ODA BULTUM UNIVERSITY

COLLEGE BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING

ASSESSMENT OF REWARD MANAGEMENT PRACTICE IN AWASH

BANK (A CASE STUDY ON CHIRO BRANCH)

A RESEARCH PROPOSAL SUBMITTED IN PARTIAL FUILFILLMENT

OF THE REQUIREMENT FOR BACHELOR OF ART (BA) DEGREE IN
ACCOUNTING

PRE PARED BY: ABRAHAM

ADVISOR: - DEBELA BONSAA

AUGUST, 2020

CHIRO, ETHIOPIA

1
 ABSTRACT
The primary aim of this proposed research paper is to assess the reward management practice in case of
Awash Bank S.C. on chiro branch based on the perception of the bank employees towards the reward
management practice.

The study will be used both primary and secondary source of data collection; the primary data
will collect through self-administrated questionnaires because of it would be easy and quickly to
get timely data from the respondents and secondary data will be collected from with records
journals, websites and internet

Data will be analyzed by using descriptive statistics to allow for appropriate conclusion and
recommendations according to the findings from the questionnaire and interviews. The questionnaire was
subsequently sorted, categorized and finally tabulated. Data were presented using tables and charts. Based
on the study findings, the researcher will provide recommendation the way forward in improving the
reward management system and practice.

Key words: Rewarding System, Performance, Intrinsic, Extrinsic, Equity, Transparency, Consistency
 Table of Contents
Abstract ........................................................................................................................................ I
Table of Contents……………..………………………………………………………………II
CHAPTER ONE .......................................................................................................................... 1
INTRODUCTION ....................................................................................................................... 1
1.1 Background of the Study ...................................................................................................... 1
1.2 Statement of the Problem ....................................................................................................... 2
1.3 Basic Research Questions ...................................................................................................... 3
1.4 Objectives of the Study .......................................................................................................... 3
1.5 Scope/ Delimitation of the study .......................................................................................... 3
1.6 Significance of the Study ....................................................................................................... 4
1.7 Organization of the study ....................................................................................................... 4
CHAPTER TWO ......................................................................................................................... 5
REVIEW OF RELATED LITERATURES ................................................................................. 5
2.1 Reward ................................................................................................................................... 5
2.2 Reward Systems and Management ...................................................................................... 6
2.3 The Total Reward System.................................................................................................... 8
2.4 Motivation ....................................................................................................................... …10
2.5 Reward Basics...................................................................................................................... 11
2.6 Effective Reward ................................................................................................................. 12
2.7 Reward Strategies ................................................................................................................ 13
2.8 Performance ......................................................................................................................... 15
2.9 Empirical Studies ................................................................................................................. 16
2.10 Conceptual Framework .................................................................................... ………….18
CHAPTER THREE…………………………………………………………………………………19.
3.1 Research Design………………………..……………………………………………………19

3.2 Source of data.......................................................................................................................20

3.3 Method of data collection....................................................................................................20
3.4 Sampling technique..............................................................................................................20
3.5 Sample size..........................................................................................................................20
3.6 Data analysis and presentation.............................................................................................20
CHAPTER FOUR.........................................................................................................................21
4. BUDGET AND TIME SCHEDULE.........................................................................................21
4. 1 Time schudule……………………………………………………………………………….21

4.2 Budget schedule………………………………………………………………………………22

Reference…………………………………………………………………………………………23
 CHAPTER ONE

INTRODUCTION

1.1. Background of the Study

In globalized world characterized by competition, access to latest technology and communication

systems, and an unrestrained access to financial markets around the word, the ability to attract
and retain qualitative workforce, as well as keep them highly motivated has become a great
challenge. Ayesha (2014) noted that in the age of globalization, organizations have realized the
importance of their human resources and become increasingly interested in managing employees
in such a way that can enhance business performance. To that end, organizations have to
establish an equitable balance between the employee’s contribution to the organization and the
organization’s contribution to the employee.

Shields (2007), has shown that rewarding employee will often lead to increased employees
performance. A successful rewarding program will not only increase profit, but also inspire staff
loyally and raise morale. As Armstrong (2012) highlights, high performers are usually highly
motivated. However, it has been argued that extrinsic rewards may erode intrinsic interest and
that working for just money may lead to a less motivated or pleasurable environment. It is the
combination of rewards targeted in the right way and to the right individual or group that will
improve performance the most.

It can be concluded that today, it is generally accepted that a combination of rewards from total
rewards perspective is the most effective approach to take within an organization. Much of the
published literature is now focused around a more comprehensive approach to how organizations
reward their employees. The standard motivation theories are still applicable in today’s
organizations and as these theories are complimentary to one another, they can also compliment
employee engagement and thus performance. According to Armstrong (2009) engagement will
exist where employees understand well the nature of their role and where it fits into the bigger
picture and where they feel they are intrinsically motivated through a sense of belonging and
accomplishment. And this is in accordance with expectancy theory, where a relationship exists
between performance and outcomes.

Performance management and rewarding system plays a key role in employee job performance
(Armstrong, 2006). Thus, employee performance, rewards and individual reward types
separately have long been a central research topic for scholars and practitioners. As a result, an
abundance of theories and approaches were developed in order to explain the nature of employee
performance and reward in the private and the public sector. But, it is so far difficult to even find
a single research paper which included and clearly assessed the relationship between evaluated
performance and equitable rewards and the reward management system simultaneously in a
comprehensive manner on the case company-Awash Bank S.C.

Consequently, the main purpose of this study precisely is to measure the extent to which
employees’ perceived performance is related to the level and combination of reward the have
been receiving along with assessing the overall reward management practices in Awash Bank
S.C. based on the employees perception towards the current rewarding practice.

1.2. Statement of the Problem

According to Brian (2005), the unreliable reward system brings the ‘compensatory damage’ that
has hugely detrimental effects to the financial performance of the organization. It results in
significantly reduced human productivity, increased human conflict within the organization, and
perceptions of internal unfairness. The reward program still can be doubted and questioned on its
value and the fairness or equity level in its dissemination among employees. In establishing an
effective reward system within organization and cultivating a culture towards continuous
improvement and efficiency, backing this up with the appropriate level or combination of
rewards at that particular point in time is important.

There is certainly no ‘one size fits all’ approach to the type of reward system to apply within all
organization. But the timing of that reward system and the dynamics of the staff will be vital to
its success. In this sense an effective reward and recognition structure will provide a transparent
means to get the most for employees while cultivating a positive work environment.

When it comes to AIB, at the end of every six month, it conducts a report on the employees work
evaluation as a basis to reward its employees. The managers and or supervisors in every branch
of the bank evaluate the staff members under their supervision on the basis of tabulated lists of
qualitative parameters which are most probably wide open to very subjectivity of the evaluators.
Furthermore, it is not quite definite on what criteria the level or combination of rewards depends
on for employee in the bank.
Thus, this research is tries to assess and evaluate the existing reward practices based on the
employees’ perception towards major dimensions of rewarding system of Awash Bank S.C.

1.3. Basic Research Questions

The research questions that are going to be answered in this study are:-

 What is the perception of bank employees on the existing reward practices in terms of its
internal and external equity considerations?
 How proper is the reward system in terms of its transparency, consistency and fair
distribution among employees?
 How do employees perceive the extent to which their perceived performance is related to
the reward the get from the employer?

1.3. Objectives of the Study

A. General Objective

The main aim at this study is to examine the reward management practice of Awash Bank S.C.

A. Specific Objectives

The study would seek to fulfill the below enumerated objectives:

 To identify the perception of bank employees on the existing reward practices in terms of
its internal and external equity considerations?
 To identify the reward system in terms of its transparency, consistency and fair
distribution among employees?
 To examine employees perceive the extent to which their perceived performance is
related to the reward (intrinsic and or extrinsic) they get from the employer?

1.5. Significance of the Study

This study will benefit the case bank as well as commercial banks which currently operate
competitively. It discloses operational options which will assist decision makers in establishing
and implementing improved reward management practices for higher organizational
performance. Furthermore, the findings to be obtained helps academicians and researchers in
doing further researches on the same subject with the aim of improving the relationship between
employee performance and reward system not only of Awash Bank, but also in other
commercial banks in Ethiopia. The study will also serve a guide as future reference for both
practitioners and academicians who are doing research on similar topic. Moreover, the study
aims of producing a research paper which is a partial fulfillment of Master of Business
Administration.

1.6. Scope/ Delimitation of the study

Even though, the study would be more comprehensive if all branches and staffs that are currently
working in the bank were addressed, the scope of the study will be limited to the Awash Bank at
chiro branch mainly because of time and financial budget constraints and geographical location
problems to cover all branches of the case bank. But this will hope fully give the whole picture
of the reward practice in Awash bank S.C. since its performance-reward management system,
policies and procedures etc. are homogenies for all branches throughout the country, Ethiopia.
The sample will be drawn from the managerial and non-managerial permanent employees who
have more than a year experience based on the assumptions that they had enough experience to
understand the reward and performance management practices of the case Awash bank in chiro
branch.

1.7. Organization of the Study

The study is structured to provide a critical review of relevant information regarding employee
performance and reward relationship. The study comprised five chapters and it is presented as
follows: chapter one highlights and deals with the introduction, giving the background to the
study along with the statement of the problem. This chapter also outlines the research objectives
together with the research questions, research scope and significance of the study. It is followed
by chapter two which reviewed related literatures regarding many aspects of performance-reward
relationship and include a definition of various terms on reward system and performance
evaluation along with different theories and models. Chapter three presents the research
methodology and focused on research design and methods as well as the justification of choices
and uses. In addition, the study population and area, sampling and sample size determination,
data collection activities and data analysis methods. The next is chapter four in which the data,
which is subsequently interpreted and analyzed in relation to the research objectives and
questions, and discussion of findings of the study, will be presented. The last chapter is chapter
five providing a summary to the entire study, drew conclusions and also recommendations made.
 CHAPTER TWO

2. REVIEW OF RELATED LITERATURES

Saunders (2009) state that a ‘critical review of literature is necessary to help you to develop a
thorough understanding of, and insight into, previous research that relates to your research
question(s) and objectives’. This chapter reviewed related literature regarding many aspects of
the subject matter (reward) including reward definition, rewarding system, types of reward and
reward performance relationship among others.

2.1. Reward

A variety of different terms are used to describe the rewards that are given by an employer in
return for the work carried out by workers. The term ‘payment’ is often nowadays seen as being
too narrow in scope because many of the rewards that people take from their work do not take a
monetary form. ‘Compensation’ is a term widely used in the American literature, yet the idea of
compensation is that it involves making amends for something that has caused loss or injury.

Reward according to Armstrong (2006) is one of the important elements to motivate employees
for contributing their best effort to generate innovation ideas that lead to better business
functionality and further improvise company performance both financially and non-financially.
There are other means to reward employees that do not just focus on financial compensation.
Some of these include the praised that employees are able to acquire from their managers, the
opportunity to take on important projects or tasks, and even leadership attention. Much research
on leader power has found that supervisor reward power would be positively associated with
employee task performance, productivity, satisfaction, turnover, and organizational citizenship
behaviors.

Employee will give their maximum when they have a feeling or trust that their efforts will be
rewarded by the management. There are many factors that affect employee performance like
working conditions, worker and employer relationship, training and development opportunities,
job security, and company’s overall policies and procedures for rewarding employees, etc.
Among all those factors which affect employee performance, motivation that comes with
rewards is of utmost importance. Motivation is an accumulation of different processes which
influence and direct our behavior to achieve some specific goal (Baron, 1983).
Rewards can be extrinsic or intrinsic, extrinsic rewards are tangible rewards and these rewards
are external to the job or task performed by the employee. External rewards can be in terms of
salary/ pay, incentives, bonuses, promotions, job security, etc. Intrinsic rewards are intangible
rewards or psychological rewards like appreciation, meeting the new challenges, positive and
caring attitude from employer, and job rotation after attaining the goal.

According to Luthans (2000), there are two basic types of rewards, financial and nonfinancial
and both can be utilized positively to enhance performance behaviors of employees. Financial
rewards means pay-for performance such as performance bonus, job promotion, commission,
tips, gratuities and gifts etc. Non-financial rewards are nonmonetary/non cash and it is a social
recognition such as acknowledgement, certificate, and genuine appreciation etc. The non-
financial rewards is also called materials award (Neckermann and Kosfeld, 2008).

2.2. Reward Systems and Management

Reward Systems is a vital aspect of any organization. They can actively engage and renew the
overall sense of community and mission of an organization. A properly administered system of
rewards can provide incentive for quality workmanship and staff performance. Likewise, a
poorly administered reward system can lead to low morale, unproductive performance, and even
lead to a high percentage of staff turnover. Sziligyi, (2003) noted that a reward system is
successful when the staff interprets its policies as even handed, consistent, and relevant.
Rewarding and recognizing employees is a sensitive business. It can motivate people to explore
more effective ways to do their jobs or it can utterly discourage such efforts.

Reward systems according to Sziligyi (2003) are outcomes or events in the organization that
satisfy work related needs. Rewards systems are much more than just bonus plans and stock
options but while they often include intrinsic incentives, they also include extrinsic types like
promotions, non- monetary bonuses, vacation holidays or simple “thank you” from a manager.
Since high morale and productivity go hand in hand, it is however imperative on managers to
reward employees when they hit organizational targets and stretched standards set by the
organization. A properly administered system of rewards has the capacity not only to improve
incentives for quality workmanship and staff performance but also strategically attract skilled
employees to join the organization whereas the reverse may lead to unproductive performance
and even to a high incidence of staff turnover.
Reward management according to Armstrong (2009) is concerned with the formulation and
implementation of strategies and policies the purpose which are to reward people fairly,
equitably and consistently in accordance with the value to the organization and thus help the
organization achieve its strategic goals. It is also concerned with the development of appropriate
organizational cultures, underpinning core values and increasing the motivation and commitment
of employees. It deals with the design, implementation and maintenance of reward systems
(reward process, practices and procedures that aim to meet the needs of both the organization and
its stakeholders).

Reward system exists in order to motivate employees to work towards achieving strategic goals
which are set by entities. Reward management is not only concerned with pay and employee
benefits (financial rewards). It is equally concerned with non-financial rewards such as
recognition, training, development and increased job responsibility (Shields, 2007).

In addition to money, forms of recognition to identify and reward outstanding performance can
be vital. Both formal organizational recognition and social recognition are used systematically by
supervisors and managers and is very important to their people and their day-to-day behaviors
and performance effectiveness.

Recognition rewards can take many different forms, can be given in small or large amounts, and
in many instances are controllable by the manager. For example, in addition to social recognition
and formal awards, a manager can give an employee increased responsibility. The employee may
find this form of recognition motivational, and the result is greater productivity and quality
service to customers. As a follow-up, the manager can then give this employee even greater
responsibility.

Many firms that are now working to improve their recognition systems all use fairly basic and
easy-to-implement programs. Steps such as the following need to be setup to effectively manage
a formal and informal recognition program: When introducing new recognition procedures and
programs, take advantage of all communication tools including Intranet and other knowledge-
sharing networks-let everyone know what is going on, educate the managers so that they use
recognition as part of the total compensation package, make recognition part of the performance
management process, so that everyone begins to use it, have site-specific recognition ceremonies
that are featured in the company’s communication outlets such as weekly newsletter and
bimonthly magazine, publicize the best practice of employees, so that everyone knows some of
the things they can do in order to earn recognition, let everyone know the steps that the best
managers are taking to use recognition effectively, continually review the recognition process in
order to introduce new procedures and programs and scrap those that are not working well,
solicit recognition ideas from both employees and managers, as they are the ones who are most
likely to know what works well-and does not (Chartered Management Institute, 2004).

Employee rewards system refers to programs by different organizations to reward performance

and motivate employees on individual and/or group level. In designing a reward system, the
organization should specify group or organizational goals to be achieved and the specific
behaviors or performance that will attract rewards. By so doing the rewards system will help
management shape behavior of employees and at the same time achieve organization’s goal.

According to the Chartered Management Institute (2004), “the notion of rewards system is
gradually replacing the traditional idea of a standard pay system, as it incorporates all aspects of
employee compensation into the package”. According to Fay and Thompson (2001) “Rewards
systems have a critical role in determining the organization’s ability to attract high potential
employees and to retain high performing employees to achieve greater levels of quality and
performance”.

Nevertheless, most organizations have problems describing these rewards fairly to suit the
organizational demands in relation to employee performance. Thus, which kind of reward system
to allocate and at what time and whether non - salary based, salary based, annual merit based or
personal praise by managers etc. Therefore, problems of rating and measurement of performance
coupled with inadequate funding by some organizations have necessitated the adoption of non-
salary based rewards which are based solely on the reward power of managers with no direction
from formalized policies. With regards to the various steps of performance appraisal under
rewards systems, it is evident that employees and supervisors would come into terms with goals
and policy framework of the organization and develop personalized non-salaried based rewards
that correlate with the specific objectives (Wilson, 2004).

2.3. The Total Reward System

Total reward describes a reward strategy that brings components such as learning and
development together with aspects of the work environment, into the benefits package. In the
total reward system both tangible and intangible rewards are considered valuable. Tangible
rewards arise from transactions between the employer and employee and include rewards such as
pay, personal bonuses and other benefits. Intangible rewards have to do with learning,
development and work experience. Examples of these types of rewards are opportunity to
develop, recognition from the employer and colleagues, personal achievement and social life as
shown in the figure 1 below. The aim of total reward is to maximize the positive impact that a
wide range of rewards can have on motivation, job engagement and organizational commitments.

The benefits of a total reward system are described by Armstrong and Brown, 2006 as follows. -
Greater Impact– when different types of rewards are combined, they will have a deep and long-
lasting effect on the motivation, commitment and engagement of employees.

- Enhancing the Employment Relationship – total reward appeals more to employees due to the
fact that it makes the maximum use of relational as well as transactional rewards.

- Enhancing Cost-Effectiveness – because total reward communicates effectively the value of the
whole reward package, it minimizes the undervaluing of the true costs of the packages.

- Flexibility to Meet Individual Needs – due to the variety of rewards, the total reward is able to
answer the individual needs of the employees and hence bind them more strongly to the
organization.

- Winning the War for Talent – because relational reward processes are more difficult to replace
than individual pay practices, total reward gives the organization the ability to attract and retain
talented employees by differentiating their recruitment process and hence becoming “a great
place to work.

Thompson (2002) suggests :“Definitions of total reward typically encompasses not only
traditional, quantifiable elements like salary, variable pay and benefits, but also intangible
noncash elements such as scope to achieve and exercise responsibility, career opportunities,
learning and development, the intrinsic motivation provided by work itself and the quality of
working life provided by the organization. Brown and Armstrong (1999) produced a model
which distinguishes between transactional rewards, which are financial in nature and are
essential to recruiting and retaining staff but can easily copied by competitors, and relational
rewards , which are concerned with learning and development and the work experience and are
essential to enhancing the value of transactional rewards.
2.4. Motivation

Motivation refers to a basic psychological process. It was a factor that became the driving force
on work action. According to Luthans (2003), motivation is the management process influencing
behavior of knowledge on what make people think. It contributes to the process of stimulating
people to act and achieve specific goals. As motivation concern, reward system is an important
tool for management use as the channel of employees’ motivation. Currently, the reward
programs are implementing either in public or private sectors. It was clearly stated that
employees’ effort is increased when rewards are offered.

In a reward program, large amount of money are spent. The reason behind these, hopefully it will
increase employees’ motivation. As pointed by Cameron and Pierce (2006), an effective reward
system requires an experimental attitude, continual fine-tuning of the system; input from people
within the system and ongoing evaluation of the effectiveness of the system. When employees
are rewarded, they get work done. Employers get more of the behavior they reward, not what
they assume they will automatically get from employees. Thus when employees surpass their
target or exceed their standard they should be rewarded immediately as a way of motivating
them. By doing this, employees directly connect the reward with behavior and higher
performance they have attained.

Expectancy Theory of Motivation Of all theories of motivation, this study is mainly guided by
the Expectancy Theory of Motivation. Expectancy Theory posits that one selects his/her
behavior based on the desirability of expected outcomes of the action. As this is a cognitive
process theory it relies on the way employees perceive rewards (Armstrong, 2006).

The expectancy theory was propounded by Victor Vroom a psychologist in 1964. The theory is
only applicable to a work setting that is based on peoples’ expectations. The focus of the theory
is on the thought processes people used when they faced particular choices among alternatives
particularly choices/ alternative courses of action. Literature reviewed revealed the following as
the underlying principles of the theory; individuals make conscious effort to behave in a certain
manner, individual values with regard to choosing desired outcomes, individual expectations
concerning the amount of effort required to achieve a specific outcome and individual
expectations concerning the probability of being rewarded for achieving desired outcomes
(Carter & Shelton, 2009). Vroom, through these principles, sought to portray that motivation is a
function of the relationship between; effort expended by an individual and perceived level of
performance; and the expectation that reward for desired outcomes will be related to
performance. On the other hand there must also be the expectation that rewards are available as it
will go a long way determine the strength of the motivational link thus, the strength of the
individuals preference for an outcome and the belief that in the possibility that particular actions
will achieve the required goal. To make the expectancy process simple;

Effort →Required performance → Desired outcome

Force = Valence × Expectancy

Where force is strength of motivation, valence is strength of preference for outcome and
expectancy is the level of belief that changes in behavior will achieve the required outcome.

Looking at the theory and its complexity in nature one could only make recommendations to
management, to as a matter of fact try to find out desired outcome each of the bank values most,
define the goal and what constitute the level performance needed to achieve it. But management
should also not lose sight of the fact that the level of performance is realistic and achievable.
After a period of time management should be able to measure the outcomes by the performance
desired by management. One thing worth noting is that the strategies put in place should not
create conflict between the expectations it sought to create and other militating factors in the
work environment. Finally, outcomes should be attractive and enticing enough to ignite the
desired level of performance (Carter & Shelton, 2009).

2.5. Reward Basics

Employees often receive rewards in addition to their base salary depending on their achieved
results, performance, competence, or skill acquisition. Rewards have many aims. Among others
they shall reduce time, and cost and improve quality. They shall reward people for the value they
created and they shall help communicate the company’s’ values and expectations (Armstrong
2002). Since rewards mean additional costs to the organization, the overall aim is providing
“value for money” and contributing to organizational success. In the case of project
management, it was concluded; rewards shall provide value for money to the project and
contribute to project success. Rewards cannot directly affect success. The direct effect of rewards
is on employees’ motivation. Various definitions of motivation exist. For this thesis, employees’
motivation is seen as the employees’ desire to work and perform well in order to contribute to
organizational or project success. Two types of motivation exist: Intrinsic and extrinsic
motivation. Intrinsic motivation is “self-generated” and means employees are motivated to work
because of the work. Extrinsic motivation is generated by external stimulus such as rewards
(Armstrong 2002).

2.6. Effective Reward

Effective reward systems should always focus on the positive reinforcement. Positive
reinforcement encourages the desired behavior in organizations. This encourages employees to
take positive actions leading to rewards. Reward programs should be properly designed in the
organization so as to reinforce positive behavior which leads to performance (Torrington & Hall,
2006). As noted by Danish and Usman (2010), effective reward system leads to increased
satisfaction for employees; recognition of accomplishments; a desire to attain high standards; a
means to achieve personal and social goals; high productivity and feeling of competence and
freedom. Because an organization has a specific program to encourage certain behaviors or
results does not mean that the program is effective. In fact the problem with most reward
programs is not the purpose but how they function within the organization. Further, programs
and practices that are regarded part of organization’s culture may in fact be the most important
systems that enable the organization to succeed or that limits its competitiveness. Therefore, the
key to successful reward system is their design, effective use and ongoing management. (Wilson,
2002)

To this end, research and experience indicates that there are several overriding determinants of
effective reward system according to Wilson (2002):

 Strategy- an effective reward program must be linked directly to what makes the organization
effective in attracting, retaining and motivating its primary resource, people.  Translation- for
any program to deliver rewards effectively, the individual needs to know what to do. This means
that he or she must be able to translate the desired vision, goals, and results or values in to
actions that he or she can take.  Relationships - the interaction of people create relationships
within and outside an organization and these relationships often determine the success of the
organization.  Integrity- the programs need to function with sincerity, reliability and trust. If
people perceive that rewards are intended to manipulate or exploit them, the programs and the
leaders will be resented.  Values- the receiver determines the importance and value of any
reward, program designers and executives often ignores this simple, obvious and profound
principle.
After all, the Objective of reward management is to reward employees fairly, equitably and
consistently in correlation to the value of these individuals to the organization. Reward system
exists in order to motivate employees to work towards achieving strategic goals which are set by
entities. Reward management is not only concerned with pay and employee benefits. It is equally
concerned with non-financial rewards such as recognition, training, development and increased
job responsibility (Wilson, 2002).

2.7. Reward Strategies

While different writers have different ideas about what exactly constitutes a strategic approach to
the management of reward, most agree that it is primarily about aligning an organization’s
payment arrangements and wider reward systems with its business objectives. This means
developing systems which enhance the chances that an organization’s employees will seek
actively to contribute to the achievement of its goals. So if improved quality of service is the
major business objective, this should be reflected in a payment system which rewards front-line
staff who provides the best standards of service to customers. Alternatively, if increased
productivity is sought, then an approach which rewards efficiency would be more appropriate.
But choices in this area are not always as straight forward as this because organizations are
obliged to compete with one another for good staff as well as for customers (Torrington and
Taylor, 2008).

Armstrong and Murlis (1998), for example, go so far as to argue that present-day practice is
characterized by an acceptance of a ‘new pay philosophy’ in which decisions about payment
levels and packages ‘flow from the overall strategy’ of the organization. According to their view
reward policy now increasingly strengthens employer objectives and promotes change by
rewarding ‘results and behavior consistent with the key goals of the organization’. By contrast,
academic researchers have tended to take issue with this assessment, often quite persuasively.
While they agree that major developments have occurred in pay determination over recent
decades, they dispute the claims made about the extent of change and question how far
organizations are taking a long-term strategic approach to the management of pay. (Torrington
and Taylor, 2008) Smith (1993) and Thompson (1998), in particular, have argued that managers
are just as short termist and reactive when making decisions about pay as they always were.
Changes are introduced for damage limitation reasons, to respond to immediate recruitment
difficulties or in response to government initiatives rather than as a means of aligning practices
with organizational goals.
So what does a written reward strategy look like? According to Armstrong and Brown (2006)
there are four key components.  First of all there needs to be a ‘statement of intentions’ setting
out, in general terms, what the reward strategy of the organization is seeking to achieve and
which reward initiatives have been chosen in order to achieve these core objectives.

 Second, these ideas are expanded through a more detailed ‘rationale’ which explains the
objectives in greater depth and shows how the various elements of the organization’s reward
policy support the achievement of those objectives.

 the third element is an explanation of the guiding principles or values that have been used in
developing the initiatives and that will be used to adapt them in the future. Typically this will
include statements which deal with ethical issues or which reiterate a commitment to core
principles such as equality between men and women, fair dealing or rewarding exceptional
individual performance.

 the final component is an implementation plan, setting out exactly what initiatives are being
brought forward and when, who has responsible for their introduction and what their cost will be.

However, before developing reward strategies first need to consider the major objectives that
employers and employees have as far as their reward package is concerned. While meeting each
of these effectively is a prerequisite for the long-term success of any reward strategy, the
significance of different objectives varies over time because of changing environmental
conditions and also varies between organizations. According to Torrington and Taylor (2008),
there are also several different alternative means available of meeting each objective. Reward
strategies and the initiatives developed as part of those strategies should be judged according to
their ability to meet certain core objectives.

Employer Objectives

I. Attracting staff The reward package on offer must be sufficiently attractive vis-à-vis that
of an organization’s labor market competitors to ensure that it is able to secure the
services of the taff it needs. The more attractive the package, the more applications will
be received from potential employees and the more choice the organization will have
when filling its vacancies.
II. Retaining Staff The costs associated with recruiting and developing people, as well as
the growing significance of specialist organizational knowledge in creating value and
 maintaining competitive advantage, mean that retaining effective performers is a central
aim of reward strategy in many organizations, particularly those competing in
knowledge intensive industries where highly qualified people are in short supply. This
requires a package which is attractive enough to prevent people from becoming
dissatisfied and looking elsewhere for career development opportunities. It may also
involve the development of policies which reward seniority so as to provide an incentive
for staff to stay when they might otherwise consider applying for alternative work.
III. Motivating Staff Aside from helping to ensure that effective performers are recruited
and retained, in more general terms it is necessary that the reward package they are
given serves to motivate positively and does not demotivate. The question of the extent
to which money ever can positively motivate has long been debated by occupational
psychologists, many of whom accept that the power of monetary reward to motivate is
very limited, at least over the longer term. What is not in doubt, however, is the very
considerable power of poorly designed or implemented reward practices to demotivate,
particularly when they are perceived by staff to be inequitable in some shape or form. In
this regard, the total reward concept referred to above has plenty to offer as it
incorporates intrinsic motivators alongside extrinsic motivators.
IV. Driving Change Pay can be used specifically as one of a range of tools underpinning
change management processes. The approach used is to tie higher base pay, bonuses or
promotion to the development of new behaviors, attitudes or skills gained by employees.
Pay works far more effectively than simple exhortation because it provides a material
incentive to those whose natural inclination is to resist change.
V. Corporate Reputation

Aside from the aim of developing and maintaining a reputation as a good employer in the labor
market, organizations are increasingly concerned to establish a positive corporate reputation
more generally. Paying poorly or having in place policies which are perceived as operating
unfairly serves to undermine any reputation gained for being either a prestigious organization or
one which acts ethically and in a socially responsible manner.

VI. Affordability The above objectives are all desirable for organizations and form the basis of
their reward strategies. But in this field of HR activity there is a major restriction in the shape of
affordability which serves to limit what can be done at any time. The extent to which particular
objective is affordable also varies over time and tends to be unpredictable as so much depends on
the current financial performance of the organization.

Employee Objectives Many might think that employees have only one objective as far as reward
is concerned, namely to maximize the amount that they earn. Indeed some theorists further argue
that employees are primarily interested in maximizing the amount they earn while also
minimizing the effort they put in to achieve these earnings. In fact for most employees aims are
more diverse and more subtle, particularly when the full range of elements that make up a total
reward package are taken into consideration.

2.8. Performance

Herzberg (1959) says having fewer dissatisfies does not motivate a worker to do a good job, but
only to stay in it. Worker performance clearly depends on their level of motivation, which
stimulates them to come regularly, work diligently, be flexible and be willing to carry out the
necessary tasks. The performance and quality of banking service depends on the quality and
motivation of banking human resources. Therefore, bankers‟ motivation is likely to have effect
on the delivery of banking service and the outcome on customer care and performance of work
(Whetten and Cameron, 1998).

Employee Performance

Employee performance has been shown to have a significant positive effect on organizational
performance. One of the major pitfalls in an organization occurs when managers believe their
organizations are constantly operating at the highest level of efficiency, or that they do not
require input from their employees.

Whetten and Cameron (1998) state that Employee performance is the product of ability
multiplied by motivation. Furthermore, Cummings and Schwab (1973) concur with the belief
that performance is ultimately an Employee phenomenon with environmental factors influencing
performance primarily through their effect on the Employee determinants of performance –
ability and motivation.

Theorists have divided employees’ performance in two categories: task performance and
dispositional performance. Task performance is defined as tasks and responsibilities of each
person and related directly to all things that must be done by that person such as monitoring
absent or present employee. Proper understanding of this needs definite standards. The other
performance is dispositional which help organizational and social network to survive (Kwong,
2003).

In many companies, the guaranteed annual increase has vanished, being replaced by an increase
based on individual performance. This has been the case for most financial institutions, including
the Nationwide Building Society (Stredwick, 2005).

2.9. Empirical Studies

The research conducted by Lemessa Duffera (2012) assessed the compensation management
practices of CBE, Data were collected through questionnaire prepared based on various scholar
work. The validity of the instrument was checked by CBE’s HR professionals, Branch managers,
graduate program student and university lecturer. The result of the study showed that CBE
employees’ perceive they are treated equally both internally and externally. In addition, majority
of the employees are motivated with CBE non-financial compensation than financial
compensation. Besides, majority of the employees perceive that CBE labor union has been acting
as nominal figure and it is inactive in most compensation management decision of the
organization mainly because of the truth that its financial resources and related affaires was
handed by the bank officials.

A research was also conducted by Alem Eyob (2015) on Assessment of reward management
practices in Commercial Bank of Ethiopia. The pay, promotion, and benefit practices of the bank
are assessed from various reward management dimensions. In doing this, the alignment,
transparency, equity, fairness, competitiveness, flexibility, and some other aspects of the existing
reward practices are valued based on employees’ opinion. The findings of the study showed that
CBE is successful in providing intrinsic rewards than extrinsic rewards and With regards to
equity relatively CBE has achieved in ensuring internal equity than external equity. Also some
transparency aspects of CBE seems to be poor .CBE is successful in insuring consistency of pay
but in case of alignment , alignment of reward management strategy with the HR strategy is
poor. The overall ratings of the respondents’ response regarding the general reward management
practice of the bank showed disagreement.

Tamene H/Mariam (2015) conducted a research on Assessment of reward management practices

in Cooperative Bank of Oromia S.C. After a detailed assessment of different aspects of reward
management practice, the result of the research work revealed that many aspects of the reward
management practices of the bank are exercised poorly except some aspects in relation to
promotion and benefit administration. The results additionally showed that promotion is much
important factor for employee motivation as compared to other variables factors like, working
condition, work content and benefits.

2.10. Conceptual Framework

A conceptual framework refers to the extent a researcher conceptualizes to be the relationship

between contextual variables in the study and shows the relationship graphically or
diagrammatically (Mugenda & Mugenda, 2003). The relationship describes the association
between the independent variables and the dependent variables.

The conceptual model below was formulated carefully by the researcher after reviewing various
literatures. This model will guide in understanding of the subject throughout this research.

This framework sees rewards system as being made up of intrinsic rewards and extrinsic
rewards. The intrinsic and extrinsic rewards will serve as independent variable while employee
performance will be the dependent variable.
 CHAPTER THREE

3. RESEARCH DESIGN AND METHODOLOGY

This chapter describes the logical sequence of methods and procedures that will be employed in
collecting information as well as the justification of the choices and their use. This will include
the area of the study, research design, the target population and the sample size , the research
instruments used, reliability and validity of the instruments, data collection procedure and data
analysis.

3.1 Research Design

Research design is a comprehensive plan for data collection in a research project. It is a

“blueprint” for empirical research aimed at answering specific research questions or testing
specific hypotheses (Samy Tayie, 2005).It involves a series of rational decision-making choices.
The research design was devised following a number of the researcher’s decisions associated
with the purpose of the study. In other words, the research design is the step aimed at designing
the research study in such a way that the essential data can be gathered and analyzed to arrive at
a solution (Sekaran 2003).

This proposed Study will be use descriptive research design as it appears to be more appropriate
in exploring the effects of the reward practices on employee’s job performance of the case bank.
It determines and reports the way things are in describing the possible behavior, attitude, values
and characteristics of the respondents will be using questionnaires as the appropriate tool.

This study will be used both the quantitative and qualitative research approaches (mixed or
combined approach) so that relevant and accurate information could be obtained. Quantitative
research uses objective measurement and statistical analysis of numeric data to understand and
explain a phenomenon. Quantitative method will be used for the questionnaires developed to the
employees of the bank. Qualitative method will be applied for the open ended interview
questions to the managers of the sample departments.
3.2 Source of data
This study will be collected from both primary and secondary source of data, the primary data
will be collected from the employees and manager of the bank and secondary data will be
collected from writing materials such as book, magazines and other bank documents.

3.3 Method of data collection

In order to get sufficient and relevant information about the topic under investigation, the study
will use both primary and secondary data, the primary sources of data will be employed which is
questionnaire and semi structured interview with management staffs. Questionnaires are data
collection instruments through which subjects responds to questions or statements that generally
require factual information (Sekaran, 2003). A questionnaire with closed-ended questions will be
used in data collection and Secondary data will be collected from documents.

3.4 Sampling technique

The study would emphasize on Simple Random sampling technique for the selection of
respondents from the total customer of the bank. This method is the most appropriate because it
provides equal probability of being selected in order to achieve the desired representation from
sampling frame and bears low cost; and less time consuming so, this sampling technique is more
preferable to attain this study.

3.5 Sample size

The sample size will be determined on total population and take sample. The researcher select 25
employees of Awash Bank at Chiro branch including its managers of the bank will be selected as
sample size to conducting this proposed study.

3.6 Data analysis and presentation

After collecting the relevant data from questionnaires and interview from the manager then this
data will analysis through table and computation of percentages. Data processing involves
editing and classifying the collected raw data in the data analysis .Descriptive analysis is used in
the data analysis because of its simplicity and clarity for percentage of computations will be
extensively employed for analysis purpose.
 CHAPTER FOUR

4. BUDGET AND TIME SCHEDULE

Time plan or time budget is a time table explaining how the researcher expected to carry out his project.
It is a plan in terms of months and expected completion.

Dates, it is presented in the table form or charts in the following schedule.

N Activates Time Periods/months Time Periods/months Time Time

o Periods/moths Periods/month

May June July August

1 Title Selection XX

2 Proposal writing XX

3 Proposal XX
submission

4 Data Collection XX

5 Data processing XX
and analyzing

4.1 TIME SCHEDULE

 4.2 Cost Budget
Activities Unit Unit cost/Birr/ Total cost/Birr/

Transportation cost 3 30.00 90.00

Secretarial service for writing Proposal 250.00 250.00

Pays of researcher for:- food, tea and etc. 3 50.00 150.00

Pen 5 5.00 25.00

Pencil 2 5.00 10.00

Paper 25 1.00 25.00

Printing costs for getting related document, 19 pages 3.00 57.00

Floppy disk 1 12.00 12.00

Sub-total cost 625.00

Contingency (10%) 250

Total Cost 1494

NB. The above proposed cost will be covered by my self

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