REWARD SYSTEM AND EMPLOYEE PERFORMANCE OF SELECTED MANUFACTURING COMPANIES IN LAGOS STATE, NIGERIA

CHAPTER
ONE

INTRODUCTION

1.1  Background to the Study

It is the concern of organizations all over the world on effective
human capital strategies to enhance their productivity. It is clear that
employee’s productivity in the expanding organization is a key factor in
organization performance. Employees, technically known as human resources in
modern organizations, are rightly considered as the most important assets (Ong
& Teh, 2012). In developed countries such as USA, JAPAN, UK and Germany
organizations recognize employees as the important asset that needs high
consideration in promotion (Lawler & Worley, 2006). The rationale behind
the use of rewards to employees is that motivated employees become satisfied in
terms of fulfilling their wants, both financial and non financial. Failure to
do so, employees will be tempted to leave the organization. (Azasu, 2009). On
one hand, employees prefer receiving intrinsic rewards in terms of praise and
recognition for certain work accomplishments, while other employees are happy
with extrinsic reward in terms of salaries, bonus and incentive offered to
employees (Lawler, 2008, Sajuyigbe, Bosede & Adeyemi, 2013).

In developing countries such as China, India and Thailand also
employees reward is one of highly demanded factors in  influencing organization performance. One of
the most important factors in rewarding employees for organization performance
is through recognition and appreciation (Ajila & Abiloa, 2004).

In Tanzania like any other country employees are motivated by
rewards. There is a

need for organization to reward its employees for creating a
successful competitive

Environment. This is one of the essential for the organizations to
achieve high work performance. Some employees are highly motivated by extrinsic
rewards such as increase in pay, promotions and bonus, others employees are
motivated with intrinsic rewards such as appreciation, praise and recognition
on (Bana & Kessy, 2007).

Paying employees for productivity has been the cornerstone of
industrial and business development for centuries. Financial reward has always
been important in managing employee’s performance, but over the last 25 years
other elements of compensation have been developed to provide employers with
more scope to reward, and thus, motivate employees. Performance management
influences performance by helping people to understand what good performance
means and by providing the information needed to improve it. While reward
management influences performance by recognizing along with rewarding good
performance as well as providing incentives to improve it. The rewards that an
enterprise apply to both individual and team performance are critical in
determining how affective the reward strategy will be. Also performance
management involves the value an enterprise workforce could
make to the overall business goals and how it could be groomed and cultivated
to add most value to competitive advantage. This necessitates the
need to identify how these rewards impact employee performance and how
well the current reward system does this, within the chosen manufacturing
companies forming the basis for this research.

The
productivity and success of every organization is highly dependent on its staff
(Ali, 2013; Gabcanova, 2011; Markova & Ford, 2011; Vlachos,2009). Thus
maximizing the overall organisation performance requires an understanding of
those factors that encourages the employees to put in extra effort at work and
also in enhancing their performances (Hafiza,Shah,Jamseheed&Zaman, 2011).
Reward system and management is one important Human Resource Management
strategy for attracting and retaining high quality employee as well as facilitating
them to improve performance (Dewhurst, Gutridge& Mohr, 2010; Ibrar&
Khan, 2015).

According
to Anku-Tsede&Kutin(2013) reward system can be seen as a means of actively
engaging and the renewing the employee’s sense of community and mission of an
organisation. In this view, an effectively administered system of rewards can
provide incentive for quality workmanship and performance. Likewise, a poorly
administered reward system can lead to low morale, unproductive performance and
in the extreme cases a high percentage of employee turnovers. Organizations
provide rewards to members in the form of wages and salaries, promotions, long
service awards and certificates, end of the year bonus and other fringe
benefits. These rewards are to motivate behaviour that will contribute to the
achievement of the goals of organizations.The questions that readily come to
mind are, what sort of behaviour does an organization want? How can reward
process promote that behaviour? What motivates an organization to design reward
packages for the employees? Nearly all organizations invest in the provision of
rewards to motivate their employees in order to get the desired results.
According to equity theory, the adequacy of such rewards will to a large extent
depend on the value the employees place on the inputs they bring to the job in
the form of education, experience, training, time, effort etc, with the
outcomes (rewards) such as pay, promotions, praises and recognitions they
receive as a result of performing the job (Fajana, 2002).

Reward
systems is a broad construct that generally represents anything that employees
may value and are willing to acquire in exchange for his or her contribution to
work.Chiang & Birtch (2008).Pratheepkanth (2011) describe reward system to
include all organisation components which may include people, processes, rules
and decision making activities involved in the allocation of compensation and
benefits to employees in exchange for their contribution to the organisation.
From both definitions, rewards can be described as tangible benefits one can
receive from engaging in a specific task. This opinion is reiterated by
Torrington, Hall, Taylor and Atkinson (2011) who argue that although there are
few people who claim to enjoy work for the sake of it, most people work in
large part because it provides a means sustaining livelihood. This implies that
people generally are concerned with the amount of benefits (whether financial
or non-financial) attached to their work. The positive relationship between
reward systems (especially financial rewards) on employee performance has been
established in past studies (Lazear,2000;Osa,2014;Prendergast,1999;Metha ,2014;
Saleem, 2011.).

Other
commentators have put forward the notion that non-financial rewards are also
important facilitators of organisational performance with the argument that
financial performance on its own is incapable of effectively motivating
employees towards optimum performance (Babakus, Yavas, Karatape&Avci, 2003;
Bason, 2003; Dewhurst et al.(2009); Perry,Mesch&Paarlberg, 2006;
Neckermann&Kosfeld, 2008; Dewhurst et al. (2009) for instance
advanced the notion that non-financial rewards have a more significant
influence on employee performance than financial rewards with the argument that
financial rewards are mostly effective in boosting employees’ energy in the
short-term and in most cases can have damaging unintended consequence. Three
major non-monetary rewards reported to have significant effect on employee
morale are: (i) praise from immediate managers, (ii) leadership attention (i.e.
one on one conversation) and (iii) the opportunity to lead projects or task
forces. In addition, Neckermann and Kosfeld, (2008) identify significant
non-financial rewards to include  social
recognition from managers and colleagues alike in the form of appreciation for
job completed, acknowledgement and certificates of recognition, were reported
to be better drive improved performance than financial/monetary rewards .

The debate on whether to use
monetary or non-monetary rewards has led to the development of the concept,
Total Reward System. WorldatWork
(2011) defines total rewards as holistic approach that strategically
incorporates several employment factors (such as compensation, benefits and
work-life amenities) in unison, to deliver desired employee attraction,
motivation and retention. Thompson (2002) also defines total reward to
typically encompass not only traditional, quantifiable elements like pay and
benefits, but also more intangible elements such as scope to achieve and
exercise responsibility, career opportunities, learning and development, the
intrinsic motivation provided by the work itself and the quality of working
life provided by the organisation. Kaplan (2007), also sharing this view, define total rewards as a
holistic approach aligning business strategy and people strategy, aimed at
bringing about maximum return and builds up employment brand, all of which
create sustainable competitive advantage for organisations. According to
Armstrong (2007) the conceptual basis of total reward is the bringing together
of the different reward processes (that are interrelated, complementary and
mutually reinforcing) with the focus of stimulating a deeper and long-lasting
impact on the motivation and commitment of employees.

Similarly,
Nazir, Shah and Zaman (2012) describe total rewards as an enclosing of aspects
of work benefits that employees attach value to; whether it concerns provision
of healthy work environment, better opportunities of learning and development
or the benefits package linked to the pay. Hence, an effective reward system
incorporates both the financial incentives (such as pay, fringe benefits and
other money-related plans) and non-financial incentives (such as
vacations/holidays, recognition and appreciations) in driving employee
motivation for improved performances. Given that employees’ morale and improved
productivity go hand in hand, it is therefore imperative  for organisations to foster a properly
administered reward system which not only has the capacity to improve the
quality work efforts and employee but also act as a strategic tool for
attracting skilled employees to the organisation (Armstrong & Brown, 2005;
Herman, 2009).  Notwithstanding, most organizations are still
finding it difficult to establish an effective reward system that fairly suits
the organizational demands in relation to employee performance and over
organizational profitability (Osa, 2014; Roberts, 2005; WorldatWork, 2011.).
Dewhurst et al. (2009) argue that the
present economic situation has pushed successful companies around the world to
adjust their reward systems – moving from financial to non-financial sensitive
systems; whereas some organizations (to their detriment) are still sticking to
the traditional method of rewards that emphasis bonuses and payment
compensation.  Additionally, the findings
that the workers’ needs and desire from work differs from one individual to
another require organization management to develop reward systems that is
tailored towards the individual needs of their staffs (Dewhurst et al.
2009).  Nevertheless, as emphasized by
Brian (2006), rewarding and recognizing employee can be a tricky task as there
is no generalized model towards its implementation; arguing that a successful
system in one organization can be a failure in another.

Company Profile

Unilever Nigeria Plc

Unilever Nigeria Plc. was established
in 1923 as a soap manufacturing company – Lever Brothers West Africa by Lord
Leverhulme. Today, it is the oldest surviving manufacturing organization in
Nigeria (Unilever Nigeria Plc. 2016).After a series of mergers/acquisitions,
the Company diversified into manufacturing and marketing of foods and personal
care products. These mergers/acquisitions brought in Lipton Nigeria Ltd. in
1985, Cheesebrough Industries Ltd. in 1988 and Unilever Nigeria Ltd. in 1996.
The Company changed its name to Unilever Nigeria Plc. in 2001 in line with the
global strategic direction of the business. The Company was quoted on the
Nigerian Stock Exchange in 1973 and with equity holdings of 58.53% Unilever,
and 41.47% Nigerian investors, the company is a true Multi-local Multinational
organization with very outstanding international and local brands in her
portfolio. The international brands include Close-Up toothpaste, Pepsodent
toothpaste, LUX beauty soap, Lifebuoy soap, Rexona, Vaseline lotion and
Vaseline Petroleum Jelly in the Personal Care Unit of the business; Blue Band
Margarine, Lipton Yellow Label Tea and Knorr bouillon cubes in the Foods Unit;
and OMO Multi-Active Detergent ,Sunlight washing powder and Sunlight Dish
washing liquid in the Home Care Unit. Other Regional and local products include
the Pears Baby Products range and Royco bouillon cubes. As at 2015, the
organisation currently has over 1,200full time employees across three core
departments: administration, technical/production and sales and marketing.

Cadbury Nigeria Plc

Cadbury
Nigeria Plc was incorporated in Nigeria on 9th January 1965 as a
company limited by shares. It became a publicly listed company with its shares
traded locally on the Nigerian Stock Exchange in 1976 (Cadbury Nigeria Plc.
2016). The company is principally engaged in the manufacture and sales of
branded fast moving consumer goods mostly to the Nigeria market, but also
exports to other West African countries. The company’s brands fall into three
principal categories, namely: Refreshment Beverages, Confectionery and
Intermediate Cocoa Products. Cadbury Bournvita, Cadbury 3-in-1 Hot Chocolate
are the main brands in the refreshment beverage category. In the Confectionery
category, the main products are TOMTOM Classic, TOMTOM Honey Lemon, TOMTOM
strawberry and BUTTERMINT. Lastly, the main brands within the intermediate
cocoa products include; Cocoa Powder, Cocoa Cake and Cocoa Butter.

Nestle Nigeria Plc

Nestle
Nigeria Plc is a Nigeria-based food manufacturing and marketing company founded
in 1961 (Nestle Nigeria, 2016). The Company operates through two segments: Food
and Beverages. The Food segment includes the production and sale of Maggi,
Cerelac, Nutrend, Nan, Lactogen and Golden Morn. The Beverages segment includes
the production and sale of Milo, Chocomilo, Nido, Nescafe and Nestle Pure Life.
The Company manufactures and markets a range of brands, which include Infant
Formula-Nestle NAN, Nestle LACTOGEN, Infant cereals-Nestle NUTREND, Nestle
CERELAC, Family cereals-Nestle GOLDEN MORN, Confectionery-Nestle CHOCOMILO,
Nestle KITKAT, Bouillon-MAGGI Cube, MAGGI Mix’py and Table Water-Nestle PURE
LIFE. Its products include MAGGI Star Cube, MAGGI Crayfish, MAGGI Chicken,
Ginger & Garlic, Golden Beef and Classic. It promotes food cultures through
MAGGI Star Cook participatory cookery program in neighborhoods, and MAGGI Women
Forum, a home management program targeted at semi urban and rural women.

1.2       Statement
of the Problem

Osa (2014)
reveals that several organisations are still finding it difficult to establish
an effective reward system that fairly suits the organisational demands in
relation to employee performance and over organisational profitability and this
position is also shared by Dewhurst et al(2009)
and Roberts (2004).There is a natural disparity between what
people think they should be paid and what organizations spend in compensation
thus affecting employees sense of accomplishment and this is a challenge
employees in organizations face (