Motivation and Reward Systems Used in Today’s Companies

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Table of Contents

Abstract
Introduction
Literature Review
Analysis
Conclusion
References

Abstract

Human resource is one of the vital resources that organizations require to remain competent. Organizations should have favorable motivation and reward systems to retain their employees. The two-factor theory holds that tangible rewards do not act as the main motivators. Expectancy theory maintains that employees are motivated if they realize that their effort will lead to material or tangible rewards.

The stewardship theory focuses on managers in the upper stratum of an organization. Social cognitive theory focuses on self-efficacy and concurs that employees are motivated to pursue certain projects after realizing that they have the capacity to achieve the goals in question.

The fifty-fifty principle asserts that fifty percent of employees’ motivation comes from within while the other fifty percent comes from people that the employees interact with and the working environment. Organizations use varied rewarding systems to motivate their employees. Some organizations believe that extrinsic motivation plays a significant role in promoting employee motivation.

Such organizations have monetary reward systems to reward employees according to their performance. On the other hand, some organizations trust in the power of intrinsic motivations. Such companies have policies that enhance employee growth and development as one of the motivation mechanisms.

Introduction

The present competition in the business world is compelling organizations to come up with reward systems that aim at enhancing employee motivation, thus boosting their performance. Currently, organizations are coming up with reward systems that reward employees according to their contribution to the organizational success. In most cases, organizations use rewards whenever they wish to achieve certain goals (Andrew & Kent, 2007).

Organizations use both monetary and non-monetary rewards. Monetary rewards come as short-term or long-term incentives used to help an organization achieve short-term or long-term goals. On the other hand, non-monetary rewards include elements like promotion, development promises, and additional leave days.

In today’s business environment, there exists four generations, viz. generation X, veterans, generation Y, and baby boomers (Andrew & Kent, 2007). All these generations are motivated differently. It becomes hard to motivate all these generations, especially if their opinions contradict (Andrew & Kent, 2007). This paper will focus on the various motivation and reward systems used by organizations today.

To start with, the paper will give the definition of motivation and the differences between intrinsic and extrinsic motivation. Next, the paper will look at the existing literature review on motivation. The paper will then compare and contrast the existing theories of motivation and conclude by summing up the issues deliberated in the paper.

Literature Review

Definition of motivation

Motivation refers to both internal and external features that trigger need and vigor in a human being. This vigor allows an individual to remain engrossed and devoted to a subject, role, or job coupled with putting unrelenting effort to achieving a given goal.

Normally, motivation emanates from the relation between conscious and unconscious aspects like magnitude of aspiration or want, enticement or the value of returns of the particular goal, and personal prospects. Motivation is classified as either intrinsic or extrinsic. Intrinsic motivation refers to all motivation factors that are inherent to an individual.

Normally, intrinsic motivation is long term. Employees that are intrinsically motivated enjoy doing their work. Such employees work hard to enhance their growth and development. A good example of intrinsic motivation is employees realizing that they have managed to crack a puzzle, which had disturbed them for a long time. Their triumph motivates them to go further and try harder assignments.

On the other hand, extrinsic motivation refers to all motivational factors that are outside an individual. In most cases, this form of motivation is short lived and organizations have to keep on re-introducing it. Extrinsic motivation is the most prevalent form of motivation in many organizations.

Whenever employees are motivated to act, behave, or perform according to a highly prestigious result instead of fun, or enhancement of their skills, then they are extrinsically motivated.

Examples of extrinsic motivation accorded to employees include commissions, promotions, and holiday trips. While intrinsic motivation is in most cases derived from inner need, core beliefs, and self-concept, extrinsic motivation mostly emanates from tangible things.

Theories and principles on employee motivation

Human capital is one of the vital resources that assist an organization gain competitive advantage. Employers can maintain and efficiently use this resource by motivation through varied methods like reward. Carraher, Gibson, and Buckley (2006) posit that, organizations should come up with effective rewarding systems to enhance employee performance.

Scholars have carried out studies to identify the connection between rewards and staff motivation. Most of the studies agree that for an organization to utilize its human resources optimally, it has to come up with procedures and policies and establish reward systems that are in line with such procedures and policies.

Moreover, these procedures and policies should enhance satisfaction and motivation amongst the staff members.

Many companies have attained significant growth through totally observing their business policies. Such organizations have established business policies that reward employees based on their performance. Employee productivity and motivation may be improved by recognizing and acknowledging employees’ efforts. Organizational success hinges on the level of employee motivation maintained by the organization.

Besides, it hinges on the procedures used to evaluate and reward employees based on their input (Carraher, Gibson, & Buckley, 2006). In most cases, organizations focus on extrinsic rewards and forget about intrinsic rewards, which also significantly contribute to employee motivation. Intangible rewards like credit help in motivating employees thus enhancing their performance.

Andrew and Kent (2007) claim that employee motivation depends on recognition and rewards given in an organization. Opulence and continued existence of the organization depend on how the organization relates with its employees (Lawler, 2003).

Filipkowski and Johnson (2008) analyzed the connection between organizational commitment, absenteeism, job insecurity, and employee performance in a manufacturing company. They found a positive connection between the employee turnover and job insecurity.

Scholars advance numerous theories and principles used to explain why organizations adopt certain reward systems. The theories include the two-factor theory, expectancy theory, and the stewardship theory.

Two factor theory

The two-factor theory is referred to as the motivation-hygiene theory, at times. Frederick Herzberg came up with this theory in 1957. He used Maslow’s perceptions on a working environment to study the factors that contribute to employee motivation at workplaces (Lundberg, Gudmundson, & Andersson, 2009).

Herzberg’s intentions were to figure out the work conditions and situations that employees related with, either positively or negatively. To Herzberg, these situations and conditions contributed to employee satisfaction; hence, the motivating factors. Frederick learnt that workers are affected by two factors, viz. hygiene and motivator factors.

Unlike hygiene factors, motivator factors, once met, add to employee satisfaction. On the other hand, hygiene factors lead to employee dissatisfaction if an organization fails to address them accordingly (Lundberg, Gudmundson, & Andersson, 2009). According to Herzberg, most of the organizations establish their reward systems based on supposition that money is the main motivator.

Hence, he refers to money as the hygiene factor that leads to employee dissatisfaction whenever employers fail to pay employees according to their expectations. Herzberg does not regard money as the positive motivator or possible satisfier (Lundberg, Gudmundson, & Andersson, 2009). On the contrary, he maintains that motivation from money or salary is short lived.

According to Herzberg, motivators that yield motivation and satisfaction are factors like recognition, trust, challenges, success, autonomy, chances of career growth, and responsibility. Hygiene factors just make sure that an employee is ever satisfied.

Frederick claims that hygiene factors do not contribute to enhancing employee motivation, even though their absence may lead to employee dissatisfaction (Lundberg, Gudmundson, & Andersson, 2009). Examples of hygiene factors include status, salary, administration, company policies, and working conditions.

Expectancy theory

Victor Vroom came up with the expectancy theory founded on the notions of expectancy, valence, and instrumentality. Valence stands for personal inclination towards a particular result. For example, most of the elderly employees may put immense significance to retrial benefits compared to the younger employees.

Most of the younger employees are not married; hence, they do not value workplace benefits like holiday trips, health benefits, and children’s education among others (Chiang, & Jang, 2008). This scenario is not necessarily the case with older employees who have many obligations to meet for their families.

A similar instance is salience, which determines if the employees see the worthiness of rewards or compensations. Salience considers if the incentives given by the management yield the preferred effects or behavior. At times, incentives may not yield the desired results if employees perceive them as not suitable enough.

Instrumentality could imply that an employee would be provoked to offer better-quality performance in expectation of promotion (Chiang & Jang, 2008). Expectancies are cognitive and psychological.

Even though the idea of expectancy appears similar to that of instrumentality, the concept of expectancy associates with the first degree and second degree results. In simpler terms, expectancy is the level of chance that certain endeavor or act will result in certain first-degree results. In other words, motivation is a derivative of expectancy and valence (Chiang, & Jang, 2008).

According to Vroom’s idea, one can deduce that employees give an organization what it values in terms of better-quality performance and anticipate to gain promotion in exchange (Chiang, & Jang, 2008). Promotion acts as the instrumentality that organizational leaders use to enhance employee performance. Vroom offers an insight into the theoretical predictors of promotion.

Even though he does not give specific factors that lead to employee motivation and his theoretical approach is based on the supposition that individuals are reasonable and judiciously calculating, factual circumstances may not be so impractical (Chiang, & Jang, 2008). Nevertheless, by assessing the level of employee motivation in organizations, one can discern that most of the promotions are performance-based.

The fifty-fifty principle

John Adair invented the fifty-fifty principle of motivation. The principle affirms that fifty percent of motivation comes from within an individual, while the other fifty percent comes from the surroundings, especially from people one relates with (Adair, 2006). The principle is never useful in determining the actual proportion of motivation that emanates from an individual.

Nevertheless, the principle posits that a fraction of motivation dwells within an individual while the other fraction lies in the outside environment and is beyond one’s control. According to the fifty-fifty principle, people have limited power in influencing others to do something (Adair, 2006).

In organizations, leaders act as the environment around which employees work. Even though organizational leaders may request or order employees to do something, they cannot fully motivate the employees to give their best if they are not willing to do so.

Motivation is not taught but caught

The process of employee motivation is not an easy undertaking. Therefore, it is imperative that an organization hires highly motivated employees. Moreover, organizations ought to strike a balance between sensible and taxing targets. If organizational goals are in any way unachievable, employees pursuing the same goals are likely to end up demotivated.

Alternatively, if the goals are too simple to attain, they cannot help in stimulating employees to think widely (Adair, 2006). Progress normally acts as a strong motivating factor to employees. Workers tend to commit themselves to organizational goals if they learn that they are making significant steps towards attaining the set targets.

At such a point, leaders should furnish their employees with feedback regarding their performance regularly. An organization can establish a motivating atmosphere in both psychosomatic and physical terms.

Besides, organizations ought to strike a balance between what it gives to its workers and what it anticipates getting in return (Adair, 2006). The balance can be achieved by aligning performance with its reward system. In addition, leaders need to give their staff credits that can go a long way in motivating them.

Stewardship theory

The stewardship theory focuses on organizational leaders whose intentions are linked with the goals of their principals, referred herein as owners, instead of their personal goals. The theory mainly focuses on leaders at the upper echelon of the organization (Davis, Schoorman, & Donaldson, 2007).

The primary reason that led to the establishment of this theory was to determine when managers, in the upper leadership levels, are motivated to work towards achieving the objectives set by their principals. Such managers act as stewards within an organization. According to the stewardship theory, there is a strong connection between organizational success and the owners’ contentment.

Stewards who manage to improve organizational performance, which normally implies raising the company’s wealth, gratifies most people that are associated with the organization (Davis, Schoorman, & Donaldson, 2007).

Nevertheless, just like other employees, stewards require financial resources to carry on, and these requirements are realized when the stewards achieve the swap between organizational goals and individual needs. Furthermore, as stewards work towards achieving organizational goals, they end up achieving their personal goals also (Davis, Schoorman, & Donaldson, 2007).

The stewardship theory also brings to light how relations between an organization and staff could be. A company leader who perceives sentiments about the company as if they are directed towards him or her relates well with the company. By associating with the company, a manager can accept acknowledgement for organizational accomplishment (Davis, Schoorman, & Donaldson, 2007).

Social cognitive theory

Social cognitive theory gives a vital idea of self-efficacy, which facilitates in explaining the degree of employee motivation compared to organizational goals and tasks. Self-efficacy refers to personal conviction in the capacity to accomplish goals in a particular setting (Jex & Britt, 2008). Experimentally, studies have discovered a significant relation that connects efficacy to performance.

This idea also explains the concept of group efficacy. Self-efficacy determines how an employee perceives a given task. It also determines the level of commitment and effort an employee exerts towards achieving particular goals (Jex & Britt, 2008). A staff with high self-efficacy believes that committing oneself to a particular goal is likely to bear fruits.

An employee is likely to channel all his or her efforts in a task that he or she expects to get satisfying results. The precursors of self-efficacy might be subject to prior experience, training, and anticipations.

Establishing high expectations within an organization may lead to employee motivation and thus enhances their performance in the process. On the other hand, setting low expectations may demotivate employees thus affecting their performance.

Analysis

Vroom claims that employees are motivated when they realize that their contribution will result in promotion or financial rewards. Hence, according to the expectancy theory, employee motivation emanates from tangible rewards. Failure to offer such rewards demotivates employees thus negatively affecting their performance. Herzberg, in his two-factor theory, accepts that tangible rewards contribute to employee motivations.

Nevertheless, he warns that their effects are short lived and should only be used in achieving short-term goals. Most of the current approaches of employee reward systems used by organizations are in line with Herzberg’s theory.

Instead of coming up with tangible rewards, organizational owners are increasingly redesigning their workplaces to meet employee needs (Carraher, Gibson, & Buckley, 2006). Currently, organizations use humanistic approach in designing jobs at the workplace.

In Herzberg’s view, intrinsic motivations help in ensuring that employees give their best in achieving organizational goals. To motivate their staff, organizations are ensuring that their jobs offer logical stimulation, give employees the discretion to come up with new ways of doing things, and promote creativity (Carraher, Gibson, & Buckley, 2006). For instance, currently, organizations advocate for job rotation.

Through job rotation, employees work in different fields thus increasing their knowledge and skills. When employees are equipped with diverse skills, it boosts their confidence. Such employees work freely in any area within the organization, thus lowering chances of reduced organizational performance in case of absenteeism by employees of a specific department.

A study in Volvo Car Corporation proved that giving employees a room for growth and development enhances their commitment. A number of managers that were interviewed agreed that they were motivated by development opportunities available in the company.

Nevertheless, their motivation was also attached to some extrinsic factors (Bredin & Soderlund, 2006). According to the managers, employee development opens opportunities for promotion and salary increment. Hence, the assurance for salary increment triggered their desire to improve on their skills.

Another motivation strategy used by organizations today is job enrichment, which aims at benefiting from all features of jobs, which are termed as motivators. The features include intellectual challenge, control, and creativity.

The two-factor theory claims that one of the intrinsic motivations is the aspect of being challenged (Kressler, 2004). In line with this, organizations continually challenge their employees to come up with novel inventions within their areas of specializations. Moreover, organizations gradually jog the employees’ mind by introducing them to hard assignments.

In spite of employees valuing intrinsic motivation, one cannot undermine the role played by extrinsic motivation in enhancing organizational performance. In line with the expectancy theory, most organizations promote employee performance by establishing monetary reward systems (Kressler, 2004). The two-factor theory claims that extrinsic rewards like money or salary increment do not contribute to employee motivation.

However, they lead to employee demotivation if not met. Most of the organizations believe that employees can only be motivated if they realize that their contribution will result in tangible rewards (Latham & Pinder, 2005). Organizations use money and promotion as the instrumentality for arousing employee motivation. Currently, organizations have come up with short-term and long-term incentive rewards.

Organizations have established cash bonuses in a bid to enhance employee performance. Besides, the bonuses are differentiated to cater for varied performances. The most successful employees receive higher bonuses than the less successful employees do.

These bonuses act as acknowledgement of employees’ contribution to organizational wellbeing. The chance of receiving financial reward motivates employees to work harder (Latham & Pinder, 2005).

Even though the two-factor theory emphasizes that intrinsic motivations are vital in enhancing employee motivation, most of the companies tend to go by the expectancy theory, which submits that employees are only motivated if they understand that their performance will be rewarded.

Some companies have established an individual pay system that rewards individual employees based on their performance (Latham & Pinder, 2005). Employees receive remunerations based on their contribution to the organizational goals.

Some organizations use stock-option program to motivate their managers. The stewardship theory holds that managers are motivated to achieve their principals’ goals if they realize that they will achieve their own goals in the process (Tosti & Herbst, 2009). To motivate their managers, organizational leaders allow their managers to purchase the organization’s shares at the existing price within a given time that stretches into the future.

In doing this, the leaders seek to ensure that the managers work towards improving the value of the organization’s stock. The fifty-fifty principle asserts that part of the employee motivation comes from the external environment, and it is hard for organizations to motivate their employees fully. How an employee relates with other employees and his or her leaders determine the level of motivation.

The reward approaches used by organizational leaders explain this scenario better (Van der Stede, 2007). For instance, allowing a manager to purchase organization’s stock at a lower price makes the manager feel part of the organization. In return, the manager works hard to ensure that the organization’s stock gains value.

Apart from financial rewards, intrinsic motivations like appreciation go a long way in enhancing employee motivation. When bosses appreciate managers and other staff, they feel needed and valued. In Volvo Car Corporation, managers claimed that when their bosses accorded them public recognition, they felt rejuvenated and motivated to continue working with the company.

The recognition made them feel that the leadership felt their contribution. Leadership at Volvo Car Corporation exercises on-the-spot praise. Whenever the leaders realize that a particular manager or employee has done well, they praise the respective employee on the spot (Bredin & Soderlund, 2006).

The prompt praise enhances employee’s efficiency. Failure to praise employees whenever they do well leads to their relaxation. Praise boosts employee’s confidence and self-esteem, thus triggering his or her desire to do even better.

In addition to public recognition and material rewards, organizations use leadership strategies as instruments of employee motivation. They ensure a smooth flow of information from the executives to the various managers and from the managers to the rest of the employees (Lawler, 2003). Clear and smooth communication makes employees feel part of the organization, thus enhancing their commitment.

Giving employees feedback on their performance and information about organizational performance indicates the level of transparency within an organization. In return, employees commit themselves to organizational activities since they see the outcomes of their labor.

The Ford Motor Company has established reward systems that are congruent to the expectancy theory. The company has come up with tangible incentive programs, which make employees feel valued as part of the company (Brinkley, 2008). The company’s remuneration system caters for all aspects of employees’ work life. The company ensures that it caters for all employee needs including self-actualization needs.

The company’s management believes in self-efficacy. Hence, it has empowered its employees to set personal goals that aim at helping the employees in enhancing organizational growth with minimal interferences from the top management. This encourages employees to explore areas that they are capable of making improvements without intimidation.

The company rewards employees who believe they can change the company for the better (Brinkley, 2008). To achieve this, the Ford Motor Company has restructured its series of command as well as operations structure. Managers trust their employees and thus give them the freedom to make decisions on matters affecting their areas of specialization.

Some employees believe in their ability to achieve specific organizational goals, if given the requisite resources. Inhibiting the ambition that such employees portray may be detrimental to an organization (Lawler, 2003). It may not only affect the commitment of such employees, but also lead to employee turnover as such employees move to organizations that would cater for their ambitions.

Today, organizations give employees the opportunity to pursue their ambitions as long as the ambitions are in line with organizational goals. As one of the motivation strategies, organizations give their staff the chance to develop their areas of specialization and come up with novel operation strategies that they believe might help in achieving organizational goals (Lawler, 2003).

Companies give employees the chance to develop their skills by allowing them to attend conferences or undertake trainings, which they believe might help in enhancing their performance. In the process, such employees become loyal to the company thus dedicating their efforts to organizational goals (Pinder, 2008). Some companies allow their employees to transition within the organization.

Staff that the companies consider as their vital assets are allowed to work on projects that might help them gain experience in a different field, thus shifting their roles in the companies. Leaders within a company monitor their staff to identify those that are ambitious and wish to change their roles and assume challenging ones.

After identifying these staff members, the leadership prepares them for the transition process to ensure that they cope with their new roles (Wright, 2004).

Conclusion

Human resource is one of the vital resources that organizations need to achieve competency. Hiring the right staff and retaining them is a difficult task that organizations encounter every day. For an organization to retain its employees, it requires to have a favorable motivation and rewarding system. Scholars use numerous theories to explain the factors that motivate individuals within the organization.

These theories include the two-factor theory, the expectancy theory, the stewardship theory, and the social cognitive theory. The two-factor theory posits that tangible rewards like money do not act as the chief motivators.

Rather, intrinsic factors like trust and success contribute to employee motivation. Expectancy theory submits that employees are motivated after they realize their efforts will lead to material or tangible rewards. The stewardship theory focuses on managers in the upper stratum of an organization.

Social cognitive theory focuses on self-efficacy and maintains that employees are motivated to pursue certain projects if they believe that they have the capacity to achieve them.

Apart from the theories, the fifty-fifty principle holds that fifty percent of employees’ motivation emanates from within, while the other fifty percent comes from people they relate with and the working environment. In line with these theories and principles, organizations use varied rewarding systems to motivate their employees. Some organizations believe that extrinsic motivation plays a significant role in promoting employee motivation.

Such organizations have monetary rewarding systems, which reward employees according to their performance. On the other hand, some organizations believe in the power of intrinsic motivations. Such companies have come up with policies that enhance employee growth and development as one of the suitable motivation mechanisms.

Such organizations allow their employees to make decisions on matters affecting their areas of specialization and encourage employee rotation to equip their staff with different skills. Examples of companies that use varied rewarding systems to motivate their employees include the Volvo Car Corporation and the Ford Motor Company.

References

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