LUẬN văn THẠC sĩ (KINH tế) the impact of reward systems on employee performance

Title:Theimpactofrewardsystemsonemployeeperformance AthesissubmittedtoDublinBusinessSchoolinpartialfulfilmentof therequirementsforMastersofBusinessAdministrationinBusinessManage ment Bri

Title:Theimpactofrewardsystemsonemployeeperformance

AthesissubmittedtoDublinBusinessSchoolinpartialfulfilmentof therequirementsforMastersofBusinessAdministrationinBusinessManage

ment

BrianMurphyStud entno:1690779 WordCount:20,320

Contents

Declaration 3

Abstract 4

Chapter1:Introductionandbackground 5

1.1 Introduction 5

1.2 Background 7

1.3 ResearchIssue 8

Chapter2:LiteratureReview 9

2.1 Introduction 9

2.2 TeamBasedRewardSystems 10

2.3 Performance RelatedPay(PRP) 15

2.4 TotalRewardsSystem 22

2.5 Conclusiononliteraturereview 31

2.6 Limitationsonliteraturereview 32

Chapter3:ResearchMethodology 33

3.1 Introduction 33

3.2 ResearchPhilosophy 33

3.3 ResearchApproach&Design 34

3.4 ResearchStrategy 36

3.5 DataCollection 37

3.5.1 PrimaryData 38

3.5.2 SecondaryData 40

3.6 InterviewSelection 41

3.6.1 Linkto theresearch 41

3.6.2 DataQuality 42

3.6.3 Preparingtheinterviews 42

3.7 EthicalIssues 43

3.8 ResearchLimitations 44

Chapter4:Findings,AnalysisandDiscussion 45

4.1 Introduction 45

4.2 Interviewee Profile 45

4.3 PresentationofFindings 45

4.3.1 EmployeePerformanceandRewards 46

4.3.2 Teambasedrewards 47

4.3.3 PerformanceRelated Pay 49

4.3.4 TotalRewardsSystem 50

4.4 AnalysisandDiscussion 52

4.4.1 Introduction 52

4.4.2 DiscussionofThemes 52

Chapter5:ConclusionandRecommendations 57

5.1 Conclusion 57

5.2 Recommendations 59

Chapter6:ReflectiononLearning 61

Bibliography 65

Appendix1:Interview1SK01 72

Appendix2:Interview2SK02 77

Appendix3:Interview3SK03 83

Appendix4:Interview4SK04 87

Appendix5:Requesttogainaccesstoresearchmaterial 91

Appendix6:ConfidentialityAgreement 94

Appendix7:ConsentForm 95

Appendix8: SecurityClearance 96

Iherebydeclarethatthismaterial,whichInowsubmitforassessmentontheprogrammeo f studyleadingtotherewardofMastersofBusinessAdministrationatDublinBusinessSchool,i s entirelymyownworku n l e s s referencedi n t h e t e x t asa specificsourceandincludedinthe bibliography.Furthermore,n o part ofthis work hasbeens u b m i t t e d fo rassessmentforanyotheracademicpurposeotherthaninpartialfulfilmentofthatstatedabove

theeffectsofrewardsystemsonemployeeperformanceint h e modernworke n v i r o n m e n tandh o w satisfactionw i t h rewardscanleadt o h i g h e r performanceandbetterjobsatisfaction.Basedonacriticalreviewofpublishedliterature,i t i s clearh o w i m p o r t a n t t h e rightcombinationo f rewardsi s t o t h e performanceo f anorganisation.Employeesshouldalwaysbeawareoftherelationshipbetweentheirlevelo f performanceandhowtheyarerewardedforthatperformance.Thisthesiswillexamineh o w differenttypeso f rewardsystemsaffectt h a t performanceanda t t e m p t t o establishwhichtypeofrewardsystemsaremorebeneficialtothecompanyinquestionandinthecurrentbusinessclimateitoperatesin.Theresearchisconductedinaperiodofparticularfinancialturbulencefortheminingindustry,andwiderglobaleconomicenvironment.Ass u c h , rewardstructuresandtheperceivedvalueofthoserewards,comemoreintofocusasfinancialpressuresrestrictt h e t y p e o f r e w a r d s available,w h i l e retainingandm o t

i v a t i n g staffbecomesmorechallenging.Howcanperformancebeenhancedandtherequiredbusinessoutcomesaccomplished?

H o w canrewardsystemsc o n t r i b u t e t o thisperformanceandoutcomes?

Theseissueswillbeaddressedinthecontextofbestinternationalpracticeregardingrewardstructuresandfromprimarydatacollection.Thisresearchwasc o n d u c t e d atoperationalmanageriallevel.C o n s i d e r i n g h o w manyemployeesr e p o r t i n t o t h i s level,t h i s i s where

I b e l i e v e b o t h employeeandemployerinteractthemost

regardingrewards,motivationandhowthataffectsperformance

1.1 Introduction

Payingemployeesf o r p r o d u c t i v i t y h a s b e e n t h e cornerstoneofi n d u s t r i a l andbusinessdevelopmentf o r centuries.Financialrewardhasalwaysb e e n i m p o r t a n t i n managingemployee’sperformance,butoverthelast25yearsotherelementsofcompensationhavedevelopedt o provideemployersw i t h m o r e scopet o reward,andt h u s , m o t i v a t e employees.Armstronga n d Taylor(2010,p 3 3 1 ) s t a t e t h a t “performancei s definedasbehaviourt h a t a c c o

m p l i s h e s results.Performancemanagementi n f l u e n c e s performancebyh e l p i n g p e o p

l e t o u n d e r s t a n d w h a t goodperformancem e a n s andbyprovidingt h e informationneededtoimproveit.Rewardmanagementinfluencesperformancebyrecognisingandrewardinggoodperformanceandbyprovidingincentivestoimproveit”

Thepurposeo f t h i s researchstudyi s t o attemptt o i d e n t i f y h o w t h e s e rewardsimpactemployeep e r f o r m a n c e andh o w wellt h e c u r r e n t rewardsystemdoest h i s , w i t h i n thec

Definingtheconceptofhumanresourcemanagementinthemid-1980’sledtoagreaterappreciationforthevalueyourworkforcecouldmaketotheoverallbusinessgoalsoftheorganisationandh o w i t couldb e groomeda n d cultivatedt o addm o s t valuet o competitiveadvantage.Forthepurposeofthisstudy,thedesiredoutcomeistoshowifdifferenttypeso f r e w a r d s y s t e m s d o havep o s i t i v e consequencesandi f t h e s e consequencesdevelopi n t o increasedo r decreasedperformance.Weightman(2004,p

174)argues“ t hem a i n constructo f p e r f o r m a n c e managementi s t h a t w o r k groupsandi

n d i v i d u a l s seewhatt h e y h a v e t o d o t o m a k e t h e i r contributiont o theorganisationsoveralleffectiveness.Thereneedstobeaclearlinkwiththeorganisationalobjectivesandt h i

s i n v o l v e s goodcommunicationofclearobjectivesthat everyoneunderstands”

Basedo n the re vi ew ofcurrentliterature,this researchsetsoutto e x p l o r e clearlywhatvariablese x i s t i n attributingt h e correctr e w a r d structuret o ani n d i v i d u a l employeeorteam.Rewardmanagementi s b o t h complexandproblematicandv e r y susceptiblet o o u t s i d einfluencessuchaseconomicenvironments,cultureandindividualemployeepreferencesandperceptions.Whatisapplicable,effectiveandperformanceenhancing

foro n e employeeo r teamm a y n o t havet h e sameeffecto n o t h e r e m p l o y e e ’si n similarcircumstances.Thereism u c h p u b l i s h e d literatureo n t h e b e n e f i t s andproblemssurroundingp e r f o r m a n c e managementandp e r f o r m a n c e appraisalsystems.Thesebecomem o r e complexandhardert o manageasorganisationalstructurescrossinternationalboundariesandcultures.Inthiscontext, therewardsystemsw e applycanbecomevitali n a c h i e

v i n g t h e desiredlevelofperformanceandj o b s a t i s f a c t i o n Theresearcherhasworkedf

or 7yearswithinthe chosenorganisationfortheresearch,holdingvarioussupervisoryandmanagerialroles,soisawareofhowimportantrewardssystemsaretoemployeeperformance.Assuch,Iaimtoexaminewhatimpactsthecurrentrewardstructurehasonperformance,andtoalesserextentmotivation, andhowthatrelatestobestinternationalpracticein thethemesexamined

1.2 Background

Theresearchw i l l focuso n one co mp an y -S a n d v i k

Mining-a SwedishmMining-anufMining-acturingcompMining-any,speciMining-alisinginproducingMining-andsupplyingmMining-achineryfortheminingsectorglobally.Ithasover15,000employees.SandvikMining hasbeenapartoftheSandvikGroups i n c e 1 9 9 8 whent h e SandvikGroupacquiredt h e FinishCompany,Tamrock.SandvikMiningisaleadingglobalsupplierofequipmentandtools,serviceandtechnicals o l u

t i o n s f o r the miningindustry

http://www.mining.sandvik.com/

Theresearchw i l l focuso n employeesi n t h e s u p p l y chainmanagementsectiono f t h e company,acrossdifferentdepartmentsandgeographiclocationsandwithdifferentculturalbackgrounds

Thisresearchproposalt a k e s a qualitativeapproachto a n a l y s i n g collectedprimary dataandalsoe x t e n s i v e l y usesp u b l i s h e d literatureco nc er ni ng ther o l e of rewardsystemsi nperformance managementandthereeffectonemployee performance

Employeer e t e n t i o n relatesd i r e c t l y toh o w w e rewardth em Replacingemployeesi n a c

o m p a n y canbeanarduousandexpensiveexercise.Eveninmoresecureindustriessuchast

h e p u b l i c sector,performanceneedst o b e managedandstaffm o t i v a t e d asi n t h e privat

es e c t o r Retentiono f experienceds t a f f i n b o t h t h e s e i n d u s t r i e s i s importantt ocreatecompetitiveadvantageandorganisationalsuccess.Thisstudywillalsolookattheimportanceofrewardingexperiencedandhighperforming staff.Soinatime whentheamountoffinancialrewardsisrestrictedbytheeconomicclimate,retaininghighperformersw i t h rewardshast o b e achievedwhilem a k i n g allstafffeelvalued.I w i l l investigatei f thesev a l u e s , alongw i t h a totalrewardapproacht o h o w w e compensateemployees,haveaneffectonemploy

ee performance

Asmoreandm o r e o r g a n i s a t i o n s crossinternationalb o u n d a r i e s t o

c o n d u c t business,rewardst h a t a r e r e l e v a n t i n o n e c o u n t r y maynotb e asimportanti

n another.I aimt o establishifastructuredrewardsystem,andthespecifictypeofrewardsapplicabletothisorganisation,isimperativeforincreasingemployeeperformanceorifithasanyeffectatall.Thisisallin thecontextofaneverchanging society,wheremostworkersaspiretobe

wealthyinawaythatpreviousgenerationsdidnot.Theseaspirationsfromanincreasingeducatedandm o b i l e workforcep u t evenm o r e emphasiso n anorganisationsrewardsystemsandstructures,andhighlighttheimportanceofrewardsinthecontextofa c h i e v i n g j o b satisfactionamongemployee’sa n d u s i n g t h i s asa competitiveweaponagainstbusinessrivals.

Thisliteraturereviewonrewardsystemsencompassestheareasofperformance relatedpay,totalrewards y s t e m s andteamr e w a r d s Itw i l l revealt h e manydifferentt y p e s o f incentivesavailablet o moderndayemployeesaswellast h e mostfavourablewayt o a p p l y thoseincentivestogetthebestperformanceformyourstaff.Reviewingthecurrentp u b l i s h e d literature

i n t h i s fieldw i l l allowt h e researcherestablisha base,t o whichfurtherresearchcanbeadded.Thisdissertationexploresthreeoft h e maintheoriesandpracticeso f rewardsi n t h e w

o r k p l a c e andh o w theyaffectp e r f o r m a n c e , asw e l l asspecificcasesw i t h i n organisationsexploredi n t h e criticalr e v i e w o f a l r e a d y published literature.T h e t h e o r y onrewardsystemsandt h e i r effectso n performancec a n n o t b e evaluatedwithoutlookingathowworkmotivationisalsoaffectedbytheserewardsandh o w t h a t m o t i v a t i o n i s d

i r e c t l y linkedt o p e r f o r m a n c e Kanferetal

( 2 0 1 2 ) d e s c r i b e m ot iv at i on intheworksenseasasetofprocesseswhichareultimatelyusedtodeterminea person’sactions,andwhichactionst h e y willuseto achievea desiredoutcome.T h i s psychologicalproceduredetermineshow personaleffortisused inthe‘direction,i

n t e n s i t y andpersistence’oftheseactionsinrelationtoyourwork.Howyouarerewardedfor

thisworkwillhaveagreateffectonthisdirection,intensityandpersistence.Ensuringyouhavetherightrewardstrategyandstructureinplaceinyourorganisationisvitalforthepositiveperformanceandmotivationofyourstaffandtheserewardssystemss h o u l d b e basedo n w h a t i s neededt o achievet h e desiredl e v e l o f p e r f o r m a n c e andm o t i v a t i o n Adams(1965)describese q u i t y t h e o r y ast h e perceptiono f h o w youa r e treatedcomparedtoothersandinessencethatyouwillbemoresatisfiedandmotivatedifyouthinkyouarebeenfairlytreated.T

hisproceduraljusticeelementtohowrewardsareinterpretedr u n s deepi n termso f t h i s performanceandm o t i v a t i o n Armstrong(2010,

p.41)statest h a t “ i ngeneral,u s e

anevidence-basedapproach,whiche s s e n t i a l l y means managingrewardsystemsonthebasisofevidenceratherthanopinion,onunderstandingratherthanassumptions,andonanunrelentingcommitmenttogatherthenecessaryfactst o makemoreintelligentandinformeddecisions”

2.2 TeamBasedRewardSystems

Int h e m o d e r n businesse n v i r o n m e n t , teamperformancei s b e c o m i n g m o r e and

m o r e criticalt o organisationalsuccess.O n e oft h e f i r s t questionsaskedatm o s t interviewst o d a y is‘canyouworkaspartofateam?’E n s u r i n g employeesworkbothproductivelyandcollaboratively aspartofateamcanbedifficult andaccordingtoTorringtonetal.(2011)iftheperformancemanagementactivityisnotdefinedcorrectly,employeesi n d i v i d

u a l goalsmaydamagetheteam’sperformanceandviceversa.Groupbasedawardsappeart o b e

l o g i c a l c o m p l i m e n t s o f performancemeasurementt h a t focuseso n teamsandthequality/

quantityofworktheyproduceand(Dematteoetal.,1998,p.144)f o u n d th at applyingrewardst o teamsasa who le is basedo n t h e assumptiont h a t teamrewardsw i l l d o s o m e t h i n g q

u a l i t a t i v e l y differentt h a n i n d i v i d u a l rewards.A l s o froma performanceevaluationpointofview,itmaybeeasierandlesscomplexfor

amanagertoevaluatea t e a m ’ s performanceasopposedt o i n d i v i d u a l performance.S o i

t couldb e arguedt h a t m a n a g i n g performanceandr e w a r d s availablefora c h i e v i

n g t h e levelofperformancedesiredcanbecomplimentaryandlesstimeconsumingfromamonitoring andm e a s u r i n g p o i n t ofv i e w i n a teamb a s e d structure.H o w e v e r , a

c c o r d i n g t o (Armstrong,2012,p.294)itcantaketimeforateammembertoadjusttopartoftheirremunerationbeend e t e r m i n e d byt h e groupe f f o r t andh o w l o n g t h a t takeswill

bedeterminedbyt h e m a t u r i t y o f t h e teamm e m b e r s andh o w u s e d theya r e t o w o r

k i n g together.Althought h e ideao f h a v i n g a highperformingteamworkingc l o s e l y

a n d c o l l a b o r a t i v e l y t o g e t h e r i s appealing,t h e dangeri s forcingp e o p l e i n

t o a newremunerationarrangementwhomayalreadybejustgettingusedtoanewwayofworking

Insomeorganisationsitmaybemoreadvantageoustonotapplyindividualperformancetargetsandf o c u s onlyoncollectiverewardandperformancep l a n s K r a m a r andSyed(2012)hasidentifiedthatgrouprewardsorincentivesaremorelikelytoyieldacollaborativeapproachto

reachingyoursharedgoals.Theyalsoarguet h a t collectivei n c e n t i v e schemesmayencouragem o r e organisationalbuyinfromemployeescomparedto thoseschemesofanindividualnature.However,thisdoesnotmeanthatteambasedrewardsarenotcompatiblewithindividualperformancerelatedpayschemesasb o t h c a n becombinedw i t h c a r e f u l attention.A s Kerrin’sandOliver(2002)commentintheirresearchoncollectiveandindividualimprovementactivities,t h e effectivenesso f collectiveo r teamb a s e d r e w a r d s canbed i

r e c t l y relatedt o t h e cultureo f t h e organisation.A s basep a y fromani n d i v i d u a l i s t i c

p o i n t o f v i e w hasalwaysbeenseenast h e backboneo f c o m p e n s a t i o n , whenorganisationaldesignmoves into supporting teams forproductivity,thenthe applicable collectiverewardssh o u l d b e adaptedt o s u p p o r t t h i s T h e y foundth at c o m p a n i e s facedchallengesin movingfrom atraditionalsystemofrewardbasedaroundtheindividual to

am o r e teambasedrewardstructure,butthattheycouldoperatesimultaneouslywithsuccess.Theyalsonotethatchallengesalsoarisewheremanufacturingprocessescanbeb u i l t aroundtheconceptofteams,whilerewardsforcontinuousimprovementactivitiess t i l l remainlinkedtoindividualrewards

AstudybyMichaelD.Johnson(2009)arguestheeffectivenessofateambasedrewardsystem

i n t h e basicsense.T h e dynamicso f t heteamp l a y a b i g parti n t h e “rewardinterdependence”,i.e.howanindividual’srewardisbasedontheperformanceofanotherteammember.Thisstudyarguestheneedtointroducemoreindividualincentiveswithint h e teambasedrewardstructure.“EqualAllocations”becomeimportantwhererewardisn o t onlydependentonoverallteamperformance,butissharedequallybetweenallteammembers( J o h n s o n , 2009,p.4) Itsuggeststeammembersm u s t helpeacho t h e r t o achievet h e i r endresult,b u t t h e yarerewardedd i f f e r e n t l y basedo n w h a t theyh a v e contributedt o t h e team’sperformance.H e alsof o u n d t h a t wheret r a n s p a r e n c y ofteammember’scontributionsisvisible,thenitcanmaketheteammembermoreconsciousoft h a t contribution,thusincreasingthetendencytoactinfavouroftheteam.Researchintot h e relationshipbetweenempowermentandrewardsbyBornandMolleman(1996)found