Reward system has become an essential subject of fierce debates among different scholars in recent decades since reward system management can help to attract talented employees and retain them by stimulating to achieve goals and perform well (Danish, Khan, Shahid, Raza, Humayon, 2015). Managing employee compensation is highly significant because it can affect key outcomes such as employee contribution, attitudes and behaviours, job satisfaction, attraction, cooperation and performance (Gerhart & Milkovich, 1992: 1). Moreover, scholars of management have also taken an interest in intrinsic rewards, arguing that such non-financial mechanisms tend to increase the employees’ feeling of recognition and achievement while motivating them for further advancement and growth (Kohn, 1993). However, despite over 50 years of organisational research that has an irrefutable evidence that employees are motivated by more than monetary rewards alone, many specialists, HR-managers and top managers overall continue to rely on financial compensation mechanisms (Silverman, 2004), and “in most companies, insufficient time and effort are spent on considering non-monetary sources of motivation” (Gratton, 2004). Although organisations increasingly need to consider rewards more broadly, as they are likely to be in a much better position to reinforce psychological contract and prevent the breach, organisations have to be careful with implementation non-monetary rewards mechanisms in order to align with the culture of the organisation (Silverman, 2004). This essay will review main theories of rewards and motivation (Maslow,1954; Herzberg, 1966; Deci, 1975), strengths of intrinsic rewards (Giancola, 2014; Kohn, 1993, Reif, 1975) and concerns that should be taken into account before bringing theory to practice (Silverman, 2004).
Before examining strengths and concerns of this issue, it would be fair to define extrinsic and intrinsic rewards and appeal to main theories. During the last decades, there have been formulated two strategies for efficient work behaviour, despite some differences by Abraham Maslow (1954), Frederick Herzberg (1966), and Edward Deci (1975). The first strategy appeals to the extent that employees are motivated by tangible rewards like salary/ wage, bonuses, job security, and promotion (Reif, 1975). However, according to Pfeffer (1998), people work not only for monetary stimulus but also for meaning in their life (non-cash award), such as relationships with boss and peers, commitment, a feeling of trust among colleagues. Thus, the second strategy comes from the assumption that employees are generally motivated by intrinsic rewards, also known as job motivators that can be thought of as internal thoughts and feeling of self-esteem, commitment and self-sufficiency, trust and feedback (Reif, 1975; Silverman, 2004). In other words, an intrinsic reward is an outcome that gives an individual personal satisfaction and positively valued experience from well-done work (Stumpf, Tymon, Favorito, Smith, 2013).
Although according to the recent survey of Society of Human Resource Management (SHRM), HR-managers and leaders underestimate the value of intrinsic rewards and do not give intrinsic motivational matters a high priority in their work agenda, there are some crucial points that they might also play a vital role in the organizational process. First of all, non-financial awards are likely to enhance employees’ motivation much stronger than financial rewards (Herzberg, 1968). People are generally more willing to achieve company’s goals when they face open relationships with the boss and colleagues, clear messages from the top that are appropriate to the organization’s vision, culture and mission, accurate deadlines and, importantly when employees can trust to managers and peers. This can be proved by the several surveys that were conducted by respected organizations. In 2009 Sibson Consulting Rewards of Work study conducted a survey among more than 2,000 employees from all parts of the world and more than 25 industries. According to the survey job responsibility and feedback, as well as affiliation (e.g., organisational support, trust in management) were the most important driving forces (Giancola, 2014). In addition to this study, in 2009 consulting company McKinsey & Company Study Motivating People under the project “Getting beyond the Money” surveyed 1,047 executives, managers and employees from all regions and most sectors and found that opportunity to lead projects or task forces, as a part of work commitment, motivated more than the highest-rated financial incentives – base pay increases, cash bonuses and stock options (Giancola, 2014). Not only that but, besides, non-financial rewards can offer a more in-depth and longer lasting impact on motivation than more financial rewards (Silverman,2004). There is no evidence for the assumption that giving people more money will encourage them to work better or even, in the long term, more work (Kohn, 1993). Therefore, financial incentives buy temporary compliance and cannot predict the harm over the long term, as opposed to a useful feedback, social support and trust that can help to avoid difficulties and form more explicit focus on strategic business goals and values (ibid, 1993).
A sense of fulfilment, trust, engagement, empowerment and growth not only stimulates employees to work well but also have an influence on job satisfaction and well-being, as well as on an intention to stay with the company during organizational change programs (Stumpf et al., 2013). Intrinsic rewards and appreciations have a link with outcomes expected because of employees’ job satisfaction (Danish et al., 2015). In organizations with such a reward system employees who are appreciated by intrinsic awards motivated positively for the prosperity of the company for them, as well as perform well according to their job description (ibid, 2015). In addition to this, open relationships, trust, commitment reduce possibilities for severe competition and increase the level of cooperation and interest as opposed to financial reward mechanisms, that, in most cases, may collapse relationships between supervisors and subordinates and, therefore, organizational excellence (Kohn, 1993). Regarding retention talented people, organisations can reinforce affective relations between employer and employee to binds the two more closely together and make the individual more likely to stay and harder for rival companies to compete (Silverman, 2004). Thus, the system of intrinsic awards can determine some problems in advance, such as effective collaboration, sense of powerless and burnout employee by using different types of incentives.
However, implementation of non-monetary rewards requires taking into account some concerns that can affect an organisation’s competitive advantage. The most significant point is how such incentives align with organisational culture. Non-financial rewards have to seem congruent to the mores, culture, values of organisation (Silverman, 2004). For example, conservative companies with strict rules and norms are likely to reject American style of management with more flexible rules and values. Personality and job characteristic also take part in implementation, while one type of incentives works with particular individual, other- does not. For instance, IT-specialists, engineers, accountants, as well as introverts – professions and personal trait that do not require or prefer social interactions and high level of commitment, they are not extremely interested in intrinsic rewards, as opposed to bank tellers, social workers and extroverts, who are dependent on social inclusion with colleagues, departments, trust, empowerment, commitment and timing. Managers should think not only about cultural and personal fit but also about the time and economic situation when they decide to implement the mechanisms. Non-financial rewards should be checked regularly and updated where appropriate to ensure that they are still useful (Silverman, 2004). Intrinsic rewards are not always sufficient over the longer-term because time dictates new demands and an old scheme might become uninteresting for employees, although they are likely to feel good at the moment. In relation to the economy, Tahmincioglu (2004) suggests that economic environment influences the effectiveness of non-financial reward schemes. In a time of downsizing and restructuring, for example, such mechanisms may not be effective in motivating and can lead to adverse consequences while in a time of economic arise these methods may show the opposite effect and be beneficial for employer and employee (Tahmincioglu, 2004).
To conclude, this essay has attempted to provide a brief summary of the literature and theories relating to the managing employee compensation system, and it seems that empirical studies on this issue are somewhat mixed and hotly debated. In addition to this, empirical research is generally lacking the optimal combination of intrinsic and extrinsic rewards that can be useful for HR-managers to implement such methods of awards in their work practice. Designing the jobs with intrinsic rewards, such as commitment, communication, relationships, timing and trust may motivate employees to work better, improve job satisfaction and well-being, reduce stress and absenteeism, along with the most significant acceptance and return with the group. It can be beneficial not only for employees but also for employers by developing a competitive advantage in recruitment, retaining and rewarding employees while intrinsic rewards are a relatively inexpensive and powerful motivator (Giancola, 2014). However, managers should focus both on advantages of non-monetary incentives and on circumstances, such as organizational culture, time, th economic situation in order to predict the potential risk of backfire.