RELATIONSHIP BETWEEN TOTAL REWARD AND EMPLOYEE PERFORMANCE

Paper Presented
on
Relationship between Total Reward and
Employee Performance in Organisations
in Kenya
Presented by David M.
Mwakidimi

Abstract
• The nerve center of any organization is its human resource, the people who
work for it. Progressive organizations are constantly working towards
achieving increased high performance through various tools and strategies
characterized by increased investment by employers in their employees.
Reward and related practices is one of the fundamental tools through which
organizations invest in their employees, with the main objective being to be
able to procure, maintain and retain good, efficient, motivated and high
performing employees.
• The aim of this study is to investigate the relationship between total rewards
and employee performance and it is based on secondary research data from
annual reports, internet, journals and books. The literature review attempts to
identify and explain the concepts of reward, total rewards, and motivation and
tackle the complexity of defining and measuring employee performance.
• Based on the study, the research findings indicate a strong and positive
correlation between total rewards and employee performance.
• KEY WORDS: Total Rewards, Reward Management, Reward Systems
Intrinsic and Extrinsic Rewards

Introduction
• Main objective of most organisations – to attract, maintain
and retain , good, efficient, motivated and high performing
employees
• Approaches adopted to do so include:- goal setting,
feedback, job design, increased involvement of
employees in decision making and appropriate rewarding
among others.
• With this approaches its expected the relationships
between employees and employers to be stronger and
maximization of employee performance

Objective of Study
• This study seeks to find out the relationship between total
rewards and employee performance

Literature Review
• Reward is the “oil” of the entire HR process” Shields
(2007)
• Reward is the
• Reward Management is concerned with the
formulation and implementation of strategies and
policies that are to reward people fairly, equitably and
consistently in accordance with their value in the
organisation. (Armstrong & Murlis, 2004)
• Other components of reward systems include
a) Organisation strategy
b) HR Strategy
c) Pay and Grade structure
d) Performance Management
e) Total Remuneration

Reward Management System :Elements and
Interrelationships (Armstrong:2007)
Non-Financial
Rewards
Performance
Management
Allowances
Employee Benefits
Business & HR
Strategy
Reward Strategy
Contingent Pay
Market Rate
Analysis
Grade & Pay
Structure
Total
Remuneration
Total Reward
Job Evaluation
The Reward Management System : Elements & Interrelationships
(Source Armstrong – 2007)

Total Rewards
• End product of a reward system and consists of
a) Direct/Extrinsic/Transactional Rewards e.g. Base pay, benefits
packages inline with pay.
b) Indirect/Intrinsic/Relational Rewards e.g. Opportunities for career
advancement, upgrading of skills etc
• Total rewards typically encompass not only traditional
quantifiable elements like salary, variable pay benefits but
also intangible non-cash elements like scope to achieve
and exercise responsibility among other, Thompson
(2002)
• Since organisations & HR practitioners have to
accommodate and address the diverse needs of
employees in organisations and the diverse ways in which
individuals are motivated to work thus the importance of
total reward.

Motivation
• Goal Directed Behaviour
• People are motivated when they expect that a course of
action is likely to lead to the attainment of a goal and a
valued reward, one that satisfies their needs and wants.
• Types of Motivations
a) Intrinsic motivation – motivation not generated by factors
external but by aspects such as work itself.
b) Extrinsic motivation – this occurs when things are done
to or for the employees that motivate them e.g. Increased
pay.

Theories of Motivations
• Maslow’s Theory
-Employees always behave in order to work their way up the
hierarchy.
-Higher order needs are only influential when lower order needs
are met.

Theories of Motivations cont....
• Implication of theory to total reward – Employers need to
clarify at which level of needs each employee is then
accordingly build reward systems and propositions.
• Criticism of Maslow’s theory – weak and inconsistent
foundation in its arguments on satisfying of needs on the
hierarchy.

Herzberg's Two-Factor Theory
• Created two lists of factors with regard to motivation
a) Hygiene factors – this prevent dissatisfaction amongst
employees but cannot be used to create long lasting
motivation.
b) Motivators – are the main source of deeper and longer
lasting employee satisfaction

Herzberg's theory contd......
• Implication to total reward
a) Hygiene factors – related to extrinsic rewards in total
rewards.
b) Motivators – related to intrinsic rewards in total rewards.

Job Characteristic Model: Hackman &
Oldham
• Put emphasis on job characteristics as the source of the
intrinsic elements of rewards which then lead to positive
outcomes both at the organisational and individual levels.

Employee Performance
• This is the accomplishment, execution , carrying out of
anything ordered to undertake.
• Employee performance is the timely, effective and efficient
completion of mutually agreed targets by employees as
set out by the employer, Charity Tinofirei (2011).
• Employee performance can be looked at on 3- levels of
a) Personal level – results in terms of quality and quantity
of individual work
b) Group level – in terms of quality of group output and also
its productivity.
c) Organisational level – in terms of profitability of the
organisation, market share , customer satisfaction etc

Conceptual Framework
• The following conceptual framework is formulated to
illustrate the relationship between total reward and
employee performance
Independent variable Dependant Variable
• Total rewards that are comprehensive in considering the
various motivators of employees in the organisation are
expected to lead to increased job satisfaction and trigger
the desired behaviour which will push employees to seek
attainment of certain goals by taking specific actions. This
actions are the desirable performance.
Total Reward
-Extrinsic Rewards
-Intrinsic Rewards
Motivation Employee
Performance

Research Methodology
• This study is a desk – study research based on the survey
of the literature and contributions by other scholars and
writers on the relationship between rewards and employee
performance. Sources include papers presented in
academic and management journals and books.

Reward and its Significance in Employee
Performance
• Tze San Ong and Boon Heng Feh (2012), in study of 105
manufacturing firms in Malaysia found positive
correlation/relationship between intrinsic rewards and
financial performance of the organisations
• However negative relationship observed between extrinsic
reward and financial performance of the organisations.
• Sigler K.J. (2011), in study of 280 in NSE found a positive
and significant relationship between the C.E.O’s rewards
and organisation performance
• Namasivayam et al (2007), conducting online survey of
1223 US hotels concluded there is a positive relationship
between salary and individual benefits and organisational
performance

Reward and its Significance in Employee
Performance contd...........
• Qureshi M.I. Et al (2007), where they studied the
relationship between rewards and employee performance
in cement industry in Pakistan, from the results they
concluded that there is a direct relationship between
extrinsic, intrinsic rewards and employee performance

Conclusion
• In conclusion, its clear from the study that:
1. Reward is very critical and central activity in the human
resource management function in any organisation.
2. There is a general direct/positive relationship between total
rewards and employee performance.
3. Extrinsic rewards are however limited in terms of being able
to satisfy and motivate employees to perform better in the
long –run.
4. Through embracing a total reward approach to
management of rewards, organisations are able to address
diverse needs of employees in their organisations and the
diverse ways in which individuals are motivated to work.

Recommendations
• Consequently organisation management and hr
practitioners:
1. In designing reward systems should ensure that such
systems are linked to the overall business and hr
strategies of the organisations for effectiveness and long-
term success of the organisation.
2. Should ensure that they develop rewards strategies,
systems and products that are able to cater to the diverse
motivation needs of their employees.
3. Should ensure that they put more emphasis on intrinsic
rewards besides the monetary rewards in order to
motivate and improve employee’s job performance.

References
Armstrong, M. (2004).A Handbook of Human Resource Management Practice, 9th Edition. London: Kogan Page.
Armstrong, M. and Murlis, H. (2004). Reward Management: A Handbook of Remuneration Strategy and Practice,
4th Edition. London: Kogan Page.
Manus, TM. And Graham, MD. (2003). Creating a Total Reward Strategy. New York: American Management
Association.
Mathis, R.L. and Jackson, J.H. (2008). Human Resource Management. 12th Edition. Mason OH. United States of
America.
Murlis, H. (2004). Managing Rewards. In: Rees, D. and McBain, R. Editor. People Management Challenges and
Opportunities. New York: Palgrave Macmillan
Murphy, KS. And Murrmann, S. (2009). The research design used to develop a high performance management
system construct for US restaurant managers. International Journal of Hospitality Management, Vol. 28, pp. 547
– 555.
Namasivayam, K. Miao, L and Zhao, X. (2007). An Investigation of the relationship between compensation
practices and firm performance in the US hotel Industry. Hospitality Management, Vol.26, pp 574 – 587.
Ong, T.S. and Teh, B.H. (2012). Reward System and Performance within Malaysian Manufacturing Companies.
World Applied Sciences Journal.pp 1009 – 1017.
Pfeiffer, J (1998). Six dangerous myths about pay. Harvard Business Review, pp 109 – 119.
Pratheepkanth, P. (2011). Reward System and its Impact on Employee motivation in Commercial Banks of Sri-
Lanka Plc in Jaffna District. Global Journal of Management and Business Research, Vol. 11, pp 84- 92.

References contd.............
Qureshi, M.I. Zaman, K. and Shah, I.A. Relationship between Rewards and Employee’s Performance in the Cement
Industry in Pakistan. Journal of International Academic Research. Vol10. No. 2, pp 19-29.
Shields, J. (2004). Managing Employee Performance and Reward Concepts, Practices, Strategies. New York: Cambridge
University Press.
Sigler, K.J. (2011). CEO Compensation and Company Performance. Business and Economics Journal, Vol. 2011.
Thompson, P. (2002). Total Reward, (CIPD), London.
Tinofirei, C. (2011). The Unique factors affecting employee performance in non-profit organizations. Available as:
http://www. [Accessed on 25th February 2012].
Vroom, V.J. (1964). Work and Motivation, New York: Wiley

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