“EMPLOYEES MOTIVATION THROUGH REWARDS”

MASTER OF BUSINESS ADMINISTRATION (Human Resource Management)

By Tahir Mahmood 4255-FMS/MBA/F09 Syed Mansoor Ali Shah 4271-FMS/MBA/F09

Submitted to Mr. Ibrar Anver Assistant Professor

INTERNATIONAL ISLAMIC UNIVERSITY, ISLAMABAD FACULTY OF MANAGEMENT SCIENCES February 2012
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They said: Glory be to Thee! we have no knowledge but that which Thou hast taught us; surely Thou art the Knowing, the Wise. [2.32]

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DEDICATION
This Project is dedicated to our beloved parents and respectable teachers, whose guidance and support always remained with us to achieve our higher education goals and objects, which is not only benefited during our service but also for the whole life.

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ACKNOWLEDGEMENT

A research cannot be said to be the work of an individual. A research is a combination of views and ideas, primary and secondary data, suggestions and contributions of many people. Their contributions play a vital role in our research as secondary and useful resources.

We thanks to Almighty Allah Subhanhu wa Ta‘ala for bestowed of strength and ability for all sorts of work especially for completion of this project as part of our degree. We take this opportunity to thank all the people whose cooperation and encouragement made the completion of this research project a possibility.

First of all we wish to express my sincere gratitude and for all the support throughout the project study to my research guide Professor Ibrar Anver under whose guidance the Research was undertaken. Without his supervision at each stage of research, the task would not have been accomplished.

Last but not the least I wish to thank the university authorities who arranged all facilities such as library material and lab facilities enabling us to gather necessary and relevant material, without which the Research wouldn’t have been a success.

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PROJECT APPROVAL

This is certified that Mr. Tahir Mahmood (Reg # 4255-FMS/MBA/F09) and Syed Mansoor Ali Shah (Reg # 4271-FMS/MBA/F09), have completed there project entitled “Employees Motivation through Rewards” under my supervision. I have checked this project and found it satisfactory for the requirements of the degree of Master of Business Administration (Human Resource Management).

Mr. Ibrar Anver Assistant Professor & Project Supervisor Dr. Muhammad Mohtsham Saeed Head Department of Management IIU, Islamabad

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32. 3. 1. 30. 35. 38. 18. 11. 10. 2. 7. 6. 39. 21. Monetary Incentive 6. 1 1 2 2 3 4 4 4 5 5 7 7 8 9 9 10 10 11 11 12 13 13 14 14 15 16 16 17 18 18 18 18 20 20 21 22 22 23 25 25 26 6 . 41. Creativity and Innovation 3.TABLE OF CONTENTS S. 29. 23. Quality of Life 5. 17. 13. 14. 12. 22. 33. 34. 19. Learning 4. 5. 15. 36. 31. Title CHAPTER 1 Introduction Methodology Motivation: Definition of Motivation Intensity Direction Persistence Early Theories of Motivation: Hierarchy of Needs Theory Theory X and Theory Y Two-Factor Theory McClelland’s Theory of Needs Contemporary Theories of Motivation: Cognitive Evaluation Theory Goal-Setting Theory Self-Efficacy Theory Reinforcement Theory Equity Theory Expectancy Theory Integrating Contemporary Theories of Motivation Motivation Tools: 1. 8. 24. 4. 28.No. Empowerment 2. 40. 9. 27. 37. Other Incentives CHAPTER 2 Rewards: Definition Performance Evaluation Types of Reward Programs: Variable Pay Bonuses Commission Profit Sharing Stock Options CHAPTER 3 Group-Based Reward Systems: Recognition Programs Page No. 20. 26. 25. 16.

60. 47. 57. 58. CHAPTER 4 Employee Reward and Recognition Systems: Quality of work Minimize the cost Reward vs Recognition Differentiating Rewards from Merit Pay & the Performance Appraisal Designing a Reward Program CHAPTER 5 Impact of Rewards for Motivation Advantages of Rewards for Motivation Intrinsic Reward Extrinsic Reward CHAPTER 6 Impact of Performance Recognition and Motivation: Performance Recognition and Motivation in SZABIST Performance Recognition and Motivation in IIUI Results Conclusion References 29 29 29 30 30 31 32 35 35 36 38 38 39 39 39 40 42 42 43 7 . 56. 43. 54. 45. 53. 50. 48. 52. 51. 46. 59.42. 49. 44. 55.

it is important for every organization to take care of their workforce especially the skilled. Motivation and rewards are important part of the Human Resource Management. the performance is measured through the employee turnover. we have selected the topic for our project as “Employees Motivation through Rewards”. when many companies fired their employees.Chapter 1 Introduction Being the students of Master of Business Administration with major in Human Resource Management and with the consultation of our Project Supervisor. This was due to the employee’s factor that Southwest Airline did not want to loose its employees. Sometimes. experienced and willing workers/employees. many organizations take different steps. To retain their workforce. Human Resource Management seems to be incomplete and paralyzed. USA. competent employees are considered the real source for the organization. 8 . which will be briefly discussed in this project. In many organizations of international repute. Without motivation and reward. So. The factor of such employees can be a competitive edge for any organization for example. Southwest Airlines. Even immediately after the 9/11 attack. Employees are motivated not only through promotion. where employees are working as a community and even life partner of each other. Southwest Airlines management announced that no employee will be fired. and awards but also through many kinds of other ways. appraisal.

After that we define Rewards and related topics like kinds of rewards and their brief descriptions. one reason is reported for its importance is revealed from Gallup poll. The Impact of Reward for Motivation will be explained to create better understanding relating to this project. the topic of Employees Rewards and Recognition System. where it is found that the majority of American employees (55%) have no enthusiasm for their work due to some reasons. we define Motivation with its elements and theories etc. MOTIVATION Motivation is being used very frequently as research topics nowadays in many disciplines including organizational behavior. Reward vs Recognition. Among the reasons. and Designing a Reward Program will be covered.Methodology The methodology of this research project is that in the first phase. and then we elaborate the Groupbased Rewards and Recognition Programs. and in International Islamic University Islamabad and will see its impact among workers. Islamabad Campus. we will derive the results of the motivation through rewards from the discussion and will give conclusion of our findings. It can be easily understand from this example that sometimes any 9 . At the end. In the next phase. It is alleged that this situation was created due to the lack of interaction between situation and individual. Our next point will consist of practical examples of implementations of motivation through rewards in SZABIST.

Definition of Motivation Motivation can be defined as: “the processes that account for an individual’s intensity. Motivation is used as a close link between goal and the interest/behavior of the worker to perform or complete the task. The persistent efforts should be positive towards these goals otherwise these efforts have no sense of acceptability and always discarded as null and void. direction. For this purpose. Intensity Direction Persistence 10 . 2. This example can lead to understand the concept of motivation. The goals are known as strategic goals. The performance of an employee always align and congruent with the strategic goals of the organization. The above definition has consisted of three main elements: 1.student feel hard to read his/her relevant text/course book but could be easy for him/her to read the whole novel of his/her interest in only one or few days. which are set by the top management for their organizations. and persistence of effort toward attaining a goal”. It is relevant to mention here that this level of motivation is varied between and within individuals from time to time. we have to consider the organizational goals and the behavior to perform task as well. The difference for such kind of student is motivation which is driven by situation. 3.

Keep in mind that if you want to gain favorable outcomes in the shape of job performance intensity is necessary for motivation but also required to be in the right direction towards organizational strategic goals and objectives. 3. we have to put lot of quality efforts in our actions.1. Intensity This element requires more attention to be given when discussing the motivation. Effort like giving the organization direct and consistent results is efforts which should be seeking. quantifying. teams and aligning performance with the strategic goals of the organization”. It is also relevant here to mention about above 3 points which are approximately same as like by Performance Management Process. Performance management could define as “an ongoing process of identifying. Otherwise. It is related to the level of endeavor made for attaining the particular goal and objective. 11 . Direction Direction should be straight towards strategic goals of organization as already discussed in previous paragraph that right direction is the right step to achieve strategic goals. and polish the performance of an individual. this intensity de-tracked you or leads you in depressing aspects. Persistence In this last point. To do so. Motivation among individuals could stay them long enough with a task to obtain their goal. motivation also has persistent dimension which measures how much a person can prolong or maintain effort. 2.

EARLY THEORIES OF MOTIVATION Fruitful period in which motivation was developed is around 1950s. Employee has to perform accordingly to achieve organizational goals.The ongoing process can be explain as persistent and arrange performance with strategic goals of organization and it is not wrong to assumed it as direction. which although heavily attacked and now questionable in terms of validity are probably still the best-known explanations for the employee motivation. These theories are still use by practicing managers. Five needs are as follow: 1. and other human body needs 2. Hierarchy of Needs Theory Abraham Maslow has given this well-known theory of motivation in which he explain that within each or every person hierarchy of 5 needs exists in which each or every need is satisfied and the next need becomes more important. Four different theories were developed during this period. hunger. With the above explanation we can say that motivation is straight linked with performance management of employee to act or perform a job as task oriented in which few goals or objectives previously set. These explanations have at least two reasons: (1) (2) They actually represent a base from which basic theories have grown. sex. Physiological Includes thirst. shelter. Safety 12 .

and also external factors like recognition. social. and achievement. Safety needs and physiological needs were explained in lower-order needs and esteem. self-fulfillment. His revised hierarchy need is named as ERG Theory. Esteem Internal human factors like autonomy. status. Existence (Physiological and Safety needs) Relatedness (Social and Status needs) Growth (Esteem and self-actualization) 13 . includes achieving one’s potential. Social Friendship. and growth Maslow separated these five needs into higher to lower orders. union contracts. and tenure. Clayton Alderfer tries to work on Maslow’s need hierarchy theory to align with empirical research more closely. and attention. Belongingness and Acceptance 4. 3. Main difference between these two orders was that higher order needs were satisfied within the person. Alderfer give argument in which he said there are three groups of core needs: 1. Self-actualization Drive on a path to become what is one capable to become. Affection. 5. whereas lower order needs were satisfied things such as pay. self-respect. and selfactualization were explained in higher-order needs.Protection and Security from emotional and physical harm 3. 2.

Beside these negative thoughts about the human beings nature. assume that the employees can do work in natural environment. Theory X and Theory Y Douglas McGregor discus two different views of human being in this theory: one is basically negative which is labeled as X Theory. Herzberg ask the question “What do people want from their jobs?” He asked them to 14 . Theory Y The assumption is totally opposite to theory X employees. Under this theory. However. Managers under Theory X. 1. Theory X In theory X Douglas put those people who do not like to do work. it is explained that relation to work is basic to an individual and failure and success can be determine by one’s attitude at work. and other one is basically positive known as Y Theory. An individual can focus on all three needs categories simultaneously. managers under Theory Y. do not like responsibilities and they will not perform according to your expectations. and they are creative and always like to perform with some responsibility. always believe that the employees dislike to do work. 2.Alderfer didn’t assume like Maslow about these needs that they are already existed in rigid hierarchy. like they are lazy. the Theory Y assumptions are more feasible than Theory X. these employees like to do work. Two-Factor Theory Two-Factor theory was presented by Psychologist Frederick Herzberg also called Motivational-Hygiene Theory. that is why they are directed or even coerced to perform it.

Core factors like advancement. responsibility. Person who felt happy or nice thoughts about his work give attributes which are given above.explain in detail. Herzberg conclude that answers which people give are significantly different about jobs when they felt good instead of replies they give when they felt bad. Power Need: 15 . situations like where they felt about their jobs exceptionally good or exceptionally bad. supervision. and achievement are related with job satisfaction. Achievement Need: This need is basic point which one wants to achieve in his or her life. Job satisfaction has certain characteristics which are related to it. McClelland’s Theory of Needs This theory of need was invented by David McClelland and his associates. The theory states three important needs that help to explain motivation which are achievement. and working conditions. These three needs are briefly explained as under: 1. company policies. and affiliation. The responses behind it were then collected and categorized. recognition. Other side. 2. dissatisfied respondents give attributes to extrinsic factors such as pay. power.

Affiliation Need: This need is desire for close friendly and interpersonal relationship.Person wants such power which makes him superior so that others behave well with him. That person will enjoy working in such condition and possibly he can put more efforts as before. This means that the theories are questionably wrong. After some time when he is working better for that position he got the job for it. We call these theories as “Contemporary Theories” because they explain employee motivation with respect to current state of thinking. Some theories are mentioned as under: Cognitive Evaluation Theory This theory states that allocation of extrinsic rewards on the basis of behavior that had been intrinsically awarded previously tends to decrease overall level of motivation. Other sides there are contemporary theories that have one part common in them: each has valid supporting documentation with them. Goal-Setting Theory 16 . With some extra incentives he got what he wants at the same level of job work. Perfect example of this theory is a person is working in an organization without any pay or wages. 3. CONTEMPORARY THEORIES OF MOTIVATION Early Motivation theories though were well known but unfortunately they have not held up good under clear examination.

SelfEfficacy is basically a belief of an individual that he or she can perform the task. Whenever manager set difficult goal set for his employees. with feedback. rather they support each other. Why? A goal setting can be utilized more systematically with the objective program by management. this action of manager lead his or her employee for a higher level self efficacy and also lead them to set their own higher level of performance. Objective of management is to emphasize participative goals set that are verifiable. tangible. Model from next diagram can explain it: 17 . results as higher performance. and measurable. Self-Efficacy Theory It is also known as “Social Learning Theory” or “Social Cognitive Theory”. A higher level of output can be produce by specific goals than does the standardized goal of “do your best”.This theory says that difficult and specific goals. Selfefficacy and Goal-setting theories are not directly contending each other.

It is clear that. 2. pay can increase motivation of people. Employee can use four different referent comparisons which are: 1. An employee adds different referents to the complexity theory of equity. whenever a person takes an action what happen to him or her and ignores an individual inner state. Reinforcement theory concentrates solely upon. Theory which says that behavior is function of its results. 3. Self-outside 18 . it is clear for people that process is way more complicated than stimulus response. 4. Equity Theory This theory says that a person who compares his job input or job output with other individual input and output and than try to alter his performance to match with other performance.Albert Bandura argues this research and said there are four ways of increasing selfefficacy: 1. Self-inside Inside an organization different positions were experienced by employees 2. Enactive mastery Vicarious modeling Verbal persuasion Arousal Reinforcement Theory Reinforcement theory is counterpoint to goal-setting theory.

Other-outside Compare yourself with another person from outside of organization. Reward relationship In this an individual believes. 2. that particular level of performing will lead desired outcome. Effort relationship The probability receives by an individual that will take towards performance by putting given effort.Outside the organization different positions or situations were experienced by an employee. Other-inside Compare yourself with another individual in the organization 4. Focus of this theory is on three relationships: 1. Expectancy Theory Presently most acceptable theory with explanation of motivation is expectancy theory by Victor Vroom. There are also some criticisms on that theory but mostly evidence support this theory. 3. 3. This theory says that the power to acting in a certain way depends upon the power of an expecting thing that the actions will result the following outcome. Rewards-personal goals An organizational reward which satisfy personal needs or goals INTEGRATING CONTEMPORARY THEORIES OF MOTIVATION 19 .

firm to firm. increased productivity and output. All theories have something common in them. which lead towards good performance person should have the ability to perform and performance appraisal process or system that actually measures the individual performance should be fair must be perceived as being fair and objective. that they predict the strong relationship of effort and performance. It is also deferred on the basis of nature of work. rewards and satisfaction. and demographic norms.All motivation theories are moving around rewards and performance. These relationships are influenced by different factors. Performance-reward relationship should show some strong results if an individual think that his performance is rewarded. it is observed by many organizations that flexibility rewards and job design is providing positive results in employees’ increased length of service and affiliation with any organization. Now. The ethical and fairness norms are on the other hand very important factors in motivation tools and strategies. The best efforts relating to employees’ motivation should be focused on what an employee deem to be important. job satisfaction and high morale. It was observed that an employee within the same section/department of any organization will have different motivators and job satisfaction. organization to organization. MOTIVATION TOOLS There are several ways to motivate employees. size of the company. Although 20 . For effort. performance and rewards of personal goals. industry to industry and according to the operation in the business organization working globally. social and cultural values. It differs from company to company.

Thus employees are held responsible for their activities and accountabilities. products or services personally 21 . 2. When power of taking good ideas into account is transfer from top management to front line employee’s who know the job. decision-making authorities. the employee will feel free to perform their part of tasks and helps organization to accomplish their strategic goals and targets. increased their control over the assigned tasks for which they are held responsible. In few working environments this is like you are dictating your management. EMPOWERMENT It is very important factor that employees working in the organization may have to give some responsibilities. Empowerment brings the job enlargement of the 1950s and the job enrichment that began in the 1960s to a higher level by giving the employees some of the power to expand their own jobs and create new. CREATIVITY AND INNOVATION At many organizations employees who have creative ideas in their mind do not tell or express them to the management because they have fear in their minds that if they tell these ideas to management. and be provide better equipment to perform those activities/tasks. to do so you need company approval and some one who could appreciate you on your work. otherwise both organization and employee will suffer. 1.this "cafeteria-plan" approach to the work-reward continuum presents variety. they could jeopardize their job. some strategies are prevalent across all organizations that strive to improve employee motivation. Due to this factor. personally identified challenges.

Companies can make them or motivate them to enhance their skills which may supportive for the organization. Often. the control of knowledge will be a sufficiently valuable if knowledge is applied to the work to be finish. 3. this thinking of employee at work will reduce his or her morale and productivity. then this is better event for the employer and employee as well. LEARNING There are different tools which can help an employee to avail more opportunities and if they have these tools they will take the challenge. QUALITY LIFE Number of work hours in America for each week has rise and most of the families have at least two working members to meet their daily needs. which results in profitability and have successful new system of product development in industry. There are different ways to motivate and increase employee knowledge among them there are accreditation and licensing programs which are very popular. In other words. Managers need to motivate their employee’s to work as one unit so that more flexible idea can be generated. Example of creativity and innovation is 3M known as Minnesota Mining and Manufacturing Corporation. which allow its workers to put some effort in their product. Companies that have gained employee motivation have increased their 22 . Under these conditions.could results in better idea for the benefit of organization. many workers have in their mind “how they are going to increase their living beyond their workplace”. this is because people have ideas according to their environment which help them think upon problems better than that person who do not have such problem in their environment. 4.

monetary incentives could be proved counterproductive.productivity by instituting flexible employee arrangements. participatory. and advancement. promote environments. if it is not available to all members of company. programs incorporating job sharing. flextime or condensed workweeks for example. and when they treat their employees with respect and fairness will get their employees more motivated. Some Companies give different benefits to its employees. 5. would be as letters of citation and off time from work. The most successful rewards. or company quality process improvement. A Managers who judge the “small wins” of employees. quality service performance. recognition. increase personal fulfillment and enhance self- 23 . It is proven that non-monetary motivators are related to team spirit and also include responsibility. MONETARY INCENTIVE For all the attributes of a winner of alternative motivators. have been focusing on overwhelmed employees successful for the work which has to be done and beyond the demands of their lives. Company profit sharing gives awards to employees for quality product production. It could be monetary reward or other rewards for generating process improvement ideas or from cost saving. Money effects when it is part of employee’s ideas. Further. 6. money still fill up a rightful place in motivators mix. OTHER INCENTIVES Non-monetary motivators are more effective for the employees. These systems are not enough in some part. which will boost the productivity and also reduce absenteeism. we actually want to increase outcomes of employees and difference of salaries may divide the employees instead of uniting them.

In last. sincere humble and even personal gestures show lot more effective and better than awards of money. programs which have monetary systems of reward and self-actualizing. satisfies intrinsic needs might be the most important needs of employee motivation.respect. Over the longer term. 24 .

learning opportunities Some of the rewards are given as under: 1) 2) 3) 4) 5) 6) 7) Base Pay Contingent Pay/Cost-of-Living Adjustments Short-term Incentives Long-term Incentives Income Protection Work/life focus Allowances 25 . challenging work. and incentives both short-term and long-term.Chapter 2 REWARDS Definition The Rewards can be defined as under: “A Reward System is the set of mechanisms for distributing both tangible and intangible returns as part of an employment relationship”. Cash Compensations: such as basic pay. which include job recognition (intrinsic reward). 2) Intangible Returns: Also referred to as Relational Returns. dearness allowance. According to the above definition. and allowances. work/life focus. merit pay. b. there are mainly two kinds of rewards: 1) Tangible Returns: It consists of: a. tuition reimbursement. employment security. Benefits: such as income/pay protection.

Quality of work. 26 . 3. When there is more or less productivity rewards are used to increase its productivity. To increase the productivity. To recognize the performance. If there is productivity. such as job security. It is a major component for any organization/company. the bigger the reward is. which is what to do and how to do. The performance of individual or a group can be evaluated as per following points: 1. rewards is given to maintain or increase such levels. it is necessary to have job knowledge. learning opportunities and opportunities to crease personal relationships during service) Performance Evaluation Rewards are always based on performance. Rewards always depend on the quality of work and behavior during work.8) Relational Returns (Intangible in nature. the performance and productivity is relatively high. work challenges. When there is higher level of job knowledge. it is rightly said that the organization is growing. 2. recognition and status. The higher the quality. Productivity. Job knowledge.

Variable Pay It is also known as pay-for-performance and is related to compensation program mostly used in the private organizations having production units or sale representatives. Under this scheme. The quality of work. a portion of relevant employee’s pay is nominated “at risk”. 27 .4. there established links between variable pay and the performance of the Co. it is rightly said that the company is doing well. Profit Sharing. and One-time awards for significant accomplishments. It can of such forms like: • • • • • Bonus programs. sometimes. If the company’s customer are satisfied from the services they gained. TYPES OF REWARD PROGRAMS There are large number of different kinds of reward programs intended for performance of individual and team as well. the outcomes of related business unit. or combination of any one. Under this kind of reward. Customer served. Commission. measured through how the customer is being served and satisfied. Stock options. accomplishments of an individual.

Bonus system is particularly used by the sales organization to motivate their sale representatives in order to increase sale and broaden the profit margin or the organization. The reward on the performance of employees for the past year. It is mostly used in the private organizations to motivate their employees for better results or improvement. Shawn Tully states in Fortune that: “The test of a good pay-forperformance plan is simple: It must motivate managers to produce earnings growth that far exceeds the extra cost of [the program]. Though employees should be made to stretch. It 28 . endeavor to reward and motivate their employees through program of variable pay instead. On the other hand. the goals must be within reach. To expand this scheme sometime. departmental-base. Some experts have the opinion that small business organizations are keenly interested in long-term benefits. they are encouraged with a short perspective and not futureoriented activities.” Bonuses This kind of reward system is frequently used throughout the world. office/region-base. it is used on individual representative. the employees will continue to receive his regular merit pay without any additional reward. group-based. they should definitely consider other kinds of reward program. Bonus programs have been used in American business for sometime. Thus Bonus programs are required more care when being structured with the confirmation that employees activities or performance are over and above the accomplishment of required level of basic duties and functions.Some of the companies used to pay less than competitors to their employees and on the other hand. Bonus is rightly said as short-term motivator.

Commission is paid on sale basis. 29 . Profit Sharing Under this type of rewards. Here a negative aspect is that since this kind of rewards are paid to all employees. more the Commission percentage paid. a particular portion of the profit in percentage is allocated for employees. Commission It is other form of Bonus program used as incentive reward. More the target achieved. there can be no differentiate between low performers and high performers. The basis purpose of this Reward is to motivate employees to work so that the profit margin of the organization may increase. Under this program. High performers are discouraged a little bit. Resultantly the amount of share-profit for employees will be increased accordingly. This amount is paid on yearly basis to the employees of the company after closing the books. Employees working in such kind of organization are expected to be more enthusiastic to accomplish their goals and objectives and work hard not for the organization but also for the sake of this incentive. This benefit can be given in the shape of cash or contributions of 401(k) plan for employees.is pertinent to mention here that Bonuses are completely legitimate ways of rewarding on outstanding working and such incentives is really a very powerful tool for motivating future high level performance. Targets are given with the variability of Commission percentage on more than target achieved. It is usually equal to percentage of the salary of employee.

Stack argued that “[employees] have to be able to see the connection between their actions.which tantamount to reduce future performance. while now-a-days this Stock Options method have become growing method to reward employees and middle management by every companies or even newly born companies. this option is treated as canceled. As mentioned in the pre-paragraph. decisions. usually equal to a certain percentage. the employee who performs outstandingly is eligible having service of 4 year and above. It is generally authorized by the board of directors of a company duly approved by its shareholders out of the outstanding shares of the company. the employees of the company related company can buy their own company’s stock at fixed price for some particular period but not more than 10 years. “an accumulation of everything that happens in the business over a given period of time” and is therefore difficult for most employees to connect their actions to. and participation. If such employee leaves the organization/company prior complete required duration of service or prior to being fully vested. When any employee becomes completed vested in this program. and changes in [a company’s goals]. This option is mostly given to outstanding employees as rewards and usually called Preferred Stock. he/she is eligible to allot/purchase certain number of shares at the fixed price (or on originally agreed strike 30 . Under this program. Jack Stack in Inc.” Stock Options This Reward system was previously known as territory of the large companies and top management people.. This option is used for long-term motivator and an attempt to retain such employee for a durable period in the best interest of the organization/company.

Then this stock option is known as “exercising”. which also increased the liability of the company. the company has to pay dividend on annual basis on these stock. Thus the company access cost due to market price factor. In addition. 31 .price) from the company. even on the fixed price basis. When an employee purchases this stock. he/she have the option to retain or sell it to any other party/person on the market price and retain the share of the profit. The company has to purchase some shares from the open market to balance its outstanding shares and keep it at the level of up-to-the mark. But on the other hand. Awarding or setting stock option in this way is a some of risk for the company too as the company deprives the profit of the difference between face value and the market value. This way the company increases the value and maximizes the wealth of the share holders too. The second benefit for this stock option is that as the company has shown this sale and compensation. the company reduced its tax liabilities by releasing the stocks to the employees and compensates expanses from the additional amount earned through issuing the stock options to the employee. hence accounting methods do not require showing options being an expense on accounting books.

under-average or above-average employee. any organization/company can select individual or group contributions or combination of both. can only earn extra benefit or incentive on his/her individual performance. commission. For the sake of reward. an individual. customer service. and productivity to grow among their competitors. and stock options out of outstanding shares can be used to reward group and team achievements. Bonuses. While the individual rewards are provided on the basis of personal performance on excellence and those who are above the average performers. 32 . employees are motivation to improve their performance and behavior under the umbrella of the organizational working environment. Reward system on the basis of Group provided on the evaluation of the team performance or the accomplishment of target provided to them. an employee can gain both the rewards i. group-based on the basis of part of a group and secondly on the basis of individual performance too. Through these group-based and individual rewards. whose performance is excellent.Chapter 3 Group-Based Reward Systems Many small businesses using different strategies to accomplish organizational goals and objectives through team structures many of them look for ways to reward on cooperation between individuals and departments. The organization. profit sharing percentage. Here this system encourage individual on his/her performance to all members of the group instead they are average performer. But under program. Thus. through this system gain quality of work.e. group-based and individual rewards.

it is very helpful tool to motivate employees and may excel the productivity. 33 . it is important for them to separate recognition program from the reward systems if they want to setup their performance recognition system/program. whether it is through informal feedback or formal company-wide recognition. letter of appreciation. Similarly. Only monetary benefits are not necessary for performance recognition. Most of the employees merely appreciate awards in the shape of money for their good performance but some people. certificate. Glasscock and Gram stated in National Productivity Review that “effective recognition methods should be sincere. and specific”. lunch/dinner in his/her honour etc. flexible. If proper performance recognition and other kinds reward system are applied in any organization. better results in the form of output. who prefer recognition on monetary incentive for their extra ordinary performance. appropriate. In case of the small businesses organization. They further state that it is necessary that every action of the employee is recognized which supports the goals of the company. It is only possible when focusing for the recognition of an employee’s effort. timely and frequent. promotion.Recognition Programs Recognition Program can frequently be used by the large organization but for the small organization. this program is required extra attention and care due to scarcity of resources such as finance and other related systems for this purpose. every employee of the company should have the same right/opportunity to have recognition for work they done. Here recognition means the employee may be provided proper rewards in the shape of money. fair and consistent.

employee of the month/year recognition. are required more attention so that they should be corrected timely. Similar to rewards. banquets or lunch/breakfasts/dinner. As stated earlier. the recognition method requires to be appropriated for achievement.It required for recognition to occur on frequent basis and timely completion of this process so that any action of the employee could not be overlooked and may not urge further additional high level performance. should remain somehow flexible in the methods of recognition due to variety of recognition and motivation programs. Keep in mind that those actions which are beyond the achievements of goals or not related to goal align. An entrepreneur. Letter of appreciation is 34 . an annual report or yearbook which features the efforts or accomplishments of employee(s). Symbolic recognition as ‘commemorative inscription’ on coffee mugs etc can also be effective proved their sincere appreciation of hard work. The owner of the organization is required to be ensured and reinforced what specific action is required to be recognized and it is to be communicated exactly to all employees.e. extra authority. recognition boards of department or company. and give his/her name to other employees for consultancy. Other can be recognition as Informal or spontaneous which have the in form of the privileges through working at home. Another way to recognize the performance of an employee is to give some power and additional support. there are many ways/forms for recognition. however. attend the office late or leave early. or more time for lunch breaks. Finally. It can be through structured programs which include: conducting regular recognition events i. employees are needed to clearly understand the action or behavior which is being recognized by the company.

Both rewards as well as recognition programs is being used in small businesses. The owners of such businesses should prior determine the desired employee’s behaviors.mostly recognized for performance in the small organization. 35 . required skills. who has limited financial resources. and accomplishments that will support their business targets/goals. The owner will have a better edge in the current competitive business environment through rewarding and recognizing outstanding performance.

the two major factors are being focused by almost every business organization to complete in this business environment and trying their best to have competitive edge for their organizations. they introduce different schemes and programs to motivate their employees so that their goal to produce quality products could be achieved and they may not only retain their own customers but also attract the customers of the other similar products as well. These two major factors which effect the production are given as under: 1. For this purpose. 2. companies are trying compete in the current business environment.Chapter 4 EMPLOYEE REWARD AND RECOGNITION SYSTEMS In the today’s competitive business environment. Quality of Work Minimize the cost Quality of Work To survive in the current business environment. Financial crises have made the situation worst especially for under-growing business organizations and they are striving hard in the current scenario. the companies/organizations are searching for different and means for them. they can capture major part of the market or even customers of the other organization. If any organization succeeds to produce quality products. Quality of work is one of the major production factors. For this purpose. 36 . which is giving important by every organization. 1.

reward and recognition programs.2. small organizations try to expecting more from their employees and employees are also looking more from their owners. Many experts are being consulted and different strategies are being made to concentrate on this issue. Many business owners are searching for such kind of improvements in quality of work and reduction in cost. the companies or organizations are stressing on this second production factor. Reward systems for employees refer to programs setup by organization to reward on good performance and thus motivate employees on individual 37 . Through a method to motivate employees. Minimize the cost In order to increase the share of the profit. For this purpose. Job markets are going very tight and paying heavy amounts on skilled and well-experience person on the key posts. In addition to the facts mentioned above in the Chapter 1. On the other side. they are continuously searching for those factors from where they can reduce or cut the part or whole cost. there many other ways that can also be included in Employee Rewards program. Behavior is known as the attitude of an employee during work. some of which are as under: Reward vs Recognition Mostly Reward and Recognition terms are used interchangeably. Maximum utilization of resources is made try to accomplish the goals effectively and efficiently. but it should be considered separately. is to bring change in the behavior during work to more befit the small business.

Normally. they are being separately considered from salary but may be of monetary nature or otherwise have additional cost to the organization. which are given on regular basis such as gain-sharing. etc.and on group levels. the manager/supervisor may be in a position to have a sense of eligibility for deserving employee and ensure that 38 . whereas. Those financial rewards. reward indicates a monetary or tangible benefit. Differentiating Rewards from Merit Pay & the Performance Appraisal While designing reward programs by the small business organization. Sue Glasscock and Kimberly Gram argued in Productivity Today for differentiating these terms that recognition shows a psychological benefit. they need to separate reward system from merit pay or salary system. Bonuses. must be correlated with the accomplishment of tasks/goals of individual employees or group and must be considered as pay at risk so that it can distinguished from salary. The small organizations are also considering the sphere of influence of large organizations and have to start such kind of incentives for motivation due to competitive job market environment to sustain their good performance employees. they preserve a different purpose altogether. It is noted that employee recognition programs on the one hand. often combined with rewards but on the other hand. Though major elements relating to designing and maintaining reward and recognition systems are approximately the same. especially for the owners of small organizations interested in staff motivating while keeping costs low. In this manner. Rewards programs are generally monetary form in nature while recognition programs are generally non-monetary and have no cost for the organization. but it is helpful remember this difference.

Finally. This additional percentage is making the difference between good and average employees of the company. however. without proper considering the performance within the context of the group or business. Merit increases normally review an individual’s behavior to performance his/her job.this reward is being granted on the outstanding performance and not on the basis of basic competency of the relevant employee. Identification of company or group goals that will support reward program Identification of the desired employee performance or behaviors that will reinforce the company’s goals 39 . This increased in percentage is varying within the employees due to good. It is considered as increase due the factor of inflation with additional percentage separating employees is due to competency. Enhancement in merit pay. The other aspect of this additional percentage increase that it increased the fixed cost of the company due to variance in employee’s payroll instead of variable salaries increases in the shape of bonuses which have to be re-earned each year. this kind of financial variance impact is very crucial element in the small business organizations relating to successful employee’s job. Designing a Reward Program The following key points are required to be considered when developing and designing a reward program: 1. better and best employees. 2. and also used as motivational tool for employees. is not thus part of an employee reward system.

the bonus system rewarding individuals who are performance good and giving productivity at their own or at the expense of another does not make sense. Most reward programs use multiple measures which can include such variables as improved 40 . must identify company or group goals to be attained and the desired behaviors or performance that will contribute for the purpose. Since rewards consist of real cost in terms of money or time. If teamwork is set as a business goal. Determination of appropriate rewards Communication of program to employees In order to gain maximum benefits in the shape of increased productivity. 5. that: “Performance measures in a rewards program have to be linked to an overall business strategy. quality of work. As Linda Thornburg mentioned in HR Magazine. the owner of the company. Again keep in mind that the criteria need to correlate to a small company’s goals or objectives.3. the company will frequently make the mistakes in connection with rewarding behaviors or achievements which lead to either failure of desired objectives or business goals or actually disrupt them. Determination of key measurements of the performance or behavior.. if quality of work is an important issue for any company. If the desired objectives or goals seem to be obvious. small company owners need to ensure that before rewarding. based on the individual or group’s previous achievements 4. Proper measurement of performance ensures the rewarding program pays off according to business goals. customer service etc. while designing a reward program. performance has actually improved. the reward system that the owner designs should emphasize rewarding the quantity rather than accomplishment of work by a business unit. Similarly.

Once this understanding process has been completed. is that rewards are matching to the end result for the company. memos etc. Motivation depends on the ability to understanding by an employee/worker for what is being asked from him/her. and reduced defects.. if you want to successful rewards program. 41 . You are required to use all possible methods of communication during the whole process. so that the sender and receiver may complete the whole process of communication. improved customer satisfaction. Keep your communications simple but frequent to ensure staffs are kept side by side of the changes towards system. for promoting the program. when developing a rewards program. Perfect attendance and observing office hours might merit a different reward than saving the company’s money through improved interaction and contract negotiation. It is also very important to consider reward programs for both individual and group accomplishments so that both individual initiative and group cooperation and performance are promoted accordingly.” The entrepreneur should consider. Last but not least. the requirements of the every employee should be clearly spelled out.financial performance along with improved customer service. circulars. reinforce the original communication with the help of regular meetings.

Employee’s recognition has great impact on the performance of the employees of the organization. employee feels more pleasure in respect of values and appreciation during the affiliation with the organization shows good working behavior.Chapter 5 Impact of Rewards for Motivation Under the present working environment. The organizations that following this approach towards creation of balance are normally focused on the recognition called intrinsic reward. it was revealed that most common problem among the organizations is that they are missing the important component of Reward for their employees and thus missing the motivation factor of productivity. The strategic approach of the organization is to maintain and establish balance in both sides. there is a trend among the growing organizations that they are realizing to build an adequate balance between the employee’s contributions for the growth of the organization and the organization’s contribution for admitting the employee’s performance in the shape of rewards as well. According to the studies conducted by various organizations on the topic of reward. Due to recognition factor. It is further revealed that this factor is low is cost but high result component of well-balanced reward system. which is one of the key reasons to reward employees. Advantages of Rewards for Motivation 42 .

Employees turnover ratio decrease. 8. and Self-efficacy improve 43 . Employees learning increase. Increase in profit. 4. 6. 3. 14. 12. Organization grow more. 18. Willingness to work increase. Productivity increase. Increase confidence level. 16. 2.There are lots of advantages of Rewards which motivate employees. Dedication to work increase. 20. Employees feels more pleasure. 9. 7. 17. Employees become more satisfied. 10. 5. Production level increase. Increase employees values. 11. 19. Employees recognition . Organization culture improved. Innovation increases Reduction in cost. Competitive advantage for organization. some of them are mentioned hereunder: 1. 13. Quality of work increase. 15. Employees self-esteem increase.

The impact of the Rewards for the Motivation to employees can be easily understood through the following model: This model shows the relationship between the Reward System and the Employee Motivation. which are not focusing on the relationship between organization and employees. Once this relationship buildup.The above points are only advantages. or not taking care of their workers. The explanation of this model is briefly given as under: 44 . It was observed from the past situations that those organizations. mostly remain in trouble of different kinds. it will be much benefited for organization and employees as well. Under this way organization can save lot amount by spending little on Reward for the motivational purpose. The productivity level of such organizations mostly observed as declining trends and employee’s turnover ratio is very high as compared to other organizations. there are other numerous advantages which are still under the veil and can be revealed from time to time. The strategic or top management of every organization is required to crease relationship norms between the organization and employees.

Intrinsic Reward This Reward is given on the recognition of performance of an employee. job security. 1. 45 . Extrinsic Reward This kind of Rewards consists of: pay. promotion. which leads to Employees Motivation. etc. Reward System consists of two kinds of Rewards. special training etc. status with the additional constant potential of increase in merit pay. Both Intrinsic and Extrinsic Rewards are separately explained hereunder. It is mostly non-monetary benefit and related to psychological satisfaction. It includes Awards like ‘Employees of the year’. Organizational working environment. 2.According to this model. lunch/dinner in the honour of employee. Intrinsic Rewards and Extrinsic Rewards.

4. 10% annual inflation increased to every employee of the university. and International Islamic University. we will see the impact of Performance Recognition and Motivation on the performance of individual or group. Enhancement/continuation of education for employees free of cost.Chapter 6 Impact of Performance Recognition and Motivation In this chapter. reward program is granted to individual and group as well. Islamabad (IIUI). The below satisfactory performers are deprive of this increased and are also arranged meeting with them to know the facts and figures for their poor performance. Thus this percentage of annual reward differs from individual to individual on the basis of performance of the employee. This can also reflects from the turnover ratio of any organization. House building advance. Proper motivation is being made through the following ways: 1. But 5% reward annual increased on average basis is granted to only those employees who performed at the level of satisfactory and above satisfactory. 2. We will try our best to approve through the following practical examples in the two different organizations like Shaheed Zulfiqar Ali Bhutto Institute of Science and Technology (SZABIST). 46 . Islamabad. Motorcycle advances Car loans (equal to 12 monthly salaries). 3. (1) Performance Recognition and Motivation in SZABIST In the SZABIST.

3. House Building Advances (up to 225. 5. 7. Some of the rewards for motivation to employees are given as under: 1. 2. advances increments. 6. Most of the above loans/advances are based on the Security Deposits of the students. is one of the biggest set up university is the capital territory region and twin city. which is amounting to Rs. (2) Performance Recognition and Motivation in IIUI The International Islamic University. The effective of the systems relating to Rewards and Recognition of performance/ service can be seen from the turnover ratio. and CP Fund contribution at the rate of 50%. the amount of loans / advances is gradually granting to the maximum employees of the SZABIST. etc are being granted to its employees on the recognition of their performance. Emergency loans. 47 . Its employees are approximately exceeding from the figure of 2500. Emergency Loans. which is less than 10%.000/. Many kinds of rewards.5. Leave encashment. loans. Car / Motorcycle / Cycle advances according to the cadre. As the students are increasing on each semester and recovery from the individuals is also going on. Leave encashment. Islamabad. 4.per student.000).

3-5 Advance increments for excellent performers Transport facility for funeral prayers. 2012. 10. 7. February 4. 8. Continuation education program and employees and their children. 12.5. 13. House Building Advance has been placed for the Board of Governors meeting being held on Friday. The university has recently doubled almost every loans/advances for the employees and further considering doubling the remaining advances such as House Building Advances etc. The university is also contacting different banks and other financers to build housing accommodation for employees adjacent to the university premises and the land available within the location of new campus. Medical advance. 6. and Many other kind of facility. According to the latest news. 48 . Convenience facility with reasonable recovery. Gift on retirement. Ex-cadre scheme for technical staff. Marriage loan. 14. 9. 11. Bearing of funeral expense.

Islamabad (IIUI) that. After implementing the above. the turnover ratio can be decreased to the minimal level as in case of the above mentioned organizations. In addition. they should emphasize on performance recognition and rewards to motivate their workers. where proper motivation through rewards are not implemented to recognize the performance of employees. required level of productivity can be gained and strategic goals be achieved. job performance standard. employees are more satisfied with their jobs and improvement in their output increased. 49 . high level of turnover ratio recorded in that organizations like most of the private organizations. It is proved that employees are motivated through rewards. If any organization will not properly reward their employees. Resultantly. it is clearly evident that if any organization would like to increase their productivity.Results: It is revealed from the current scenario of SZABIST and International Islamic University. In many other types of organizations. such organization will surely feel that the performance level of their workers is increasing gradually and the productivity as well. and output of their workers. Conclusion: Keeping in view of the above discussion. if performance recognition system is properly implemented. if proper Rewards are given. productivity and performance/job standards come to the low level. the chances to achieve required results.

http://globaljournals. Publisher: Global Journals Inc.bizresearchpapers. Pp. March 2011. Version 1. Vol. (USA). Second Edition. The Impact Of Reward And Recognition Programs On Employee’s Motivation and Satisfaction: An Empirical Study. In Jaffna District. 13th Edition. Timothy A. http://www. by Reena Ali and M. http://www.References: 1. Shakil Ahmed. 3.” National Productivity Review. No.pdf 6. June 2009. Organizational Behavior (Book). Performance Management (Book).com/22. 2009. Volume 11. International Review of Business Research Papers. by Herman Aguinis. 7. Sue. Summer 1996.answers. 5. Issue 4.org/GJMBR_Volume11/9-Reward-System-And-Its-ImpactOn-Employee. 4. Robbins. and Seema Sanghi.0. Judge. 8.com/topic/employee-reward-and-recognition-systems Glasscock. “Winning Ways: Establishing an Effective Workplace Recognition System. and Kimberly Gram. by Stephen P.pdf Reward System And Its Impact On Employee Motivation in Commercial Bank Of Sri Lanka Plc.Reena. 5. 50 . 270-279. Global Journal of Management and Business Research. 2. 4. by Puwanenthiren Pratheepkanth.