Rewards and Compensation Systems

Rewards and Compensation Systems

Human capital is an important contributor to the worldwide wealth, and this recognizes the vital role in increasing the organization's effectiveness. One important function of the HRM is motivation of the employees, which has noticeable results in all levels of an organization. This starts from the managers who must recognize the factors that motivate their employees to improve their performance through designing and implementing effective compensation and reward systems. Motivation is a significant aspect of the HRM and organizations need motivated employees to achieve their strategic objectives (Kirstein, 2010).

Motivation is a complicated topic and not many managers know what to implement in order to motivate their employees. Some companies use the money as their main tool for employee motivation this is inclusive of performance related pay (Kovach, 1987). However, when an organization faces a financial crisis and opts to cut costs by reducing salaries, and bonuses, it raises concern on whether there exist cost efficient ways to motivate employees (Kirstein, 2010). Prior literature on this topic shows that there are several ways to motivate employees by suggesting two theories, content theory, and process theory. The content theory focuses on what motivate people while the process theory tries to find out how motivation occurs.

In designing reward structures, the HRM should consider the diversification if it exists in their organizations because cultural values have significant impacts on employee parity, equity, and motivation concerning reward systems (Wheeler, 2001). In addition, previous research offers several suggestions on motivators that could offer significance influence in increasing employee performance. Therefore, the HRM should also consider job design plays a vital role in shaping employee's behavior. However, other studies suggest that the leadership style and employee freedom are crucial in motivating employees.

Concept of Work Motivation

Motive refers to desires, needs, emotions, or impulses that make someone do something. Using the definition, we can deduce that motivation is the incitement to act. In a work situation, work motivation refers to motivation in the workplace. The ultimate definition becomes the employee's motivation to perform, stay, and contribute to an organization, collaborate, or support a manager. In a workplace setting, motivation has an association with the achievement of goals, and objectives. In such a setting, a motivated workforce will most likely deliver the desired result. This may mean that proper motivation for employees is likely to take action that they believe will achieve their defined goals and objectives (Kirstein, 2010).

Scholars suggest that motivation is an invisible phenomenon, but analyzing behavior caused by the environment, or inherited factors may be observed through their effects on abilities, beliefs, knowledge, and personality. From this information, motivation comes out as an action or focused behavior and maintained because of motivation. In addition, motivation is an invisible force that makes people focus and behave in a certain way. The use of force suggests that motivation requires an effort, and can have weakness, strengths depending on the circumstances (Kirstein, 2010).

Motivation Theories

The topic of motivation dates back to the beginning of the 20th century and many theories established including ample research, but still the factors that motivate employees to perform well in work remain controversial. For instance, Taylor's theory of motivation to work relates to rewards and penalties that have a direct correlation to performance (Kirstein, 2010). Maslow's concept of hierarchy defines motivation as dependent to the satisfaction of people's needs, but it uses a less instrumental advance. An evaluation of Herzberg focused on the difference between extrinsic and intrinsic motivators. These previous theories are important, but they are not perfect because they portray some significant weaknesses.

The process theory is the most current motivational theory, which offers a different view on the issue of motivation. For instance, Vroom's expectancy theory suggests that motivation exists when a certain condition fulfills; that is only when there is a clear and usable relationship between performance and outcome (Armstrong, 2007). The Goal theory emphasizes the significant role played by feedback and setting goals in relation to motivation and performance. To add on this, equity theory suggests that motivation of people happens when there is equal treatment by the organization. As for this theory, it recognizes the effects or rather the influence of having a diverse culture in a work setting whereby equal treatment of people may arise.

Content theories

The content theories put an emphasis on what motivates people by having concern for personal goals and needs, which it suggests being similar for every individual. Although the theories have a common ground by assuming that people's needs are similar, they show distinction when it comes to defining the needs. The often-cited motivation theory is Maslow's hierarchy of human needs (Kirstein, 2010). In Maslow's perspective, the driving force of human behavior is unsatisfied needs. His hierarchy begins with psychological needs and leads through security needs, social needs, and self-actualization needs on the top position. Maslow's theory suggests that in order to fulfill higher needs, people should satisfy lower needs, and people do not feel higher needs if the lower needs have not passed (Kirstein, 2010).

Maslow's Hierarchy of Human Needs: Maslow suggests that for one to feel higher needs, lower needs have to pass, and satisfaction of the need means that they will not influence human behavior because the focus moves to the higher need in the hierarchy (Kirstein, 2010). In Maslow's theory of needs, there is division of needs into two categories; deficiency needs and higher-order needs. The deficiency needs are all the basic requirements such as hunger, food, shelter, and protection (Kirstein, 2010). Satisfaction of this deficiency needs leads to motivation of the higher needs such as the need for supportive and satisfactory relationships with others, freedom, independence, recognition, and achievement (Kirstein, 2010). The self-actualization needs tops in the hierarchy of Maslow's needs and it is the ending point of the maturation process. It is the final level, which few people achieve.

Herzberg's Two-Factor Theory: Herzberg's two-factor theory also falls under the content theories. This theory has helped many managers who seek ways of motivating their employees, mainly because the theory not only illustrates the employee's needs but also goes further and show how to supplement jobs, and make their workforce more motivated. Herzberg puts forward that satisfaction and dissatisfaction result from different factors (Kirstein, 2010). For instance, employee satisfaction in their workplace is because of the content of that work. Such factors are intrinsic motivators and constitute of achievement, recognition, interesting work, responsibility, advancement, and growth. However, Herzberg found dissatisfiers such as company policy, supervision, working conditions, international relationships, salary status, and security. These factors are different from motivators because they have a relation to the job (Kirstein, 2010).

Process theories

The dynamic character offers the main characteristic of the process theories, not static compared to content theories. The theories do not only focus on what motivates people, but also concerned on how the motivation occurs. These theories try to offer an explanation on how and why people's behavior relates to certain factors. The aim of all process theories is on the role of individual's cognitive processes in determining the level of the individual's motivation (Kirstein, 2010).

Expectancy Theory: Expectancy theory is one of the core theories in the process theories, and Vroom is behind its development. The theory compromises three factors: valence, instrumentality, and anticipation. The theory describes valence in relation to people's affecting preferences towards outcomes. For instance, the valence for a positive outcome depends on the person's preferences on either they prefer to attain or not to attain. The outcome becomes positive if an individual prefers to attain instead of not, on the other hand the negative valence comes in when an individual prefers not to attain (Kirstein, 2010).

There is another valence outcome; however, in this case it happens when an individual cannot make a decision on whether or not to attain (Kirstein, 2010). The other aspect is instrumentality, which is a belief of an individual that one action will lead to another. Finally, expectancy refers to the belief about the probability that an individual's behavior will initiate a certain outcome. Determination of motivation is through the calculation of the values of the three factors. In addition, Vroom states that a job is motivating to employees if the relationship between performance and the outcome is clear (Kirstein, 2010).

Equity Theories: The equity theories also fall under the process theories. Equity theories comment on distribution of resources, and they have three common factors. First, the theories suggest that employees expect a fair return for their input at work. Secondly, they mean that employees judge against what they receive to the share received by other employees for the same job. Finally, the theories assume that employees who are in discriminatory positions comparing to others will try to do something to condense the variation (Kirstein, 2010).

Therefore, the theories emphasize the unlike inputs and outcomes as the most important for them. However, all employees evaluate their outcomes in relation to their efforts and critic the fairness of this relation. In addition, it is evident from the theory that employees not only assess equity by evaluating their contribution and shares but also make social comparisons with other employees. After evaluation by comparisons, the employees will make a decision on whether to continue working or not as per the results of the judgments (Kirstein, 2010).

Employee Motivation

Employee performance is as important as the economic, financial, and human resources that a company must have in order to maintain a competitive merit. However, employee performance comes with a price; that is motivation. Employee motivation highly influences performance of employees and managers should look into it to increase effective job administration amid employees in businesses. For example, a motivated employee is responsive of the definite objectives he or she must achieve and subsequently directs her or his efforts' towards that direction. Motivation formulates a successful organization because employees constantly seek improved practices to perform their duties; therefore, companies must uphold persuade motivation of their employees.

Factors affecting Employees' Motivation

Employees need to earn a reasonable salary and payment, and managers should desire to make their employees feel that whatever they are getting is fair enough. Money is the primary inducement and no other motivational practice comes close to money. Money has the superiority to maintain and motivate employees towards higher performance. Managers must recognize that rewards have the ability to satisfy an employee, which directly affect the performance of an employee. Rewards are management tools that have significant influence on the employees and their behaviors (Kerrin and Oliver, 2002).

The structure and reward provision may influence the motivation of employees because rewards are central to much forms individual employee effectiveness (Kerrin and Oliver, 2002) Some of the rewards that companies use to motivate their employees include pay, promotions, bonuses, and many other types of rewards that may act as motivators to encourage high performance of employees ((Born & Molleman, 1996)). To use salaries, as motivator's managers must consider salary structures inclusive of importance the organization attaches to each job, performance related pay, personal, or special allowances, fringe benefits, and pensions.

Having a managerial post in an organization means, the leader should focus on getting work done in the right way. To earn employee trust and get them working according for the organization the employees will need motivation. Some scholars have suggested that a leader and a follower should work together to raise one another to higher levels, however, to achieve this they need be moral and motivated. In addition, motivation is a leadership behavior and managers must uphold it to train their staff towards motivation because it is an active process, which managers should initiate.

Empowerment is another aspect of motivation that managers should uphold. This aspect provides benefits to organizations and makes employees have a sense of belonging. Empowered employees value their jobs and work with coordination to achieve the set goals and objectives. Motivation of employees determines the organization's success, therefore; managers should empower employees to achieve success. In addition, managers should treat their employees equally. Companies that employ a diverse workforce should consider the effects of cultural diversity when empowering their employees and subsequently design effective mechanisms to reward the diverse workforce (Wheeler, 2001).

Recognition and Employee Motivation

Rewards and recognition are important factors in enhancing work motivation that has a direct influence on the achievement of an organization. Research reveals recognition has a significant impact on the employee motivation (London and Higgot, 1997). In addition, job satisfaction arises from the internal work motivation of employees that grows as satisfaction of employees increases. This calls for managers to recognize the impact of recognition on motivation and realize that deficiency of recognizing and rewarding the efforts of their employees reduces their work motivation. Organizations should arrange to award their employees as a way of recognizing their efforts to increase job satisfaction and increase their motivational level (London and Higgot, 1997).

Empowerment and Motivation

Empowerment of employees involves giving them a chance in the organizations decision-making process in formulating policies, objectives, and strategies. This is significant because employees have their own perception of goals, standards, and political principals and their perceptions have a correlation to employee motivation (Born & Molleman, 1996). Therefore, managers should welcome their employee's perceptions and use it to increase their performance. Empowerment results to motivation of employees and subsequent expansion, and organizational growth. In addition, empowerment leads to faster decision of customer troubles for the reason that employees did not dissipate time referring client oppositions to managers. Prior studies suggest that empowerment creates motivation and energy in the workforce to work efficiently and effectively (Born & Molleman, 1996).

Effects of Motivation on Employee's Performance

Motivation has significant positive impacts on people's performance at work; however, motivation and performance are not equivalent phenomenon. Research suggests that when motivation is rising, the performance is not constantly rising. When a task is difficult, the highest level of motivation does not mean an automatic high level of performance. When the level of motivation is extremely high, it leads to lower performance than moderate levels. Incentives that lead to employee competition to earn a bonus usually lead to high performance especially when the incentive period is long (Manzoor, 1905).

However, a comparison between team directed incentives and individual directed incentives reveals that team directed incentives lead to higher performance. The rewards also had a difference in the performance levels, for instance monetary incentives resulted in a higher performance (Condly, Clark & Stolovitch, 2008). Research suggests that managers must motivate their employees as listed in the human resource practices. In addition, motivation has proven a vital aspect when it comes to development and growth of the company. Therefore, motivation is an important factor of employee and manager relationship, and motivation will help the company to achieve its strategic goals (Manzoor, 1905).

Motivational Factors

Monetary Factors

Motivational factors are in two groups: monetary and non-monetary factors. Monetary factors consist of salaries, bonuses, incentives, and special individual incentives. Salaries are among the important motivational factors (Kovach, 1987). This calls for managers to offer their employees reasonable salaries paid on time. When setting the salaries managers should consider the cost of living, ability of the company to pay, and the capability of the company to pay. On the other hand, bonuses refer to an extra payment above the salary given to an employee. Managers should give their employees an adequate bonus.

Incentives include allowances such as medical, educational allowances that the company must provide for their employees. In addition, the company may also offer special individual incentives given to the employees based on valuable suggestions. Money satisfies many needs, and it qualifies as a motivator because it satisfies basic needs, security, survival, and self-esteem (Armstrong, 2007). In addition, money is a sign of many concrete goals making it a good motivator. However, when employees list their motivators they avoid listing money because they tend to give socially desirable factors.

Non-monetary Factors

Non-monetary factors consist of elements such as job title, recognition, delegation of authority, working conditions, job security, job enrichment, workers participation, and cordial relations, and celebrations (Allen and Kilmann, 2001). Some prior research still list money as a crucial factor in motivation although others argue that long-term incentives are not effective compared to short-term incentives, which are performance based. Some scholars suggest that money is not always a motivator especially in boring and fatiguing jobs. For non-monetary motivators, some scholars advocate for such. They include freedom, leadership, and chances to lead tasks are effective motivators than financial incentives such as bonuses, increased pay, and stock options. Non-financial motivators such as job design may motivate employees to find work more meaningful (Allen and Kilmann, 2001).

Reward Systems, Compensation, and Rewards.

Motivation, appraising, and rewarding, are among the many HRM practices that bring desired goals set by an organization. Compensating refers to the determination of salary and benefit. This is an important practice by the firm because it helps in the creation of good behavior and employee performance (Kerrin and Oliver, 2001). In addition, compensation as a practice is significant in attracting and retaining employees who are central to the business. Therefore, it is important for organizations to link pay to individual performance as a strategy to attract employees. The design of the compensation system needs careful coordination with the business and works well with the human resource strategy of a company.

HR professionals face a big challenge in identifying and implementing compensation and rewards programs that keep an organization in track within its strategic path. Reforming business strategy, HR strategy, and total rewards are important for success of any compensation system. Total rewards cover everything employees value in their relationship, compensation, benefits, development, and the work environment (Kerrin and Oliver, 2001). The compensation and rewards system should not only aim at offering competitive compensation and benefits to compete for talent, but also create them in a way that aims at attracting potential leaders, and motivating employees.

Performance Appraisals Systems

Appraisals relates to the evaluation of employee performance. Since it is not sufficient to get the right person for the right job at the right time, it is important to motivate employees to maintain consistent performance with the long-term needs of the business. This calls for linking employee activities with the organization's objectives (Fisher, 1994). Strategy implementation follows primary ways such as result definition, behaviors, and employee characteristics necessary in the implementation of the strategy, and developing systems to evaluate employee behavior, characteristics, and results (Fisher, 1994). In order to achieve better results, managers must design a flexible system to accommodate employee behavior, characteristic, and result change in an event of strategy or objective change.

Case Study: Piketon Research and Extension Center and Enterprises

Aim of Study

This paper explores the significance of certain aspects in motivating employees at the Piketon Research and Extension and Enterprise Centre. By so doing, the paper answers the question on why managers need to motivate their employees (Linder, 1998).