Reward Systems
Armstrong and Murlis (2004) defined reward systems as the process of formulating and
implementation of strategies and policies that aim to reward people fairly, equitably and
constantly in accordance with their value to the organization. It also deals with the design,
implementation and maintain of reward processes and practices that are geared towards the
improvement of organizational, team and individual performance.
Literally, according to the above definitions reward management is a motivational tools use in
appreciating employees on the efforts contributed to the organisation. Which means reward
could be interchanged as compensation, remuneration, or explicit price of labour. Reward
management is more concerned with people (employee) and the value they create in the
organisation (Schneider 1987). For organisations to achieve a highly committed business
environment and its overall business goal, a reward strategy must be developed to ensure that the
contribution people make to achieving organisational or team goals are valued, recognised and
rewarded (Armstrong 2010). According to Byars and Rue (2005), rewards are of two types, the
extrinsic reward and the intrinsic reward. Rewards in this study were categorised as intrinsic and
extrinsic rewards.
Intrinsic Rewards
Intrinsic rewards are derived from the content of the task itself and include such factors as
interesting and challenging work, self-direction and responsibility, variety, creativity,
opportunities to use one’s skills and abilities, and sufficient feedback regarding the effectiveness
of one’s efforts (Mottaz, 1985). According to (Ryan & Deci, 2000), Intrinsic motivation is
defined as the doing of an activity for its inherent satisfaction rather than for some separable
consequence. When intrinsically motivated, a person is moved to act for the fun or challenge
entailed rather than because of external products, pressures or reward.
Intrinsic rewards are those that exist in the job itself. Examples are achievement, variety,
challenge, autonomy, responsibility, and personal and professional growth. They also include
status, recognition, praise from superiors and co-workers, personal satisfaction, and feelings of
self-esteem (Mahaney & Lederer, 2006). Employees are thought to be intrinsically motivated to
work hard to produce quality results when they have pride in their work, they believe their
efforts are important to the success of the team, and their jobs are fun, challenging, and
rewarding (Mahaney & Lederer, 2006).
Extrinsic Rewards
According to Kenneth Thomas (2009) extrinsic rewards are the tangible rewards given to
employees by managers, such as pay raises, bonuses and benefits. They are called extrinsic
because they are external to the work and other people control their size and whether or not
they are granted. Extrinsic motivation thus contrasts with intrinsic motivation, which refers to
doing an activity simply for the enjoyment of the activity itself, rather than its instrumental
value (Ryan & Deci, 2000). Extrinsic rewards comprise such elements as pay, fringe benefits,
job security, promotions, private office space, and the social climate. Other examples include
competitive salaries, pay raises, merit bonuses, and indirect forms of payment as compensatory
time off (Mahaney & Lederer, 2006).
Reward system should match with the organizational culture and strategy in order to achieve
sustainable competitive advantage. Reward systems are strategically designed when rewards are
linked to activities, attributes and work outcomes that support the organization’s strategic
direction and that foster the achievement of strategic goals. Such linkages can lead to increased
employee knowledge or skill development, flexibility, commitment, retention and productivity.
Reward systems are likely to have a direct effect on the direction of employees’ individual
attention and effort.
Extrinsic rewards are used to show that the company is serious about valuing team contributions
to quality. The monetary rewards consist of a cash bonus allocated to each team member. The
team bonus would be given separately from the salary. On the other hand, team rewards must be
used in ways that avoid destroying employees’ intrinsic motivation to do their job. The need for
continuous improvement requires employees to be innovators; devising novel solutions that
improve a work process or that delight the customer. The use of extrinsic rewards that are tightly
linked to team performance may teach team members to become money hungry and undermine
their intrinsic interest in the work itself (Balkin & Dolan, 1997).
The equity theory by Adams (1965) recognises that individuals are concerned not only with the
rewards they receive for their efforts, but also compare their rewards with what others receive.
The theory is founded on people’s perception of fairness or equity which is usually subjective.
The Equity theory posits that employees seek to maintain equity between the input that they
bring into a job such as education, time, experience, commitment and effort and the outcome
they receive such as promotion, recognition and increased pay against the perceived inputs and
outcomes of other employees (Spector, 2008). Equity theory proposes that individuals who
perceive themselves as either under- rewarded or over-rewarded will experience distress, and
that this leads to efforts to restore equity within the organisation. Failing to find equity according
to, Hellriegel, et al (2004) may make them behave in ways that will harm the organisation.
Farms are able to lower employee turnover by paying workers a wage premium- a wage that is
above the wage paid by other organizations for comparable employee. A wage premium may
enhance productivity by improving nutrition, boosting morale, encouraging greater commitment
to firm goals, reducing quits and the disruption caused by turnover, attracting higher quality
workers and inspiring workers to put forth greater effort (Goldsmith, Veum & Darity, 2000). As
a result, people are attracted to well-paying jobs, extend extra effort to perform the activities that
bring them more pay, and become agitated if their pay is threatened or decreased (Stajkovic &
Luthans, 2001). Based on the empirical researches, (Zaman, 2011; Qureshi et al.,2010; Hashim,
2011) most tested extrinsic reward variables are pay, bonus, benefits and promotions and
intrinsic variables are recognition, career advancement, responsibility and learning opportunity.
Therefore the current research focused to identify the impact of the above extrinsic and intrinsic
variables on employee turnover. In spite of the fact that compensation can enhance retention,
some studies have also found that compensation in the form of base or variable pay may not be
sufficient to attract or retain employees. For instance, Milman and Ricci (2004) concluded that
significant predictors of retention included intrinsic fulfilment and working conditions rather
than monetary rewards.
Similarly, the study by Walsh and Taylor (2007) revealed that although compensation is
important, the absence of opportunity for growth and development that affects retention and
turnover of management level employees. Reward system is a requirement of any
organization to retain and hire the most suitable employee to gain competitive edge in a
competitive environment. Reward system inspires employees to work harder and faster
because employee needs motivation to put extra effort on their task (Armstrong, 2008).
Organisations must see rewards as essential and increase their commitment to use it as an
effective tool in retaining talents. In a study conducted by Chew and Chan (2008) remuneration
or compensation predicted organisational commitment and intention to stay. The results of this
study can be generalized in Australia and Europe because it involved nine large organisations
from both private and public sectors and had about 475 respondents. Hong, et al., (2012)
found that, compensation is significant to employee retention. The retaliatory measures by
employees who think they are unfairly rewarded may include, withholding effort and reducing
work inputs, displaying feelings of hostility to co-workers and the organisation itself, and
seeking salary increases, challenging superiors about tasks assigned, as well as quitting the job
and seeking an alternative. All these options have implications for an organisation.
Numerous rewards systems operate within organizations. The Baldrige Award winners reveals a
variety of formal and informal, monetary and non-monetary rewards for individuals and teams
who contribute to the quality effort (Blackburn and Rosen, 1993). The structure and allocation of
rewards may affect the motivation of individual team members, and the inclusion of rewards is
central to many models of work group effectiveness (Kerrin and Oliver, 2002: 322). It is seen in
the literature that reward practices of businesses are mostly analyzed under the classification of
intrinsic and extrinsic rewards (Mottaz 1985, Mahaney and Lederer, 2006).
Report of Ethical Trading Initiative involvement 2002-2004 cited an international academic
research project that included a case study in Kenya found many problems in the cut flower
industry. These problems include Low basic rates of pay per day on some farms as low as KSH
64 in 2002, equivalent to 50p per day. This cannot sustain anybody with the current fast
growing economy. No pay slips received, just cash in hand. Lack of severance pay owing not
paid, when laid off, no payment received for previous days working. Deductions made from
wages or unfair dismissal when pay is questioned. Medical expenses deducted from salary.
Overtime payments not correctly paid. Workers sacked when they do not agree to work
overtime. Workers required to work long hours at short notice when large orders come in, with
little right to refuse. In some cases, up to 15 hours worked per day at peak season with only
break being one hour lunch. Hardly were lunch break there when there is a big order, yet this is
when long hours are worked.
The literature reviewed in this sub section so far concentrates on descripancies in reward systems
in organizations and in flower farrns generally. Little attempt has been made to relate intrinsic
and extrinsic rewards to labour turnover in the flower industry, particularly in North Rift. This
study aims at examining the role of intrinsic and extrinsic rewards as a human resource practice
on employee turnover.
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