“EMPLOYEES MOTIVATION THROUGH REWARDS”

MASTER OF BUSINESS ADMINISTRATION (Human Resource Management)

By

Tahir Mahmood4255-FMS/MBA/F09

Syed Mansoor Ali Shah4271-FMS/MBA/F09

Submitted to

Mr. Ibrar AnverAssistant Professor

INTERNATIONAL ISLAMIC UNIVERSITY, ISLAMABADFACULTY OF MANAGEMENT SCIENCES

February 2012

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They said: Glory be to Thee! we have no knowledge but that which Thou hast taught us; surely Thou art the Knowing, the Wise. [2.32]

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DEDICATION

This Project is dedicated to our beloved parents and respectable teachers,

whose guidance and support always remained with us to achieve our higher

education goals and objects, which is not only benefited during our service

but also for the whole life.

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ACKNOWLEDGEMENT

A research cannot be said to be the work of an individual. A research is a

combination of views and ideas, primary and secondary data, suggestions and

contributions of many people. Their contributions play a vital role in our research as

secondary and useful resources.

We thanks to Almighty Allah Subhanhu wa Ta‘ala for bestowed of strength and

ability for all sorts of work especially for completion of this project as part of our degree.

We take this opportunity to thank all the people whose cooperation and encouragement

made the completion of this research project a possibility.

First of all we wish to express my sincere gratitude and for all the support

throughout the project study to my research guide Professor Ibrar Anver under whose

guidance the Research was undertaken. Without his supervision at each stage of research,

the task would not have been accomplished.

Last but not the least I wish to thank the university authorities who arranged all

facilities such as library material and lab facilities enabling us to gather necessary and

relevant material, without which the Research wouldn’t have been a success.

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PROJECT APPROVAL

This is certified that Mr. Tahir Mahmood (Reg # 4255-FMS/MBA/F09) and Syed Mansoor Ali Shah (Reg # 4271-FMS/MBA/F09), have completed there project entitled “Employees Motivation through Rewards” under my supervision. I have checked this project and found it satisfactory for the requirements of the degree of Master of Business Administration (Human Resource Management).

Mr. Ibrar Anver Assistant Professor

&Project Supervisor

Dr. Muhammad Mohtsham SaeedHead Department of Management IIU, Islamabad

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TABLE OF CONTENTS

S.No. Title Page No.1. CHAPTER 1 12. Introduction 13. Methodology 24. Motivation: 25. Definition of Motivation 36. Intensity 47. Direction 48. Persistence 49. Early Theories of Motivation: 510. Hierarchy of Needs Theory 511. Theory X and Theory Y 712. Two-Factor Theory 713. McClelland’s Theory of Needs 814. Contemporary Theories of Motivation: 915. Cognitive Evaluation Theory 916. Goal-Setting Theory 1017. Self-Efficacy Theory 1018. Reinforcement Theory 1119. Equity Theory 1120. Expectancy Theory 1221. Integrating Contemporary Theories of Motivation 1322. Motivation Tools: 1323. 1. Empowerment 1424. 2. Creativity and Innovation 1425. 3. Learning 1526. 4. Quality of Life 1627. 5. Monetary Incentive 1628. 6. Other Incentives 1729. CHAPTER 2 1830. Rewards: 1831. Definition 1832. Performance Evaluation 1833. Types of Reward Programs: 2034. Variable Pay 2035. Bonuses 2136. Commission 2237. Profit Sharing 2238. Stock Options 2339. CHAPTER 3 2540. Group-Based Reward Systems: 2541. Recognition Programs 26

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42. CHAPTER 4 2943. Employee Reward and Recognition Systems: 2944. Quality of work 2945. Minimize the cost 3046. Reward vs Recognition 3047. Differentiating Rewards from Merit Pay & the Performance Appraisal 3148. Designing a Reward Program 3249. CHAPTER 5 3550. Impact of Rewards for Motivation 3551. Advantages of Rewards for Motivation 3652. Intrinsic Reward 3853. Extrinsic Reward 3854. CHAPTER 6 3955. Impact of Performance Recognition and Motivation: 3956. Performance Recognition and Motivation in SZABIST 3957. Performance Recognition and Motivation in IIUI 4058. Results 4259. Conclusion 4260. References 43

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Chapter 1

Introduction

Being the students of Master of Business Administration with major in Human

Resource Management and with the consultation of our Project Supervisor, we have

selected the topic for our project as “Employees Motivation through Rewards”.

Motivation and rewards are important part of the Human Resource Management.

Without motivation and reward, Human Resource Management seems to be incomplete

and paralyzed. In many organizations of international repute, competent employees are

considered the real source for the organization. Sometimes, the performance is measured

through the employee turnover. So, it is important for every organization to take care of

their workforce especially the skilled, experienced and willing workers/employees. The

factor of such employees can be a competitive edge for any organization for example,

Southwest Airlines, USA, where employees are working as a community and even life

partner of each other. Even immediately after the 9/11 attack, when many companies

fired their employees, Southwest Airlines management announced that no employee will

be fired. This was due to the employee’s factor that Southwest Airline did not want to

loose its employees.

To retain their workforce, many organizations take different steps. Employees are

motivated not only through promotion, appraisal, and awards but also through many

kinds of other ways, which will be briefly discussed in this project.

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Methodology

The methodology of this research project is that in the first phase, we define

Motivation with its elements and theories etc. After that we define Rewards and related

topics like kinds of rewards and their brief descriptions, and then we elaborate the Group-

based Rewards and Recognition Programs. In the next phase, the topic of Employees

Rewards and Recognition System, Reward vs Recognition, and Designing a Reward

Program will be covered. The Impact of Reward for Motivation will be explained to

create better understanding relating to this project. Our next point will consist of practical

examples of implementations of motivation through rewards in SZABIST, Islamabad

Campus, and in International Islamic University Islamabad and will see its impact among

workers.

At the end, we will derive the results of the motivation through rewards from the

discussion and will give conclusion of our findings.

MOTIVATION

Motivation is being used very frequently as research topics nowadays in many

disciplines including organizational behavior. Among the reasons, one reason is reported

for its importance is revealed from Gallup poll, where it is found that the majority of

American employees (55%) have no enthusiasm for their work due to some reasons.

It is alleged that this situation was created due to the lack of interaction between

situation and individual. It can be easily understand from this example that sometimes

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any student feel hard to read his/her relevant text/course book but could be easy for

him/her to read the whole novel of his/her interest in only one or few days. The

difference for such kind of student is motivation which is driven by situation. This

example can lead to understand the concept of motivation. It is relevant to mention here

that this level of motivation is varied between and within individuals from time to time.

Definition of Motivation

Motivation can be defined as: “the processes that account for an individual’s

intensity, direction, and persistence of effort toward attaining a goal”. The goals are

known as strategic goals, which are set by the top management for their organizations.

The persistent efforts should be positive towards these goals otherwise these efforts have

no sense of acceptability and always discarded as null and void. The performance of an

employee always align and congruent with the strategic goals of the organization.

Motivation is used as a close link between goal and the interest/behavior of the worker to

perform or complete the task. For this purpose, we have to consider the organizational

goals and the behavior to perform task as well.

The above definition has consisted of three main elements:

1. Intensity

2. Direction

3. Persistence

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1. Intensity

This element requires more attention to be given when discussing the motivation.

It is related to the level of endeavor made for attaining the particular goal and objective.

Keep in mind that if you want to gain favorable outcomes in the shape of job

performance intensity is necessary for motivation but also required to be in the right

direction towards organizational strategic goals and objectives. Otherwise, this intensity

de-tracked you or leads you in depressing aspects.

2. Direction

Direction should be straight towards strategic goals of organization as already

discussed in previous paragraph that right direction is the right step to achieve strategic

goals. To do so, we have to put lot of quality efforts in our actions. Effort like giving the

organization direct and consistent results is efforts which should be seeking.

3. Persistence

In this last point, motivation also has persistent dimension which measures how

much a person can prolong or maintain effort. Motivation among individuals could stay

them long enough with a task to obtain their goal.

It is also relevant here to mention about above 3 points which are approximately

same as like by Performance Management Process. Performance management could

define as “an ongoing process of identifying, quantifying, and polish the performance of

an individual, teams and aligning performance with the strategic goals of the

organization”.

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The ongoing process can be explain as persistent and arrange performance with

strategic goals of organization and it is not wrong to assumed it as direction.

With the above explanation we can say that motivation is straight linked with

performance management of employee to act or perform a job as task oriented in which

few goals or objectives previously set. Employee has to perform accordingly to achieve

organizational goals.

EARLY THEORIES OF MOTIVATION

Fruitful period in which motivation was developed is around 1950s. Four different

theories were developed during this period, which although heavily attacked and now

questionable in terms of validity are probably still the best-known explanations for the

employee motivation. These explanations have at least two reasons:

(1) They actually represent a base from which basic theories have grown.

(2) These theories are still use by practicing managers.

Hierarchy of Needs Theory

Abraham Maslow has given this well-known theory of motivation in which he

explain that within each or every person hierarchy of 5 needs exists in which each or

every need is satisfied and the next need becomes more important. Five needs are as

follow:

1. Physiological

Includes thirst, hunger, sex, shelter, and other human body needs

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2. Safety

Protection and Security from emotional and physical harm

3. Social

Friendship, Affection, Belongingness and Acceptance

4. Esteem

Internal human factors like autonomy, self-respect, and achievement, and also

external factors like recognition, status, and attention.

5. Self-actualization

Drive on a path to become what is one capable to become; includes achieving

one’s potential, self-fulfillment, and growth

Maslow separated these five needs into higher to lower orders. Safety needs and

physiological needs were explained in lower-order needs and esteem, social, and self-

actualization were explained in higher-order needs. Main difference between these two

orders was that higher order needs were satisfied within the person, whereas lower order

needs were satisfied things such as pay, union contracts, and tenure.

Clayton Alderfer tries to work on Maslow’s need hierarchy theory to align with

empirical research more closely. His revised hierarchy need is named as ERG Theory.

Alderfer give argument in which he said there are three groups of core needs:

1. Existence (Physiological and Safety needs)

2. Relatedness (Social and Status needs)

3. Growth (Esteem and self-actualization)

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Alderfer didn’t assume like Maslow about these needs that they are already

existed in rigid hierarchy. An individual can focus on all three needs categories

simultaneously.

Theory X and Theory Y

Douglas McGregor discus two different views of human being in this theory: one

is basically negative which is labeled as X Theory, and other one is basically positive

known as Y Theory.

1. Theory X

In theory X Douglas put those people who do not like to do work, like they are

lazy, do not like responsibilities and they will not perform according to your

expectations.

2. Theory Y

The assumption is totally opposite to theory X employees, these employees like to

do work, and they are creative and always like to perform with some responsibility.

Managers under Theory X, always believe that the employees dislike to do work,

that is why they are directed or even coerced to perform it. Beside these negative

thoughts about the human beings nature, managers under Theory Y, assume that the

employees can do work in natural environment. However, the Theory Y assumptions are

more feasible than Theory X.

Two-Factor Theory

Two-Factor theory was presented by Psychologist Frederick Herzberg also called

Motivational-Hygiene Theory. Under this theory, it is explained that relation to work is

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basic to an individual and failure and success can be determine by one’s attitude at work,

Herzberg ask the question “What do people want from their jobs?” He asked them to

explain in detail, situations like where they felt about their jobs exceptionally good or

exceptionally bad. The responses behind it were then collected and categorized.

Herzberg conclude that answers which people give are significantly different

about jobs when they felt good instead of replies they give when they felt bad. Job

satisfaction has certain characteristics which are related to it.

Core factors like advancement, responsibility, recognition, and achievement are

related with job satisfaction. Person who felt happy or nice thoughts about his work give

attributes which are given above.

Other side, dissatisfied respondents give attributes to extrinsic factors such as pay,

company policies, supervision, and working conditions.

McClelland’s Theory of Needs

This theory of need was invented by David McClelland and his associates. The

theory states three important needs that help to explain motivation which are

achievement, power, and affiliation. These three needs are briefly explained as under:

1. Achievement Need:

This need is basic point which one wants to achieve in his or her life.

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2. Power Need:

Person wants such power which makes him superior so that others behave

well with him.

3. Affiliation Need:

This need is desire for close friendly and interpersonal relationship.

CONTEMPORARY THEORIES OF MOTIVATION

Early Motivation theories though were well known but unfortunately they have

not held up good under clear examination. Other sides there are contemporary theories

that have one part common in them: each has valid supporting documentation with them.

This means that the theories are questionably wrong. We call these theories as

“Contemporary Theories” because they explain employee motivation with respect to

current state of thinking. Some theories are mentioned as under:

Cognitive Evaluation Theory

This theory states that allocation of extrinsic rewards on the basis of behavior that

had been intrinsically awarded previously tends to decrease overall level of motivation.

Perfect example of this theory is a person is working in an organization without

any pay or wages. After some time when he is working better for that position he got the

job for it. With some extra incentives he got what he wants at the same level of job work.

That person will enjoy working in such condition and possibly he can put more efforts as

before.

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Goal-Setting Theory

This theory says that difficult and specific goals, with feedback, results as higher

performance. A higher level of output can be produce by specific goals than does the

standardized goal of “do your best”. Why?

A goal setting can be utilized more systematically with the objective program by

management. Objective of management is to emphasize participative goals set that are

verifiable, tangible, and measurable.

Self-Efficacy Theory

It is also known as “Social Learning Theory” or “Social Cognitive Theory”. Self-

Efficacy is basically a belief of an individual that he or she can perform the task. Self-

efficacy and Goal-setting theories are not directly contending each other, rather they

support each other. Whenever manager set difficult goal set for his employees, this action

of manager lead his or her employee for a higher level self efficacy and also lead them to

set their own higher level of performance. Model from next diagram can explain it:

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Albert Bandura argues this research and said there are four ways of increasing

self-efficacy:

1. Enactive mastery

2. Vicarious modeling

3. Verbal persuasion

4. Arousal

Reinforcement Theory

Reinforcement theory is counterpoint to goal-setting theory. Theory which says

that behavior is function of its results. Reinforcement theory concentrates solely upon,

whenever a person takes an action what happen to him or her and ignores an individual

inner state.

It is clear that, pay can increase motivation of people, it is clear for people that

process is way more complicated than stimulus response.

Equity Theory

This theory says that a person who compares his job input or job output with other

individual input and output and than try to alter his performance to match with other

performance. An employee adds different referents to the complexity theory of equity.

Employee can use four different referent comparisons which are:

1. Self-inside

Inside an organization different positions were experienced by employees

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2. Self-outside

Outside the organization different positions or situations were experienced

by an employee.

3. Other-inside

Compare yourself with another individual in the organization

4. Other-outside

Compare yourself with another person from outside of organization.

Expectancy Theory

Presently most acceptable theory with explanation of motivation is expectancy

theory by Victor Vroom. There are also some criticisms on that theory but mostly

evidence support this theory. This theory says that the power to acting in a certain way

depends upon the power of an expecting thing that the actions will result the following

outcome.

Focus of this theory is on three relationships:

1. Effort relationship

The probability receives by an individual that will take towards

performance by putting given effort.

2. Reward relationship

In this an individual believes, that particular level of performing will lead

desired outcome.

3. Rewards-personal goals

An organizational reward which satisfy personal needs or goals

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INTEGRATING CONTEMPORARY THEORIES OF MOTIVATION

All motivation theories are moving around rewards and performance. All theories

have something common in them, that they predict the strong relationship of effort and

performance, rewards and satisfaction, performance and rewards of personal goals.

These relationships are influenced by different factors. For effort, which lead towards

good performance person should have the ability to perform and performance appraisal

process or system that actually measures the individual performance should be fair must

be perceived as being fair and objective. Performance-reward relationship should show

some strong results if an individual think that his performance is rewarded.

MOTIVATION TOOLS

There are several ways to motivate employees. It differs from company to

company, organization to organization, firm to firm, industry to industry and according to

the operation in the business organization working globally. It is also deferred on the

basis of nature of work, size of the company, social and cultural values, and demographic

norms. The ethical and fairness norms are on the other hand very important factors in

motivation tools and strategies.

The best efforts relating to employees’ motivation should be focused on what an

employee deem to be important. It was observed that an employee within the same

section/department of any organization will have different motivators and job

satisfaction. Now, it is observed by many organizations that flexibility rewards and job

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design is providing positive results in employees’ increased length of service and

affiliation with any organization, increased productivity and output, job satisfaction and

high morale. Although this "cafeteria-plan" approach to the work-reward continuum

presents variety, some strategies are prevalent across all organizations that strive to

improve employee motivation.

1. EMPOWERMENT

It is very important factor that employees working in the organization may have

to give some responsibilities, decision-making authorities, increased their control over the

assigned tasks for which they are held responsible, and be provide better equipment to

perform those activities/tasks. Thus employees are held responsible for their activities

and accountabilities.

Due to this factor, the employee will feel free to perform their part of tasks and

helps organization to accomplish their strategic goals and targets. Empowerment brings

the job enlargement of the 1950s and the job enrichment that began in the 1960s to a

higher level by giving the employees some of the power to expand their own jobs and

create new, personally identified challenges.

2. CREATIVITY AND INNOVATION

At many organizations employees who have creative ideas in their mind do not

tell or express them to the management because they have fear in their minds that if they

tell these ideas to management, they could jeopardize their job. In few working

environments this is like you are dictating your management, to do so you need company

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approval and some one who could appreciate you on your work, otherwise both

organization and employee will suffer. When power of taking good ideas into account is

transfer from top management to front line employee’s who know the job, products or

services personally could results in better idea for the benefit of organization. Managers

need to motivate their employee’s to work as one unit so that more flexible idea can be

generated, this is because people have ideas according to their environment which help

them think upon problems better than that person who do not have such problem in their

environment. Example of creativity and innovation is 3M known as Minnesota Mining

and Manufacturing Corporation, which allow its workers to put some effort in their

product, which results in profitability and have successful new system of product

development in industry.

3. LEARNING

There are different tools which can help an employee to avail more opportunities

and if they have these tools they will take the challenge. Companies can make them or

motivate them to enhance their skills which may supportive for the organization. There

are different ways to motivate and increase employee knowledge among them there are

accreditation and licensing programs which are very popular. In other words, the control

of knowledge will be a sufficiently valuable if knowledge is applied to the work to be

finish, then this is better event for the employer and employee as well.

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4. QUALITY LIFE

Number of work hours in America for each week has rise and most of the families

have at least two working members to meet their daily needs. Under these conditions,

many workers have in their mind “how they are going to increase their living beyond

their workplace”. Often, this thinking of employee at work will reduce his or her morale

and productivity. Companies that have gained employee motivation have increased their

productivity by instituting flexible employee arrangements, programs incorporating job

sharing, flextime or condensed workweeks for example, have been focusing on

overwhelmed employees successful for the work which has to be done and beyond the

demands of their lives.

5. MONETARY INCENTIVE

For all the attributes of a winner of alternative motivators, money still fill up a

rightful place in motivators mix. Company profit sharing gives awards to employees for

quality product production, quality service performance, or company quality process

improvement. Some Companies give different benefits to its employees. It could be

monetary reward or other rewards for generating process improvement ideas or from cost

saving, which will boost the productivity and also reduce absenteeism. Money effects

when it is part of employee’s ideas. Further, monetary incentives could be proved

counterproductive, if it is not available to all members of company.

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6. OTHER INCENTIVES

Non-monetary motivators are more effective for the employees. These systems

are not enough in some part, we actually want to increase outcomes of employees and

difference of salaries may divide the employees instead of uniting them. It is proven that

non-monetary motivators are related to team spirit and also include responsibility,

recognition, and advancement. A Managers who judge the “small wins” of employees,

participatory, promote environments, and when they treat their employees with respect

and fairness will get their employees more motivated. The most successful rewards,

would be as letters of citation and off time from work, increase personal fulfillment and

enhance self-respect. Over the longer term, sincere humble and even personal gestures

show lot more effective and better than awards of money. In last, programs which have

monetary systems of reward and self-actualizing, satisfies intrinsic needs might be the

most important needs of employee motivation.

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Chapter 2REWARDS

Definition

The Rewards can be defined as under: “A Reward System is the set of mechanisms for

distributing both tangible and intangible returns as part of an employment relationship”.

According to the above definition, there are mainly two kinds of rewards:

1) Tangible Returns:

It consists of:

a. Cash Compensations: such as basic pay; dearness allowance; merit

pay; and incentives both short-term and long-term;

b. Benefits: such as income/pay protection; work/life focus, tuition

reimbursement, and allowances.

2) Intangible Returns:

Also referred to as Relational Returns, which include job recognition

(intrinsic reward), employment security, challenging work, learning

opportunities

Some of the rewards are given as under:

1) Base Pay

2) Contingent Pay/Cost-of-Living Adjustments

3) Short-term Incentives

4) Long-term Incentives

5) Income Protection

6) Work/life focus

7) Allowances

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8) Relational Returns (Intangible in nature, such as job security, recognition

and status, work challenges, learning opportunities and opportunities to

crease personal relationships during service)

Performance Evaluation

Rewards are always based on performance. The performance of individual or a

group can be evaluated as per following points:

1. Quality of work;

Rewards always depend on the quality of work and behavior during work.

The higher the quality, the bigger the reward is.

2. Productivity;

It is a major component for any organization/company. If there is

productivity, it is rightly said that the organization is growing. When there

is more or less productivity rewards are used to increase its productivity.

3. Job knowledge;

To increase the productivity, it is necessary to have job knowledge, which

is what to do and how to do. When there is higher level of job knowledge,

the performance and productivity is relatively high. To recognize the

performance, rewards is given to maintain or increase such levels.

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4. Customer served.

The quality of work, sometimes, measured through how the customer is

being served and satisfied. If the company’s customer are satisfied from

the services they gained, it is rightly said that the company is doing well.

TYPES OF REWARD PROGRAMS

There are large number of different kinds of reward programs intended for

performance of individual and team as well.

Variable Pay

It is also known as pay-for-performance and is related to compensation program

mostly used in the private organizations having production units or sale representatives.

Under this kind of reward, a portion of relevant employee’s pay is nominated “at risk”.

Under this scheme, there established links between variable pay and the performance of

the Co, the outcomes of related business unit, accomplishments of an individual, or

combination of any one. It can of such forms like:

Bonus programs;

Commission;

Profit Sharing;

Stock options; and

One-time awards for significant accomplishments.

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Some of the companies used to pay less than competitors to their employees and

on the other hand, endeavor to reward and motivate their employees through program of

variable pay instead. Shawn Tully states in Fortune that: “The test of a good pay-for-

performance plan is simple: It must motivate managers to produce earnings growth that

far exceeds the extra cost of [the program]. Though employees should be made to stretch,

the goals must be within reach.”

Bonuses

This kind of reward system is frequently used throughout the world. It is mostly

used in the private organizations to motivate their employees for better results or

improvement. Bonus programs have been used in American business for sometime.

Bonus system is particularly used by the sales organization to motivate their sale

representatives in order to increase sale and broaden the profit margin or the organization.

To expand this scheme sometime, it is used on individual representative, group-based,

departmental-base, office/region-base.

Some experts have the opinion that small business organizations are keenly

interested in long-term benefits, they should definitely consider other kinds of reward

program. Bonus is rightly said as short-term motivator. The reward on the performance of

employees for the past year, they are encouraged with a short perspective and not future-

oriented activities. Thus Bonus programs are required more care when being structured

with the confirmation that employees activities or performance are over and above the

accomplishment of required level of basic duties and functions. On the other hand, the

employees will continue to receive his regular merit pay without any additional reward. It

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is pertinent to mention here that Bonuses are completely legitimate ways of rewarding on

outstanding working and such incentives is really a very powerful tool for motivating

future high level performance.

Commission

It is other form of Bonus program used as incentive reward. Under this program,

Commission is paid on sale basis. Targets are given with the variability of Commission

percentage on more than target achieved. More the target achieved, more the Commission

percentage paid.

Profit Sharing

Under this type of rewards, a particular portion of the profit in percentage is

allocated for employees. This amount is paid on yearly basis to the employees of the

company after closing the books. It is usually equal to percentage of the salary of

employee. This benefit can be given in the shape of cash or contributions of 401(k) plan

for employees.

The basis purpose of this Reward is to motivate employees to work so that the

profit margin of the organization may increase. Resultantly the amount of share-profit for

employees will be increased accordingly. Employees working in such kind of

organization are expected to be more enthusiastic to accomplish their goals and

objectives and work hard not for the organization but also for the sake of this incentive.

Here a negative aspect is that since this kind of rewards are paid to all employees; there

can be no differentiate between low performers and high performers. High performers are

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discouraged a little bit, which tantamount to reduce future performance. Jack Stack in

Inc., “an accumulation of everything that happens in the business over a given period of

time” and is therefore difficult for most employees to connect their actions to. Stack

argued that “[employees] have to be able to see the connection between their actions,

decisions, and participation, and changes in [a company’s goals].”

Stock Options

This Reward system was previously known as territory of the large companies

and top management people, while now-a-days this Stock Options method have become

growing method to reward employees and middle management by every companies or

even newly born companies. Under this program, the employees of the company related

company can buy their own company’s stock at fixed price for some particular period but

not more than 10 years. This option is mostly given to outstanding employees as rewards

and usually called Preferred Stock. It is generally authorized by the board of directors of

a company duly approved by its shareholders out of the outstanding shares of the

company, usually equal to a certain percentage.

As mentioned in the pre-paragraph, the employee who performs outstandingly is

eligible having service of 4 year and above. This option is used for long-term motivator

and an attempt to retain such employee for a durable period in the best interest of the

organization/company. If such employee leaves the organization/company prior complete

required duration of service or prior to being fully vested, this option is treated as

canceled. When any employee becomes completed vested in this program, he/she is

eligible to allot/purchase certain number of shares at the fixed price (or on originally

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agreed strike price) from the company. Then this stock option is known as “exercising”.

When an employee purchases this stock, he/she have the option to retain or sell it to any

other party/person on the market price and retain the share of the profit.

Awarding or setting stock option in this way is a some of risk for the company too

as the company deprives the profit of the difference between face value and the market

value. In addition, the company has to pay dividend on annual basis on these stock, which

also increased the liability of the company. The company has to purchase some shares

from the open market to balance its outstanding shares and keep it at the level of up-to-

the mark. Thus the company access cost due to market price factor.

But on the other hand, the company reduced its tax liabilities by releasing the

stocks to the employees and compensates expanses from the additional amount earned

through issuing the stock options to the employee, even on the fixed price basis. The

second benefit for this stock option is that as the company has shown this sale and

compensation, hence accounting methods do not require showing options being an

expense on accounting books. This way the company increases the value and maximizes

the wealth of the share holders too.

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Chapter 3Group-Based Reward Systems

Many small businesses using different strategies to accomplish organizational

goals and objectives through team structures many of them look for ways to reward on

cooperation between individuals and departments. Bonuses, commission, profit sharing

percentage, and stock options out of outstanding shares can be used to reward group and

team achievements.

For the sake of reward, any organization/company can select individual or group

contributions or combination of both. Reward system on the basis of Group provided on

the evaluation of the team performance or the accomplishment of target provided to them.

While the individual rewards are provided on the basis of personal performance on

excellence and those who are above the average performers. Thus, an employee can gain

both the rewards i.e. group-based and individual rewards, group-based on the basis of

part of a group and secondly on the basis of individual performance too.

Here this system encourage individual on his/her performance to all members of

the group instead they are average performer, under-average or above-average employee.

But under program, an individual, whose performance is excellent, can only earn extra

benefit or incentive on his/her individual performance.

Through these group-based and individual rewards, employees are motivation to

improve their performance and behavior under the umbrella of the organizational

working environment. The organization, through this system gain quality of work,

customer service, and productivity to grow among their competitors.

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Recognition Programs

Recognition Program can frequently be used by the large organization but for the

small organization, this program is required extra attention and care due to scarcity of

resources such as finance and other related systems for this purpose. Most of the

employees merely appreciate awards in the shape of money for their good performance

but some people, who prefer recognition on monetary incentive for their extra ordinary

performance. If proper performance recognition and other kinds reward system are

applied in any organization, it is very helpful tool to motivate employees and may excel

the productivity, better results in the form of output.

In case of the small businesses organization, it is important for them to separate

recognition program from the reward systems if they want to setup their performance

recognition system/program. It is only possible when focusing for the recognition of an

employee’s effort. Here recognition means the employee may be provided proper rewards

in the shape of money, promotion, certificate, letter of appreciation, lunch/dinner in

his/her honour etc. Only monetary benefits are not necessary for performance

recognition. Glasscock and Gram stated in National Productivity Review that “effective

recognition methods should be sincere; fair and consistent; timely and frequent; flexible;

appropriate; and specific”. They further state that it is necessary that every action of the

employee is recognized which supports the goals of the company, whether it is through

informal feedback or formal company-wide recognition. Similarly, every employee of the

company should have the same right/opportunity to have recognition for work they done.

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It required for recognition to occur on frequent basis and timely completion of

this process so that any action of the employee could not be overlooked and may not urge

further additional high level performance. Similar to rewards, the recognition method

requires to be appropriated for achievement. Keep in mind that those actions which are

beyond the achievements of goals or not related to goal align, are required more attention

so that they should be corrected timely. An entrepreneur, however, should remain

somehow flexible in the methods of recognition due to variety of recognition and

motivation programs. Finally, employees are needed to clearly understand the action or

behavior which is being recognized by the company. The owner of the organization is

required to be ensured and reinforced what specific action is required to be recognized

and it is to be communicated exactly to all employees.

As stated earlier, there are many ways/forms for recognition. It can be through

structured programs which include: conducting regular recognition events i.e. banquets or

lunch/breakfasts/dinner, employee of the month/year recognition, an annual report or

yearbook which features the efforts or accomplishments of employee(s), recognition

boards of department or company. Other can be recognition as Informal or spontaneous

which have the in form of the privileges through working at home, attend the office late

or leave early, or more time for lunch breaks.

Another way to recognize the performance of an employee is to give some power

and additional support, extra authority, and give his/her name to other employees for

consultancy. Symbolic recognition as ‘commemorative inscription’ on coffee mugs etc

can also be effective proved their sincere appreciation of hard work. Letter of

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appreciation is mostly recognized for performance in the small organization, who has

limited financial resources.

Both rewards as well as recognition programs is being used in small businesses.

The owners of such businesses should prior determine the desired employee’s behaviors,

required skills, and accomplishments that will support their business targets/goals. The

owner will have a better edge in the current competitive business environment through

rewarding and recognizing outstanding performance.

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Chapter 4

EMPLOYEE REWARD AND RECOGNITION SYSTEMS

In the today’s competitive business environment, companies are trying compete in

the current business environment. Financial crises have made the situation worst

especially for under-growing business organizations and they are striving hard in the

current scenario. For this purpose, the two major factors are being focused by almost

every business organization to complete in this business environment and trying their best

to have competitive edge for their organizations. These two major factors which effect

the production are given as under:

1. Quality of Work

2. Minimize the cost

1. Quality of Work

To survive in the current business environment, the companies/organizations are

searching for different and means for them. Quality of work is one of the major

production factors, which is giving important by every organization. If any organization

succeeds to produce quality products, they can capture major part of the market or even

customers of the other organization.

For this purpose, they introduce different schemes and programs to motivate their

employees so that their goal to produce quality products could be achieved and they may

not only retain their own customers but also attract the customers of the other similar

products as well.

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2. Minimize the cost

In order to increase the share of the profit, the companies or organizations are

stressing on this second production factor. For this purpose, they are continuously

searching for those factors from where they can reduce or cut the part or whole cost.

Many experts are being consulted and different strategies are being made to concentrate

on this issue. Maximum utilization of resources is made try to accomplish the goals

effectively and efficiently.

Many business owners are searching for such kind of improvements in quality of

work and reduction in cost. Job markets are going very tight and paying heavy amounts

on skilled and well-experience person on the key posts. On the other side, small

organizations try to expecting more from their employees and employees are also looking

more from their owners. Through a method to motivate employees, reward and

recognition programs, is to bring change in the behavior during work to more befit the

small business. Behavior is known as the attitude of an employee during work.

In addition to the facts mentioned above in the Chapter 1, there many other ways

that can also be included in Employee Rewards program, some of which are as under:

Reward vs Recognition

Mostly Reward and Recognition terms are used interchangeably, but it should be

considered separately. Reward systems for employees refer to programs setup by

organization to reward on good performance and thus motivate employees on individual

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and on group levels. Normally, they are being separately considered from salary but may

be of monetary nature or otherwise have additional cost to the organization. The small

organizations are also considering the sphere of influence of large organizations and have

to start such kind of incentives for motivation due to competitive job market environment

to sustain their good performance employees.

It is noted that employee recognition programs on the one hand, often combined

with rewards but on the other hand, they preserve a different purpose altogether. Rewards

programs are generally monetary form in nature while recognition programs are generally

non-monetary and have no cost for the organization. Sue Glasscock and Kimberly Gram

argued in Productivity Today for differentiating these terms that recognition shows a

psychological benefit, whereas, reward indicates a monetary or tangible benefit. Though

major elements relating to designing and maintaining reward and recognition systems are

approximately the same, but it is helpful remember this difference, especially for the

owners of small organizations interested in staff motivating while keeping costs low.

Differentiating Rewards from Merit Pay & the Performance Appraisal

While designing reward programs by the small business organization, they need

to separate reward system from merit pay or salary system. Those financial rewards,

which are given on regular basis such as gain-sharing, Bonuses, etc. must be correlated

with the accomplishment of tasks/goals of individual employees or group and must be

considered as pay at risk so that it can distinguished from salary. In this manner, the

manager/supervisor may be in a position to have a sense of eligibility for deserving

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employee and ensure that this reward is being granted on the outstanding performance

and not on the basis of basic competency of the relevant employee.

Enhancement in merit pay, however, is not thus part of an employee reward

system. It is considered as increase due the factor of inflation with additional percentage

separating employees is due to competency. This additional percentage is making the

difference between good and average employees of the company, and also used as

motivational tool for employees. This increased in percentage is varying within the

employees due to good, better and best employees. The other aspect of this additional

percentage increase that it increased the fixed cost of the company due to variance in

employee’s payroll instead of variable salaries increases in the shape of bonuses which

have to be re-earned each year. Finally, this kind of financial variance impact is very

crucial element in the small business organizations relating to successful employee’s job.

Merit increases normally review an individual’s behavior to performance his/her job,

without proper considering the performance within the context of the group or business.

Designing a Reward Program

The following key points are required to be considered when developing and

designing a reward program:

1. Identification of company or group goals that will support reward program

2. Identification of the desired employee performance or behaviors that will

reinforce the company’s goals

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3. Determination of key measurements of the performance or behavior, based

on the individual or group’s previous achievements

4. Determination of appropriate rewards

5. Communication of program to employees

In order to gain maximum benefits in the shape of increased productivity, quality

of work, customer service etc., the owner of the company, while designing a reward

program, must identify company or group goals to be attained and the desired behaviors

or performance that will contribute for the purpose. If the desired objectives or goals

seem to be obvious, the company will frequently make the mistakes in connection with

rewarding behaviors or achievements which lead to either failure of desired objectives or

business goals or actually disrupt them. If teamwork is set as a business goal, the bonus

system rewarding individuals who are performance good and giving productivity at their

own or at the expense of another does not make sense. Similarly, if quality of work is an

important issue for any company, the reward system that the owner designs should

emphasize rewarding the quantity rather than accomplishment of work by a business unit.

Proper measurement of performance ensures the rewarding program pays off

according to business goals. Since rewards consist of real cost in terms of money or time,

small company owners need to ensure that before rewarding, performance has actually

improved. Again keep in mind that the criteria need to correlate to a small company’s

goals or objectives. As Linda Thornburg mentioned in HR Magazine, that: “Performance

measures in a rewards program have to be linked to an overall business strategy. Most

reward programs use multiple measures which can include such variables as improved

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financial performance along with improved customer service, improved customer

satisfaction, and reduced defects.”

The entrepreneur should consider, when developing a rewards program, is that

rewards are matching to the end result for the company. Perfect attendance and observing

office hours might merit a different reward than saving the company’s money through

improved interaction and contract negotiation. It is also very important to consider

reward programs for both individual and group accomplishments so that both individual

initiative and group cooperation and performance are promoted accordingly.

Last but not least, if you want to successful rewards program, the requirements of

the every employee should be clearly spelled out. Motivation depends on the ability to

understanding by an employee/worker for what is being asked from him/her. Once this

understanding process has been completed, reinforce the original communication with the

help of regular meetings, circulars, memos etc., for promoting the program. Keep your

communications simple but frequent to ensure staffs are kept side by side of the changes

towards system. You are required to use all possible methods of communication during

the whole process, so that the sender and receiver may complete the whole process of

communication.

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Chapter 5Impact of Rewards for Motivation

Under the present working environment, there is a trend among the growing

organizations that they are realizing to build an adequate balance between the employee’s

contributions for the growth of the organization and the organization’s contribution for

admitting the employee’s performance in the shape of rewards as well. The strategic

approach of the organization is to maintain and establish balance in both sides, which is

one of the key reasons to reward employees. The organizations that following this

approach towards creation of balance are normally focused on the recognition called

intrinsic reward.

According to the studies conducted by various organizations on the topic of

reward, it was revealed that most common problem among the organizations is that they

are missing the important component of Reward for their employees and thus missing the

motivation factor of productivity. It is further revealed that this factor is low is cost but

high result component of well-balanced reward system.

Employee’s recognition has great impact on the performance of the employees of

the organization. Due to recognition factor, employee feels more pleasure in respect of

values and appreciation during the affiliation with the organization shows good working

behavior.

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Advantages of Rewards for Motivation

There are lots of advantages of Rewards which motivate employees; some of

them are mentioned hereunder:

1. Employees self-esteem increase;

2. Employees feels more pleasure;

3. Employees become more satisfied;

4. Quality of work increase;

5. Productivity increase;

6. Employees recognition ;

7. Increase employees values;

8. Willingness to work increase;

9. Increase confidence level;

10. Employees turnover ratio decrease;

11. Organization grow more;

12. Competitive advantage for organization;

13. Organization culture improved;

14. Dedication to work increase;

15. Employees learning increase;

16. Production level increase;

17. Increase in profit;

18. Innovation increases

19. Reduction in cost; and

20. Self-efficacy improve

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The above points are only advantages, there are other numerous advantages which

are still under the veil and can be revealed from time to time.

The strategic or top management of every organization is required to crease

relationship norms between the organization and employees. Once this relationship

buildup, it will be much benefited for organization and employees as well. Under this

way organization can save lot amount by spending little on Reward for the motivational

purpose.

It was observed from the past situations that those organizations, which are not

focusing on the relationship between organization and employees, or not taking care of

their workers, mostly remain in trouble of different kinds. The productivity level of such

organizations mostly observed as declining trends and employee’s turnover ratio is very

high as compared to other organizations.

The impact of the Rewards for the Motivation to employees can be easily

understood through the following model:

This model shows the relationship between the Reward System and the Employee

Motivation. The explanation of this model is briefly given as under:

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According to this model, Reward System consists of two kinds of Rewards,

Intrinsic Rewards and Extrinsic Rewards, which leads to Employees Motivation. Both

Intrinsic and Extrinsic Rewards are separately explained hereunder.

1. Intrinsic Reward

This Reward is given on the recognition of performance of an employee. It is

mostly non-monetary benefit and related to psychological satisfaction. It includes Awards

like ‘Employees of the year’, lunch/dinner in the honour of employee, etc.

2. Extrinsic Reward

This kind of Rewards consists of: pay, Organizational working environment, job

security, status with the additional constant potential of increase in merit pay, promotion,

special training etc.

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Chapter 6Impact of Performance Recognition and Motivation

In this chapter, we will see the impact of Performance Recognition and

Motivation on the performance of individual or group. This can also reflects from the

turnover ratio of any organization. We will try our best to approve through the following

practical examples in the two different organizations like Shaheed Zulfiqar Ali Bhutto

Institute of Science and Technology (SZABIST), Islamabad, and International Islamic

University, Islamabad (IIUI).

(1) Performance Recognition and Motivation in SZABIST

In the SZABIST, reward program is granted to individual and group as well. 10%

annual inflation increased to every employee of the university. But 5% reward annual

increased on average basis is granted to only those employees who performed at the level

of satisfactory and above satisfactory. Thus this percentage of annual reward differs from

individual to individual on the basis of performance of the employee. The below

satisfactory performers are deprive of this increased and are also arranged meeting with

them to know the facts and figures for their poor performance. Proper motivation is being

made through the following ways:

1. Enhancement/continuation of education for employees free of cost;

2. Motorcycle advances

3. Car loans (equal to 12 monthly salaries);

4. House building advance;

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5. Emergency loans;

6. Leave encashment; and

7. CP Fund contribution at the rate of 50%.

Most of the above loans/advances are based on the Security Deposits of the

students, which is amounting to Rs. 5,000/- per student. As the students are increasing on

each semester and recovery from the individuals is also going on, the amount of loans /

advances is gradually granting to the maximum employees of the SZABIST.

The effective of the systems relating to Rewards and Recognition of performance/

service can be seen from the turnover ratio, which is less than 10%.

(2) Performance Recognition and Motivation in IIUI

The International Islamic University, Islamabad, is one of the biggest set up

university is the capital territory region and twin city. Its employees are approximately

exceeding from the figure of 2500. Many kinds of rewards, advances increments, loans,

etc are being granted to its employees on the recognition of their performance.

Some of the rewards for motivation to employees are given as under:

1. Emergency Loans;

2. Car / Motorcycle / Cycle advances according to the cadre;

3. House Building Advances (up to 225,000);

4. Leave encashment;

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5. Ex-cadre scheme for technical staff;

6. Medical advance;

7. Gift on retirement;

8. Bearing of funeral expense;

9. Convenience facility with reasonable recovery;

10. Marriage loan;

11. Continuation education program and employees and their children;

12. 3-5 Advance increments for excellent performers

13. Transport facility for funeral prayers; and

14. Many other kind of facility.

The university has recently doubled almost every loans/advances for the

employees and further considering doubling the remaining advances such as House

Building Advances etc. According to the latest news, House Building Advance has been

placed for the Board of Governors meeting being held on Friday, February 4, 2012.

The university is also contacting different banks and other financers to build

housing accommodation for employees adjacent to the university premises and the land

available within the location of new campus.

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Results:

It is revealed from the current scenario of SZABIST and International Islamic

University, Islamabad (IIUI) that, if proper Rewards are given, the turnover ratio can be

decreased to the minimal level as in case of the above mentioned organizations. In many

other types of organizations, where proper motivation through rewards are not

implemented to recognize the performance of employees, high level of turnover ratio

recorded in that organizations like most of the private organizations.

In addition, if performance recognition system is properly implemented,

employees are more satisfied with their jobs and improvement in their output increased.

Resultantly, required level of productivity can be gained and strategic goals be achieved.

Conclusion:

Keeping in view of the above discussion, it is clearly evident that if any

organization would like to increase their productivity, job performance standard, and

output of their workers, they should emphasize on performance recognition and rewards

to motivate their workers.

After implementing the above, such organization will surely feel that the

performance level of their workers is increasing gradually and the productivity as well. If

any organization will not properly reward their employees, the chances to achieve

required results, productivity and performance/job standards come to the low level. It is

proved that employees are motivated through rewards.

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References:

1. Organizational Behavior (Book), 13th Edition, by Stephen P. Robbins, Timothy A.

Judge, and Seema Sanghi.

2. Performance Management (Book), Second Edition, by Herman Aguinis, 2009.

3. http://www.answers.com/topic/employee-reward-and-recognition-systems

4. Glasscock, Sue, and Kimberly Gram. “Winning Ways: Establishing an Effective

Workplace Recognition System.” National Productivity Review. Summer 1996.

5. http://globaljournals.org/GJMBR_Volume11/9-Reward-System-And-Its-Impact-

On-Employee.pdf

6. http://www.bizresearchpapers.com/22.Reena.pdf

7. Reward System And Its Impact On Employee Motivation in Commercial Bank Of

Sri Lanka Plc, In Jaffna District, by Puwanenthiren Pratheepkanth, Publisher:

Global Journals Inc. (USA), Global Journal of Management and Business

Research, Volume 11, Issue 4, Version 1.0, March 2011.

8. The Impact Of Reward And Recognition Programs On Employee’s Motivation

and Satisfaction: An Empirical Study, by Reena Ali and M. Shakil Ahmed,

International Review of Business Research Papers, Vol. 5, No. 4, June 2009, Pp.

270-279.

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