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REWARD SYSTEMS: IMPACTS OF REWARD SYSTEMS ON EMPLOYEE

PERFORMANCE AND DEVELOPMENT.

Article · September 2021

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 REWARD SYSTEMS,

IMPACTS OF REWARD SYSTEMS ON

EMPLOYEE PERFORMANCE

BY

O.DAVID KOMOLAFE

A REPORT SUBMITTED IN FULFILMENT OF

THE REQUIREMENT FOR MODULE 3.2,
DEPARTMENT OF INTERNATIONAL SHIPPING
MANAGEMENT AND CHARTERING.

UNIVERSITY OF APPLIED SCIENCES,

BREMEN, GERMANY.

FEBRUARY, 2020.
ABSTRACT
The human resource of an organisation is its lifeline. Unlike machine, human
beings are rewarded for their performance/contribution to keep a business
growing. A reward system can be described as the cost a business pays
towards its human resource to be able to achieve its strategic goals such as
optimal production whist maintaining a happy workforce. The reward can be
made of tangible or intangible things. The concept and impact of reward
systems on the performance of employees are being reviewed and presented
in this report. This report reviewed showed that there is a strong correlation
between the reward systems and employee motivation.

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TABLE OF CONTENTS
ABSTRACT ............................................................................................................................... - 2 -
TABLE OF CONTENTS.............................................................................................................. - 3 -
CHAPTER ONE ........................................................................................................................ - 4 -
1.0 INTRODUCTION ................................................................................................................ - 4 -
1.1 Objectives......................................................................................................................... - 5 -
1.2 Management approach to the reward systems .............................................................. - 5 -
1.3 Concept of reward systems ............................................................................................. - 6 -
1.3.1 Employee’s motivation.............................................................................................. - 7 -
1.3.2 Retentions of Employee’s ......................................................................................... - 7 -
1.4 Important of reward systems .......................................................................................... - 8 -
1.4.1 Types of reward systems ........................................................................................... - 8 -
1.4.2 Intrinsic reward systems ........................................................................................... - 9 -
1.4.3 Extrinsic reward systems ......................................................................................... - 9 -
CHAPTER TWO ..................................................................................................................... - 11 -
2.0 REVIEW OF LITERATURE ................................................................................................. - 11 -
2.1 Classical Management Reward Systems ........................................................................ - 11 -
2.2 Modern Management Reward Systems ........................................................................ - 13 -
2.2.1 Job performance and satisfaction ........................................................................... - 13 -
2.2.2 Employee retention and career development ........................................................ - 13 -
CHAPTER THREE ................................................................................................................... - 15 -
3.0 A case study and analysis of management reward systems ....................................... - 15 -
3.1 Case Study ................................................................................................................ - 15 -
3.2 Study of Hypotheses ................................................................................................. - 15 -
3.3 Correlation between Reward Systems and Motivation ............................................. - 15 -
CHAPTER FOUR .................................................................................................................... - 16 -
4.0 CONCLUSION ................................................................................................................ - 16 -
REFERENCES ......................................................................................................................... - 17 -

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 CHAPTER ONE

1.0 INTRODUCTION
Presently, businesses are highly competitive globally and in such a
competitive business environment, it is very essential to design a decent and
sustainable reward strategy for the maximum utilization of the organization’s
resources. Before this time, many great scholars had worked and derived
fantastic results on management reward system, (Armstrong, 2006) defined
reward management system as strategies policies, and processes required to
ensure that the involvement of employees to the organization is acknowledged
either by tangible or non-tangible means. This method is used in respect to the
design, implementation, and maintenance of reward systems of the
organization, which is targeted to meet rising needs of the organization and its
associate. Because the major threat of many developing organizations with
poor rewarding systems could be; to lose the best hand in the business to
competitors. Every organization involved in different reward strategies for a
different purpose and these strategies could be implemented in different ways
in accordance with the resource manager, and or the current organization
issues that require urgent solutions.

Whichever way, any reward strategy set in motion must be measurable and
capable to deliver desire results in alignment with the organization strategy in
achieving those results. (Stajkovicand Luthans, 2001) described a reward
strategy through a method of payment system with an objective to motivate
productivity and performance within employees in an organization.

Therefore, every reward strategy specifies a specific criterion for entitlement

and purpose to motivate with fairness. These could be described as a good
reason why organizations are creating reward strategies: to design suitable,
functioning, and sustainable organization reward system. Also, to level the
human resource strategy with the designed model in accordance with the
business strategic goals.

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1.1 Objectives
Therefore, the objectives of this report are in two folds, namely:

o To examine the impact of reward systems on organization development,

and also on the performance and development of employee.

1.2 Management approach to the reward systems

According to (Abey Francis, 2017) described human Resource Management
as a core organization function saddle with the responsibility to focus on
recruitment, management, and provision for employees within the
organization. It is also responsible for compensation, performance, training,
benefits, and motivation within an organization. Human Resource
Management is also a premeditated approach to manage people and work
culture. Efficient human resource management enables the workforce of an
organization to contribute efficiently and effectively towards the overall
achievement of the company’s goals and objectives (“Human Resource
Management (HRM),”). A reward management system is a core function of
human resource discipline and is a strategic partner with company
management; it has an important role in employee performance. Human
Resource Management function can be categorized as Managerial and
advisory according to the mode of operation. Human resource management
(HRM or HR) is the strategic approach to the effective management of people
in a company or organization such that they help their business gain a
competitive advantage. It is designed to maximize employee performance in
the service of an employer's strategic objectives (“Human resource
management,” 2020). The most crucial resources in an organization are
human resources and most organization are strategies to invest in human
resources in other to increase their performance and productivity and the most
significant practice of human resource management is the application of a
reward system. Social exchange theory reviews that employees respond

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greatly to the organization when the management invest in them and they will
make a real effort to give back to the organization. Work motivation is the key
factor to manage and sustain employee behavior, Steers and Porter (1987),
review by (Güngör, 2011).

1.3 Concept of reward systems

The concept of reward system is crucial for employee performance because
employees are better performed under an effective and consistent reward
system. The purpose of this strategy is to reward people/employees fairly,
honestly, and regularly according to their contribution (Güngör, 2011), in other
to continue supporting the organization’s strategic goals and accomplishing it.
The concept of this strategy (reward system) is not limited only to the tangible
reward system or payment of benefit of the employee. It is also focused on the
intangible aspects, Such as public awards, holidays, career development to
increase employee responsibility, and many others. The effectiveness of any
method of reward system engaged by the organization must be aligned with
the strategic goals of the organization and human resource management.

Furthermore, a reward system is an important management tool to measure

employee’s performance, many organizations engaged in a reward system to
motivate their employees. In this respect, we can say that an effective reward
system enticed new employees and propel current employees to perform
maximally. A reward system is an important way to commit employees to their
work and Organizational goals without compromising.

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1.3.1 Employee’s motivation
According to (Mullins, 2010), in every organization what motivates employees
to work is the rewards and satisfaction derived from it and the relationship
between the types of work, style of leadership, and the nature of the jobs. This
contributed a meaningful effect on the satisfaction of the employee and their
degree of performance. Chartered management of the institute, defined
motivation “as the creation of stimuli, incentives and working environments
that enable people to perform to the best of their ability, the heart of motivation
is to give people what they really want most from work, in return manager
should expect more in the form of productivity and service”. The study of
motivation cares basically about the people to have behaviour and continue in
that line of thought. In general, motivation can be described as the direction
and persistence of action. The fundamental concept of motivation can be
described as an urge within individuals by which they strive to achieve some
important/desire goals in fulfilment of their expectations. This basic concept
described how people are motivated toward a particular desire.

1.3.2 Retentions of Employee’s

The process by which an organization retained its best and able hand on the
job is referred to as employee retention. In the process of achieving this
objective, a clear distinction should be concluded between high-performing
hand and idler. The focus to retain employees should be targeted at loyalty,
worthy, and consistent contributing workforce. Also, decreasing employee
turnover is an issue confronting major developing organization without a
doubt. Keeping/retaining the best employee as described by organizational
behaviour could be achieved through the following factors; equity
compensation, professional & career development, training & development,
rewarding culture, the culture of confidence, etc.

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1.4 Important of reward systems
Reward strategy is an important tool used by many organizations to design an
effective reward system for the purpose of retention of quality employee , to
motivate middle-level staff and for the purpose of increasing productivity and
more commitment of employees to work (Armstrong, 2007). It is also a system
designed to help in outsourcing, retention, engagement, and development of
employees in order to produce and deliver at their highest ability and to make
the organization profitable. For instance, in the course of this report I found out
that many universities students are interested in a holiday job with an
automobile company in my City and its environs. The information gather
shows that many automobile companies provide adequate incentives (both
extrinsic and intrinsic rewards) such as; health care service, holiday and
holiday payment, a very conducive working environment, training, and many
others. Aside from the attractive wages that have been set for every
employee, these had made many students extrinsically motivated to work with
these organizations.

1.4.1 Types of reward systems

A highly motivated worker will not only be an important figure in organization
success but also a celebrated employee in the history of every successful
organization. When an organization is completely running more efficiently and
effectively at working toward its goals, this is in opposite for every unmotivated
employee who can carelessly derail an organization and its employees from
working toward achieving a common goal. For this reason, it is important that
the manager understood the techniques of the reward system and its effective
usage to influence employee’s behaviour (Anyango.). Basically, rewards
are positives outcome that are derived due to employee performance and the
techniques must be properly aligned with organization goals. For instance,
when an employee helped to achieve an organizational goal, a validated
reward is often followed. Therefore, the major reward systems that motivate
employees are Intrinsic and extrinsic reward systems.

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1.4.2 Intrinsic reward systems
Often time, the major organization demand from every employee’s is their
initiative, solution providing ability, and knowledge about their job (experience).
According to (Dininni, 2011), in his management theory on motivation,
describe intrinsic reward to be more powerful above financial rewards in
developing employee motivation. Meanwhile, the intrinsic reward does not
against or to say employee does not appreciate financial reward as a
supplementary to intrinsic rewards. But to confirm the assertion that says,
money is not enough to maximize motivation in most employees. Rather, it is
important often discovered that people want to feel important and want their
contribution count as the major contribution of intrinsic reward. For instance, a
market/profit target might be fixed for an employee by his manager with a
reward attached after it successfully accomplished. But it is important to make
the employee feels a sense of accomplishment in making the sales unless the
motivation and strength to accomplish the task will be shortened. In this
regard, according to (Armstrong, 2007), it is important to help an employee
with the thought of consideration such as: An adequate provision for a
meaningful work, through some levels of autonomy, and employees should be
allowed to make choices in relative to work with zero degree of idleness or
sabotage· Also, the progress of and development of employee should be
visible and measureable.

1.4.3 Extrinsic reward systems

A Reward system varies with the organization in method and accomplishment.
Many employees are motivated at a high level of productivity than others.
Because the strategy (Intrinsic or extrinsic) used has clearly shown the
techniques of the line manager involved for proper usage of the reward system
for positive turn out of the employee behaviour towards their work. Extrinsic is
based on tangible reward it is not like intrinsic that is self-system of motivation.
Extrinsic is external to employees and it is typically provided by a manager or
supervisor who is a saddle with the responsibility in offering the rewards and to
what measure/quantity it should be given. This system is usually financial in

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nature, for instance; Salary increment, Bonuses, Holidays, etc. Also, extrinsic
could also be verbal praise (appraisal), promotion to a new office, public
recognition, awards, etc. An extrinsically motivated worker will work on a task
more than expected simply because of the satisfaction and extrinsic
psychological condition.

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 CHAPTER TWO

2.0 REVIEW OF LITERATURE

2.1 Classical Management Reward Systems

Reward systems can be traced back as far as the era of scientific
management, when principles and philosophies of management were
developed many centuries ago. During this time, human management was
posed great challenges in many productions organizations and later resulted
to set back in many production processes, and many organizations
experienced a huge set back in organization development. The management
thinker and French industrialist in twenties century called Henry Fayol was
long known as the initiator of classical management up till this present
moment. Many modern management authors reference Fayol’s principle of
management as the basis to the scientific management initiator. Motivation
(Fayol, 2001), He (Henry Fayo) laid the fourteen (14) principles of classical
management which was underlying the factors for successful management.
Among his principles in which “Division of work and Remuneration” is the
forerunner of motivation and productivity for the smooth running of an
organization. From this, he argues that; the remuneration should be sufficient
to keep employees motivated and productive. Therefore, this factor of
motivation is economical i.e monetary. Villanova University argues through its
resources department that classical management theory is fondly believed
that, the social needs and job satisfaction of employees do not consider, that
the employee only has physical and economical needs. It expatiates further,
that employees will work harder and more productive provided that they are
rewarded base on their labour. i.e employees are only motivated by financial
rewards.(Armstrong, 2007), described reward systems as a management
approach using the strategies, policies, and processes needed to make sure
that the contribution of people to the organization is recognized by using either
financial and non-financial means. It is all about the design, application, and

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sustainability of a reward system that is channel to meet the requirement of
both the organization and its stakeholders. The motive of this concept is to
reward employees reasonably, equitably and consistently in relation to their
values or contributions towards the organization to continue achieving the
organization strategic goals. The concept of a reward management system is
not totally about payment of employee’s benefits, it is also concerned with the
non-financial rewards such as career development, recognition, and
development to increase job responsibility.

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2.2 Modern Management Reward Systems

2.2.1 Job performance and satisfaction

According to (Ibrar and Khan, 2015), argue that financial and non-financial
rewards and benefits are highly related to employee performance in an
organization. Performance is a dependent variable on reward systems that is
applied by the organization; rewards increase performance and performance
increase job satisfaction. The satisfaction of employees on the job leads to
success and feelings of achievement during the job, this leads to a great
impact on the organization's productivity. Furthermore, rewards promote
happiness and job contentment. According to (Clifford, 1985) Intrinsic and
extrinsic rewards are determinants of work satisfaction.

2.2.2 Employee retention and career development

According to (Aguenza and Som, 2018) the 21st-century employment process
has explained the employee development and career opportunity, gaining new
skills, and engaging different activities that generate career development for
the purpose of benefits to both employee and organization as true career
development. Often, employee derives benefits through their ability to record
more results on the job and physical evidence of career growth and or
development. It is a great advantage to an organization having more
productive employee, this is a major attraction to the employee as well as to
the organization. Meanwhile, if an organization failed to recognize the need
and the desire of employees to grow, this will be a great nightmare to such an
organization because development will be among the major reasons while
employees will quit the job. According to (Bjornavold, 2007) states that the
process of attracting and retaining the best hand on the job is to recognize the
workforce career development. By identifying and answer to the career need
of the employee provides the opportunity to get the best from them. (Güngör,
2011) argues that both financial and non-financial rewards are important
management tools for the management reward system which are also
referred to as extrinsic and intrinsic Rewards. The financial rewards are salary
increase, bonus system for employees, and others. On the other hand, there

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are non-financial rewards which include; promotion, authority, and
responsibility, education, appreciation and awards, participation to decisions,
holidays, a conducive working environment, flexible working hours, etc. he
concluded his argument that; “Motivation is significantly and positively related
to employee performance”. More so, according to (Demirci, 2007) stated in his
research; “Social cognitive theory, claims that rewards given for the success of
challenging performance standards may result in high motivation”.

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 CHAPTER THREE

3.0 A case study and analysis of management reward systems

3.1 Case Study

“The relationship between reward management system and employee
performance with the mediating role of motivation” by Pinar Gúngor, this
research publication was carried out on the relationship between the
application of management reward system and the performance of bank
employees, a case study of Global Bank in Istanbul. The research aim on the
role of motivation as an intervening factor, and the importance of the reward
systems among employees in financial institutions were extensively
reviewed and its roles in employees and organization development. This study
draws its conclusion and recommendations using primary data which
generated various hypotheses, these hypotheses were drawn from the reports
through the review of the literature to data analysis and sample procedure.
The major specimen in his report for data collation is the employees of the
drawn sample, and it was analyzed by the statistical analysis method.

3.2 Study of Hypotheses

o The study of hypotheses reviews that, the practice of a reward system is
directly connected to the employee's performance with a positive
outcome.
o Motivation is greatly and absolutely connected to the employee’s
performance.
o The practice of the reward system is greatly connected to motivation.
o The management reward system is connected to employee
performance and development.

3.3 Correlation between Reward Systems and Motivation

The studies of review of literature and hypotheses show that; there is a great
correlation between motivation and reward system. Importantly,
the management reward system has a strong tie with the employee
performance, productivity, and development.
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 CHAPTER FOUR

4.0 CONCLUSION
The focus of this report explains the connection between reward systems,
employment performance and development. This was extensively examined
using secondary data, the development of this report has created an open
ground for broad knowledge and many case studies were investigated. The
development of this report resulted that, the management reward practice has
a positive impact on employee performance and it is absolutely connected to
employee performance. This report also established that, the application of
reward systems in an organization has a direct relationship with motivation, i.e
extrinsic, and intrinsic. Extrinsic motivation is best explained using financial
rewards and intrinsic method is explained using non-financial rewards. The
studies of previous publications such as; Pinar, Armstrong, Dininni, Mullins,
and others had made tangible findings on reward systems and impacts of
motivation on employees. The outcome of their findings shows a cordial
relationship between motivation and employee performance. Therefore, the
result of this report is similar to the findings of the previous studies.

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 REFERENCES
Abey Francis, 2017. Developing a Reward Strategy for your Organization.
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management/developing-a-reward-strategy-for-your-organization/
(accessed 1.17.20).
Aguenza, B.B., Som, A.P.M., 2018. Motivational factors of employee retention
and engagement in organizations. IJAME.
Anyango, R.A., n.d. Effects of reward system on employees performance a
case of Kenya pipeline company- Kisumu depot 102.
Armstrong, M., 2007. A handbook of employee reward management and
practice, 2nd ed. ed. Kogan Page, London ; Philadelphia.
Armstrong, M., 2006. A Handbook of Human Resource Management Practice.
Kogan Page Publishers.
Bjornavold, J., 2007. European Centre for the Development of Vocational
Training, 2008. Valid. Non-Form. Informal Learn. Eur. Snapshot.
Demirci, M., 2007. The effect of motivation tools on employee performance:
An application on an automotive company in turkey.
Dininni, J., 2011. Management theory of Federick Herzberg. Bus. Com Media
Inc Assess. www.bus.commanagementmanagement-Theory--Federick-
Herzbergon 5, 2015.
Fayol, J.H., 2001. Henri Fayol. Routledge.
Güngör, P., 2011. The Relationship between Reward Management System
and Employee Performance with the Mediating Role of Motivation: A
Quantitative Study on Global Banks. Procedia - Soc. Behav. Sci. 24,
1510–1520. https://doi.org/10.1016/j.sbspro.2011.09.029
Human Resource Management (HRM): Definition & Functions – StudiousGuy,
n.d. URL https://studiousguy.com/human-resource-management/
(accessed 1.8.20).
Ibrar, M., Khan, O., 2015. The Impact of Reward on Employee Performance (A
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 Mullins, L.J., 2010. Management and organisational behaviour, 9. ed. ed.
Financial Times Prentice Hall, Harlow.
Stajkovic, A.D., Luthans, F., 2001. Differential effects of incentive motivators
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