THE EFFECTS OF REWARD SYSTEM ON EMPLOYEE PERFORMANCE

THE EFFECTS OF REWARD SYSTEM ON EMPLOYEE PERFORMANCE

The modern world is a global village marked by new technologies, rivalry, and communication channels. These factors improve an organization's capacity to attract, retain, and motivate a skilled workforce. Employers and organizations have found it difficult to help their staff accomplish more with less, and as a result, staff members are asking for bigger incentives. Companies have come to the realization that they need to create a fair balance between the contributions of their employees and the organization in order to gain an increase in performance.

Employee performance is critically dependent on a reward system, and higher employee performance will inevitably translate into higher organizational performance. An organization's program to recognize and encourage individual and team performance is known as an employee reward system. A company must define the specific performance that will earn rewards and the organizational goals that must be met before it can create a reward system. By doing this, the reward system will assist management in molding staff behavior and achieving the objective of the organization.

All aspects of an employee's compensation have been bundled together under the traditional standard payment system, which has gradually replaced the reward system. According to Shoaib, A., Arif, U., and Bari, N. (2013). "In order to achieve higher levels of quality and performance, an organization's ability to attract and retain high-potential employees is heavily influenced by its reward systems."

Today's organizations must overcome numerous obstacles in a dynamic and cutthroat marketplace. Companies are compelled to adapt and enhance their practices to ensure their survival and growth due to various factors like globalization, swift changes in customer demands and technology, and increased employee expectations. Organizations must constantly improve and develop their people, process machines, and other resources in order to meet customer demands regarding feature preferences and quality requirements for their products and services.

Employee performance is therefore essential to their success. Employee commitment, motivation, and productivity all increase when they are engaged in their work. Reward is one of the main factors influencing employee performance. In this blog post, we'll examine how employee performance is affected by rewards.

 

THE REWARD PROCESS

 

 

 

 

 

Intrinsic Reward

 "The content of the task itself" generates intrinsic rewards, which include things like stimulating and demanding work, self-direction, feedback, acknowledgment, accountability, and trust, as well as opportunities for creativity, variety, and the application of one's skills and abilities as well as adequate feedback on the efficacy of one's efforts. People who receive intrinsic rewards typically feel more satisfied with themselves.

     v Information/feedback: Additionally, a crucial kind of reward that competent and successful managers never overlook. Employees receive guidance from this kind of reward in both positive and negative ways. "Moreover, it strengthens and enriches the bond between managers and employees."

     v Recognition: This is the process of verbally thanking an employee for their performance. Giving employees a formal "pat on the back" can boost their self-esteem and sense of fulfillment, leading them to make more contributions to the organization. 

     v Trust/empowerment: In order to increase the value of any relationship, trust is a crucial component of living employees in any society or organization. It takes this kind of confidence to finish tasks correctly and effectively. Additionally, empowerment occurs when managers assign tasks to their staff members. This gives an employee more weight in areas where his choices and deeds are evident. Because two minds are better than one, organizations may benefit from this reward. Extrinsic rewards center on an employee's performance and actions in order to achieve a specific goal, whereas intrinsic rewards improve the employee's sense of belonging to the company.

Extrinsic Reward

Conversely, extrinsic rewards include social environment, private office space, and promotions. Competitive pay, pay increases, merit bonuses, gifts, promotions, and time off are a few more examples. Studies have indicated that workers find fulfillment in their work when they meet goals, take on difficult tasks, assume accountability, and strive to advance their own and their careers' development. Because they meet an employee's specific need, these are viewed as extrinsic rewards.

     v Bonuses: Annual bonuses are given to employees to encourage them to work hard and give their all throughout the year to achieve desired results. Organizations differ in how they handle bonuses. While many use fixed bonus systems, which remove the element of asymmetric information, others look at performance-based bonuses, which are subjective and can often be biased. This can discourage employees and lead to a setback. Managers should thus exercise extreme caution and abstain from bias.

  v Promotion: Very comparable to the earlier kind of reward. Employees' long-term sense of fulfillment and satisfaction is often impacted by promotions. This can only be accomplished by elevating the worker to a higher position and providing a new role with more responsibility as compensation for their efforts and time spent carrying out a particular task for the company. Employees are encouraged to work extremely hard under this kind of reward structure in order to win the trust of management and be granted delegation and responsibility. Promotion as a reward system can lead to adverse selection, so managers must exercise caution when elevating staff members.

 The Concept of Employee Performance

According to Christensen, A. L., (2011) A large body of research in the field of human resource management,  suggests that productivity—the quality of work produced—can be used as a proxy for employee satisfaction, along with timeliness, customer satisfaction, absenteeism or tardiness, and goal achievement. Assessing the individual performance of workers within a company is just as crucial as analyzing how the rewards system affects the workforce and, in turn, the company. Individual performance is significantly impacted by planning in an enabling environment. Performance standards and goals, appropriate resources, managerial direction, and support are essential components of any organization.

 

REWARD SYSTEM ON EMPLOYEE PERFORMANCE

According to Anitha, J., (2014), Reward is a general term that has been defined as anything that an employer is willing to provide to a worker in exchange for their contributions, regardless of what the worker may value. Because of the unpleasant work environment brought on by insufficient rewards, which inevitably weaken employees' work effort, the majority of employees quit their jobs. Rewards are primarily intended to draw and keep talent, inspire high performance from workers, and elicit and reinforce desired behavior from staff members.

According to Christensen, A. L., (2011), examined the connection between employee performance and rewards in Pakistani cement companies. Two hundred questionnaires were dispersed at random among private school employees in Pakistan's Khyber Pakhtoonkhawa Province. The findings indicated a clear correlation between the employee's performance and the reward system. demonstrated that there is a positive correlation between "performance" and "recognition and reward," and that when employees receive these things, their performance significantly changes. examined how employee performance in Malaysia's chemical-based industries was affected by rewards.

Recognition is interpreted by workers as a sign of value and appreciation, which raises employee morale and, eventually, boosts organizational productivity. Incentives are a key factor in determining noteworthy job performance and have a positive correlation with the motivation process. observed that low morale, insufficient commitment, and low productivity were the causes of wage discrepancies between high and low-income earners, and that poor compensation is a direct result of the organization's poor profits.

Check out the link below to learn everything you need to know about Reward system and Employee Performance.

https://www.youtube.com/watch?v=XEfSQj4N-F0

 

BENEFITS OF REWARD SYSTEM

     v Provide motivation

Putting in place a reward system can boost employee motivation and encourage the group to work toward the organization's objectives. Hard work can be incentivized by a reward scheme that offers employees perks and recognition. Employees are more likely to be motivated to carry out their tasks effectively and take advantage of the reward program if they know that the company values the effort they put in.

     v Could  aid recruitment

Introducing a rewards program into your hiring process can help draw in top talent. There are several strategies to attract new hires if you want to stand out from rivals. Offering incentives like reward programs, company pensions, competitive pay rates, and ample yearly leave can help entice candidates to join you rather than a rival.

     v Could reduce employee turnover

Businesses may incur additional costs as a result of high turnover because they may need to spend time finding a suitable replacement for departing employees. Recruitment and training expenses associated with this process can often exceed the cost of putting in place a rewards program. Workers who believe their efforts are valued by the company are less likely to quit in favor of a rival company that might provide greater chances for compensation and recognition.

     v Could increase productivity

Productivity can eventually rise with higher staff morale, superior personnel, and lower turnover rates. In the event that a target-driven reward plan is implemented, employees might need to meet specific work benchmarks in order to qualify for the benefits. This has the potential to inspire employees to produce more work. Employees may produce higher-quality work when they feel that their efforts are valued and because they will be more satisfied with the tasks they accomplish.

 References

Anitha, J., (2014). Determinants of Employee Engagement and Their Impact on Employee Performance. International Journal of Productivity and Performance Management, 63(3), p. 308- 323.

Agburu, J. I. (2012). Recent Trends in Wage and Salary Administration in Nigeria: A Synopsis on Theoretical and Empirical Challenges, International Journal of Basic and Applied Science, 1(2), 257-268.

Barber, A.E., Dunham, R. And Formisano, R.A., (1992). “The Impact of Flexible Benefits on Employee Satisfaction: A Field Study”, Personnel Psychology, Vol. 45, p. 55-75.

Bari, N., Arif, U and Shoaib, A., (2013). “Impact of Nonfinancial Rewards on Employee Attitude &Performance in The Workplace” A Case Study of Business Institutes of Karachi. International Journal of Scientific & Engineering Research, vol 4 (7).

Christensen, A. L., (2011). “Linking Ethical Leadership to Employee Performance: The Role of Leader Member Exchange, Self-Efficacy, And Organizational Identification”. Organizational Behaviour And Human Decision Process. vol 115. Number. 2. p. 204-213.