Business Research Method

Dr. Le Dinh Minh Tri

THE INTERNATIONAL UNIVERSITY

SCHOOL OF BUSINESS

BUSINESS RESEARCH METHOD

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Student Number: BABAIU15243 Name: Trầ n Uyể n Trinh

Course: Business Research Method Tutor: _____________________

Day: Monday morning Class Time: ______________________

Date Due: 22/9/2018 Date Submitted: 22/9/2018

Assignment Item/ Title/ Question: Homework #2

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* Topic:
The effect of financial and non-financial incentives on staff productivity in entertainment
service industry.

LITERATURE REVIEW

1. Introduction
The terms “incentives”, “rewards”, and “recognition” are used interchangeably in the
organization setting and there is no broader difference among them. However, the main
category is the incentives. Meridith (2015) defines incentives as any source or medium that
encourages an employee or group of employees to perform better and to exert more effort
beyond expectations. Incentives are divided into two main groups: financial and non-financial
incentives. Financial incentives include direct payment of cash while non-financial incentives
may be in the form of promotion of employees, flexible time, autonomy and involvement in
decision making.

2. Effects of Financial Incentives on Employee Productivity

Employees are motivated by either financial or non-financial instruments. Favourable
attitude leads to greater organizational commitment due to job satisfaction. This in turn
leads to customer satisfaction because satisfied employees pay greater attention to meeting
customers’ needs/wants. Financial performance of a firm also improves if customers’
loyalty improved. Financial incentives are the process of influencing employees to act
according to plans, to achieve the mutual goals of employees and employer (Ekpudu &
Okafor, 2012).
2.1. Types of Financial Incentives
a. Monetary
Monetary incentives are used by employers to attract, retain as well as compensate best
workforce for a job well done (Milton, 2012). Financial incentives are divided into direct and
indirect financial reward. Direct reward includes good salary packages, profits and
commission. Indirect financial rewards are all those benefits that are not covered by direct
financial reward.

Incentive can come in many forms: basic salary, stock options, compensation, profit sharing,
insurance, retirement plans, overtime pay, attendance incentives, competition and contests,

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output-oriented merit increases, performance Bonuses, sales commissions, piecework, safety

incentives, suggestion awards (Pattanayak, 2005). Monetary incentives are used to describe
incentive-payment plans that ties incentives directly or indirectly to productivity standard
(Alaba & Owodunni, 2007).
b. Cash Bonus
Cash bonus is another form of reward that organizations use to reward employees for
exemplary performance that is if they have performed higher or exceed their set targets, this
hence makes them eligible (Finkle, 2011). The amount of cash is determined by how high the
employee has over exceeded the set targets or they can also be based on ranks or job groups.
Nowadays, companies are rewarding performance bonuses to junior employees to increase
output, unlike the past where they used to be a privilege of only the top executives.

Performance bonuses are now on the rise in many organizations because managers want to link
performance to reward. Companies use cash bonuses to reward their employees' performance
during the year under appraisal. However, there is also the unspoken expectation that these
bonuses will be a factor in motivating employees' performance next year as well.

Employees who receive a large bonus will likely want to get it the following year too. On the
other hand, employees who receive a miserly bonus and it reflects how the company assessed
their performance, might consider improving the following year (Finkle, 2011)
c. Incentive Stock Options
According to Chang (2001), in incentive stock options, also referred to as qualified stock
options an employee is able to defer taxation until the shares bought with the option are sold.
The company does not receive a tax deduction for this type of option. Incentive stock options
have become commonplace additions to compensation packages in recent years (Chang, 2001).
Chang explains that experts say stock options are lousy incentive mechanisms for motivating
rank-and-file employees at the largest companies to work hard.
d. Pay raise
A pay raise can also act as financial incentive. According to Jonathan (2015), connecting
employee pay raises to performance reviews can encourage a more competitive workforce.
This can result in a higher level of productivity as it is given for specific performance results
rather than simply for time worked (Gregorio, 2006). Each employee strives to increase sales
or client acquisitions to earn the highest marks on the next performance review and allows a
small business owner to maximize payroll and retain the strongest staff members. The

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performance-based pay scale requires effort to reach the next rung of pay increases.

Heathfield (2016) explains that merit pay is the best way to reward the employees that you
most want to keep as it sends a powerful message about what you want to recognize and
reward employee efforts and contributions. Employers values employees who choose to work
hard and outperform other employees. This also helps new employees who can see that the
employer does not simply reward employees for longevity, instead opting to reward employees
who consistently improve on production and operational techniques (Lister, 2015).

3. Effects of Non-Financial Incentives on Employee Productivity

According to Erbasi and Arat (2012), non-financial incentives are required to give a long- term
motivational effect instead of the short-term effects of financial incentives. Non-financial
incentives are listed as enabling authority, participating in the management, job enrichment,
promotion, holidays, better working atmosphere and enhancing a sense of belonging (Erbasi &
Arat, 2012).

Vatsa and Pandey (2015) states that a non-financial incentive is any benefit an employee
receives from an employer beyond the compensation package with a purpose of attracting,
retaining and motivating the employees. All organizations are now concerned with what should
be done to achieve a high level of employee productivity through staff motivation using the
right kind of incentives. Sani (2013), states that non-financial recognition can be more
effective than cash awards, because they can help the employees with their self-esteem, as well
as giving them deserved recognition, and a feeling of fulfillment with their jobs.
3.1. Types of Financial Incentives

Non-financial incentives are non-tangible rewards given to the employees as a result of their
positive performance in the company (Emerole, 2015). According to Gale (2002), non-
financial incentives are considered as more important incentives than monetary incentives.
Organizations use non-monetary incentives to increase their employees’ efficiency and
performance to achieve their goals and in turn organizations’ productivity increases
(Minhaj, 2016). Every employee certainly appreciates more money, but money does not buy
happiness, nor does it buy engagement and loyalty. Non-financial incentives inspire and
engage employees in ways that money is incapable of doing (Plum, 2014).
a. Promotion

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According to Anastasia (2015), promotion or career advancement is a process through which

an employee is assigned more responsibilities with a higher pay. Promotion is a way of
rewarding employees meeting the organizational goals thus it serves as mean of synchronizing
organizational goals with personal goals (Michael, 2015). Promotion is an effective tool to
increase the spirit to work. If the employees are provided opportunities for the advancement
and growth, they feel satisfied and contented and they become more committed to the
organization (Forson, 2012). Forson further states that a promotion is not just beneficial to
employees but also very important to the employer since it does not only involve change in
rank but also more duties and responsibilities to the employees. Management should therefore
take careful assessment and evaluation of employees’ skills, performance, and length of
service, education qualifications and training given to the employee.
b. Employee Recognition
According to Gines (2013), recognition means acknowledgement with a show of appreciation.
It is clear that the main and repeated cause of turnover is the lack of employees’ recognition
(Meridith, 2015). When employees are appreciated, they feel motivated to perform better. On
the other hand, lack of recognition has resulted in firms loosing disenchanted innovators as
well as lower level of effort and even sabotage and espionage (Dutton, 2014). Disturbingly,
recognition is often perceived as a costly, non-essential practice and generates no significant
benefit to organization (Milton, 2015).
c. Feedback
Employees will be more motivated if they know what they are expected to achieve. Feedback
is basic a source of educating employees in the sense of removing barriers they face in
propagating their activities towards the targets they are given in their working environment
(Watts, 2012). Feedback on relative performance has been found to influence behavior of the
employees. Falk and Ichino (2006) and Mas and Moretti (2009) show that allowing people to
observe each other’s performance has a positive influence on an employee’s performance
although payment is independent of the others’ performance. They all agree that in a
production environment daily feedback on performance, with objective performance targets,
has a strong, positive impact on employee productivity.

d. Appreciation of Work Done

According to Heathfield (2016), recognition of employees should be provided frequently so
that employees are motivated by their work environment. Appreciation or praise for work well
done serves as an effective non-financial incentive that satisfies one’s ego needs and can go a

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long way to improve employee morale and make employees feel valued (Reuter 2015). He
however states that managers need to use this incentive with great degree of caution because
praising an incompetent employee may create resentment among competent employees.

Appreciation can also create unique company culture and strengthen employee relationships
and is one of the principal motivators for any employee at his or her workplace. Appreciation
drives employees to work sincerely and to be more dedicated to their employers (Tanner,
2015). An employee responds to the appreciation that his higher authority expresses by
recognizing his good job because it positively confirms that his/her work is being valued.
When an employee and his work are appreciated, his productivity improves. He gets motivated
to maintain the standard or to improve it more. Many employees would feel more satisfied and
happy if their employers treated them unexpectedly with “thank you” notes, gifts, lunches,
dinners, or snacks (Harrison, 2013).
e. Employees’ Empowerment
According to Nagwann (2014), employee empowerment is the process of making an individual
confident, capable and making him or her feel in control of their work outcomes. The employer
should empower their employees by sharing the organization Mission and Vision, share clear
and measurable individual goals and expectation, delegate and provide timely feedback.
Empowering employees thus creates positive feeling and inspires them to use their skills and
talents in performing the job thus contributing to the organizational strategy, thus increasing
productivity (Gugel 2016).