EFFECTS OF MONETARY INCENTIVES ON EMPLOYEES PERFORMANCE IN THE

OFFICE OF THE SANGGUNIANG PANLALAWIGAN OF QUIRINO

 CEINA GRACE PARUNGAO

JUNE 2013

Table of Contents

Title Page …………………………………………………………. 1

Table of Contents …………………………………………………………. 2

Introduction …………………………………………………………. 3

Problem Statements …………………………………………………………. 6

Significance of the Study …………………………………………………………. 6

Literature Review …………………………………………………………. 7

Research Methodology …………………………………………………………. 10

Results and Discussion …………………………………………………………. 12

Conclusions …………………………………………………………. 19

Recommendations …………………………………………………………. 20

Bibliography …………………………………………………………. 21

Letter to Conduct the Study…………………………………………………………. 23

Letter to the Respondents ………………………………………………………….. 24

Questionnaire ………………………………………………………….. 25
I. Introduction

Every person has their own set of motivations and personal incentives to work hard or not

as the case may be. Some are motivated by recognition whilst others are motivated by cash

incentives. Whatever the employees’ motivation, the key to promoting motivation as an employer

is understanding and incentive.

Managers are constantly searching for ways to create a motivational environment where

associates (employees) to work at their optimal levels to accomplish company objectives.

Workplace motivators include both monetary and non-monetary incentives. Monetary incentives
can be diverse while having a similar effect on associates.

Employee incentive programs promote work place harmony, employee performance and most of
all employee motivation. This is the key to long term benefits for your company. Motivated

employees means staff retention and company loyalty, these are two things that will have a
significant impact on the growth and development of organizations and business.

Employee incentive programs work by offering rewards for outstanding performance, hard
work or results. Employees who meet targets, go beyond the call of duty or simply do a good job

are rewarded for their efforts. The rewards and incentives vary and can be as individual as the
employees themselves. Employee incentive programs work because they offer diverse rewards

that meet the needs of the company as a whole.There are a host of competing ideas—among
both scholars and lay people—about what motivates workers. Most of these ideas focus on the
types of rewards employees derive (or at least expect to derive) from their jobs and, in particular,

intrinsic versus extrinsic benefits. Intrinsic rewards are those that stem from performing the work
itself. They can include, among other things, feeling important or successful, learning valuable

skills, and enjoying the outcomes of completed work (e.g., helping other people, pioneering new
technology). Extrinsic rewards, on the other hand, accompany the work process but aren't directly

part of it. The most common are financial compensation and benefits such as health insurance
and paid time off. Many modern theories of employee motivation emphasize intrinsic rewards as
being central to the motivation process, while extrinsic rewards are often seen as necessary but

not sufficient.

For all the championing of alternative motivators, money still occupies a rightful place in
the mix of motivators. The sharing of a company's profits gives incentive to employees to produce

a quality product, perform a quality service, or improve the quality of a process within the
company. What benefits the company directly benefits the employee. Monetary and other
rewards are being given to employees for generating cost savings or process-improving ideas, to

boost productivity and reduce absenteeism. Money is effective when it is directly tied to an
employee's ideas or accomplishments. Nevertheless, if not coupled with other, nonmonetary

motivators, its motivating effects are short-lived. Further, monetary incentives can prove
counterproductive if not made available to all members of the organization.

No one works for free, nor should they. While pursuing money based on negative motives
can lead to a poorer psychological well-being, this is not the same as pursuing money to provide

security and comfort for oneself and family. Obviously, employees want to earn fair wages and
salaries, and employers want their workers to feel that is what they are getting. To that end, it is

logical that employees and employers alike view money as the fundamental incentive for
satisfactory job performance.

Incentives are one technique by which employers carry outtheir end of the employment contract--
that is, compensatingemployees for their efforts. In its most generic form, the incentivepayment is

any compensation that has been designed to recognizesome specific accomplishment on the
employee's part. In general, itis hoped that the prospect of the incentive payment will inspire
thedesired performance; in fact, employers sometimes refer to the kindof behavior they are trying

to "incent."

With the foregoing discussion, the researcher is challenged on how monetary incentives
impact the employees’ performance of the Sangguniang Panlalawigan of Quirino.

II. Statement of the Problem

The study focused on the effect of incentives on the work performance of the

employees of the (LGU) Local Government Unit of Diffun, Quirino Province.

Specifically, it answered the following questions:

1. What are the profile of the respondents in terms of the following:

1.1 age

1.2 Sex

1.3 Civil Status

1.4 Educational Attainment

1.5 Length of Service

2. How do the employees perceive the effects of monetary incentives to their work
performance?
 Significance of the Study

Hopefully, the results of the study will benefit the following:

yees. The findings of the study will strengthen their knowledge on the role monetary incentives play
towards their work performance.

Government Officials. The results of the study will furnish them vital information that will help them chart
future strategic plans on employees’ monetary incentives and other benefits.

III. LITERATURE REVIEW

The purpose of monetary incentives is to reward associatesfor excellent job performance through
money. Monetaryincentives include profit sharing, project bonuses, stockoptions and warrants,
scheduled bonuses (e.g., Christmasand performance-linked), and additional paid vacationtime.

Traditionally, these have helped maintain a positivemotivational environment for associates

(Kepner, 2001).

The use of monetary or other financial incentives in the classic “work performance paradigm” is
based primarily on reinforcement theory (Sirgy, J. M.,1998). Reinforcement theory focuses on the
relationship between a target behavior (e.g., work performance) and its consequences (e.g., pay),
and it is premised on the principles and techniques of organizational behavior modification.

Organizational behavior modification is a framework within which employee behaviors are

identified, measured and analyzed in terms of their functional consequences (i.e., existing
reinforcements) and where an intervention is developed using principles of reinforcement.

In a much publicized study, Gupta (1998) and her colleagues analyzed thirty-nine studies
conducted over four decades and found that cold-hard cash motivates workers whether their jobs
are exciting or mundane, in labs and real-world settings alike. But the research team
acknowledges that money is not the only thing that concerns employees – noting that beyond a

certain point higher salaries will make employees happier, but it will not “buy” better performance.
Still, Gupta (1998) warns that employers who dole out small merit raises – less than 7% of base
pay – may do more harm than good. According to her, small raises can actually be dysfunctional
in terms of motivation because employees become irritated that their hard work yielded so little.

Because of this, she advises employers who must give small raises to be careful about linking
them to results and to be scrupulous about being fair.

Financial incentives moderately to significantly improve task performance, but their

effectiveness is dependent upon organizational conditions.

Differences in institutional arrangements contribute to the feasibility and effectiveness of various

monetary incentives, as do differences in employees’ preferences for specific incentives.
Therefore, companies are wise to study these issues before implementing changes to existing
incentive plans. This is especially pertinent for service organizations, where financial
reinforcements tend to produce a stronger effect on task performance than non-financial rewards

used alone. Even stronger results are seen with a composite approach. For example, one meta-
analysis of 72 field studies found that monetary incentives improved task performance by 23%,
social recognition improved task performance by 17% and feedback elicited a 10% improvement
(Stajkovic, A. D., & Luthans, F., 1997). Simultaneously combining all three types of

reinforcements improved performance by 45%.

Group incentive systems are consistently effective in private sector settings.

Team-based or small-group incentives are defined as rewards whereby a portion of individual

pay is contingent on measurable group performance (De Matteo, 1998). In general, its

effectiveness is dependent on the characteristics of the reward system, the organization, the team
and the individual team members1. Here again, studying this issue via employee surveys or
interviews can be useful. But generally speaking, research suggests that equally divided small-
group incentives sustain high levels of productivity and satisfaction for group members, and that
small-group incentives are at least as effective as individual incentives with groups of two to

twelve people (Nickerson, 2001).

Qualitative, quantitative and survey research studies of alternative pay systems such as profit-
sharing or gain-sharing plans are even more consistent in their findings (Welbourne, 1995).
These incentive programs include various pay-for-performance approaches that link financial
rewards for employees to improvements in the performance of the work unit. Research reveals
that these types of incentive systems are associated in practice – and in employer and employee

minds – with both higher productivity and improvements in organizational performance.

IV. Research Methodology

Research Design

The study made use of the descriptive method of research. This study is essentially
qualitative in nature and analyzes data by means of appropriate statistical tools. The researchers’
design is descriptive in nature since it is primarily concerned on how the respondents perceive
monetary incentives towards their job performance.

The Respondents

The respondents of the study includeinclude 55 regular employees working at the

Sangguniang Panlalawigan of Quirino.

Research Instrument

The questionnaire was the primary instrument used in this study. It was formulated as a
result of the researcher’s perusal of published and unpublished materials, pamphlets, books and
other available sources of information pertinent to the problem under investigation.

The questionnaire was divided into two parts. The first part contained items concerning
the profile of the respondents. The second part is concerned on the perceived effects of monetary
incentives on the employees’ work performance.

Data Gathering Procedures

After the final copy of the instrument was arrived at, the researcher requested permission
of the authorities of the Local Government Unit of Diffun, Quirino to administer the instruments to
be floated.

After the permission was granted, the researcher started floating the questionnaires to the
target respondents. The questionnaires was retrieved and tallied.

Statistical treatment of Data

The data was treated with some statistical tools. For questions as regards the
respondent’s perception, a scale value was assigned to each of the five categories below.
Points Range Description

5 4.50-5.00 Strongly Agree

4 3.50-4.49 Agree

3 2.50- 3.49 Uncertain

2 1.50-2.49 Disagree

1 0.50-1.49 Strongly Disagree

V. Results and Discussion

This chapter presents the analysis, interpretations and tabular representation of data
gathered for this study. The presentation conforms to the arrangement of problems stated in

Chapter 1 of the study.

Profile of the Respondents

Age. Table 1 shows the frequency and percentage distribution of the ages of the respondents of
the study. The table shows that the respondents are varied and range from 29 years below to 50

years above. But the largest group of 40 constituting a proportion of 36.6 percent respectively,
have ages ranging from 30 to 49 years of age.

Table 1

Frequency and Percentage of Respondents

According to Age Categories

Age Categories Frequency (N) Percentage

29 – below 9 16.36
 30 - 39 20 36.36

40 - 49 20 36.36

50 – above 6 10.90

Total 55 100.00

The smallest group numbering 6representing10.90 percent belongs to the oldest group of
46 years and above.

The age of the respondents cluster towards a man point estimate of 35.485 years and
identifies them as in their middle thirties and forties, physically strong and capable of doing their
respective line of work or job assignment.

Gender. Table 2 shows the summary of the information of the respondents by gender.

The results show a lopsided distribution towards the females numbering 37employee
respondents, representing 67.27 percent and more than one half of the sample. The male

employee respondentsconstitute the lesser number and the smallest of the group of the

respondents.

Table 2

Frequency and Percentage of Respondents

According to Gender

Gender Frequency (N) Percentage

Male 18 32.73

Female 37 67.27

Total 55 100.00
 Civil Status. Table 3 records the information of the civil status of the respondents.

The group of married employees with an obtained frequency of 50 or 90.91 percent

constituting almost half of the total number of respondents outnumbered the respondents who are

single and the respondents who are widowed with recorded frequencies of 3 and 2, respectively.

Table 3

Frequency and Percentage of Respondents

According to Civil Status

Civil Status Frequency (N) Percentage

Single 3 5.45

Married 50 90.91

Widow (er) 2 3.64

Total 55 100.00

Educational Attainment.

Table 4 summarizes information on the educational attainment of the respondents. The results

show that the educational attainment are varied and range from bachelor’s degree holders, for

fresh graduates and new employees to those with master’s units and degree.

Table 4

Frequency and Percentage of Respondents

 According to Educational Attainment

Ed. Attainment Frequency (N) Percentage

College Undergraduate 17 30.91

Bachelor’s Degree 32 58.18

MA Units 3 5.45

MA Degree 3 5.45

Doctoral Units 0 0

Total 55 100.00

The largest group of 32 respondents or 58.18 percent and slightly less than one half of the
group isbachelors’ degree holder with contemplations of obtaining higher degrees in education

and also for professional growth. It could be noted that there are 17 or 30.91 percent respondents
who are college undergraduates. The smallest group numbers 6 or 10.9 percent of the

respondents have master’s units and degrees..

Length ofwork experience.Table 5 records the information on the length of work experience of

respondents. As shown in the table, experience of is varied ranging from 5 years below to 11
years above. The largest group of 26 or 47.27 percent has been working within 11 to 15 years,

some of them are pioneers of the Sangguniang Panlalawigan. This is followed by a relatively
moderate group of 15 respondents or 27.28 percent who have 6 to 10 years of work experience.

In general therefore, the respondents are in their middle thirties, competitive in gender sample

sizes, similarly in civil status, have varied educational attainment and length of work experience
of less than 10 years.

Table 5

Frequency and Percentage of Respondents

 According to Length of Work Experience

Experience Frequency (N) Percentage

5 years – below 14 25.45

6 – 10 15 27.28

11 – 15 26 47.27

Total 55 100.00

Effect of monetary incentives

Table 6 presents in tabular form the perception of respondents on the effects of monetary
incentives.

It shows that the respondents strongly agree that “’Monetary incentives provide increased

motivation” with an obtained weighted mean of4.89. Many people find it hard to motivate

themselves at work. This is a common occurrence and one that has been significantly impacted
by Incentive Programs. Provision of monetary incentives motivates employees by offering

rewards for reaching targets and organizational goals. These come in many forms ranging from
cash to cars to holidays to gifts. The rewards are a great motivator but what is more inspiring for

the employee is that the organization where they belong cares enough to offer these incentives.

The respondents strongly agreed that “monetary incentives boost company morale” with a

mean of 4.75. Rewards, incentives and recognition make for a happy, harmonious working
environment. Goal setting and targeting objectives helps with focus and purpose. Monetary

incentives offer all of these things and are highly conducive to company morale. Increases in
organizational morale help to reduce absenteeism and overall organizational costs.

It can be gleaned from table 6 that the respondents strongly agreed that “monetary

incentives increase organizational loyalty” with a mean of4.68. Loyalty is not something you can

buy. However, incentives for good work and rewards for hard work go along way to securing
commitment from employees. Monetary incentives show employees the company values their

input and their work. If an employee feels valued and appreciated they are more likely to form an
allegiance to the organization.

The respondents strongly agreed that incentive programs promote productivity with a

mean of 4.60. Employees are offered incentives for reaching targets or for good work in general.
These incentives vary but the main aim is to encourage employees to work towards company

goals. With the promise of incentives and clearly defined targets employees are more productive

and motivated.

Table 6 shows that the respondents strongly agreed that overall organizational costs can be
reduced as a result of monetary incentives with a mean of 4.58. This cost can be measured in

terms of reduced absenteeism, reduced recruitment costs and turnover of staff. There is
probability of significant return of investment via increased productivity and motivation within the

organization and/or department.

The respondents strongly agreed incentive programs are a great way to reach targets and
company objectives with an obtained mean of 4.50. Using incentives,employers can set realistic

goals and reward employees when they reach them. This is a great way to boost productivity and

morale while at the same time achieving organizational goals.

Table 6
 Perception of respondents on the effects of monetary incentives
Statements WM Interpretation

1. Monetary incentives provide increased 4.89 Strongly Agree

motivation.

2. Monetary incentives provide increased 4.75 Strongly Agree

company morale.

3. Monetary incentives increase company 4.68 Strongly Agree

loyalty.

4. Monetary incentives provide increased 4.60 Strongly Agree

productivity.

5. Monetary incentives provide increase 4.50 Strongly Agree

objective achievement.

6. Monetary incentives promote reduced 4.58 Strongly Agree

company costs.

7. Monetary incentives reduces occurrence 4.30 Agree

of absenteeism.

8. Monetary incentives promote teamwork 4.25 Agree

and foster an environment that is
conducive to success.

9. Monetary incentives promote decreased 3.70 Agree

turnover.

The respondents agreed that monetary incentives promote decreased turnover with a

mean of 3.70. Monetary incentives foster happy, productive working environments. Employees

enjoying this kind of environment will be more likely to stay long term. This means incentive
programs reduce the amount of turnovers within the organization. The advantage of consistent

staffing is that you are not spending money on recruiting or training new staff. You are also able
to retain loyal committed employees with a vested organizational interest.

The respondents agreed thatIncentive Programs promote teamwork and foster an

environment that is conducive to success with an obtained mean of 4.25. Employees working
towards rewards or targets will pull together to achieve desired results. Teamwork increases

efficiency and creates harmony within the workplace.

As shown in table 6, the respondents agreed thatmonetary incentives reduces occurrence

of absenteeism with a mean of 4.30. The bottom line with incentive programs comes down to the
very simple fact that people like being rewarded for hard work and a job well done. The rewards

are only part of the equation. Incentive schemes show employees the organization where they
belong cares and appreciates the work they are outputting. If an employee feels appreciated and

has clear targets that result in rewards then they are more likely to want to come to work.

VI. Conclusions

1. The respondents are in their middle thirties, competitive in gender sample sizes, similarly in
civil status, have varied educational attainment and length of work experience of more than

11 years.

2. Most respondents expressed the belief that monetary incentivesplay a significant role

towards their work performance. They believed that the provision of monetary incentives
primarily motivates them to perform their job into a more considerable extent.

3. The respondents perceive that monetary incentives does not only motivate them to perform

their job better but also promote higher level of morale and it helps them with their family’s
finances.

VII. Recommendations

The researcher suggests the following:

1. Acomprehensive analysis and evaluation be conducted towards the incentive program to

employees.
 2. Superiors and subordinates alike must attend seminars on motivational management.

3. Future researchers must conduct analysis on the effects of incentives to work performance

on other setting.

VIII. BIBLIOGRAPHY

De Matteo, J. S., Eby, L. T., & Sundstrom, E. (1998). Team-based rewards: current empirical
evidence and directions for future research. Research in OrganizationalBehavior, 20, 141-
183.

Diener, E., & Biswas-Diener, R. (2002). Will money increase subjective well-being? A literature
review and guide to needed research. Social Indicators Research, 57, 119-169.
Heneman, R. L. (1992). Merit pay: linking pay increases to performance ratings. New York: Addison-
Wesley.

Honeywell-Johnson, J. A., & Dickinson, A. M. (1999). Small group incentives: a reviewof the
literature. Journal of Organizational Behavior Management, 19, 89-120.

Jenkins, Jr, G. D., Mitra, A., Gupta, N., & Shaw, J. D. (1998). Are financial incentives related to
performance? a meta-analytic review of empirical research. Journal ofApplied Psychology,
83, 777-787.

Kasser, T. (2002). The high price of materialism. Massachusetts: MIT Press

Kasser, T., & Ahuvia, A. (2002). Materialistic values and well-being in business students. European
Journal of Social Psychology, 32, 137-146.

Kasser, T., & Kasser, V. G. (2001). The dreams of people high and low in materialism. Journal of
Economic Psychology, 22, 693-719.

Kepner, Karl W. 2001. Class lecture notes from AEB 4424:Human Resource Management in
Agribusiness. Taught at theUniversity of Florida, Gainesville, FL.Luthans, F. (1973).
Organizational behavior. New York: McGraw-Hill.

Luthans, F., & Kreitner, R. (1975). Organizational behavior modification. Glenview, IL: Scott,
Foresman.

Milkovich, G. T., & Wigdor, A. K. (Eds). (1991). Pay for performance: evaluating performance
appraisal and merit pay. Washington, DC: National Academy Press.

Nickerson, C., Schwarz, N., Diener, E., & Kahneman, D. (2001). The American dream: the dark side
is in the wish, not the realization. Psychological Science, 14, 531-
536.

Perry, J. L., Mesch, D., & Paarlberg, L. (2006). Motivating employees in a new governance era: the
performance paradigm revisited. Public AdministrationReview, 66, 505-514.

Sirgy, J. M. (1998). Matherialism and quality of life. Social Indicators Research, 43,227-260.
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Srivastava, A., Locke, E. A. and Bartol, K. M. (2001). Money and subjective well-being it’s not the
money, it’s the motives. Journal of Personality and SocialPsychology, 80, 959-971.

Stajkovic, A. D., & Luthans, F. (1997). A meta-analysis of the effects of organizational behavior
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1149.

Stajkovic, A. D., & Luthans, F. (2003). Behavioral management and task performance in
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 Appendix A

LETTER TO CONDUCT THE STUDY

June 15, 2013

________________

Vice Governor

Quirino

Dear Mr. ________,

Greetings in the Name of Peace and Reconciliation!

The undersigned is on the process of conducting a research study entitled “Effect of Monetary
Incentives to Employees’ Performance in the Office of the Sangguniang Panlalawigan of
Quirino”, as significant part of my job requirements.

In this connection, may I therefore request permission from your good office to allow me to
administer the questionnaire, to gather the needed data pertinent to my research study.

I am hoping for your kindness and usual consideration. Thank you very much and God bless you
a hundredfold.

Very respectfully yours,

Ceina Grace Parungao

 APPENDIX B

LETTER TO THE RESPONDENTS

Dear Respondents,

The undersigned is undertaking a research project entitled “Effect of Monetary

Incentives to Employees’ Performance in the Office of the Sangguniang Panlalawigan of
Quirino”.

There is no right or wrong answer, but it is best that you answer the questionnaires
objectively, so that proper decisions and directions may be made.

You are assured that every assertion made in these questionnaires shall be held
confidential, and will not be taken against you, rather as a helpful assessment of a cause.

Your cooperation is very much desired and without your help this paper will not be
successful.

Thank you for making this part of your day.

Much appreciation,

Ceina Grace Parungao

 RESEARCH QUESTIONNAIRE

Respondents Information Sheet

Directions: Please put a check or fill in the blanks with the necessary information.

Age

1.1 29 – below _____________

1.2 30 – 39 _____________
1.3 40 – 49 _____________

1.4 50 – above _____________

Gender

2.1 Male _____________

2.2 Female _____________

Civil Status

3.1 Single _____________

3.2 Married _____________

3.3 Separated _____________

3.4 Widow/er _____________
 Educational Attainment

4.1 Bachelor’s Degree _____________

4.2 Master’s Units _____________

4.3 Master’s Degree _____________

4.4 Doctorate Units _____________

Length of Work Experience

5.1 5 years – below _____________

5.2 6 – 10 years _____________

5.3 11 years – above _____________

Effect of Monetary Incentives

Direction: Below are statements pertinent to the impact of monetary performance in your work
performance. Please put a check mark the box which you think is the best answer, using the
following options:

Strongly Agree (5)

Agree (4)
Not Sure (3)
Disagree (2)

Strongly Disagree (1)

Statements 5 4 3 2 1

1. Monetary incentives provideincreased

motivation.
2. Monetary incentives provide increased
company morale.

3. Monetary incentives increase company

loyalty.

4. Monetary incentives provide increased

productivity.

5. Monetary incentives provide increase

objective achievement.

6. Monetary incentives promote reduced

company costs.

7. Monetary incentives reduces occurrence

of absenteeism.

8. Monetary incentives promote teamwork

and foster an environment that is
conducive to success.

9. Monetary incentives promote decreased

turnover.