Professional Documents
Culture Documents
Impact of Monetary Rewards On Employees
Impact of Monetary Rewards On Employees
BY
Elikwu, Michael Ikechukwu
Department of Business Administration
Nasarawa State University, Keffi, Nigeria
alwayzcoolconcepts@yahoo.com
Abstract
In Nigeria, there is the problem of most employees of various SMEs scouting for better jobs in
order to earn a higher wage and attain a higher standard of living. This is coupled with the
problem of low productivity, stagnated growth of SMEs and very high overhead costs as
compared to output. There is also the problem of less reward, likely resulting to the decreasing
of employees' motivation and performance such as high number of absenteeism, as well as lack
of interest in doing task that is not included in their job description. Hence, the main objective
of this study is to evaluate the impact of monetary rewards on level of employee motivation in
SMEs in Nigeria. Structured questionnaire was used to collect data from one hundred and
thirty eight (138) respondents through random sampling method from the selected Small and
Medium Scale Enterprises in Abuja, Asaba and Lagos, all in Nigeria. Data collected were
analyzed using simple statistical tables with percentages, while, postulated hypothesis tested
using the Multinomial Logistic Regression (1 4 > 0 ). The findings revealed that, monetary
rewards (over-time, salary increase, bonus and sales commission) have significant impact on
(level of) employees motivation in SMEs, but at varying degree; hence, it was recommended
that, a well-articulated monetary rewards system be maintained to influence level of
employees motivation in order to ensure commitment and enhanced productivity. However,
since money can stop being a motivator once gotten, it is also recommended that owners of
small and medium scale enterprises should endeavour to explore the use of non-monetary
reward to boost employees motivational drive, so that both individual and organizational
objectives can be achieved.
1.1 Introduction
In the contemporary global economy, employees are the most valuable asset to organizations
and as such, play important roles in ensuring performance and growth of Small and Medium
factor in ensuring that organizations operate optimally and efficiently, hence, appropriate
1
To maintain a good employee performance, a suitable reward system is needed, as such; one of
the fundamental tasks of every organization globally in the management of human resources is
effective and appropriate reward mechanism. It is a complex task that occurs intermittently,
demand precision and must not be delayed. Reward being one of the central pillars of human
This however requires integrating employees with business process and strategies improved
efficiency (Ash, 1993) to achieve optimal organizational goals and objectives. In other words,
messages to all employees of the organization (Schell & Solomon 1997), informing them about
The fact that people work to get reward for their efforts confirms that, exchange of labour for
financial rewards is the heart of employee motivation. Hence, employees only put forward
their best if they get reward for their work (Odoh, 2011). There are therefore are two types of
reward system, monetary rewards (salary, bonus, commission, incentives) and non-monetary
rewards (promotion, opportunity to completion, training, skills, meaningful work and work
Thus, significance of reward emanates mainly from the fact that it provides motivation to
employees and constitutes a strategic and important item to performance and growth of SMEs.
Hence, this research work evaluates the impact of monetary rewards on employees motivation
A preliminary literature review for this thesis had revealed a gap between general reward
literature and employee motivation literature regarding the question of how to reward and
2
motivate employees (Beel 2006) especially in Small and Medium Scale Enterprises. Initial
In Nigeria, there is the problem of most employees of various SMEs scouting for better jobs in
order to earn a higher wage and attain a higher standard of living. This is coupled with the
problem of low productivity, stagnated growth of SMEs and very high overhead costs as
compared to output. Less reward as asserted by Adams Equity Theory (1963), may result to
the decreasing of employees' motivation and performance such as high number of absenteeism,
as well as lack of interest in doing task that is not included in their job description.
In order to solve the questions raised by the identified questions in the above statement, the
Specifically, the main objective of this study is to evaluate the impact of monetary rewards on
level of employee motivation in SMEs in Nigeria. Specifically, the objective focuses on over-
time benefit for extra work done, increase in salary to enhance productivity, bonus and sales
Therefore, in order to achieve the objectives of the study, this hypothesis has been formulated
for testing:
Employees who are effective and efficient are likely to be limited if they are not motivated to
Perform. Mendonca, (2002) sees reward and compensation system that is based on the
expectancy theory, which suggests that employees are more likely to be motivated to perform
when they perceive there is a strong link between their performance and the reward they
receive. Guest, (2002) is of the opinion that reward is one of the keys that motivate employees
to perform as expected.
The reward can be in the form of cash, recognition and praise or a combination of both Group
Performance-related schemes reward a group or team of employees with a cash payment for
achieving an agreed target. These schemes are all designed to enhance company performance
by aligning the interests of employees with the financial performance of their companies
(Chin-Ju, 2010). Huselid, (1995) sees reward as a system (e.g. profit sharing) that contributes
to performance by linking the interests of employees to those of the team and the organization,
thereby enhancing effort and performance. La Motta (1995) is of the view that performance at
Rewards are said to signal the organizational values to the employees as Trevor (2008:21-41)
describes them as a means of aligning a companys most strategic asset their employees to
the strategic direction of the organization. Ghoshal & Bartlett (1998) captures the essence of
rewarding which is not only attaching value to the employees but also more importantly adding
Diener & Biswas-Diener (2002) and Kasser & Ahuvia (2002) assert that, the idea of using
monetary factors as inducements for employees to work well is not a new one, as there are
records of some payment schemes as far back as the seventeenth century. In recent times,
4
reward system such as bonus scheme, profit sharing, merit rating, psychological motivation,
promotion, fringe benefits, social incentives and welfare have been introduced as better ways of
motivating people at work for maximum productivity (Milkovich & Wigdor, 1991; Srivastava,
The importance of money as a motivator has been consistently downplayed by most behavioral
scientists like Herzberg who point out the value of challenging jobs, feedback, cohesive work
teams and other nonmonetary factors as stimulants to motivation (Harunavamwe & Kanengoni,
2013). However, money is the crucial incentive to work motivation because it is the vehicle by
which employees can purchase the numerous need-satisfying things they desire (Robbins et al.
2003).
Bates (2006) indicates, for money to motivate, merit pay rises must be at least seven percent of
base pay for employees to perceive them as motivating and to catch anybodys attention.
Studies by Locke (1998) on the four methods of motivating employees indicated that money
rated the second among lower-level employees. Though, such evidence demonstrates that
money may not be the only motivator, but its difficult to argue that it does not motivate.
In a survey, Ellis and Pennington, (2004) asserts that direct financial reward played a critical
role in attracting talented employees, and have a term impact on the motivational levels of
employees. According to Armstrong (2007), in a much publicized study, Gupta 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. However, small raises can actually be dysfunctional in terms of motivation
because employees become irritated that their hard work yielded so little.
Theoretical Framework
There is no doubt that good reward is the crux for motivation, but there is no clear-cut answer
5
to the question of what kind of reward actually motivates an employee. Vroom (1964)
maintains in his expectation theory that everyone works in expectation of some rewards (both
spiritual and material), and welfare is one of them. In other words, the degree of reward
Wallace and Zeffane (2001) noted, management depend upon rewards like money as the main
reward that can satisfy different needs such as physiological need for food. In McClellands
acquired needs theory, money is an important source of performance feedback for high need
achievers. Non-monetary rewards on the other hand attract persons with a high need for
affiliation through verbal recognition, and high achievers through challenging jobs.
Many theories have been propounded to examine the factors that contribute to employee
motivation in an organization. These theories are important because they provide explanations
to the reasons why employees are motivated, therefore, if properly applied; they could lead to
having better motivated employees which ultimately may lead to increased productivity in
organizations. This study is therefore anchored on Abraham Maslows need hierarchy theory.
Empirical Review
Garlick (2009) carried out an online study of 1,913 full-time employees and asked people to
incentives included monetary rewards such as cash bonuses, gift cards, award points, and travel
awards, as well as intrinsic rewards such as having more freedom and autonomy at work, being
able to choose interesting projects, and being assigned to mentor other employees. Not
surprisingly, cash bonuses were listed as the most preferred incentive by three-out-of-four
people (74%) surveyed. Nine-out-of-ten (89%) listed cash bonuses within their top three
preferences. However, the primary issue the study investigated was whether offering cash
6
bonuses really influenced employee attitudes, as well as other business outcomes. The results
showed that offering a cash bonus exclusively does not seem to make much of an impact on
performance, despite the fact cash bonuses are nearly everyones preferred reward. While cash
bonuses are the most preferred reward for three-out-of-four, and among the top three rewards
for nine-out-of-ten, those who only receive a cash bonus are just slightly more satisfied than
those who get no reward at all. Furthermore, offering exclusively cash bonuses only seems to
have very little impact on company performance, either in terms of increased customer service,
or in increased profitability.
It is the researchers opinion that though money is a motivator, as Wallace & Zeffane, (2001)
averred that management depends upon rewards like money as the main factor of motivation.
This is based on Maslows hierarchy of needs, which sees money as being a unique reward that
can satisfy different needs such as physiological need for food. However, it is the researchers
opinion that when such need is satisfied, money stops being a motivator, hence, the level of
3.0 Methodology
The research design employed in this study is the descriptive research design, which is useful
for solving problems only when the process is guided by one or more specific research
problems. The choice of descriptive study is to discover and describe the characteristics of the
variables of interest in a certain situation (Omale, 2013). Furthermore, the survey design is
from the population of interest that are measured at a single point in time.
The population of this study is hinged on the staff fifteen (15) Small and Medium Scale
Enterprises in three different cities, Abuja, Asaba and Lagos, with a total population of two-
7
hundred and fifty (250) employees. Therefore, in determining the sample size, the Taro Yamane
n= N
1 + N (e)2
n= Sample size
Hence; 250
n = 1 + 250 (0.05)2 = 154
Also, copies of the questionnaire were randomly administered to one hundred and fifty four
Model Specification
Data collected were analyzed using simple statistical tables with percentages. Also, postulated
hypothesis tested using the Multinomial Logistic Regression, which is useful for situations to
classify subjects based on values of a set of predictor variables. This type of regression is
similar to logistic regression, but it is more general because the dependent variable is not
In this study, overtime, salary increase, bonus and sales commission are used as indicators of
monetary reward.
Where;
MOT: Employees Motivation (Very High, High, Average, Low, Very Low)
8
SI: Salary Increase
B: Bonus
C: Commission
The a priori expectation in the model is that the independent variable (monetary reward) is
Time, Salary Increase, Bonus and Sales Commission. The mathematical expression is
represented as; 1 4 > 0 implying that a unit increase in the independent variables will lead to
increase in employees motivation by a unit. Thus, regression was employed in the study to
forecast relationship between variables and estimate the influence of each explanatory variable
questionnaire. The analysis reveals that of the 52 copies each of the questionnaire distributed in
Abuja and Lagos, 46 and 49 representing 30% and 32% respectively were duly completed and
returned, while 43 copies representing 28% were returned from Asaba. This shows that, 16
copies were not returned, representing 10%, while a total of 90% response rate was recorded,
which gives credence to the analysis. The respondents were selected from the manufacturing,
hospitality (Hotels & restaurants) and Services (sales & marketing) sectors. The analysis
reveals that, 23% are from the manufacturing sector, 46% from the hospitality (hotels &
restaurants) sector, while 31% of the respondents are from the services (sales & marketing)
sector.
9
Test of Hypothesis
The multinomial logistic regression is employed in the test of this hypothesis, based on the
logistic regression, but it is more general because the dependent variable is not restricted to two
categories
------------------------------------------------------------------------------
mot | Coef. Std. Err. z P>|z| [95% Conf. Interval]
-------------+----------------------------------------------------------------
High |
salary | 37.39081 . . . . .
bonus | -24.53918 .5700877 -43.04 0.000 -25.65653 -23.42182
commission | -36.44139 . . . . .
_cons | 24.05975 . . . . .
-------------+----------------------------------------------------------------
Low |
salary | 21.33159 2692.329 0.01 0.994 -5255.536 5298.2
bonus | 18.56096 1794.886 0.01 0.992 -3499.351 3536.473
commission | -2.726003 . . . . .
_cons | -93.23051 . . . . .
------------------------------------------------------------------------------
(mot==average is the base outcome)
The result in the above table shows the level of motivation attained as a result of the rewards
given to employees. The table shows three levels of motivation (high, average and low) as a
result of monetary rewards (salary, bonus and commission). The average motivation level is
Discussion of Findings
Analysis of tested hypothesis shows the level of motivation attained as a result of the reward
system given to employees. The analysis shows three levels of motivation (high, average and
10
low) as a result of monetary rewards (salary, bonus and commission). The Average motivation
level is used as a baseline against the High motivation and low motivation.
There is a positive relationship between motivation and salary. This means that a unit increase
motivation of about 37.4 units. However, bonuses and commission show a negative
relationship with motivation. This means that increases in bonuses and commissions by a unit
The row for Low motivation from analysis shows that both salaries and bonuses have a
positive relationship with motivation. This means that increase in salaries and bonuses by one
unit is more likely to increase motivation by 21.3 and 18.56 units respectively. This implies
that when salaries and bonuses are increased, their increment brings about a low level of
motivation to the employees. This may be as a result of insignificant salary and bonus
increment. The commission coefficient showed a negative effect to low level of motivation.
The Pseudo R2 with a value of 0.6350 implied that the 63.5% variations in motivation levels
are explained by the influences of salaries, bonuses and commissions, which are monetary
reward systems.
The Likelihood ratio (LR) Chi-square test of the two equations of levels of motivation is used
to test for the significance of the models. From the table, the P-value of the Chi-square is 0.000
which is lower than the level of significance of 0.05. Therefore, the null hypothesis is rejected
while the alternative is accepted concluding that there is a significant effect of monetary
In the researchers opinion, the findings of the analysis on monetary reward and level of
employee motivation confirms Maslows hierarchy of needs, which sees money as being a
11
unique reward that can satisfy different needs such as physiological need; however, when such
need is satisfied, money stops being a motivator, hence, the level of employee motivation is
quite low based on monetary reward alone. This finding therefore contradicts the assertion of
Wallace & Zeffane (2001); thus, management should not rely mainly on monetary rewards as
standards, they also bring about substantial local capital formation and achieve high
level of productivity and capability. Small and medium scale industries are increasingly
diversification and dispersal and, in most countries, they account for well over half of
assigned tasks and responsibilities cannot be over emphasized, especially when it comes to
being rewarded for a job done. It is a well-known fact that human performance of any sort is
influenced by the level of motivation attained. On the basis of the findings, it can be concluded
that monetary rewards (over-time, salary increase, bonus and sales commission) have
significant impact on (level of) employees motivation in SMEs, but at varying degree. Thus,
the system of workers reward package matters a lot and should be the concern of both
employers and employees. However, the implication of the study is that most of the employee
motivation theories are not fully operational in Small and medium scale enterprises in Nigeria.
Also, the factors that influence motivation do not necessarily come in rigid steps and they vary
12
Recommendations
ultimately result in higher productivity; thereby ensuring that small and medium scale
2. Since money can stop being a motivator once gotten, it is recommended that owners of
small and medium scale enterprises should endeavour to explore the use of non-
monetary reward to boost employees motivational drive, so that both individual and
REFERENCES
CIPD publishers.
Creating Measurable Business Impact from Your Pay and Reward Practices. London,
Press.
Publishers
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.
13
Elikwu M. I. (2008) Research Project Made Easy: A Simplified Approach to Write &
Ellis L, Pennington S (2004). Should leaders have Tasks or Fangs? Man. Tod., 20: 9-10.
38(3): 635-672.
Kasser, T., & Ahuvia, A. (2002). Materialistic Values and Well-Being in Business
La Motta, T. (1995). Recognition: The quality way. New York: Quality Resources
Locke, E. (1978). The Ubiquity of the Technique of Goal Setting in Theories of and
594 601.
Malik M. S., Maria M., & Muhammad S. R. (2011) Association between Reward and
Milkovich, G. T., & Wigdor, A. K. (Eds). (1991). Pay for Performance: Evaluating
Performance Appraisal and Merit Pay. Washington, DC: National Academy Press.
14
Odoh, F.A (2011) The Effects of Wage Incentives and Fringe Benefits on the
Omale, I (2013) Research Methods for the Administrative and the Social Sciences in
Robbins, S.P, Odendaal A, Roodt G (2003). Organizational Behavior; Global and South
Schell and Solomon, (1997): Capital on Global Workforce, New York, McGraw Hill.
Trevor, J. (2008). Can pay be strategic in Rethinking Reward? ed. Corby, S.; Palmer,
Srivastava, A., Locke, E. A. & Bartol, K. M. (2001). Money and Subjective Well-
Being: Its not the Money, Its the Motives. Journal of Personality and Social
Wallace, W.J, & Zeffane, R.M (2001). Organizational Behavior. A Global Perspective. 2nd ed.
15
Table 3: Level of Motivation and Over-time benefit
RESPONSE FREQUENCY PERCENTAGE
Very High 0 0
High 8 6%
Average 87 63%
Low 43 31%
Very Low 0 0
TOTAL 138 100%
Source: Field Survey, 2014
16