. Management understanding of the factors that motivate their workforce is vital to gaining human capital advantage that results to success in the current dynamic and challenging market place.
One of the greatest challenges of any organization management is discovering what motivates their workforce. In regard to this, it is important to note that the motivation of the individual staff is for their own reasons and not necessarily for the management or organization. In the olden days, employee candidates sought employment with organizations and worked for them for their entire life. This has since changed and today the employees normally have more than one career and may keep on switching from one to the other. Job security which was a golden factor for employers to offer members of the staff is no longer considered significant. As a result, any organization must develop a keen understanding of factors that motivate their workforce for them to remain competitive.
Reward systems have a wide variation of impacts on companies and these impacts are influenced by the reward system design and the company context under which they operate. This means that in structuring pay systems in a company or organization, is important to put into consideration the characteristics of both the company and the pay system. This paper discusses the pros and cons of merit award in an organization.
Reward Systems and Strategy
There is growing evidence in literature on the links between organization strategy and human capital management system (Wilson et al 1985, p. 315). The evidences argues that once the organization establish a strategy, there is need to consider the human resource, culture, and behavior that is required to ensure the strategy is effective. The step that follows is to develop reward and other human capital management systems that will influence the desired performance, the right kind of staff, and ensure climate and structure that are supporting the strategy (Weiss 1987, p. 45). Before a strategy is established in an existing organization, it is necessary to examine the current reward system and assess the nature of behaviors, climate, and structure that they support. This is more so on companies that are considering new lines of business because this new lines calls for a change in behavior and eventually a change in reward system (Weitzman, 1984, p. 32).
Impacts of Awarding Employees on Organization
Rewarding employee has both positive and negative effect on the organization and the management needs to be very keen as they employ different rewarding system for them to select pay systems that will yield maximum benefit both to the organization and to the staff. One of the major benefits of awarding employees is that it attracts members of staff and also leads to high retention among the staffs. Career selection and turnover exhibits the nature and magnitude of awards the organization offer to its employees. It also determines who is attracted to be part of the work force of the organization and who will continue to work for the organization (Stonebraker 1985, p. 49). The organization/company that offers the most rewards usually have high attraction and retention rates of employee (Rynes 1987, p. 189). This happen because good/high awards lead to high satisfaction which result to low turnover and more job applications.
This perception/interpretation is in line with equity and expectancy theories (Thurow 1975, p.65) Equity theory argue that employee perception of their contribution to the company, what they receive in return to their contribution, and comparison of their return-contribution ratio with others inside the organization and also outside the organization affects how well they see their employment relationship (Mahoney 1979, p. 72). If the employee sees inequity, then they restore equity through action such as quitting or becoming uncooperative which is not good for the organization. On the other hand, expectancy theory argues that relationships exist between rewards and behavior though it focuses on expected rewards (incentives) rather than experienced rewards. It says that motivation is a function of two aspects that is expectancy (link between effort and performance) and valence (expected value of outcome such as rewards and recognition) (Adams 1965, p. 79)
Though the rewarding of employees has an advantage of retaining them into the organization, it presents a cost challenge to the organization. The organization has to distribute rewards in ways that the employee will feel equitably treated with other employees doing the same work in other organizations. Because turnover means moving to other situations that seems better, then the organization is forced to pay better terms to avoid turnover translating to high labour costs. Rewards to attract and retain employees also result to intra-organization inequity. Better performers usually feel they are not treated fairly when rewards are at the same level with the poor performers within the organization though they are treated fairly when compared with other organization. These good performers may not quit but do not find satisfaction, always complaining, and may be forced to look for internal transfers (Balkin and Gomez-Mejia, 1987, p. 172).
Intra-organization feeling of inequality leads to management devising ways of rewarding employees according to their performance. This individual awarding according to performance is unhealthy in that it propagates competition rather than cooperation among employees hence killing team work spirit that is essential for organization success (Davis et al 985, p. 50). Competition among employees within the same organization may jeopardize the achievement of organization goals and especially when team input is a necessity. Employee may fail to give their support and input to the colleagues in the spirit of competition leading to failure of the organization (Chelius and Smith 1990, p. 43).
Another factor that makes awarding of employees to be an important adventure in any organization is that at specific conditions, they motivate performance (Blinder, 1990, p. 57). Those conditions that motivate performance are well articulated in expectancy theory. According to this theory, every individual in his mind associate certain behavior with certain outcome (punishment or reward). Individual believes that if they behave in a certain way they will get certain things. For instance an individual in his mind knows that if they work for the expected number of hours, they will receive specified payment for the number of hours but if they work for extra hours, they will receive bonus from those extra hours. The interpretation is that each performance level result to several kinds of outcomes. These outcomes attract different individual in different ways. This is because outcome values are based on individual needs and perception which are different when reflected on other factors of individual life. Some employees will value opportunity for promotion because of their need to achieve power while others will prefer to remain in their current position and work group due to the need of affiliation with others. Expectancy also gives the individual perception of how hard it will be towards achieving a behavior and the chances of his/her successful achievement of the given behavior (Hewitt, 1992, p. 67). This expectancy is in line with nature of the job and the situation together with individual difference aspect such as individual sense of efficacy (Kaufman 1992 p. 316)
Basing on the above concepts, motivation to behave in a certain way is greatest when employees perceive behavior to result to certain outcome (performance outcome expectancy) and that those outcome are attractive. Motivation is also great when employee perceive possibilities of desired level of performance (effort performance expectancy). Provided with alternative levels of behavior, employees will definitely select performance level with the greatest motivational force (Lawler, 1986, p. 89). The perception that performance will result to rewards is an essential aspect of predicting about the future. Even with the positive benefit or rewards towards increasing the organization’s performance, these rewards represent a problem where by employees focuses more on quantity rather than quality. The desire to produce more for better rewards sacrifices the need to produce quality goods and services and this can have a negative effect on the organization at the competitive global market. Bad quality of good and services may lead to bad company reputation leading to loss of customers. This eventually will affect negatively the realization of the organization’s goal of being competitive in the global market place (Lawler, 1990 p. 32).
In the same way the rewards motivate performance, they also motivate individual desire in developing knowledge and learning skills that will enhance effective performance (Lawler 1981, p. 71). The employees desire to see a link between learning certain skills and a valued reward. This motivation to gain more skill for better performance is a great input towards the achievement of organization goals. Better knowledge and skill will lead to better performance, effective and efficient ways of production eventually translating into achievement of organization goals and objective.
Despite the significance of rewards towards promoting or motivating employee to seek knowledge development and learning of skills, which eventually result to better performance, they can also lead to employee learning the wrong skills. This is evident when the skills and knowledge development that ought to be learnt is not relevant to the current performance (Mahoney 1979, p. 76). The outcome is that there will be no reward and the chances of getting a performance based reward are reduced. Organization culture and climate are other aspects that are developed by awarding employees (Milkovich and Wigdor 1991, p. 98). Based on how the reward systems are established, given, and administered, they result to a wide range of organization culture. For instance, they may lead to an organization being considered as ‘human oriented culture’, ‘entrepreneurial culture’, or ‘participative culture’ among others. Behaviors elicited by rewards becomes the prevailing pattern of behavior in the organization and this exhibit the perception of what the organization stand for, believes in, and what it values thus the power of rewards ability to shape the culture of the organization(Newman and Fisher 1992 p. 4).
One of the major drawbacks of awarding employees is the aspect of cost. These awards system usually have a significant cost concerns on the organization. For example the paying system alone is believed to take around 50% of the cost of operation of the organization (Simon 1951, p. 292). Reward pay system includes direct pay and benefit cost together with costs linked with operation and management of the pay systems. These costs some times are quite high increasing the organization’s burdens on the cost of production. This calls for a consideration of how costs vary as a function of the organization capacity to pay (Rynes 1987, p. 190).
Factors to Consider in Awarding Employees
As discussed above, rewarding employee can be a costly venture and at the same time it may produce both positive and negative impacts on the performance of the organization. This then shows the importance of giving careful consideration before implementing any pay system. Discussed below are some of the factors that the management needs to consider before they select and implement a paying system.
The first thing to consider is the ability of the organization to pay the increment. As discussed above, we have seen that rewarding employee involves some cost both for direct payment and those of operating and managing the pay system. For sustained pay system, the management should consider the available resources for the reward system. It is worth to note that offering awards is a positive stimulus to the employees but at the same time a costly burden to the organization. This then requires for consideration of today’s direct cost and long term expenses when determining the benefits to award. This will prevent adding and withdrawing benefits due to financial hiccups which can be very demoralizing to the employees. Knowing the resources that are available your disposal both for today and in the future will help the management to decide on the best pay system that will not fall back (Weber and Rynes 1991, p. 101)
The other factor to consider in deciding on pay system is the characteristic of the organization. Some organization requires individual performance while others require team work performance to deliver on the goals of the organization. For example a company dealing with sales and marketing requires individual effort more than group/team effort. On the other hand, sport organization calls for team cooperation and performance. In these two organizations, they will require different pay system. For the formal organization an individual pay system can yield more fruit than when an organization rewards all sales persons as a team as result of realized sales at the same rate (Wallace et al 1988, p. 67). This can demoralize high performers and affect their future engagement. The later is different because an individual pay system for instance, rewarding every scorer in a soccer match may demoralize those players that may have no chance of scoring for example the goal keeper. The nature of this organization calls for team pay system to enhance team spirit. Even though, there is a need to reward those team members that exhibit outstanding performance for them to feel intra-organization equity but reward chosen for such individual should not kill team spirit.
Qualification and relevant experience is another vital factor to consider while designing and selecting a pay system. In any given workforce, there exist different qualification and experiences. Employee with higher qualification and vast experience should be rewarded higher than their counterparts. Offering such a diverse work force a flat reward rates makes the more qualified personnel to feel that their advanced skills in the profession does not pay (Vroom 1964 p. 16). This may demoralize them from wanting to achieve more skills and develop knowledge. This may eventually slow the growth process of that particular organization. For example in the teaching institutions, teachers should be classified according to their qualification and also according to their experience. Graduate teachers should not be rewarded at the same level with untrained teachers neither senior teacher with newly recruited teacher. Different reward for these two groups of teacher will enhance performance and also encourage more learning for the betterment of school performance (Thurow 1975, p.67).
A survey conducted in a high school to examine the motivation of teachers and its impact on their performance focused on 10 senior teachers, 25 graduate teachers and 10 practicing and intern teachers. Qualitative method was used in the study in which questionnaires were distributed to the teachers and interviews conducted during school session. The data was analyzed through SPSS software to determine the mean of the respondents’ views on the motivation of the employees. The survey indicated that 100% of the respondents felt that external motivation by the organization was necessary and it can influence the levels of performance by the workers. Of those interviewed, 87% felt that team based reward system was the most effective, with only 13% (mostly senior employees) feeling that the motivation system should be on individual bases.
On the factors to consider in rewarding employees in the institution 62% of the respondents indicated that performance of the workers should be the major consideration. 28% felt that the skills and qualification should be the major consideration with only 10% opting for experience as the main criteria of their choice.
Employees may perceive compensation as an exchange of work done or a reward for a work well done. For some, it reflects the importance of their individual skills and capabilities or a reward for their education training they have achieved. This individual pay that employees are offered for the work they have done often is a key source of individual income and financial security and thus an important determinant of personal economic and social well being. This then shows the importance of treating the pays system in regard to their satisfaction to the employees. Any payment system that will lead to dissatisfaction of the employees should not be chosen as the best options for this will have negative impact on both the employee and the employer (Teet 1967, p. 86). The employee will not achieve his/her economic and social well being and will eventually be unproductive thus affecting the productivity of the organization. Management as they decide on merit award should consider both the organization interest and employees requirement to achieve full benefit without sacrificing the needs of either the organization or the needs of the workforce.
Though rewarding unmerited staff as a motivation strategy should be avoided, it may be necessary in cases where such rewards would positively enhance team spirit and increase the productivity. The management should work out on the strategies that best suits their organization, and the motivation rewards and benefits should be based on a sustainable well outlined structure that will fairly consider individuals and teams within the work force in a way that will ensure that the motivational packages enhances team spirit and increases individual performances (Stonebraker 1985, p. 52). A delicate balance may exist between balancing the reward system for individuals and teams especially in consideration of merit and performance factors and the management should selectively choose approaches that will be appreciated by the majority, while at the same time bringing positive impact to the productivity of the organization. In addition the organization must be keen in its ability to finance the motivational offers a factor that can be weighed by its experience in the market place. Ambitious offers may sometimes impact negatively on the overall performance and profitability of the company a fact that would eventually lead to demoralized workers once it becomes unsustainable.
Adams, J.S. (1965). Inequity in Social Exchange. In L. Berkowitz (ed.) Advances in Experimental Social Psychology. New York: Academic Press.
Balkin, D.B. &. Gomez-Mejia, L.R. (1987). Toward a Contingent Theory of Compensation Strategy. Strategic Management Journal, 8, 169-182.
Blinder, A. S. (1990). Paying for productivity. Washington, D.C.: The Brookings Institution.
Chelius, J. &. Smith, R.S. (1990). Profit Sharing and Employment Stability. Industrial and Labor Relations Review. 43, 256S-273S.
Davis, K.R., Giles, W.F., &. Field, H.S. (1985). Compensation and Fringe Benefits: How recruiters view new college graduate preferences. Personnel Administrator, January, 43-50.
Hewitt (1992). On Flexible Compensation. Lincolnshire, IL: Hewitt Associates.
Kaufman, R. T. (1992). The effects of share on productivity. Industrial and Labor Relations Review. 311-322.
Lawler, E.E. III. (1986). What’s Wrong With Point Factor Job Evaluation. Compensation and Benefits Review, 18 (2), 20-28.
Lawler, E.E. III. (1990). Strategic pay. San Francisco: Jossey-Bass.
Lawler, E.E. III. (1981). Pay and Organizational Effectiveness. New York: McGraw-Hill.
Mahoney, T.A. (1979). Compensation and Reward perspective. Homewood, Irwin.
Milkovich, G.T. & Wigdor, A.K. (1991). Pay for Performance. Washington, D.C.: National Academy Press.
Nealey, S.T. (1963). Pay and Benefits Preferences. Industrial Relations, 17-28.
Newman, J. and Fisher, D. (1992). Strategic Impact of Merit Pay. Compensation and Benefits Review, 24.
Rynes, S.L. (1987). Compensation Strategies for Recruiting. Topics in Total Compensation, 2, 185-196.
Simon. H.A. (1951). A Formal Theory of the Employment Relationship. Economic Review. 19.293-305.
Stonebraker. P.W. (1985). Flexibility and Incentive Benefits: A guide to program development Compensation Review, 17 (2).40-53.
Teet. F.W. (1967). Are Merit Raises Really Based on Merit? Personnel Journal, 65 (3). 88-95.
Thurow. L. (1975). Generating Inequality. New York: Basic Books. Inc.
Vroom. V.H. (1964). Work and Motivation. New York: Wiley. pp. 8-19.
Wallace, MJ. Jr. & Fay. C.H. (1988). Compensation Theory and Practice. Boston: PWS-Kent.
Weber, C. & Rynes, S. (1991). Effects or Compensation Strategy on Job Pay Decisions. Academy of Management Journal, 34 (I), 86-109.
Weitzman, M. L. (1984). The share economy. Cambridge, MA: Harvard
Weiss, A. (1987). Incentives and worker behavior: Some evidence. In H.R. Nalbantian (Ed.), Incentives. Cooperation and risk taking. Rowman & Littlefield.
Wilson, M., Nonhcraft. G.B., &. Neale, M.A. (1985). The Perceived Value of Fringe Benefits. Personnel Psychology, 38, 309-320.