Intrinsic And Extrinsic Rewards Defined Business Essay

Intrinsic And Extrinsic give backs Defined Business try outThis chapter impart review the academic literature undeniable to study the determine topic. The key argonas for discussion ar on subjective inessential compensates, expectoffs schemes strategies and theories on motive.2.1 Intrinsic and Extrinsic wagess delimitate avenges asshole be treated as whatever offerings in addition to pay. Traditional punish systems were based on positions and prospicientevities. provided in a flash a days profit sh atomic number 18-out, gain sharing and stock option plans be be practiced as a final remuneration. Modern avenge systems include stock grants, certificate of appreciation, even private thank you notes (Nelson, 1994).According to Walker et al (1979), requites be classified into extraneous and intrinsic rewards. Extrinsic rewards include underlying salary and allowances which is makeed to put make psychological and safety inescapably. Intrinsic rewards h elp individualistics flavourings and perceptions almost the job note which is filled to fulfill self-esteem, competency, self-actualization etc. thither ar several fiscal rewards commonly open up in sales compositions atomic number 18 salary and commission, bonus, flush benefits, stock options, retirement plan which fulfills both extrinsic and intrinsic need of employees.Coli (1997), describes classification of reward and recognition under third types of rewards. They are m onetary, awards and give voicemental rewards. Monetary rewards includes individual bonus for project completion, stock grants, science-based pay, gain sharing, tar reached impart cash, special individual increase, non-discretionary incentives for the beginning of the project etc. According to Lyons Ora (2002), fiscal surgical procedure includes basic salary, protean pay, contrasting fees, perquisites and benefits.Different individuals hold divers(prenominal) perceptions of rewards. For insta nce, some individuals whitethorn flier cash as a enough and adequate reward for their parturiencys at work, while others may consider holidays and signifi offert incentives (such(prenominal) as a car) as to a greater extent recognise in exchange for their work. Others still, may consider a shift in the treatment that they attempt from their superstarers to be a more rewarding experience. For instance, some employees consider being recognized by their leader as more rewarding than monetary incentives (La Belle, 2005).2.1.1 What are Financial Rewards?Zammit (2004), best described fiscal rewards. A reward system is an integrated alterment to reward employees according to their share, skill and competence and their market worth.The author classified four types of pecuniary reward. introductory salary consummation related payall(a)owancesOther financial rewardsThe basic salary is determined according to management position, standard of living, job market, fashioning of t he receivers. The dimensions of mental go consist of bonuses, commissions and special skills. Allowances are most commonly provided for substitution, workstation take away and transportation, free or discounted benefits, cultural or religious holidays, telecommunications. Other financial rewards are mostly practiced by offering stock options, expect schemes.2.2 Reward schemeReward strategies provide answers to both basic enquirys for an disposal Where do we want our reward practices to be in a a few(prenominal) years time? and How do we intend to get in that location?. Therefore, they hired man with both ends and sum. Ends they describe a vision of what reward kneades allow look like in a few years time and means on the expectation of how the vision lead be realized.2.2.1 Reward strategy specifyReward strategy is eventually a way of idea that you contri thate apply to any reward issue arising in your transcription, to sympathise how you can get treasure from it (Brown, 2001). Reward strategy is a solvent of intent which defines what the organization wants to do in the longer term to develop and implement reward policies, practices and influencees which will further the carry outment of its fear finishs and go through the needs of its stakeholders. It provides a sense of purpose and direction and a framework for development reward policies, practices and process. It is based on an intellect of the needs of the organization and its employees and how they can best be satisfied. It is to a fault concerned with developing the nurse of the organization on how pot should be rewarded and formulating guiding principles which will operate that these care fors are enacted.Reward strategy is underpinned by a reward philosophy which expresses what the organization believes should be the basis upon which plurality are precious and rewarded. Reward philosophies are often articulated as guiding principles.2.2.2 The essence of reward st rategyReward strategy may be a broad-brush affair simply indicating the ecumenical direction in which it is thought reward management should go. Additionally or alternatively, reward strategy may muckle out a list of specific intentions dealing with particular aspects of reward management.Broad-brush reward strategy (Armstrong (2007), pg. 635)A broad-brush reward strategy may practise the organization to the pursuit of a total rewards policy. The basic come power be to achieve an appropriate balance mingled with financial and non-financial rewards. A further submit could be to use other surfacees to the development of the enjoyment relationship and the work environment which will enhance commitment and interlocking and provide more opportunities for the contri aloneion of slew to be precious and recognized.Examples of other broad strategic aims include1. Introducing a more integrated improvement to reward management encouraging continuous personal development and spell o ut career opportunities2. Developing a more flexible approach to reward which includes the reduction of artificial barriers as a reply of over-emphasis on grading and promotion3. Generally rewarding people according to their contribution4. Supporting the development of a performance culture and building levels of competence5. Clarifying what behaviors will be rewarded and why.2.2.3 Specific reward initiativesAs cyclooxygenase and Purcell (1998) write The real benefit in reward strategies lies in coordination compound linkages with other homo resource management policies and practices. The selection of reward initiatives and the priorities given over to them will be based on an analysis of the present fate of the organization and an assessment of the needs of the business and its employees. The chase are examples of feasible specific reward initiatives, one or more of which might induce in a reward strategy The replacement of present methods of point pay with a pay for cont ribution scheme The introduction of a new grade and pay mental synthesis, e.g. a broad-graded or career family structure2.2.4 Developing reward strategyThe formulation of reward strategy can be described as a process for developing and define a sense of direction. The main phases are1. The diagnosis phase, when reward goals are agreed, current policies and practices assessed against them, options for improvement considered and any changes agreed.2. The detailed name phase when improvements and changes are detailed and any changes tested (pilot testing is important).3. The final testing and readiness phase.4. The implementation phase, followed by ongoing review and modification.2.2.5 Implementing reward strategyThe aim of implementation is to make the reward strategy an operating reality by building the capacity of the organization to put into practice the proposals worked out in the development stage. As Armstrong and Brown (2007) stress It is of all time essential to form with implementation in mind.Purcell (1999), believes that the focus of strategy should be on implementation. As explained by Thompson and Strickland (1990) Implementation entails converting the strategic plan into action and then into leave alones. An utile reward strategy is a living process and, in the language of Rosabeth Moss Kanter (1984), an action vehicle, formulation is easy implementation is hard. A pragmatic approach is required whats good is what works.Implementing reward strategy is much more about process than fig how it will be done quite an than what will be done. The principles of procedural and distributive expertice apply. population must feel that the procedures used to determine their grades, pay level and pay progression are fair, equitable, applied orderedly and transparent. They must also feel that the awards distributed to them are just in terms of their contribution and value to the organization.2.3 Rewards management strategy definedReward management is concerned with the formulation and implementation of strategies and policies in coiffe to reward people fairly, equitably and consistently in accordance with their value to the organization.As Duncan Brown (2001) emphasizes, the alignment of your reward practices with employee values and needs is any bit as important as alignment with business goals, and full of life to the realization of the latter. It deals with the development of reward strategies and the design, implementation and maintenance of reward systems (reward processes, practices and procedures) which aim to meet the needs of both the organization and its stakeholders. Rewards can be regarded as the fundamental expression of the employment relationship.2.3.1 The aims of reward managementArmstrong and Brown (2006), pg.33, identifies the quest Reward people according to what the organization values and wants to pay for. Reward people for the value they create. Reward the undecomposed things to convey the function m essage about what is important in terms of behaviors and outcomes. Develop a performance culture. Motivate people and obtain their commitment and engagement. Help to attract and hold back the high quality people the organization needs. Develop a corroborative employment relationship and psychological contract. range reward practices with both business goals and employee values. Operate fairly people feel that they are treated justifiedly in accordance with what is due to them because of their value to the organization (the felt-fair principle of Eliot Jacques (1961)).The basics of reward managementRecognizing the importance of the part played by business enterprise managers in implementing reward strategy and the need to ensure that they are move and assimilate the necessary skillsPaying c digest and continuous attention to communicating with employees and involving them in the development as well as the implementation of reward strategyBeing absolutely clear about the objec tives of the strategy and mulish about evaluating its goodness.The following Reward strategies theories can be applied when developing a reward scheme in an organization.Pay people right (Zingheim and Schuster)Zingheim and Schuster (2000) realise laid down the following six principles for paying people right1. Create a positive and natural reward experience.2. Align rewards with business goals to achieve a win-win partnership.3. Extend peoples line of sight between effort and outcome, motivating smart works over simply using up extra effort.4. immix reward with strategic aims and the kind of contribution desired.5. Reward individual ongoing (input) value to the organization with base pay.6. Reward results (outputs) with variable pay.Dynamic pay (Flannery, Hofrichter and Platten)Flannery, Hofrichter and Platten (1996) expounded the concept of dynamic pay and suggested that the nine principles that control going a successful pay strategy are1. Align compensation with the organ izations culture, values and strategic business goals.2. Link compensation to the other changes.3. magazine the compensation programme to best support other change initiatives.4. Integrate pay with other people processes.5. Democratize the pay process.6. Demystify compensation.7. card results.8. Refine. Refine again. Refine some more.9. Be selective. Dont take to light upont everything you hear or read about pay.2.3.3 Components of an in effect(p) reward strategyAn powerful strategy is one in which there are clearly defined goals and a well-defined link to business objectives well-designed pay and reward programmes, adapt to the needs of the organization and its people, and consistent and integrated with one another and utile and supportive HR and reward processes in place.Brown (2001) has suggested that effective reward strategies yield three components1. They pick up to have clearly defined goals and a well-defined link to business objectives.Recognize the value of everyon e who is make an effective contribution, not just the exceptional performers.Allow a reasonable arcdegree of flexibility in the operation of reward processes and in the choice of benefits by employees.Devolve more state for reward decisions to line managers.2. There have to be well-designed pay and reward programmes, tailored to the needs of the organization and its people, and consistent and integrated with one another.3. Perhaps most important and most neglected, there needs to be effective and supportive HR and reward processes in place.Armstrong and Brown (2006), have further suggested the following approach to reward strategy. This has the following characteristicsAppreciating that a good strategy is one that works and therefore rivet on implementation programmesPlanning with implementation in mind recognizing during the design process that plans have to be converted into reality and taking travel to anticipate the problems complexAligning reward strategies with the busi ness and HR strategiesEnsuring that reward strategy fits the culture and characteristics of the organization, meets business needs and takes account of individual needs and p creditsBeing aware of good practice elsewhere but not being seduced by the notion that it is best practice, i.e. universally applicable and well replicatedPaying more attention to using strategic reward initiatives to support the engagement and commitment of people so that they are sparkd and productive, preferably than focusing on the mechanics of new reward fadsBearing in mind that the development and implementation of reward strategy is an evolutionary process it is about doing things better at a manageable pace rather than extraordinary new developmentsProviding flexibility within a framework, i.e. developing a flexible approach to the reward of different people but always within a framework that provides for consistent treatmentAppreciating that implementing reward strategy will require a comprehensive change management programme.2.4 What is penury? some(prenominal) contemporary authors have defined the concept of penury as the psychological process that gives behavior purpose and direction (Kreitner, 1995) a angle of inclination to behave in a purposive method to achieve specific, unmet desires (Buford, Bedeian, Lindner, 1995) an interior(a) force to gratify an unsatisfied need (Higgins, 1994) and the will to accomplish (Bedeian, 1993).In this study, motivation is operationally defined as the inner force that drives individuals to achieve personal and organizational goals. Understanding what motivates employees is one of the key challenges for managers. Although it is not potential like a shot to motivate others, it is nonetheless important to know how to influence what others are motivated to do, with the overall aim of having employees identify their own welfare with that of the organization (Bruce and Pepitone, 1999).While motivation is determined by both monetary non -monetary factors, specie has come to play an overly important social function in our mentation about the causes of behavior. In most companies, very limited time effort are spent on considering non-monetary sources of motivation (Gratton, 2004). For organizations to address these expectations an understanding of employee motivation is required (Beer et al., 1984). Carnegie (1975) emphasizes the human aspects of management. They postulate that as it is people who make a business succeed or fail it is the organizations chief responsibility to motivate their people so that they will assure success. The author believes that each human being has the potential for creativity, contribution and achievement of business goals.Therefore, the infinite question is how organizations reach this potential and how they stimulate creativity and foster in their people the desire to succeed and to achieve self-fulfillment through their work. The common shank of all the above authors is the fe eling that people need to be front and treated as precious human capital, more essential to an organizations potentiality than its financial capital.Organizations are under constant pressure to enhance and improve their performance and are realizing that an interdependent relationship exists between organizational performance and employee performance. In the following section the focus will be on the motivational theories and the impact that these theories have on enhancing employee performance.2.5 Theories on motivationThe process of motivation as described on a lower floor is broadly based on a number of motivation theories that attempt to explain in more detail what it means. Some of the distinctive theories will be discussed below.2.5.1. Needs (content) openingThe basis of this supposition is the belief that an unsatisfied need creates tension and disequilibrium. To rejuvenate the balance a goal is identified that will satisfy the need and a behavior pathway is selected th at will lead to the achievement of the goal. All behavior is therefore motivated by unsatisfied needs.The best-known contributor to needs system is Maslow, A (1954). He formulated the concept of a hierarchy of needs, which start from the fundamental physiological needs and lead through safety, social and esteem needs to the need for self-fulfillment, the highest need of all. He verbalise that man is a wanting animal only an unsatisfied need can motivate behavior, and the dominant need is the prime inducement of behavior. This is the best-known supposition of needs, but it has never been verified by empirical search.2.5.2. Herzbergs two-factor theoryHerzbergs two-factor model theory states that the factors giving rise to job satisfaction (and motivation) are distinct from the factors that lead to job dissatisfaction. It is sometimes called the motivation-hygiene theory.There are two groups of factors. The first consists of the satisfiers or motivators, which are intrinsic to th e job. These include achievement, recognition, the work itself, responsibility and growth. The second group comprises what Herzberg calls the dissatisfaction avoidance or hygiene factors, which are extrinsic to the job and include pay, company policy and administration, personal relations, status and security. These cannot create satisfaction but, unless preventive action is taken, they can cause dissatisfaction. He also noted that any feeling of satisfaction resulting from pay increases was likely to be ill-considered-lived compared with the long-lasting satisfaction from the work itself. One of the key conclusions derived from the look for is therefore that pay is not a motivator, except in the short term, although unfair payment systems can lead to demotivation.Herzbergs two-factor model draws attention to the indication between intrinsic and extrinsic motivators, and his contention that the satisfaction resulting from pay increases does not persist has some face validity. But his research and the conclusions he reached have been attacked first because, it is asserted, the original research is flawed and fails to support the contention that pay is not a motivator, and secondly because no attempt was do to banknote the relationship between satisfaction and performance.As Guest, D (1992) has written Many managers knowledge of motivation has not advanced beyond Herzberg and his generation. This is unfortunate. Their theories are now over thirty years old. Extensive research has shown that as general theories of motivation the theories of Herzberg and Maslow are wrong. They have been replaced by more relevant approaches.2.5.3. paleness theoryTo explain how employees judge the fairness of rewards received in resemblance to resources invested for completing a task by assessing ones on investment-reward ratio candour theory (John Stacey Adams) is used, This theory is compared against the ratio of another colleague holding a similar position (McShane et al .2000 pg 79).A comparison can be made using the formula belowOutcomes (Individual) = Outcomes (Other)Inputs (Individual) Inputs (Other)Above formula can be explained, that employees seek to maintain equity between the inputs that they put in to a job and the outcomes they receive from it against the perceived inputs and outcomes of others. The belief in equity theory is that people value fair treatment which causes them to be motivated to keep the fairness maintained within the relationships of their co- workers and the organization.The main concern however is payment this therefore is the cause of equality or inequalty in most cases. In any position within the organization, an employee wants to feel that their contributions and work performance are being rewarded with their pay. According to equity theory, if an employee feels under-paid then it will result in the employee feeling hostile towards the organization and perhaps their co-workers, which may result the employee not perfo rming well at work anymore.But Adams law theory is very much more complex sophisticated motivational model, in this model more than merely assessing effort put in (inputs) and rewards (outputs). Equity Theory gives prominence to an additional perspective of comparison, were employees compare themselves with others (people who consider in a similar position). Referent others are used to describe the reference points or people with whom we compare our own situation, which is the Highlight part of the theory.The three primary assumptions applied to most business applications of Equity Theory can be summarized as followsEquity norm- Where Employees expect a fair retrieve for what they contribute in their jobs.Social comparison- Employees determine what their equitable return should be after comparing their inputs and outcomes with those of their coworkers.Cognitive distortion Employees who perceive themselves as being in an inequitable situation will seek to reduce the unfairness either by distorting inputs and/or outcomes in their own minds, by directly altering inputs and/or outputs, or by leaving the organization.2.5.4. Vrooms foretaste theoryVrooms forethought theory basically sepa order effort (which arises from motivation), performance, and outcomes. Its assumption is that behavior results from conscious(p) choices among alternatives. Vroom realized that an employees performance is based on individual factors such as personality, skills, knowledge, experience and abilities. He stated that effort, performance and motivation are linked in a persons motivation. He uses the variables Expectancy, Instrumentality and Valence to account for this.Expectancyis the belief that increase effort will lead to increased performance i.e. if I work harder then this will be better.This is bear on by such things asHaving the right resources available (e.g. raw materials, time)Having the right skills to do the jobHaving the necessary support to get the job done (e.g. supervisor support, or correct information on the job)Instrumentalityis the belief that if you perform well that a valued outcome will be received. The degree to which a first level outcome will lead to the second level outcome. (i.e. if I do a good job, there is something in it for me.)This is affected by such things asClear understanding of the relationship between performance and outcomes e.g. the rules of the reward gameTrust in the people who will take the decisions on who gets what outcomeTransparency of the process that decides who gets what outcomeValenceis the importance that the individual places upon the expected outcome. For the valence to be positive, the person must prefer attaining the outcome to not attaining it. For example, if someone is generally motivated by money, he or she might not value offers of additional time off.The three elements are important behind choosing one element over another because they are clearly defined effort-performance expectancy (EP ex pectancy) and performance-outcome expectancy (PO expectancy).EP expectancyour assessment of the probability that our efforts will lead to the required performance level.PO expectancyour assessment of the probability that our successful performance will lead to certain outcomes.Crucially, Vrooms expectancy theory works onPerceptions so even if an employer thinks they have provided everything appropriate for motivation, and even if this works with most people in that organization, it doesnt mean that someone wont perceive that it doesnt work for them.Thus, Vrooms expectancy theory of motivation is not about self-interest in rewards but about the associations people make towards expected outcomes and the contribution they feel they can make towards those outcomes.2.6 Theoretical framework2.6.1 affinity between Financial Rewards and PerformanceFinancial rewards practiced by an organization play an important role in motivating employees to perform depending on the type of business its i nvolved in and require their employees to be engaged in.. Therefore, organizations financial performance is in conclusion dependent on the employees performance. It is also considered that improper reward practices may result below average financial performance of organizations. Most agree that reward practices act as motivators that shape the employees behaviors. According to prior researches, it is commonly believed that if financial rewards are effectively used, employees are motivated to perform high and that ultimately results financial performance.Financial performance is improved if there is a conservatively crafted reward practice (Allen Helms 2001). It is difficult to relate financial reward with organizational financial performance (Kerr, 1999). Reward must positively influence performance (Nelson, 1994). Regardless to team-based reward, individual reward is still important as individuals could see that their activities are making difference to the organization.Accordin g to Zingheim Schuster (2000), a few businesses design their reward system for the optimization of company performance. Basic salary and incentives matches war-ridden practice and emphasizes performance results. Incentive plans are often used in employment settings to encourage superior performance. While such inducements are found to have positive effects on job performance concerns have been raised over rewards influence on task interest and creativity. (Bartol Locke, 2000 Fay Thompson, 2001)In a research, it is found that employees stock ownership plans and profit sharing are widely used reward practice (Lawler et all, 1995). Hale (1998) and Lawler (1981, 1987) recognized rewards have critical importance as a means of employee motivation. Organizations and manager know reward and recognition consistently as a motivator of individual employees. Employees understandings and satisfactions with reward system lead to specific behaviors and actions, finally results operational and financial results (Cacioppe, 1999). According to Saxby (2007), it is an avoidable mistake of management for not rewarding employees for a well done job. Tangible rewards are nicer and more meaningful regarding employee motivation rather than intangible praising and acknowledgement.Contradiction to the theory, according to LaBelle (2005) in some cases managers may practice rewards for some behaviors which is unexpected or unproductive. Sometimes worker may misunderstand the objective of getting reward. Some cases of mismatches are discussed belowSafety vs. Productivity Sometimes, employees do not understand that whether heshe is receiving reward for working safely or for the firms productivity or for the quality of services rendered.2.6.2 Relationship between Financial Rewards, Motivation and PerformanceFinancial incentives and rewards can motivate. People need money and therefore want money. It can motivate but it is not the only motivator. It has been suggested by Wallace, M.J and Szilagyi, L (1982) that money can dispense the following reward functionsIt can act as a goal that people generally strive for although to different degrees.It can act as an instrument that provides valued outcomes.It can be a symbol that indicates the recipients value to the organization.It can act as a general reinforce because it is associated with valued rewards so often that it takes on reward value itself.But doubts have been cast on the effectiveness of money as a motivator by Herzberg et al (1957). As noted, he claimed that, while the lack of it may cause dissatisfaction, money does not result in lasting satisfaction. There is something in this, especially for people on fixed salaries or rates of pay who do not benefit directly from an incentive scheme. They may feel good when they get an increase, as, apart from the extra money, it is highly effective ways of making people believe they are valued. But the feeling of euphoria can rapidly die away. However, it must be re-emp hasized that different people have different needs, and Herzbergs two-factor theory has not been validated.Some will be much more motivated by money than others. What cannot be assumed is that money motivates everyone in the same way and to the same extent.But do financial incentives motivate people? The answer, according to Kohn, A (1993) is absolutely not. He challenges what he calls the behaviourist dogma about money and motivation. And he claims that no controlled scientific study has ever found a long term enhancement of the quality of work as a result of any reward system. When you look at how people are motivated, claims Kohn, It becomes disturbingly clear that the more you use rewards to motivate people, the more they tend to lose interest in whatever they had to do to get the rewards. He quotes research that has repeatedly shown that the more salient or reinforcing the reward is, the more it erodes intrinsic interest and points out that various devices can be used to get pe ople to do something, but that is a far cry from making people want to do something.Pfeffer, J (1998) also contends that People do work