EFFECTS OF INCENTIVES AND REWARDS ON

EMPLOYEE PRODUCTIVITY IN SMALL BANKS IN

KENYA: A CASE STUDY OF FIRST COMMUNITY BANK

BY

JUDY NJAMBI NDICHU

UNITED STATES INTERNATIONAL UNIVERSITY

AFRICA

SUMMER 2017
 EFFECTS OF INCENTIVES AND REWARDS ON
EMPLOYEE PRODUCTIVITY IN SMALL BANKS IN
KENYA: A CASE STUDY OF FIRST COMMUNITY BANK

BY

JUDY NJAMBI NDICHU

A Research Project Submitted to the Chandaria School of Business in

Partial Fulfillment of the Requirement for the Master’s Degree in
Business Administration (MBA)

UNITED STATES INTERNATIONAL UNIVERSITY

AFRICA

SUMMER 2017
 STUDENT’S DECLARATION

I, the undersigned, declare that this is my original work and has not been submitted to any
college, institution or university other than the United States International University in
Nairobi for academic purpose.

Signed: …………………………………………… Date:………………………..

Judy Njambi Ndichu (ID 600534)

This project has been presented for examination with my approval as the appointed
supervisor.

Signed: …………………………………………… Date:………………………...

Dr. James M. N. Karimi

Signed: …………………………………………… Date:………………………..

Dean, Chandaria School of Business

ii
 DEDICATION

I dedicate this project to my family, especially my dad and my husband who have been

encouraging me to continue pursuing my MBA and the faculty of the School of Business

at United States International University for being supportive throughout my study.

iii
 ACKNOWLEDGEMENT

I wish to express my gratitude to everyone who supported me throughout my studies in

United States International University and specifically my husband Charles Waithaka, my
dad, Solomon Ndichu, my children Faith Waithaka, Peace Waithaka, Joy Waithaka and
my granddaughter Judy Njambi for their encouragement and support. In addition, it is my
radiant sentiment to place on record my best regards, deepest sense of gratitude to
Professor George K’aol and Dr. James N. Karimi, who introduced me to the Research
Methodology, andwhose passion for the underlying structures had a lasting effect. I am
specifically very grateful to Dr. James N. Karimi who was my supervisor for this project
for his careful and precious guidance which were extremely valuable.

Finally, I express my deepest thanks to the Management of First Community Bank

Limited for allowing me to undertake a research in their organization.

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 TABLE OF CONTENT

STUDENT’S DECLARATION ....................................................................................... ii

DEDICATION.................................................................................................................. iii

ACKNOWLEDGEMENT ............................................................................................... iv

LIST OF TABLES ......................................................................................................... viii

LIST OF FIGURES ......................................................................................................... ix

COPY RIGHT ....................................................................................................................x

ABSTRACT ...................................................................................................................... xi

CHAPTER ONE ................................................................................................................1

1.0 INTRODUCTION........................................................................................................1

1.1 Background of the Problem ...........................................................................................1

1.2 Statement of the Problem ...............................................................................................4

1.3 Purpose of the Study ......................................................................................................5

1.4 Research Questions ........................................................................................................6

1.5 Significance of the Study ...............................................................................................6

1.6 Scope of the Study .........................................................................................................7

1.7 Definition of Terms........................................................................................................7

1.8 Chapter Summary ........................................................................................................10

CHAPTER TWO .............................................................................................................11

2.0 LITERATURE REVIEW .........................................................................................11

2.1 Introduction ..................................................................................................................11

2.2 Effects of Financial Incentives on Employee Productivity..........................................11

2.3 Effects of Non-Financial Incentives on Employee Productivity .................................15

2.4 Effects of Reward on Employee Productivity .............................................................27

2.5 Chapter Summary ........................................................................................................30

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CHAPTER THREE .........................................................................................................31

3.0 RESEARCH METHODOLOGY .............................................................................31

3.1 Introduction ..................................................................................................................31

3.2 Research Design...........................................................................................................31

3.3 Population and Sampling Design .................................................................................31

3.4Data Collection .............................................................................................................33

3.5 Research Procedure ......................................................................................................33

3.6 Data Analysis Methods ................................................................................................34

3.7 Chapter Summary ........................................................................................................35

CHAPTER FOUR ............................................................................................................36

4.0 RESULTS AND FINDINGS .....................................................................................36

4.1 Introduction ..................................................................................................................36

4.2 Response Rate ..............................................................................................................36

4.3 Reliability Analysis ......................................................................................................36

4.4 Factor Analysis ............................................................................................................37

4.5 Demographic Analysis of the General Information .....................................................37

4.6 Descriptive Statistics on Respondents’ Degree of Agreement on Financial Incentives

.............................................................................................................................43

4.7 Respondents’ Descriptive Statistics on Non-Financial Incentives ..............................45

4.8 Respondents’ Descriptive Statistics on Employee Productivity ..................................48

4.9 Descriptive Statistics on Staff Responses- Recommendation for a Friend to Work for
First Community Bank .......................................................................................................50

4.10 Correlation Analysis between Dependent and Independent Variables ......................50

4.11 Non-Financial Incentives and Employee Productivity ..............................................51

4.12 Correlation Analysis between Reward Systems and Employee Productivity ...........51

4.13 Chapter Summary ......................................................................................................52

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CHAPTER FIVE .............................................................................................................53

5.0 DISCUSSION, CONCLUSION AND RECOMMENDATION .............................53

5.1 Introduction ..................................................................................................................53

5.2 Summary ......................................................................................................................53

5.3 Discussion ....................................................................................................................54

5.4Conclusions ...................................................................................................................61

5.5Recommendation ..........................................................................................................63

REFERENCES .................................................................................................................67

APPENDICES ..................................................................................................................71

Appendix 1: Questionnaire ................................................................................................71

Appendix 2: Frequency Table for Financial Incentives .....................................................75

Appendix 3: Frequency Tables for Non-Financial incentives ...........................................76

Appendix 4: Descriptive Analysis on Employee Productivity ..........................................78

Appendix 5: Factor Analysis .............................................................................................79

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 LIST OF TABLES
Table 3.1: Target population .............................................................................................. 32
Table 4.1: Reliability Analysis .......................................................................................... 37
Table 4.2: Factor Analysis ................................................................................................. 37
Table 4.3: Demographic Analysis of the General Information.......................................... 38
Table 4.4: Respondents’ Degree of Agreement on Financial Incentives ........................... 44
Table 4.5: Descriptive Statistics on Respondents’ Degree of Agreement on Non-financial
Incentives at First Community Bank ......................................................................... 47
Table 4.6: Descriptive Statistics on Staff Responses on Employee Productivity at First
Community Bank ....................................................................................................... 49
Table 4.7: Recommendation for a Friend to Work for First Community Bank ................ 50
Table 4.8: Financial Incentives and Employee Productivity ............................................. 50
Table 4.9: Non-Financial Incentives and Employee Productivity ..................................... 51
Table 4.10: Reward Systems and Employee Productivity ................................................. 51

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 LIST OF FIGURES
Figure 4.1: Gender ............................................................................................................. 39
Figure 4.2: Age Bracket .................................................................................................... 40
Figure 4.3: Level of Education ......................................................................................... 40
Figure 4.4: Years Worked ................................................................................................. 41
Figure 4.5: Job Level ........................................................................................................ 42
Figure 4.6: Department Representation ............................................................................ 42

ix
 COPY RIGHT

Copy right reserved by the Author, Judy N. Ndichu. This research should not be
reproduced, copied, or transmitted electronically or by any other medium without prior
authorization by the Author.

x
 ABSTRACT
The research focused on the assessment of the effects of incentives and rewards; and how
they affect employee productivity. The project examined how financial, non-financial and
rewards systems affect the performance of employees and also tried to establish which
type of incentive or reward was more valued by the employees to enhance productivity.
The study was guided by the research questions that included; to assess the effects of
financial incentives on employee productivity in small banks, effects of non-financial
incentives on employee productivity in small banks and to assess the effects of reward
system on employees’ productivity.

The research was conducted at a period when the banking industry was undergoing some
difficulties especially when CBK had introduced a regulation on the interest rate capping.
With this regulations on the interest rates, identifying the motivators is becoming more
challenging for the HR Management. Perceived value that can motivate employees to be
more productive should be identified and enhanced. Based on a critical review of
published journal articles, it is well demonstrated on how crucial incentives and reward
systems are to the performance of any organization. Employees are a company's
livelihood. How they feel about the work they are doing and the results received from that
work directly effects an organization's performance.

The study adopted descriptive survey design. The population of interest was the staff of
First Community Bank but limited to the Nairobi branches only. Stratified sampling was
used to determine the sample size of 164 employees from the total population. Data was
collected using structured questionnaires that were based on the research questions and
coding was done for ease of analysis through SPSS. Descriptive statistics was used to
analyze data.

The first research question looked at the effects of financial incentives on employee
productivity in small banks. According to the findings, there was a positive relationship
between financial incentives and employee productivity. The second research question
discussed the non-financial incentives on employee productivity in small banks. Majority
of the respondents indicated that there was a significant relationship between non-
financial incentives and employee productivity. The final question tested how effective
reward system positively affects employee productivity. After the research, it was
xi
evident that there was a positive significant relationship with between reward systems and
employee productivity.

In conclusion, the study revealed that all the incentives and reward systems are important
though they have a different meaning to different categories of employees working for
First Community Bank. The study therefore showed that different incentives and rewards
have different effects on employee productivity. The study further revealed that there is a
need for First Community Bank to come up with a comprehensive reward systems that
can motivate employee to increase their productivity.

Recommendations for improvement at First Community Bank includes coming up with a

well-structured and monitored reward system which includes a profit sharing mechanism,
promotions and career growth for all the employees; that is well known and understood
by all employees, employee participation in decision making process, recognition of
employee’s outstanding performance, organize at least four social events to enhance team
spirit, well structure talent management addressing the development needs, succession
planning and growth of all employees. This will enhance healthy competition among
employees, retention, royalty and increase employee productivity.

xii
 CHAPTER ONE

1. INTRODUCTION

1.1 Background of the Problem

Human resource provides basis for an organization to achieve sustainable competitive

advantage. Since organizations are operating in a dynamic and competitive business
environment, they need to develop strategies to acquire and retain the competent
workforce. Human asset is considered to be the most important asset of any organization
and in order to get the efficient and effective result from human resource, motivation is
necessary (Zaman, 2011). Researchers divide motivation into two categories, intrinsic
and extrinsic. Extrinsic motivation comes from external factors such as financial rewards
and needs to be refilled at regular intervals not to lose its effect. Intrinsic motivation
comes from inside of an individual and is the kind of motivation every organization
wishes their employees would have (Mundhra, 2010).

Financial rewards have always been important in managing employee’s performance.

However, other elements of compensation have been developed to provide employers
with more scope to reward and motivate employees to increase productivity. Armstrong
and Taylor (2010) states that “performance” is defined as behavior that accomplishes
results. In light of today’s business conditions especially in the banking industry where
CBK has introduced a regulation on interest capping, motivating people to give their best
has become more crucial than ever before.

To achieve goals and objectives, organizations irrespective of size, develop strategies to

compete in highly competitive markets and to increase employee performance. The
Human Resources Management has a role to hire and come up with retention strategies
for the best employees, especially the ones holding key roles that can be difficult to
replace because of the technical competencies required. Organizations consider the
human capital as being their main asset, capable of leading them to success or if not
managed properly can lead to failure of the organization and high staff turnover (Fisher,
2012).

1
Mudor and Tookon (2011) contend that every organization desires to be successful as
much as current environment is very competitive. It is the responsibility of the Human
Resources Management to come up with the right incentives and rewards that can
motivate employees to produce more. Employee motivation is important since there is a
direct relationship between motivation and productivity. Traditionally, incentives were
used only for the top management, but during the last decade, different forms of programs
with the purpose of raising motivation amongst all employees have spread across the
organization. According to Merchant and Van der Steed (2008) business leaders have
embraced different theories of motivation in realising that motivation and productivity
can be created if proper tools are used.

Milton (2013) defines incentives as variable rewards granted according to variations in

the achievement of specific results. It is also called a stimulus to greater action. They
may be used to incite action or greater effort. An incentive is anything which can be
given in addition to wages. Incentives are therefore motivations for work. They could be
financial or non-financial rewards. Incentives provide a zeal in the employees for better
performance. It is a natural thing that nobody acts without a purpose behind. Therefore, a
hope for a reward is a powerful incentive to motivate employees. Besides monetary
incentive, there are some other stimuli which includes job satisfaction, job security, job
promotion, and pride for accomplishment.

Baratton (2012) defines rewards as all form of financial returns and tangible services and
benefits an employee receives as part of an employment relationship. Colin (2011)
defines reward as the benefits that arise from performing a task, rendering a service or
discharging a responsibility. According to the Allen and Kilmann (2011), reward
practices play a vital role in improving employee productivity. Heng (2012) argues that if
an organization fails to reward employees, it will directly affect employee productivity.
An efficient reward system can be a good motivator but an inefficient reward system can
lead to demotivation of employees in terms of low productivity, internal conflicts,
absenteeism, high turnover, lack of commitment and loyalty, lateness etc. An
organization needs to develop strategic reward system for employees in order to retain
competent employees which result to obtain sustainable competitive advantage.

2
A reward strategy is seen as one of the most important strategies in the human resource
management function, as it influences the productivity of employees and growth of
organization. Sourthen (2013) explains that private sector organizations always try to
align their reward strategy with the human resource strategy which finally leads to create
an integration between reward strategy and organization’s business strategy. The
principal reward for performing work is pay. However, many employers also offer
reward packages of which wages and salaries are only a part. The packages typically
include: bonuses, pension schemes, health insurance, allocated cars, beneficial loans,
subsidized meals, profit sharing, share options and much more (Agwu, 2013). Reward
management influences performance by recognizing and rewarding good performance
and by providing incentives to improve it. It means additional remuneration or benefit to
an employee in recognition of achievement or better work. Mehmood (2013) points out
that rewards play a vital role on increasing employee productivity and change the
behavior of dissatisfies employees.

Reward management is one of the strategies used by Human Resource Managers for
attracting and retaining suitable employees as well as facilitating them to improve their
performance through motivation and to comply with employment legislation and
regulation. Reward systems are very crucial for an organization (Maund, 2011). Rewards
include systems, programs and practices that influence the actions of people. Reward
system is an important tool that management can use to channel employee motivation in
desired ways. In other words, reward systems seek to attract people to join the
organization to keep them coming to work, and motivate them to perform to high levels.
The purpose of reward systems is to provide a systematic way to deliver positive
consequences. Fundamental purpose is to provide positive consequences for contributions
to desired performance (Wilson, 2013). The only way employees will fulfil the employers
dream is to share in their dream (Kotelnikov, 2010).

Reward systems are the mechanisms that make this happen. They can include awards and
other forms of recognition, promotions, reassignments, non-monetary bonuses like
vacations or just a simple thank you card. When employees are rewarded, they get work
done. When employees surpass their target or exceed their standard they should be
rewarded immediately as a way of motivating them. Effective reward systems should
always focus on the positive reinforcement. Positive reinforcement encourages the
3
desired behaviour in organizations. This encourages employees to take positive actions
leading to rewards. Reward programs should be properly designed in the organization so
as to reinforce positive behaviour which leads to performance (Purkayastha & Chaudhari,
2011).

First Community Bank (FCB), is the first fully fledged Sharia’h compliant commercial
bank to be approved under Cap 488 of the Banking Act and licensed by the Central Bank
of Kenya (CBK) offering banking services on a complete Sharia’h system. FCB received
a formal approval from CBK on 29th May 2007 and officially commenced operations on
1st June 2008 to operate as an Islamic bank. FCB has both Kenyan as well as Tanzanian
investors with 18 branches across Kenya and a head count of 260 staff members.

Elgari (2013) says Islamic banking is best known for its financial inter-mediation function
which operates without earning interest. In a Sharia’h Compliant bank, a financial
transaction needs to have a return that is a direct link to a real economic transaction
(Ghuddah, 2014). This means that a financial transaction should not lead to the
exploitation of any party to the transaction. Their products ranges have reached into
almost every element of the capital markets, consumer banking and wealth management.

1.2 Statement of the Problem

Companies are spending huge amounts of money on their reward programs which aims at
motivating, retaining, committing and attracting new employees. Despite the great
amount of money used in these incentives and rewards, only few of the Human Resource
Managers are able to justify and measure whether they are efficient (Armstrong, 2010).

With the introduction of the interest rate capping on July 28th 2016 by CBK, all banks and
especially the small banks were affected. Most banks actually decided on reducing their
workforce significantly. For example, on 8th November 2016, the Standard Newspaper
reported that First Community Bank (FCB) had plans to reduce its workforce in order to
reduce costs and by the end of the same month, the bank management declared more than
100 positions redundant and the same was reported in the local dairies. However, the
employees who remained in FCB could not perform to the expectation of the
management and the performance of the bank dropped significantly by the end of 2016 as
4
was reported in their end of year financial statements (Standard Newspaper, 31st March,
2017 pp 41). This has now raised concerns on whether the incentives and rewards given
to the employees are adding any value to the bank and whether they are serving the
intended purpose of motivating the employees (Rock, 2013).

The questions are often asked as to what employees really want from the Management for
productivity to go up. There is a general notion that if only management can identify
other things that can motivate the workforce apart from money, perhaps there will be a
dramatic improvement in production and profitability of the bank. Less time will also be
spent on the annual ritual of management/employees’ union negotiation meetings (James,
2011). An employee is concerned about what they are paid as incentives, while
organizations are concerned about what they pay because it motivates important
employee decisions especially when it comes to job delivery and performance. James
(2011) noted that mostly, the general problem is poor designed incentive plans, low
salaries, irregular promotional structure, lack of a proper salary structure and lack of
recognition of employees’ achievements.

Designing and implementing good employee incentive plan is a huge challenge thus
affecting employee motivation and productivity (Anderson, 2013). The aim of this
research therefore is to find out how incentives and rewards are affecting employees’
productivity in small banks in Kenya and specifically the employees of First Community
Bank; and to determine whether if given the right incentives can put in their best to
contribute to the productivity and growth of the organizations to achieve the bank’s
strategic objectives.

1.3 Purpose of the Study

The purpose of this study was to assess the effects of incentives and rewards on employee
productivity in small banks in Kenya.

5
1.4 Research Questions

The study was guided by the following research questions:

1. What are the effects of financial incentives on employee
productivity in small banks?
2. What are the effects of non-financial incentives on employee
productivity in small banks?
3. Does effective reward system have positive effects on employees’
productivity?

1.5 Significance of the Study

1.5.1 Importance to the researcher

The research would be of great importance to me as a researcher because I intended to

acquire research skills to conduct business research. Skills like developing questionnaires,
interacting with new people, getting the necessary information, analyzing and presenting
data. The research would also be beneficial to the Management of FCB as it would shed
some light on incentives and rewards valued by employees most; thus would help them
come up with incentive and reward systems that can promote productivity in the bank.

The research also benefited the future researchers who carry out research about the same
topic on the effects of incentives and wages and the effects they have on employee
performance.

1.5.2 Importance to the Policy Makers

The study benefits policy makers like the International Labor Organization, Employees’
Union and other government organizations to come up with effective and realistic policies
that led to employee motivation.

1.5.3 Importance to First Community Bank

The study was also beneficial to First Community Bank as they identified areas that they
needed to improve on to be able to motivate the employees and to maximize their profits.
6
1.6 Scope of the Study

The scope of the study was limited to small banks in Kenya with a focus on First
Community Bank in Nairobi. The study targeted Senior Management, Middle Level
Management and also Clerks in Nairobi branches. The study was conducted from
beginning of May to mid-July 2017.

1.7 Definition of Terms

1.7.1 Incentives

Incentives means an inducement which rouses or stimulates one to action in a desired

direction (Milton, 2013). These are benefits that are promised to employees to motivate
them to achieve their best and improve their behavior, productivity and output
continuously.

Incentives are given to employees whose performance is below expectation eg sales

commissions, higher allowances etc. with an aim to motivate and encourage employees to
achieve desired performance, efficiency and levels of output. Incentives can also be
defined as something that encourages a person to do something or to work harder. It can
also be defined as inducement or supplemental reward that serves as a motivational
device for a desired action or behavior. Incentives always have a time period, a
measureable action or goal (Meridith, 2015).

1.7.2 Financial Incentives

Financial incentives have been defined by a number of authorities in a number of ways,

depending on their orientation, context, environment and situation. However, the context
and emphasis of this paper is on employee-employer work relationship, pay and
performance of employee and organization. Financial incentives are gotten from the word
motive.

Shank (2012) defines motive as something that causes someone to act. Relating this
definition to work place environment, they are actions of management that cause
employee to put up favorable or unfavorable attitudes towards corporate goals
7
accomplishment. Micheal and Harold (2006) states that financial incentives refers to
monetary terms in form of wages and salary. They further explains that financial
incentives are used to compensate and motivate workers in an organization. Wages are
financial rewards based on time units. Burton (2012), sees financial incentives as
predisposition to behave in a purposeful manner to achieve specific, unmet needs and the
will to achieve, and the inner forces that drives individuals to accomplish personal goals.

Meridith (2015) explains that financial incentives are motivators that refers to monetary
rewards and helps to satisfy the physiological and security needs eg. Wages, salary,
bonus, retirement benefits, medical reimbursements etc. Financial incentives should be
substantial in value and must be in parity with others.

According to Armstrong (2012) financial rewards comprise all rewards that have a
monetary value and add up to total remuneration. These rewards include basic pay, merit
pay, skills based pay, incentives, and service related pay, bonuses, financial recognition
schemes and benefits such as pensions, sick pay and medical cover for the employee and
the dependants.

1.7.3 Non-Financial Incentives

Meridith (2015) defines non-financial incentives as types of rewards that are not part of
an employee’s pay. Non-financial incentives are a means of encouraging employees in
boosting their morale without any form of cash payment to employees. They typically
cost the company little or no money, yet carry significant weight when it comes to
motivating employees. These are motivators that helps to satisfy the status, recognition
and ego in the society as they bring in psychological and emotional satisfaction to the
employees. Examples are appreciation for work well done, periodic promotions, training,
job security, recognition of achievement, opportunity for growth, better job titles,
responsibility etc.

Non-financial reward consists of responsibilities, opportunities, written recognition,

promotion, vacations, better working environment, sound policies, insurance, medical,
gifts, plaques, retirement etc. (Ellisand, 2012). All these rewards affect the performances

8
of the employees in different manners. Non- financial incentives are to reward employees
for excellence job performance through opportunities (Kepner, 2011).

1.7.4 Rewards

Armstrong (2012) defines reward as a benefit that is provided in recognition of

achievement, service, commendable behavior etc. It is only given to an employee only
after he has provided evidence of his positive behavior and achievements. The aim of a
reward is to show the employees that their work and efforts within the organization are
valued and is given as an appreciation for the work already completed. They are used to
improve morale, increase productivity and encourage employees to contribute their best
quality of work.

Reward system is the instrument used to increase employees’ productivity. It seeks to

attract and retain suitable employees, encourage good employee relationship and
commitment. Mehmood (2013) explicates reward system is the requirement of any
organization to attract, hire and retain most suitable employee to gain competitive edge in
a competitive environment. He further explains that reward system inspiring the
employee to work harder and faster because employee needs motivation to put extra
effort on their task. Finally he concludes that reward system should match with the
organizational culture and the strategy in order to achieve sustainable competitive
advantage.

1.7.5 Employee Motivation

According to (Goudas, Biddle & Fox, 2011), motivation is the level of energy,
commitment and creativity that employees bring to their jobs. It is an internal drive that
causes an individual to decide to take action, which is usually influenced by biological,
intellectual, social and emotional factors. Motivation can also be defined as the process
of boosting the morale of employees to encourage them to willingly give their best in
accomplishing assigned tasks.

9
1.7.6 Employee Productivity

Carol (2016) defines employee productivity as a performance measure of both efficiency

and effectiveness of an employee or a group of employees. He explains that productivity
can be evaluated in terms of output of an employee within a specific period of time.
Productivity of a given employee is assessed relative to an average for employees doing a
similar task (Woods, 2016). According to Mariam and Rami (2016), employee
productivity is one of the paramount concerns in the overall management of any
organization and without staff productivity the performance of the entire organization
would fail to meet its desired aims.

1.7.7 Small Banks

According to Think Business Banking Survey (2016), a small bank falls under Tier 4 with
an asset base of below 15 billion Kenya Shillings. Tier 4 comprises of small regional
banks with a primary focus on core banking and limited capital markets trading. First
Community Bank thus falls under the category of small banks as its total assets are valued
at Kes.12,305 billion.

1.8 Chapter Summary

Chapter one mainly covered the introduction, highlighting the background of the
problem, the purpose of the study, scope and definitions of different terminologies used in
the research paper. Chapter two is going to cover the literature review and be able to
highlight other research findings by other scholars who have done a similar research.
Chapter 3 will present the study design, target population, sampling procedure, research
instruments, validity and reliability of instruments, data collection instruments, data
analysis and operationalization of variables. Chapter 4 will present the findings, analysis
and interpretation of data gathered while chapter 5 will provide discussions, conclusions
and recommendations based on the results and findings.

10
 CHAPTER TWO

2.0 LITERATURE REVIEW

2.1 Introduction

In chapter two, we are doing to define different terms used in the research questions,
highlighting different types of incentives used to motivate employees and focusing more
on what has been documented by other scholars.

The term “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. Basically incentives are divided into two main groups:
Financial incentives and non-financial. 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.

2.2 Effects of Financial Incentives on Employee Productivity

Employees are motivated by either financial or no-financial instruments. Favorable

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).

According to Ellis and Pennington (2004), the financial incentives have a short-term
effect on the motivation levels of employees although they play a critical role in their
motivation as it has a stronger effect and remains longer embedded in the mind of the
employee as it appeals in its emotional state.

11
2.2.2 Types of Financial Incentives
2.2.2.1 Monetary Incentives

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 reward 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, output-oriented merit increases, performance Bonuses, sales commissions,
piecework, safety incentives, suggestion awards etc (Pattanayak, 2005). Monetary
incentives are used to describe incentive-payment plans which ties incentives directly or
indirectly to productivity standard (Alaba & Owodunni, 2007).

2.2.2.2 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.

12
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)

2.2.2.3 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.

Stock options can serve as salary buffers to keep employees from leaving their firms
when salaries or other benefits start to rise in the labor market around them (Oyer, 2001).
Oyer also found that stock options are effective in industries where individuals' market
wages vary widely, in tight labor markets where worker replacement costs are high, and
when the specific sector of a particular industry experiences greater common shocks, such
as a sudden downturn in product demand. The advantages of an incentive stock option is
that it allows a company to share ownership with the employees and is also used to align
the interests of the employees with those of the company.

2.2.2.4 Profit Sharing

The other financial incentive is profits sharing also referred to as total system incentives,
which usually occurs annually after the final annual results for the organization’s
profitability have been calculated. Profit sharing is an incentive plan introduced by
businesses that provide direct or indirect payments to employees that depend on
company's profitability in addition to employees’ regular salary and bonuses. This is an
arrangement in which the company leadership designates a percentage of annual profits as
a pool of money to share with employees in addition to prevailing wages (Melissa, 2016).
Compensation can be stocks, bonds or cash and can either be immediate or deferred until
retirement. Frank (2014) explains that in profit sharing, employees are rewarded if a
13
company’s profit increases and it is a way for employees to have an added stake in the
company’s success. He explains that a profit sharing plan has a formula that provides a
fixed percentage of profits that will be divided among employees. Consequently,
employees are motivated to perform well to increase company profits which results in a
cut of the profits for them.

Profit sharing can generate benefits to the organization through fostering greater
employee cooperation by ensuring that all the employees are in pursuit of the
organizational objectives, reducing employee turnover, increasing productivity, costs
reduction, providing retirement security and it also gives employees a direct stake in the
profitability of an organization creating an atmosphere in which employees want the
business to succeed as much as management does. There is a common misconception of
profit sharing that it is only suitable for small organizations; however, it is has been
successfully used in large and small organizations with both volatile and stable profits.

The positive impact of profit sharing is that it sends a message that all of the employees
are working together on the same team. Profit sharing and company ownership
arrangements create a powerful bond between workers and employers, and can motivate
people to be more productive and creative (Kelly, 2010).

Many companies have begun to consider profit sharing plans, because they can be a
powerful incentive for employees to work harder for the company and gain a sense of
satisfaction from knowing they'll all get a cut of the profits. This encourages employees to
work as a team, focus on profitability and enhances the commitment to the organizational
objectives. The employees have the same goals and are rewarded equally to reinforce this
shared service to customers and lack of competition with each other. This means that
when employees know that they will receive some incentives when the organization
perform well, then they are more likely to work extra hard to ensure that the organization
succeed (Robertson, 2007). On the other hand the weakness of profit sharing plans is that
individual employees cannot see and know the impact of their own work and actions on
the profitability of the company. Consequently, while employees enjoy receiving their
profit sharing money, it gradually becomes more of an entitlement than a motivational
factor (Jamin, 2007).

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

Employees respond with increased worth ethic and attention to the task when pay
increases directly reflect their level of performance. Tying pay raise incentives to
performance reviews can help the workforce to better understand what it takes to earn
higher pay (Lister, 2015). He further explains that money is a quantifiable way to show
an employee praise for high performance or a job well done. Connecting pay raise
incentives to performance evaluations provides an employer with a clear means to show
employees that they value high productivity and are willing to reward employees for that
effort. This increases the morale of the employees and can even lead to an increase in
productivity as employees feel a sense of loyalty to the company because the employer
also shows loyalty.

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 doesn't simply reward employees for longevity, instead opting to
reward employees who consistently improve on production and operational techniques
(Lister, 2015).

2.3 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-
15
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).

According to Dessler (2005), non-financial incentives are remuneration or benefits in

form of services. This include medical services, insurance programs, and recreational
facilities, special awards for long services, flextime, and pleasant working environment
and so on. Creative use of personalized non-financial incentives reinforces positive
behaviors and improves employee retention and performance (Sani, 2013). Non-financial
incentives satisfy the ego and self- actualization needs of employees. The incentives
which cannot be measured in terms of money are under the category of “Non- monetary
incentives” (Minhaj, 2016). Non-financial incentives are designed by the employer to
boost the level of performance of their employees, along with raising their productivity
level (Mariam & Rami, 2016).

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.

2.3.2 Non-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.
Non-monetary incentive, whether tangible, social or job related are additional benefits
separate from monetary compensation that shows respect and praise accomplishment.
Organizations use non-monetary incentives to increase their employees’ efficiency and
performance to achieve their goals and in turn organizations’ productivity also increases
16
(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).

Plum (2014) explains that non-financial incentives are the types of rewards that are not a
part of an employee’s pay but typically costs the company little or no money, and yet they
carry significant weight. Most types of non-financial incentives fall into four buckets:
recognition, reward, opportunity, and flexibility (Plum, 2014). Plum concludes by saying
that effective non-financial incentives for employees reach out and touch the emotions to
make the employee feel welcomed, appreciated, and valued.

1. Promotion

Promotion is basically a career advancement and can be used as motivational tool

(Kalpana, 2013). It is not just a reward that an employee is given for his/her continued
good performance but is the proof that an employer thinks that it is time to add more
responsibilities to an employee’s existing set of responsibilities. When management
decides to promote employees for their hard work, they are basically recognizing talent
and finding future leaders thus boosting employee morale and motivation which results in
high productivity and prevents organizations from losing its valued employees
(Campbell, 2015).

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.
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2.3.2.2 Employee Recognition

According to Gines (2013), recognition means acknowledgement with a show of

appreciation. It is crystal 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).

Gines (2013) observes that companies must foster employee motivation through
acknowledging achievements that are in line with corporate long term objectives as well
as activities that generate immediate results. This can be achieved by displaying
employees’ achievements on the notice boards, issuing recognition certificates for
exceptional performance, sending congratulating messages to employees for good
performance etc.

2.3.2.3 Feedback

According to Eriksson (2009), relative performance feedback is a crucial aspect of

organizational design and employees appreciate acknowledgement for a job well done
and respects management more when they are called out on poor performance.
Accomplishments should be acknowledged while errors or failures in meeting the agreed
targets should be promptly addressed.

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

18
performance, with objective performance targets, has a strong, positive impact on
employee productivity.

2.3.2.4 Job Enrichment

According to Gabriel (2015), there is a significant relationship between job enrichment

and employee job satisfaction. Job enrichment means giving employees more control
over the tasks that they complete. Allowing employees to complete tasks that have a
meaning, and are complete in themselves. For example a worker who has a job fitting the
tube to a TV, may have his job enriched by testing that the tube works, and being able to
make adjustments so that the required level of quality is achieved.

Job enrichment is a management concept that involves redesigning jobs so that they are
more challenging to the employee and have less repetitive work. Job enrichment simply
means adding the contents to a job leading to increased responsibility, scope and
challenge in its performance (Gabriel, 2015).
Job enrichment refers to the process of designing jobs with more variety of work content,
requiring higher level of knowledge and skills. It provides more freedom, responsibility
and opportunity for personal growth to the employees. An enriched and interested job is
in itself a source of motivation to an individual (Gabriel 2015).

2.3.2.5 Job Enlargement

Job enlargement is an increase in job tasks and responsibilities to make a position more
challenging (Carol, 2015). It is also a job design technique where there is an increase in
the number of tasks associated with a certain job. This means increasing the scope of an
employee’s duties and responsibilities. Carol further defines job enlargement as a
horizontal expansion, which means that the tasks added are at the same level as those in
the current position which aims at increasing the workforce flexibility and reducing
monotony at the same time. It is therefore an increase in the number of job tasks and
responsibilities to make a position more challenging. For example, a secretary
previously employed to answer calls might now have duties, which include, filing, letter
writing etc. This adds interest to the job, and involves the employee in a more complete
role within the business (Olsen, 2015).
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2.3.2.6 Effective Communication

Effective communication is the key to a productive workforce and is pivotal in increasing

productivity because it directly influences the behavior of the staff and the way they
perform (Hicks, 2017). Efficient communication which includes clear instructions, fast
message delivery, and proper explanation, is the key factor to solid cooperation between
managers and employees (Sullivan, 2011). He explains that effective communication
plays an eminent role in getting things done which ultimately increases the organization’s
productivity.

According to Kijko (2017), communication is only effective when the receiver

understands the message conveyed just as the sender wanted to. The receiver can confirm
this by letting the sender know that the message was received through the right medium
and on time. He emphasized that businesses that communicate with their staff are likely
to have lower levels of labor turnover. Effective communication between the manager
and team members is an important factor in every company and success cannot be
achieved when there is no communication. With the help of good communication among
managers and employees, it becomes clear where the company is, where it needs to be in
the future and which steps need to be taken to get there (Pavel, 2015). All this information
provides clear directions for all employees, which increases productivity, decreases
uncertainty and gives exact direction to employees thus making their works less stressful,
faster, more efficient and enjoyable.

Communication is a key part of motivation, but most often overlooked piece of the
incentive puzzle. Effective communication is a complex management issue, but a
structured communication plan can make the world of difference to the uptake of any
incentive scheme. By keeping your audience up to speed on large end-of-year incentives,
as well as regular, smaller promotions, you can ensure that momentum is maintained
throughout and you achieve the results you need (Agarwal, 2010). Poor communication
affects work production because employees might not receive adequate information to
complete a task assigned to them. It may start a whole destructive chain of events because
if an employee forgets to mention important information, it will result in delaying the
completion of a project or in errors that will jeopardize the implementation (Kijko, 2017).

20
On the other hand, lack of communication can frustrate employees and make them feel
unimportant. Failing to provide effective feedback can lead to wasted efforts, increased
error rates, and lower productivity. Effective communication needs to be developed in
conjunction with employees to ensure that they fit both the needs of the manager and the
employees (Sullivan, 2011). Effective communication improves understanding and, in
the result, will elevate productivity and efficiency.

2.3.2.7 Training

According to Taylor (2015), companies need great talent to attain higher levels of
innovation and success. Training provides chances to employees‟ growth and enhances
their knowledge and skills for effective development (Kabir, 2011). It is difficult for
employees to be productive when they are not sure of what they are required to do.

Lack of training can bring down productivity significantly because untrained employees
become paralyzed with fear (Jessop, 2016). By getting these training programs employees
are able to get self-assured, evolution of career, and have positive thought for their
organization (Kabir, 2011). Shortage in certain skill sets are making it difficult for
organizations to hire the best. However, smart organizations turn to training and
development to bring their current and future employees up to speed with the necessary
competencies. Hicks (2017) explains that without training, employees will not be able to
fulfil their potential. He highlighted that there are a number of ways employers can
support employee development either through individual coaching, workshops, courses,
seminars, job shadowing or mentoring, or even just increasing their responsibilities.
Offering these opportunities will give employees additional skills that allow them to
improve their efficiency and productivity. Offering opportunities for professional growth
shows that you trust and believe in an employee's potential, they become more
productive, knowledgeable and happier (Perkins, 2014).

Training not only improve productivity and performance but also strengthens recruitment
and retention efforts as employees view training benefits as a major boon to their long-
term career goals (Taylor, 2015). Taylor also explains that training is a powerful
incentive that attracts the best and keeps them engaged for long periods thus helping
employers to reap the rewards. To ensure that all employees are adequately trained,
21
employers should focus on those employees that are near the beginnings of their careers.
Companies have a tendency to focus on “leadership training” for executives, but they
ought to focus more resources on training those who are new if they want to increase
employee productivity (Kouba, 2013).

2.3.2.8 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 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).

2.3.2.9 Job Security

Job security is defined as the assurance in an employee’s job continuity (James, 2012).
According to the Business Dictionary, job security is also defined as an assurance that an
employee will keep his or her job without the risk of becoming unemployed. Job security
plays an important role in both social and working life as it helps employees not to worry
about their future and contributes to employee productivity (Senol, 2011).

22
Job security has a significant effect on the overall performance of employees and is also
an important variable that directly affects employee organizational satisfaction and level
of his commitment (Maurer, 2013). If an employee is sure that he or she will not be
kicked out of their job any time soon, they will then definitely work harder thus increase
productivity. Security regarding job inspire the employees to work with full zeal and
enthusiasm. However, the negative aspect of this incentive is that when employees are
assured that their job is secured they may become lazy (Katsimi, 2008).

According to James (2012), job security has a significant effect on the overall
performance of the team as well as on the organization's performance. He noted that
employees with low job security cause people to lose faith in their future which
consequently affect productivity. He affirmed that the more an employee enjoys a high
job security the more he is likely to effectively perform his task which is reflected in the
overall performance of the organization.

2.3.2.10 Employee Participation in Management Decisions

Participative decision making is the extent to which employers allow or encourages

employees to share or participate in organizational decision making (Probst, 2005).
Various committees, like Joint Management committee can be formed to motivate
employees. Through participatory decision making, productivity is expected to increase
since commitment by employees towards implementation of decisions to achieve
enhanced productivity and overall organizational goals will be high and help reduce
agitations, misconceptions and lack of commitment on the part of employees (Shafiwu,
2014). This makes your workers feel like they are part of the team and asking for their
input and listening to what they have to say makes them feel like their ideas count
(Perkins, 2014).

Inviting employees to participate in management decisions gives them a sense of

importance, pride and psychological satisfaction that their voices are also heard (Walpole,
2015). When employees are involved in making decisions, they gain a professional and
personal stake in the organization and its overall success. This commitment leads to
increased productivity as employees are actively participating in various aspects of the
company and wish to see their efforts succeed overall. This is not only beneficial to
23
company growth, but is also on-the-job training for workers. The increase in
responsibility expands employee skill sets, preparing them for additional responsibility in
the future (Casey, 2015).

According to Anderson (2015), actively engaging workers in the decision-making process

increases overall company morale and employees understand their ideas are an important
contribution to the company, and gives them the power to influence the outcome of their
work, leading to increased job satisfaction, positive attitude, not only toward their
position but also to the company itself. Participation in the decision-making process
gives each employee the opportunity to voice their opinions, saves the company time and
money, and also allows employees to share their knowledge with others, thus encouraging
a strong sense of teamwork among workers (Anderson, 2015).

2.3.2.11 Organizational Climate

According to the business directory, organizational climate also known as corporate

climate is the process of quantifying the culture of an organization and it precedes the
notion of organizational culture. According to Barbera (2014), the culture of an
organization breeds an organizational climate which represents how employees
experience that organization’s culture. Slocum (2006) defines organizational climate as
the recurring patterns of behavior, attitudes and feelings that characterize life in the
organization and often proves easier to assess and change. According to Campbell,
Organizational climate can be defined as a set of attributes specific to a particular
organization that may be induced from the way that organization deals with its members
and its environment. Organizational climate is a shared perceptions and attitudes about
the organization. The most visible area of a focus on culture that is actually climate is all
the effort to measure and improve employee engagement (Kuppler, 2015).

The various characteristics of organizational climate like individual freedom,

consideration towards employees, reward orientations etc. have a great impact on the
behavior of the employees which in return affects how they perform in their respective
roles (Kalpana 2013). Organizational climate clearly influences the success of an
organization. Many organizations, however, struggle to cultivate the climate they need to
succeed and retain their most highly effective employees. Hellriegel and Slocum (2006)
24
explain that organizations can take steps to build a more positive and employee-centered
climate through supportive management, recognition, communication, organizational
values, expectations, the normal routine ways of behaving and treating one another in the
organization, leadership, rules and regulations. A healthy organizational climate is proven
to boost productivity.

2.3.2.12 Competition

Competition is a kind of non-financial incentive for employees to put in more efforts in

their assigned roles and creating the right type of competition is important (Srikrishna,
2017). If there exists, a healthy competition among the employees both at individual and
group levels, it will prompt them to exert more to achieve their personal or organizational
goals and brings out the best of the employees, inspiring them to grow, explore,
collaborate, learn and achieve (Chand, 2015).

According to Srikrishna (2017), competition is good as it propels the employees’ inherent

urge to win and fuel their desire to be more productive. In this case, both the employees
and the organization benefits. Shrikrishna continues to explain that healthy competition
amongst employees brings the best of them and keeps employees highly motivated and
productive as employees push themselves to the next level of performance.

Healthy competition aligned towards creating high performance in meeting the

organizational objectives always results in generating value (Shrikrishna, 2017). He
further explains that too much of competition could also be destructive and organizations
should maintain a balance between emphasis on competition, and collaboration among its
employees ensuring it does not become stressful and at the same time discourage
individual completion as it can be destructive for the organization. When individuals
within the organization are competing against each other there is always a chance of the
environment becoming fear-based.

2.3.2.13 Group Incentives

According to the Business Dictionary, group incentive programs are award programs that
deliver lump-sum payments, time-off awards or informal recognitions to groups of
25
employees who meet or exceed pre-established levels of organizational performance.
Group incentives are more powerful than individual incentives particularly when the
prestige or even existence of a group is at stake, the group members work with a team
spirit (Chand, 2015). This results in high morale and, in turn, increases productivity.

According to Marshall (2013), group incentive programs can cover the whole
organization or just a unit or department. The program require reliable, accepted measures
of performance, must have a time frame to measure the group’s performance with clear
communication to the employees about the program time-frames and expectations.

An organization should grant group incentives based on the performance objectives set at
the beginning of the performance period and should have clear and understandable payout
formulas to foster cohesiveness among team members. Group incentive program brings
about team spirit among employees of the group thus adding to the overall output of the
organization. However, it may be insufficient to motivate individual employees
particularly those who possess greater skills and experience or in the case where
management may dress up profit figures and deprive the employees of their legitimate
share in the profits. Group incentives are suitable when individual performance cannot be
either measured precisely, the employees in the group possesses the same type of skills
and competencies or the completion of the task is linked with the collective efforts of the
group

2.3.2.14 Opportunity for Growth

Employees perform to their best when the environment they are working in is conducive
to growth (Lipman, 2014). Opportunity for growth is another non-financial incentive.
Man is not only a wanting animal but an ambitious creature that always need to grow in
their career. If employees are provided opportunities for advancement and growth to
develop their personality, they feel much satisfied and become more committed to
organizational objectives (Chand, 2015).

If the employees are provided proper opportunities for growth and career advancement
and chance to develop their personality, they feel much satisfied and become more
committed to the organizational goals. Personal opportunities for growth provides more
26
reasons for employees to give extra effort and enjoy working for the organization. Any
career-minded employee is always interested to know whether there are training
programs, policies and practices in place to support his or her personal and professional
growth opportunities, which helps improve skills and gain advanced knowledge to work
on special assignments.

2.3.2.15 Employees’ Empowerment

According to Juran (2001), employee empowerment refers to a practice of sharing

information, reward, and power, providing employees with skills, resources, authority,
opportunity, motivation as well as holding them responsible and accountable for
outcomes of their actions. He further explains that empowerment is conferring the right
to make decisions and take actions.

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).

2.4 Effects of Reward on Employee Productivity

2.4.1 Types Rewards

Every organization’s reward system should focus on these major areas; compensation,
benefits, recognition and appreciation (Sarvadi, 2010). Benefits such as car loans,
mortgages, medical covers, club membership, ample office space, parking slots and
company cars are ways of rewarding.

Recognition and appreciation are another integral component of a winning strategic

reward system. Recognition is to acknowledge someone before their peers for desired
behavior or even for accomplishments achieved, actions taken or having a positive
attitude. Appreciation on the other hand centres on showing gratitude to an employee for

27
his or her action. According to Sarvadi (2010), rewards help employees to gauge their
performance and know whether they are doing good or bad. With globalization age, it is
important for the top management to carry out new methodologies of developing strong
and durable relationship between the organization and employees to meet the
organizational goals and fulfilling the continually changing needs of both the organization
and the workforce. (Roberts, 2003).

A reward and compensation system is based on the expectancy theory, which suggests
that employees are more likely to be motivated to perform when they perceive that there
is a strong link between their performance and the reward they receive (Fey and
Bjorkman, 2001; Guest, 2002; Mendonca, 2002).

According to Chad (2013), employees feel they would be more productive if they had
their earnings linked to certain performance objectives. He further explains that
performance based pay includes any arrangement where an element of the total
compensation is tied to meeting and exceeding performance targets. Employees value a
clear path to follow towards a bright future and a day to day reward is a simple way to
keep productive employees performing to their best (Jordan, 2015).

Reward systems can address several important managerial objectives in relations to the
employee productivity. The management should pay more attention when developing a
good reward system ensuring that the reward process is clear, stipulating the purpose and
different types of rewards in an organization (Geraghty, 2013). Geraghty explains that a
good reward system can motivate employees to increase their quality of work, to align
their performance with organizational objectives and rewards can therefore be very
powerful influence on employee behavior, motivation and productivity and should be part
of the organization’s strategy.
According to Nelson and Spitzer (2012) although cash rewards are welcomed by
employees, managers should never use this as a tool to motivate their employees to
improve their performance levels. Should this happen, most likely the essence of the
reward would be forgotten.

28
In a study conducted by (Bewen, 2000), the researcher warns that managers should be
aware of ‘non cash rewards’. Such rewards should be utilized sparingly, and should not
be used all the time. They are also described to be passive, and they do not necessarily
lead to positive behaviors in the long term. According to Shore & Shore (2010),
employees who are able to experience and receive recognition for their work are also able
to have a better perception of their work, their workplace and the people they work for,
thus there is a need for the employer to really make an effort in showing the employee
that his/her wellbeing is of concern to the organization.

Recognition of contributions towards the organization has a positive relationship towards

increasing the commitment of the employee towards the organization and its objectives.
According to Goodwin & Gremler (2012), the banking industry is in need of employees
that are both satisfied and motivated, for without them, customer satisfaction level would
also be affected. Interpersonal relationships established between bank personnel and the
customers are a big driving force behind ensuring that a customer is satisfied or
dissatisfied. When a high perception of value is achieved, then it is also highly likely that
the customer will be satisfied, thereby bringing in more business for the bank.

According to Breed (2014), tuition reimbursement is a reward incentive used by some

employers to pay back some or all of the tuition expense an employee has incurred for
education expenses especially if they take a course related to their role.

Employees who take advantage of tuition reimbursement tend to stay with the company
longer. In addition to improved employee retention, the employer may have employees
who are motivated to produce more and easily promotable (Matt, 2014). Tuition
reimbursement programs enables employers to get a guarantee that an employee will stay
with the organization within an agreed period of time. Some organizations ensure that the
employees sign bonding agreements in which stipulates the agreed conditions including
the consequences in case an employee decide to leave the organization (Jensen, 2017).
According to Eichner (2016), flexible working hours or flexi-hours arrangement is where
an employee is allowed to work for some hours within the day. For example, an
employee works from 10 a.m. to 7 p.m. rather than from 8 a.m. to 5 p.m. Giving people
space and time away from the office allowing them to catch up on truly necessary
activities, such as spending time with their families and getting enough sleep. When
29
employees feel refreshed, they’re much happier to come to work and can focus on
meeting deadlines and producing good work - not on watching the clock tick the seconds
until it’s time to go home.

2.5 Chapter Summary

This chapter has presented a review of pertinent literature review on effects of incentives
on employee productivity that have been researched by other scholars. Research in this
area will provide more knowledge on the effects of incentives on employee productivity
in small banks in Kenya, and specifically First Community Bank.

30
 CHAPTER THREE

3.0 RESEARCH METHODOLOGY

3.1 Introduction

This Chapter presents the study design, target population, sampling procedure, research
instruments, validity and reliability of instruments, data collection instruments, data
analysis and operationalization of variables.

3.2 Research Design

In this study a descriptive survey design was used. Descriptive research portrays an
accurate profile of persons, events, or situations (Robinson, 2002). This design allows the
collection of large amount of data from a sizable population in a highly economical way.
It allows one to collect quantitative data, which can be analyzed quantitatively using
descriptive and inferential statistics. Therefore, the descriptive survey is deemed the best
method to fulfill the objectives of this study. The design was preferred because it was
concerned with answering questions such as who, how, what which, when and how much,
(Cooper and Schindler 2001). A descriptive study was carefully designed to ensure
complete description of the scenario, making sure that there was minimum bias in the
collection of data.

3.3 Population and Sampling Design

3.3.1 Population

Orodho (2013) defines target population as the set of elements that the researcher focuses
upon and to which the results obtained by testing the sample should be generalized. The
population of interest was the employees of First community Bank but limited to the
Head Office and Nairobi Branches only with a focus on 164 respondents.

31
Table 3.1: Target Population

Target Population Population (Frequency)

Senior Management 15
Middle level Management 35
Customer Care Centers 50
Operations/ back office 64
Total 164
Source: First Community Bank (2017)

3.3.2 Sampling Design

3.3.2.1 Sampling Frame

According to Ralph (2013), a sampling frame is a list of elements from which the sample
is actually drawn and is closely related to the population. The sampling frame constituted
the employees of First Community Bank which was drawn from senior management,
middle level management, customer care and operations who totalled to 164. They were
considered since they had the knowledge on the topic of research as well as having the
required information on incentives offered by the bank. According to Sekaren (2008), he
defines sampling frame as…..

3,3.2.2 Sampling Technique

According to Japheth (2014), sampling technique is defined as selecting the required

sample size in a manner so that the sample is representative of the study population.
Sampling techniques can be classified into two main groups, probability and non-
probability sampling.

Though the population was small at 164, and census was used, the population was divided
into 4 strata (Senior Management, middle level, customer care, operations / Back office).
Simple random sampling design was used so that all the categories were given a chance
to be considered for the study.

32
3.3.2.3 Sample Size

According to Zamboni (2017), sample size is an important concept in statistics, and refers
to the number of individual pieces of data collected in a survey. A statistic’s sample size
is important in determining the accuracy and reliability of a survey’s findings.

The sample size for this study was considered as 164 as per the data received from the
Human Resource department. The research conducted a census so as to get an
appropriate feedback on incentives and rewards at First Community Bank. Sample
determination formula was not used since it was not overly large.

3.4Data Collection

Primary data was used in this study. According to Ochola (2007), primary data refers to
what is collected directly by the researcher for the purpose of the study. The data was
collected by the use of questionnaires. Research questionnaires with structured questions
was designed and administered. This enabled the researcher to get vital data directly from
the respondents. The questionnaires were dropped by the researcher and picked at a later
date when they were filled.

3.5 Research Procedure

The researcher obtained an introductory letter from the University to collect data from
First Community Bank, then personally delivered the questionnaires to the respondents.
The researcher employed self-administration approach of data collection and monitored
the process to ensure that unintended people do not fill the questionnaire. The
questionnaires were then picked for data entry and coding awaiting subsequent analysis.

The researcher identified and engaged various employees within different departments
who took the follow up responsibility and ensured that the questionnaires were distributed
to the right respondents, filled, collected and submitted to the researcher in good time.
This therefore ensured that the response rate was high at 100%.

33
3.5.1Validity of Research Instrument

Mugenda and Mugenda (2003) asserted that the accuracy of data to be collected largely
depended on the data collection instruments in terms of validity and reliability. Validity
as noted by Robinson (2002) is the degree to which result obtained from the analysis of
the data actually represents the phenomenon understudy.

Validity was achieved by pre-testing the instrument to be used to identify and change any
ambiguous, awkward, or offensive questions and technique as emphasized by Cooper and
Schindler (2003). Reliability on the other hand refers to a measure of the degree to which
research instruments yield consistent results (Mugenda & Mugenda, 2003).

3.5.2 Reliability of Instruments

Reliability is a measure of the degree to which a research instrument yields consistent

results on data after repeated trials (Mugenda, 1999). It also refers to the degree to which
a test consistently measures whatever it is designed to measure (Yang & Manfred, 2005).
Thus the reliability of a standardized test is usually expressed as co-efficient where the
reliability co-efficient reflects the extent to which a test is free of error variance.

Internal consistency method was tested using Cronbach’s Alpha. Cronbach's alpha is a
measure of internal consistency, that is, how closely related a set of items are as a group.
Reliability with a predetermined threshold of 0.7 was considered acceptable. That is, a
value above 0.7 indicates presence of reliability while a value below signifies lack of
reliability of the questionnaire.

3.6 Data Analysis Methods

Data was collected, screened to check for completeness and consistency. In the
questionnaire, coding was done for ease of analysis through SPSS. Descriptive analysis
was done by use of means. Reliability analysis was conducted in order to check for
internal consistency by use of Cronbach’s Alpha.

34
Validity of the data was established by use of factor analysis so that the questions that had
0.4 coefficients and above were the ones used for final analysis. Finally, after thinning
out the data and was left with the one that met the threshold, correlation analysis was used
to test the relationship between the independent variables and dependent variables
(employee productivity). Finally the researcher presented the data using tables, pie charts
and figures which gave ease of data presentation.

3.7 Chapter Summary

This chapter presented the research methodology that was used in analyzing the research
questions, highlighting the research design, target population, sample size, data source,
collection, analysis. The results and findings were presented in the next chapter.

35
 CHAPTER FOUR

4.0 RESULTS AND FINDINGS

4.1 Introduction

This chapter presents the findings, analysis and interpretation of data gathered from 164
respondents from First Community Bank. The main objective is to find out the effects of
incentives and rewards on employee productivity in small banks in Kenya.

The chapter gives the demographic characteristics of the respondents, descriptive

statistics on respondents’ degree of agreement on financial, non-financial incentives,
employee productivity, staff responses on recommendation to a friend to work for First
Community Bank, before giving the correlation analysis between financial and non-
financial incentives on employee productivity.

4.2 Response Rate

Out of the 164 questionnaires dispatched to the employees of First Community Bank, all
the 164 were returned dully filled giving a response rate of 100%. Given that this is well
within the acceptable response rate for a survey, (Baruch & Holtom, 2008), the
questionnaires were thus sorted, coded using SPSS and analyzed.

4.3 Reliability Analysis

The four variables under investigation meet the threshold and were considered reliable.
From the table below, the results indicated that Cronbach Alpha Coefficient reward
systems had a higher reliability coefficient of 0.924, followed by employee’s productivity
with 0.826, non-financial incentives following with 0.821 and finally financial incentives
with 0.824. This implied that First Community Bank should consider reward systems as a
strategy of increasing employee productivity.

36
Table 4.1: Reliability Analysis

Variables Croubach Alpha Coefficient

Financial Incentives 0.824
Non-Financial Incentives 0.821
Reward Systems 0.924
Employee Productivity 0.826

4.4 Factor Analysis

Factor analysis was conducted on financial incentives, non-financial incentives, reward

systems and employee productivity. All variables met the threshold, since the coefficients
were above 0.4 as indicated in the factor analysis table below. Four out of eight variables
met the threshold for financial incentives.

Table 4.2: Factor Analysis

Variables Number of Above the threshold (0.4 and

Questions above)
Financial incentives 8 4/8
Non-Financial incentives 11 11
Reward systems 4 4
Employee productivity 9 9

4.5 Demographic Analysis of the General Information

The demographic characteristics of the respondents was analyzed and given as below.
This was done mainly to determine the suitability of the respondents to provide the
needed information for the validity of the study.

37
Table 4.3: Demographic Analysis of the General Information

Frequency Percent Valid Percent

Gender Male 101 61.6 61.6
Female 63 38.4 38.4
Total 164 100.0 100.0
Marital status Single 47 28.7 28.7
Married 108 65.9 65.9
Divorce 9 5.5 5.5
Total 164 100.0 100.0
Age Bracket 18-27 years 27 16.5 16.5
28-37 years 76 46.3 46.3
38-47 years 54 32.9 32.9
47 and above 7 4.3 4.3
Total 164 100.0 100.0
Highest level of Master’s Degree 46 28.0 28.0
Degree 97 59.1 59.1
education attained
Diploma 21 12.8 12.8
Total 164 100.0 100.0
Duration worked in Below 1 years 30 18.3 18.3
2-5 years 105 64.0 64.0
First Community
6-9 years 29 17.7 17.7
Bank
Total 164 100.0 100.0

Job Level Senior 15 9.1 9.1

Management
Middle Level 35 21.3 21.3
Management
Subordinate 64 39.0 39.0
Customer Care 50 30.5 30.5
Total 164 100.0 100.0
Department Finance 42 25.6 25.8
Branch Operations 56 34.1 34.4
working for
Human Resource 7 4.3 4.3
Credit 41 25.0 25.2
Audit 17 10.4 10.4
Total 164 100.0 100.0

38
4.5.1 Gender of Respondent

The study revealed that majority of the respondents were male at (61.6%)and38.4% were
female. This results therefore shows that the bank is male dominated as compared to
female employees.65.9% of the respondents were married, 5.5% were divorced and
28.7% were singles. 16.5% were between the ages of 18-27 years old, 46.3% were
between 28-37 years, 32.9% between 38-47 years and 4.3% were above 47 years old.
The results reveal that most of the incentives are likely to be inclined to employees
between 28 – 47 years since these form 79% of the respondents. Therefore the
organization utilizes diversity of incentives to cater for the needs of the employees.

38%

62%

Male Female

Figure 4.1: Gender

4.5.2 Respondents Age

The results shows that 46% of the respondents were between 28 – 37 years forming the
bulk of the working class in First Community Bank and therefore this could suggest the
types of incentives that the bank utilizes to cater for the majority. The study also revealed
that 38 – 47 years old composed of 33% coming second followed by 18 – 27 years at 17%
and finally 47 years and above gathering 4%.

39
 47 and above 18-27 years
4% 17%

38-47 years
33%

28-37 years
46%

Figure 4.2: Age Bracket

4.5.3 Respondents Level of Education

On the highest level of education attained, it was revealed that 59.1% were
Undergraduate degree holders representing the majority of the respondents, 12.8% were
Master’s holders and 12.8% were Diploma holders. It can therefore be concluded that
majority of the employees are undergraduate holders leaving them with certain incentives
as compared to Master’s degree holders, who are likely to be in Management position
demanding better incentives as compared to their counterparts at undergraduate level.

Diploma
13% Master’s Degree
28%
Master’s Degree
Degree
Degree Diploma
59%

Figure 4.3: Level of Education

40
4.5.4 Respondents Years Worked

The study results showed that, majority of the respondents had worked for 2-5 years
which translates to 64.0%, 18.3% of the respondents have worked for less than 1 year and
17.7% has worked for 6-9 years. This shows that most of the employees are relatively
new to the organization and therefore the financial incentives are not well settled. This is
a higher number as compared to those who have been in the organization for more than 6
years.

6-9 years Below 1 years

18% 18%

2-5 years
64%

Below 1 years 2-5 years 6-9 years

Figure 4.4: Years Worked

4.5.5 Respondents Job Levels

On the job level for employees, it was noted that 9.1% were Senior Managers, 21.3%
were in Middle Level Management, 30.5% were in Customer Care and 30.0% were
Operations / Back Office employees.

41
 70

60

50

40

30

20

10

0
Senior Middle Level Subordinates Customer Care
Management Management Level Level

Figure 4.5: Job Level

4.5.6 Respondents Department Representation

Of the 164 respondents interviewed, 25.6% were from Finance, 34.1% from Branch
Operations, 4.3% from Human Resource, 25.0% from Credit and 10.4% from Audit
departments.

60

50

40

30

20

10
Series1
0
Finance Branch Human Credit Audit
Operations Resource

Figure 4.6: Department Representation

42
4.6 Descriptive Statistics on Respondents’ Degree of Agreement on Financial
Incentives

The respondents were subjected to questionnaires that had 5 Likert scale of; Strongly
Disagree, Disagree, Neutral, Agree and Strongly Agree. The results of the study follows.
The study revealed that salaries at First Community Bank are paid promptly as indicated
by a mean response of 4.3400 and standard deviation response of 0.68839. This was also
revealed in the descriptive analysis which indicated that 86.6% (Appendix Table 1)
respondents agreed that salaries are paid promptly at First Community Bank. The finding
revealed that employees are not given cash awards, allowances or salary increments as an
incentive for outstanding performance as noted by a mean response of 1.5200 with a
standard deviation of 0.57994, this was also reflected in the descriptive analysis where
over 90% (Appendix Table 1) of the responded indicted that employees are not given
cash awards, allowances or salary increments as a reward for outstanding performance.

The study further discovered that the bank does not have properly structured, well
selected, implemented and monitored monetary incentives as indicated by a mean
response of 1.8800, this was also in line with over 89.8% response that disagreed and
strongly disagreed as shown in the analysis (Appendix Table 1). It was also shown that
the employer does not give packages / gifts to outstanding performers as shown by a
mean response of 1.4600, this was also reflected in the descriptive analysis which
indicated that 91.1% of the respondents strongly disagreed and disagreed that the
employer gives packages / gifts to outstanding performers. Still on financial incentives,
the study revealed that monetary incentives are not offered to employees of First
Community Bank as indicated by a mean response of 2.0417, this was also discovered by
79.9% response who disagreed and strongly disagreed that there are monitory incentives
offered to employees of First Community Bank.

The study revealed that at First Community Bank, there are no stock option (share
ownership) offered to employees irrespective of their grade / category as noted by 1.5000,
this was replicated by 96.3% response who disagreed and strongly disagreed that stock
options (share ownership) are for all employees. It was also discovered that employees at
First Community Bank would be encouraged to perform even better if they were given a
salary increment as a reward for outstanding performance as indicated by mean response
43
2.7600. This was backed by 73.8% response that agreed and strongly agreed that they will
be encouraged to perform even better if given a salary increment.

Lastly, on financial incentives, the study revealed that the bank does not have a profit
sharing mechanism for all the employees as noted by a mean response of 1.4600 and it
was also further noted by 95.8% responses that disagreed and strongly disagreed that the
bank has a profit sharing mechanism for all the employees.

Table 4.4: Respondents’ Degree of Agreement on Financial Incentives

Financial incentives N Minimum Maximum Mean Standard

Deviation
Salaries are paid promptly 50 2.00 5.00 4.3400 .68839
I will be encouraged to perform 50 1.00 4.00 2.7600 1.06061
even better if am given salary
increment as a reward for
outstanding performance
The monetary incentives offered to 48 1.00 4.00 2.0417 .92157
employees of First Community
bank motivates me to perform
better
The bank has properly structured, 50 1.00 4.00 1.8800 .71827
well selected, implemented and
monitored monetary incentives
The management offers annual cash 50 1.00 4.00 1.6200 .69664
bonus for good performance.
Employees are given cash award, 50 1.00 3.00 1.5200 .57994
allowances or salary increment as a
reward for outstanding performance
Stock Option (share ownership) is 50 1.00 4.00 1.5000 .70711
for all employees irrespective of
their grade / category
The employer gives packages / gifts 50 1.00 2.00 1.4600 .50346
to outstanding performers.
The bank has a profit sharing 50 1.00 4.00 1.4600 .70595
mechanism for all the employees

44
4.7 Respondents’ Descriptive Statistics on Non-Financial Incentives

The study revealed that the management does not involve employees in decision making
as indicated by a mean response of 3.2000 and standard deviation response of 0.68839.
This was also revealed in the descriptive analysis which indicated that 75.5% respondents
who disagreed and strongly agreed that they are involved in decision making at First
Community Bank. The findings revealed that employees do not have appropriate amount
of information to make informed decisions on their work as noted by a mean response of
3.6400. This was also reflected in the descriptive analysis where 55.4% of the
respondents indicated that employees do not have appropriate amount of information to
make informed decisions on their work. However, 44.6% of the respondents indicated
that employees have appropriate amount of information to make informed decisions on
their work.

The study further discovered that the employees have a good understanding of the
structures and processes of the bank as indicated by a mean response of 1. 3.6000. This
was also in line with over 81.1% respondents who agreed that they have a good
understanding of structures and processes. It was also shown that the bank is not
concerned with the development needs of their employees. It indicated that they do not
sponsor them for training programs that addresses their competency gaps as shown by a
mean response of 1.8200, this was also reflected in the descriptive analysis were 85.9%
respondents strongly disagreed and disagreed that the bank is concerned with the
development needs of the employees.

The study revealed that the challenging nature of employee’s jobs, have kept them in their
profession as indicated by a mean response of 3.2800. This was also indicated by 78.1%
respondents who agreed that they have retained their level of professionalism given the
challenging nature of the jobs. The study also revealed that the bank does not grant
certificates of appreciation and recognition to efficient employees as noted by a mean
response of 1.540. This was also indicated by 94.6% of the respondents who disagreed
and strongly disagreed that the bank grants certificates of appreciation and recognition.

45
It was discovered that at First community Bank working environment was conducive as
indicated by a mean response of 2.5000. This was backed by 68.3% responses that agreed
and strongly agreed that they have a conducive working environment. At First
Community Bank, the management does not recognize employees’ efforts towards
achieving the bank’s objectives as noted by a mean response of 1.8800. This was further
noted by 86.5% responses that disagreed and strongly disagreed that the management
recognizes employee’s efforts. It was further revealed that the management team does
not celebrate milestones together with the employees as indicated by the mean response
of 1.9200, indicated by 88.4% of the responses.

The study revealed that at First Community Bank, employees are not given an
opportunity for both in-house and external training programs as indicated by mean
response 1.8600, this was also reflected by 83% of responses who disagreed.
Furthermore, the study revealed that employees are given recognition and respect from
the community as indicated by a mean response of 3.9600 and this was also reflected
95.7% of the responses received.

At First Community Bank, there is no formal communication system as noted by a mean

response of 3.2000 and this was replicated by 60.4 responses from the employees. The
working equipment and facilities are not adequately provided as specified by a mean
response of 3.7000 and this was also indicated by 75.6% who agreed that working
equipment and facilities are not adequately provided.

46
Table 4.5: Descriptive Statistics on Respondents’ Degree of Agreement on Non-
financial Incentives at First Community Bank

N Min. Max. Mean Standard

Deviation
My job gives me recognition and respect 50 3.00 4.00 3.9600 .19795
from the community.
The working equipment and facilities are 50 2.00 4.00 3.7000 .67763
adequately provided
Employees have appropriate amount of 50 2.00 4.00 3.6400 .74942
information to make informed decisions on
their work
Employees have a good understanding of 50 1.00 4.00 3.6000 .88063
structures and processes of the bank
The challenging nature of my job has kept 50 1.00 4.00 3.2800 1.06981
me in this profession
There is formal communication system in 50 1.00 4.00 3.2000 1.06904
the bank
The management involves employees in 50 2.00 4.00 3.2000 .92582
decision making
Employees are given fixed contracts and 50 2.00 4.00 2.6400 .92051
they feel they are in control and confident
of their day to day role
The working environment is conducive 50 1.00 4.00 2.5000 .97416
The management team celebrates 50 1.00 4.00 1.9200 .80407
milestones together with the employees
The management recognizes employees’ 50 1.00 4.00 1.8800 .71827
efforts towards achieving the bank’s
objectives
Employees are given an opportunity for 50 1.00 5.00 1.8600 1.16075
both in-house and external training
programs
The bank is concerned with the 50 1.00 4.00 1.8200 .80026
development needs of the employees and
sponsors them for training programs that
addresses their competency gaps
The bank always grants certificates of 50 1.00 2.0 1.540 .5035
appreciation and recognition to efficient
employees

47
4.8 Respondents’ Descriptive Statistics on Employee Productivity

At First Community Bank, 62.2% of employees received more than 16 official emails,
23.8% between 11-15 emails and 14.0% received 6-10 emails daily. It was noted that the
majority; 75.6% of employees attended more than 16 meetings on weekly basis, 13.4%
attended between 11-15 meetings and 11.0% attended 6-10 meetings weekly. In past 1
year, on average, the bank organized less than two social invents as indicated by 78.0% of
the respondents, 11.6% revealed that they had attended 3-5 social invents 4.9%
mentioned that they have attended more than 6 social events organized by the bank.

The study results indicated majority which is 83.5% of the employees at First Community
Bank had attend below 2 training programs, 8.5 % attended 3-5 and 7.9% attended 6-8
training programs organized by the bank. It was also discovered that there was a very
high rate of turnover as indicated by 55.5% of employees’ exits from different
departments.

It was further revealed that more than 6 senior management team members have resigned
within a year as indicated by 55.5% of the respondents. The staff at First Community
Bank noted that emails and meetings attended were unnecessary as indicated by 63.4% of
the respondents.

48
Table 4.6: Descriptive Statistics on Staff Responses on Employee Productivity at
First Community Bank

Aspect Frequency Percent Valid

Percent
Official emails receive on daily basis 6-10 23 14.0 14.0
11-15 39 23.8 23.8
More than 102 62.2 62.2
16
Total 164 100.0 100.0
Official emails send on daily basis 6-10 18 11.0 11.0
11-15 22 13.4 13.4
More than 124 75.6 75.6
16
Total 164 100.0 100.0
Meetings attended on weekly basis Below 2 8 4.9 4.9
3-7 58 35.4 35.4
8-12 27 16.5 16.5
More than 71 43.3 43.3
12
Total 164 100.0 100.0
Emails and meeting attended are Necessary 104 63.4 63.4
they necessary or unnecessary
Unnecessary 60 36.6 36.6
Total 164 100.0 100.0
Training programs attended annually Below 2 137 83.5 83.5
3-5 14 8.5 8.5
6-8 13 7.9 7.9
More than 8 0 0 0
Total 164 100.0 100.0
Social l events organized by the Below 2 128 78.0 83.5
bank attended in the last 1 year 3-5 19 11.6 11.6
6-8 8 4.9 4.9
More than 8 8 4.9 4.9
Total 164 100.0 100.0
Employees resigned in your Below 2 11 6.7 6.7
department this year 3-5 49 29.9 29.9
6-8 59 36.0 36.0
More than 8 44 26.8 26.8
Total 164 100.0 100.0
Senior Management Team members Below 2 15 9.1 9.1
resigned this year 3-5 27 16.5 16.5
6-8 91 55.5 55.5
More than 8 31 18.9 18.9
Total

49
4.9 Descriptive Statistics on Staff Responses- Recommendation for a Friend to Work
for First Community Bank

It was noted that 53.0% of the staff would not recommend friends to work for First
Community Bank while only 47.0% would recommend friends to work for First
Community Bank. This reveals that many of the employees might not be willing to work
for long at the bank hence high turnover as well as being disgruntled in reference to
incentives and reward.

Table 4.7: Recommendation for a Friend to Work for First Community Bank

Frequency Percent Valid Percent

NO 87 53.0 53.0
Yes 77 47.0 47.0
Total 164 100.0 100.0

4.10 Correlation Analysis between Dependent and Independent Variables

Pearson Correlation Coefficient was used to assess the relationship between financial
incentives and employee Productivity. Pearson Coefficient Value Sig. (2-tailed) =0.107 at
95% confidence level, and P < 0.005, this implies that there was a positive but
insignificant relationship between financial incentives and productivity. 12.6% of
financial incentives were explained by the variation of employee productivity in first
community bank, at r =12.6% at 0.05 level of confidence. The results are shown on Table
4.8

Table 4.8: Financial Incentives and Employee Productivity

Financial Employee
incentives Productivity
Financial Pearson Correlation 1 0.126
incentives Sig. (2-tailed) 0.107
N 164 164
Employee Pearson Correlation 0.126 1
Productivity Sig. (2-tailed) 0.107
N 164 164
Correlation is significant at 0.05

50
4.11 Non-Financial Incentives and Employee Productivity
Using Pearson Correlation Coefficient, there was a positive relationship between non-
financial incentives and employee productivity. Pearson Sig Value. (2-tailed) =.051 at
95% confidence level, since P < 0.05. This implies that there was positive but
insignificant relationship between non-financial incentives and employee productivity.
50% of non-financial incentives are explained by the variation of employee productivity
in First Community Bank, at r = 50% at 0.05 level of confidence.

Table 4.9: Non-Financial Incentives and Employee Productivity

Non-financial Employee Productivity

incentives
Non-financial Pearson Correlation 1 0.516
incentives Sig. (2-tailed) 0.051
N 164 164
Employee Pearson Correlation 0.516 1
Productivity Sig. (2-tailed) 0.051
N 164 164
Correlation is significant at 0.05

4.12 Correlation Analysis between Reward Systems and Employee Productivity

Using Pearson Correlation Coefficient, to test relationship between rewards systems and
employee productivity. Pearson Value Sig. (2-tailed) =0.083 at 95% confidence level,
since P < 0.05. This implies that there was positive but insignificant relationship between
reward systems and employee productivity. 24.8% of reward systems were explained by
the variation of employee productivity in First Community Bank, at r =24.8% at 0.05
level of confidence.
Table 4.10: Reward Systems and Employee Productivity

Rewards Employee Productivity

systems
Rewards Pearson Correlation 1 0.248
systems Sig. (2-tailed) 0.083
N 164 164
Employee Pearson Correlation 0.248 1
Productivity Sig. (2-tailed) 0.083
N 164 164
Correlation is significant at 0.05
51
4.13 Chapter Summary
The chapter four covered results and findings which revealed that among the three
variables that were considered in this study. All of them had a positive but insignificant
relationship with employee productivity. The next chapter contains summary of findings
discussions and recommendations.

52
 CHAPTER FIVE

5.0 DISCUSSION, CONCLUSION AND RECOMMENDATION

5.1 Introduction

This chapter provides discussions, conclusions and recommendations based on the results
and findings on effects of incentives and rewards on employee productivity in small
banks; a case study of First Community Bank. The findings were based on the
respondents’ questionnaires based on the research questions. This chapter therefore
provided the researcher’s discussion on the findings of the research as compared to
analysis of the literature review based on the purpose of the study. The conclusions and
recommendations were provided in this chapter.

5.2 Summary

The research aimed at determining the effects of incentives and rewards on employee
productivity. As discussed in the introduction to this research, we have seen a shift from
a narrow based reward structure involving only financial incentives to one which
incorporates other non-financial incentives and rewards which are valued by employees.
Managing incentives and reward systems within any given organization can be a difficult
task and can easily go wrong with extremely serious consequences on productivity. It
becomes more difficult to manage incentive and reward systems within an organization
with employees from diverse culture.

The results from the primary research and literature review highlighted the importance of
having structured incentives and reward systems in an organization. Traditionally most
organizations focused more on financial incentives. This focus has however changed and
most employees not only consider financial incentives but also non-financial incentives
and reward systems. It shows how closely employee productivity is to reward systems.
We can therefore conclude that financial, non-financial and reward systems are directly
linked to employee productivity. Employees’ motivation through incentives is critical to
every organization in order to increase employee productivity.

53
5.3 Discussion

The main objective of the study was to have an understanding of the effects of incentives
and rewards on employee productivity in small banks in Kenya with First Community
Bank used as a case study. The researcher reviewed several sources of literature in order
to review the information gathered by other scholars and researchers with an aim of
getting an understanding of the research topic.

An incentives is 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.
The researcher based on this background, conducted an interview using questionnaires to
substantiate the information gotten from the literature review. The researcher also
collected primary data using a questionnaire that was distributed to 164 employees of
First Community Bank.

After analyzing the primary data collected, the study revealed that majority of the
respondents were male at 61.6% showing that the bank is dominated by male employees.
65.9% of the respondents were married. The bank had 46.3% of the respondents between
the ages of 28-37 years old. It was also revealed that a high number of respondents were
undergraduate degree holders. 64.0% had worked for 2-5 years signifying that the bank
had so many new employees. 9.1% were Senior Managers, 21.3% were in Middle Level
Management, 30.5%, were Customer Care and 39% were Operations / Back Office
employees. All departments were represented in the findings as 25.6% were from
Finance, 34.1% from Branch Operations, 4.3% from Human Resource, 25.0% from
Credit and 10.4% from Audit.

5.2.2 Financial Incentives and Employee Productivity

From the findings, over 86.6% of the respondents agreed that salaries were paid promptly,
90% indicated that employees were not given cash awards, allowances or salary
increments as a reward for outstanding performance. It was also revealed that majority of
54
the respondents 89.8% indicated that the bank did not have properly structured, well
selected, implemented and monitored financial incentives. From the research, 79.9%
respondents disagreed and strongly disagreed that there were financial incentives offered
to employees of First Community Bank for better performance, while 73.8% respondents
agreed and strongly agreed that they were encouraged to perform even better if they were
given a salary increment. However, connecting employee salary increment to
performance reviews can encourage a more competitive workforce, which can result in a
higher level of productivity as it is given for specific performance results rather than
simply for time worked. Employees are more enthusiastic, respond with increased worth,
ethic and attention to the task when pay increases directly reflect their level of
performance. Tying pay raise incentives to performance reviews can help the workforce
to better understand what it takes to earn higher pay.

The study revealed that the employees of First Community Bank are not given a salary
increment to compensate for outstanding performance. This was indicated by 73.8% of
the respondents who agreed and strongly agreed that they will be encouraged to perform
even better if given a salary increment. Monetary incentives are used to describe
incentive-payment plans, which ties incentives directly or indirectly to productivity
standards of employees. It is important to note that financial incentives influences
employees to act according to plans, to achieve the mutual goals of employees and
employer. On the other hand, non-financial are also required to give a long-term
motivational effect instead of the short-term effects of financial incentives

Previous research findings indicated that financial incentives have a short term effect on
employee motivation levels although they play a very important role as they have
stronger effects and remains embedded in the mind of the employees as it appeals in its
emotional state. These financial incentives are usually used by employers to attract,
retain and compensate best employees for good performance. Financial incentives are in
many forms such as compensation, stock options, profit sharing, pay increase, cash
awards and bonus. It is well noted that cash bonus is a form of reward that employers use
to reward their employees for exemplary performance. Nowadays, bonus payment is
being used by most organizations to increase productivity. From the findings, 91.1% of
the respondents indicated that the management was not offering annual cash bonus and
packages / gifts to outstanding performers at First Community Bank. of importance to
55
note is that connecting employee pay raises to performance reviews can encourage a more
competitive workforce and 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 and therefore First Community Bank should borrow from these scholars.

From previous research done, employees are motivated by either financial or non-
financial incentives and favorable 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 thus an increase in productivity.
Stock options as an incentive has become a commonplace additions to compensation
packages in recent year. Stock options are lousy incentives used to motivate employees
from large organizations to work extra hard. Stock options also serve as salary buffers to
curb employees’ turnover when salaries or other benefits start to rise in the labor market
around them. On the other hand, stock options are effective in organizations where
individuals' market wages vary widely, in tight labor markets where worker replacement
costs are high, and when the specific sector of a particular industry experiences greater
common shocks, such as a sudden downturn in product demand. Other researchers and
scholars also indicated that the advantages of an incentive stock option is that it allows an
organization to share ownership with its employees and it is also used to align the
interests of the employees with those of the organization. Another key revelation from
the study that was noted after analyzing the results of the primary data showed that in
First Community Bank, 96.3% disagreed that Stock Option (share ownership) were for all
employees irrespective of their grade or category.

The other incentive was profit sharing which is an arrangement in which the organization
leadership designates a percentage of annual profits as a pool of money to share with
employees in addition to prevailing wages. Profit sharing was identified as a financial
incentive which mostly occurs annually, after the final annual results for the
organization’s profitability have been calculated. Profit sharing was also identified as an
incentive plan introduced by businesses that provide direct or indirect payments to
employees that depend on company's profitability in addition to employees’ regular salary
and bonuses, this was in line with the study findings which revealed that the bank does
not have a profit sharing mechanism for all the employees as indicated by 95.8% of the

56
respondents who disagreed and strongly disagreed that the bank has a profit sharing
mechanism for all the employees.

Financial incentives influences employees to act according to plans to achieve the mutual
goals of the bank. They encourage friendly competition and motivates employees to
produce optimally. It is however good to note that financial incentives have a short-term
effect on the motivation levels of employees although they play a critical role in their
motivation as it has a stronger effect and remains longer embedded in the mind of the
employee as it appeals in its emotional state. The study therefore concludes that financial
incentives and rewards systems are crucial in motivating employees to have positive
attitude at work, leading to job satisfaction and improved productivity. The researcher
therefore recommends that the bank should concentrate more on financial incentives and
rewards considering that its employees are millennial who are more interested with
financial incentives. This will ensure employees have a positive attitude which in turn
improve their productivity and the overall performance of the bank.

5.2.3 Non-Financial Incentives and Employee Productivity

At First Community Bank, over 75.5% of the respondents revealed that management did
not involve employees in decision-making and employees had less appropriate amount of
information to make informed decisions on their work. Through participatory decision
making, productivity is expected to increase since commitment by employees towards
implementation of decisions to achieve enhanced productivity and overall organizational
goals will be high and help reduce agitations, misconceptions and lack of commitment on
the part of employees.

It was revealed that the management does not involve employees in decision-making, as
indicated by 75.5% of respondents who disagreed and strongly agreed that they are
involved in decision making at First Community Bank. Actively engaging employees in
decision-making process increases overall organizational morale and gives employees
power to influence the outcome of their work, leading to increased job satisfaction,
positive attitude, not only toward their position but also to the organization itself. In
addition, participative decision-making is where employers allow their employees to

57
participate in organizational decision-making. The findings revealed that employees do
not have appropriate amount of information to make informed decisions on their work as
noted by a mean response of 3.6400. This was also reflected in the descriptive analysis
where 55.4% of the respondents indicated that employees do not have appropriate amount
of information to make informed decisions on their work. However, 44.6% of the
respondents indicated that employees have appropriate amount of information to make
informed decisions on their work.

Effective communication, which includes giving clear instructions, fast message delivery,
and proper explanation, is the key to a productive workforce and is important in
increasing productivity. It directly influences the behavior of the staff and the way they
perform, plays an eminent role in getting things done which ultimately increases the
organization’s productivity, while lack of proper communication can frustrate employees
and make them feel unimportant. Failing to provide effective feedback can lead to wasted
efforts, increased error rates, and lower productivity.

The study also revealed that over 81.1% of the respondents did not have a good
understanding of structures and processes of the bank. It was revealed that over 60%
respondents indicated that communication system in the bank was informal. Effective
communication needs to be developed in conjunction with employees to ensure that they
fit both the needs of the manager and the employees. Of importance to note is that
communication is only effective when the receiver understands the message conveyed
just as the sender wanted to. Businesses that communicate with their employees are likely
to have lower levels of staff turnover. Effective communication between the manager and
team members is an important factor in every company and success cannot be achieved
when there is no communication. With the help of good communication among managers
and employees, it becomes clear where the company is, where it needs to be in the future
and which steps need to be taken to get there. All this information provides clear
directions for all employees, which increases productivity, decreases uncertainty and
gives exact direction to employees thus making their works less stressful, faster, more
efficient and enjoyable.

58
The study discovered that 85.9% of the respondents indicated that the bank was not
concerned with the development needs of the employees and did not sponsors them for
training programs that addresses their competency gaps. Organizations need great talent
to attain higher levels of innovation and success. 83% of the respondents indicated that
employees were not given an opportunity for both in-house and external training
programs. The research further revealed that majority which is 83.5% of the employees at
First Community Bank had attend below two (2) training programs organized by the bank
every year. It is important to note that training not only improve productivity and
performance but also strengthens recruitment and retention efforts as employees view
training benefits as a major boon to their long-term career goals.

Training is a powerful incentive that attracts the best and keeps them engaged for long
periods thus helping employers to reap the rewards. Shortage in certain skill sets are
making it difficult for organizations to hire and retain the best employees. However,
smart organizations turn to training and development to bring their current and future
employees up to speed with the necessary competencies. They do this by identifying the
development needs and developing training programs that can bridge the skills gaps
identified. Without training, employees will not be able to fulfil their potential.
Employers can however support employee development through coaching, workshops,
courses, seminars, job shadowing or mentoring, or even just increasing their
responsibilities. Training gives employees additional skills that allow them to improve
their efficiency and productivity. Offering opportunities for professional growth shows
that the employer believes in an employee's potential, they become more productive,
knowledgeable and happier. Training also provides chances to employees’ growth and
enhances their knowledge and skills for effective development. Lack of training can bring
down productivity significantly because untrained employees become paralyzed with
fear. It is difficult for employees to be productive when they are not sure of what they are
required to do. Training helps employees become self-assured, evolution of career, and
have positive thought for their organization.

The main and repeated cause of turnover is the lack of employees’ recognition. When
employees are appreciated; they feel motivated to perform better. Organizations must
foster employee motivation through acknowledging achievements that are in line with
corporate long term objectives as well as activities that generate immediate results. When
59
an employee receives appreciation, productivity also improves. Many employees would
feel more satisfied and happy if their employers treated them unexpectedly with “thank
you” notes, gifts, lunches, dinners, or snacks. However, this was also revealed in the
study that over 94.6% of the respondents noted that the bank did not grant certificates of
appreciation and recognition to efficient employees. The study also revealed that over
86.5% of the respondents noted that the management did not recognizes employees’
efforts towards achieving the bank’s strategic objectives.

The study points out that 68.3% of the respondents indicated that the working
environment was not conducive. Various characteristics of organizational climate like
individual freedom, consideration towards employees and reward orientations have a
great impact on the behavior of the employees, which in return affects how they perform
in their respective roles. Most visible area of focus on culture that is actually climate is
all the effort to measure and improve employee engagement. Culture of an organization
breeds an organizational climate, which represents how employees experience
organization’s culture. Organizational climate is a shared perceptions and attitudes about
the organization and climate influences the success of an organization. Many
organizations, however, struggle to cultivate the climate they need to succeed and retain
their most highly effective employees.

5.2.4 Employee Productivity at First Community Bank

Employees’ wages should be directly linked to productivity. Performance based pay

includes any arrangement where an element of the total compensation is tied to meeting
and exceeding set and agreed upon performance targets. Employees value a clear path to
follow towards a bright future and a day to day reward is a simple way to keep productive
employees performing to their best.

At First Community Bank, 62.2% of employees received more than 16 official emails
daily and the majority, 75.6% of employees attended more than 16 meetings on weekly
basis. Flexible working hours or flexi-hours arrangement is where an employee is allowed
to work for some hours within the day. For example, an employee works from 10 a.m. to
7 p.m. rather than from 8 a.m. to 5 p.m. Giving people space and time away from the

60
office allows them to catch up on truly necessary activities, such as spending time with
their families and getting enough sleep. When employees feel refreshed, they’re much
happier to come to work and can focus on meeting deadlines and producing good work -
not on watching the clock tick the seconds until it’s time to go home, however at first
community bank workers leave late from work as they spend most of the time holding
meetings.

In regards to social event, it was noted that the bank had organized less than two social
events as indicated by 78.0% of the respondents. It was also discovered that there was a
very high rate of turnover as indicated by 55.5% of employees’ exits from different
departments, and this really affects the productivity of employees. It was further revealed
that more than 6 senior management team members had resigned within a year as
indicated by 55.5% of the respondents. Employee productivity is one of the paramount
concerns in the overall management of any organization and without staff productivity the
performance of the entire organization would fail to meet its desired objectives.

The study revealed that employees of First Community Bank received emails and
attended meetings that they felt were not necessary as indicated by 63.4% of the
respondents.

5.4Conclusions

From the findings, the researcher conclude that the effects of financial incentives on
employee productivity was of paramount importance. Actually, what came out from the
study is that financial incentives are the most important incentives in rewarding
productivity. However, the study revealed that the bank does not have properly
structured, well selected, implemented and monitored financial incentives to meet up with
the current dynamic rate of the business trends.

Financial incentives are motivators that refers to monetary rewards and helps to satisfy
the physiological and security needs eg. Wages, salary, bonus, retirement benefits,
medical reimbursements etc and therefore financial incentives should be substantial in
value and must be in parity with others. For the humanity-aspect it is important that

61
employees feel that the employer is interested in its employees, their work and well-
being.

Non-financial incentives on the other hand are required to give a long-term motivational
effect. Creative use of personalized non-financial incentives reinforces positive behaviors
and improves employee retention and performance. Management’s involvement of
employees in decision making, job enrichment, job enlargement, good communication,
good understanding of the structures and processes of the bank, well-structured training
programs, good working environment, recognition, feedback, participation, cash bonus,
and so on can fulfil humanity needs which are important in motivating and increasing
productivity. From the study, it was revealed that46.3% of the respondents were between
the ages of 28-37 years old and 64.0% of the respondents had worked for 2-5 years
signifying that majority of the employees are millennial who have different needs and are
motivated by different incentives. This is actually explained by the high percentage of
the employees who seems to be new to the organization. The bank should therefore
design appropriate incentives and rewards to address the needs of the millennial with the
aim of reducing the employee turnover and increasing productivity.

The study revealed that rewards are important but they have different meanings for
employees thus different rewards have different effects on productivity. Like in
Herzberg’s hygiene-motivation theory, it seems that there are two different aspects in
rewarding. These two aspects are effectiveness and humanity. Effectiveness-aspect
means that employees feel that they are justified to get rewards because they have put
extra effort in their work. In other words, employees feel that part of the company’s profit
belongs to them because they have invested their time and effort in the company.

In conclusion, in order to increase employee productivity, the bank should consider

having well thought financial, non-financial and rewards systems to motivate employees
to increase their productivity. Financial, non-financial incentives and reward systems
have positive influence on employee attitude at work as when employees are satisfied
irrespective of gender and hierarchy in the organization, productivity improves.

62
5.5Recommendation
5.5.1 Recommendations for Improvement

5.5.1.1 Financial Incentives on Employee Productivity

The finding revealed that employees are not given cash awards, allowances or salary
increments as an incentive for outstanding performance. It is therefore recommended that
the Management of the bank should come up with performance based cash awards to
recognize employees’ performance over an agreed rating objectives and period for
various categories.

The bank should first ensure they have a balanced score card or a performance evaluation
tool where employees should set their objectives for a specified period of time. The
objectives set by the employees should be reviewed and agreed upon by both the
employee and the line manager. The objectives set by employees should be aligned to the
strategic objectives of the bank. This means that the line managers should be able to
cascade various objectives to their direct reports. This will not only help in ensuring that
the employees are working towards a common goal but also to ensure that the objectives
of the employees are well aligned with the bank’s strategic objectives. The objectives set
by the employees should be SMART (Specific, Measureable, Attainable, Realistic and
Time Bound). This will help in eliminating bias and conflict between line managers and
direct reports.

The cash awards should be based on a rating of objectives that meet or exceed
expectations. The bank should design a performance based cash award program that
reflect clear distinctions on levels of performance to ensure employees who have scored a
higher rating also receives higher cash awards. From the findings and subsequent
conclusions, the study hereby recommends that employers should concentrate more on
adequate financial incentives and rewards to their employees to elicit positive attitude
from them at work; and achieve job satisfaction which improves employee productivity
and corporate performance.

63
5.5.1.2 Non-Financial Incentives on Employee Productivity

The bank should also introduce share ownership to employees irrespective of their grade.
This will serve as salary buffers to keep employees from leaving the bank when salaries
or other benefits start to rise in the labor market. The advantages of stock options as an
incentive is that it will allow the bank to share ownership with the employees thus will
help in aligning the interests of the employees with those of the bank, thus increasing
employee productivity as they feel they own part of the bank.

The bank should also introduce profit sharing mechanism for all the employees. This is a
very important financial incentive that provides direct or indirect payments to employees
depending on the bank’s annual profitability. This should be given in addition to regular
salary and bonuses. The Management of First Community Bank should designate a
percentage of the annual profits as a pool of money and share with employees. This is a
way for employees to have an added stake in the bank’s success as they are motivated to
perform well to increase the bank’s profits which results in cut of the profits for them.
This on the other hand will foster greater employee cooperation by ensuring that all the
employees are in pursuit of the bank’s overall objectives. This in return will reduce
employee turnover, increase productivity, reduce costs and create an atmosphere in which
all employees want the bank to succeed. If profit sharing is introduced in First
Community Bank, it will create a powerful bond between the employees and the bank,
and will motivate employees to be more productive and creative.

First Community Bank Management should also start to involve employees in decision
making. This is the extent to which management allows or encourages employees to
share or participate in bank’s decision making. They should introduce joint management
committee to motivate employees. This will in return increase productivity since
commitment by employees towards implementation of decisions and overall banks’ goals
will be high, thus reduce agitations, misconceptions and lack of commitment on the part
of employees. This will make employees feel they are part of the team and asking for
their input and implementing their ideas makes them feel they are valued.

The bank management should also come up with official communication methods that
will ensure all the information intended to reach employees is delivered in an official and
64
timely manner. Lack of proper communication frustrates employees and make them feel
unimportant. Effective communication is therefore key to a productive workforce and is
pivotal in increasing productivity because it directly influences the behavior of the staff
and the way they perform.

The management should also introduce a talent management section which should be in
charge of learning, development and performance. The talent management section should
be tasked in ensuring that the development needs of the employees are captured in a
timely manner, mapped with their competencies and addressed through training
interventions. The management should actually set aside a training budget to cater for
both in-house and external trainings. The talent management section should also be
tasked in ensuring that there is a well-structured performance appraisal process that will
ensure productive and outstanding employees are well rewarded. The talent management
section should also ensure that efficient employees get certificates of appreciation and
recognition. This can be achieved by displaying employees’ achievements on the notice
boards, issuing recognition certificates for exceptional performance, sending
congratulating messages to employees for good performance etc.When employees are
appreciated, and they feel motivated to perform better.

5.5.1.3 Reward Systems on Employee Productivity

The management should also have well laid structures indicating how salary increments
to outstanding performers will be done in the bank. From the study, it was clear that
employees would perform much better if given a salary increment. Employees are in most
cases motivated by the salary they get. The salary can have a great impact on employee
productivity as employees most view the salary paid to them as equivalent to the value
the employer has on them. It is important to note that the level of appreciation has a
direct impact on the overall productivity of an employee. An employee is more likely to
perform to his best if he is happy with the salary he is earning. An employee earning a
high salary feels motivated to go an extra mile, feels more secure, accomplished and gives
an employee a status ranking. An employee who is satisfied by his pay is more
productive and motivated as he feels his financial reward is a fair trade off.

65
5.5.2 Recommendation for Future Research

Researchers and academicians can utilize this study findings to test their hypothesis or to
enhance further research, particularly on finding out cost effectiveness of different
incentives and rewards used by organizations to increase employee productivity. The
researcher should consider the current economic crisis with an aim to reduce costs and to
balance between short term and long-term productivity outcomes. The researcher should
come up with recommendations to be used by the management to reassess the
combination of financial and non-financial incentives that can serve their organizations
best through economic crisis.

66
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 APPENDICES
Appendix 1: Questionnaire

This research is meant for academic purpose and individual responses will be held in
strictest confidence. The research will try to find out the effects of incentives and rewards
on the employee productivity in small banks in Kenya. Kindly provide honest answers to
the questions below.

Instructions: Please fill-in the questionnaire provided by ticking (√) appropriately.

Kindly complete all questions for this questionnaire to be valid and tick one box per
question.
SECTION A: GENERAL INFORMATION

1. Gender
1. Male b) Female

2. Marital status:
1. Single b) Married c) Widow(er) d) Divorced

3. Age bracket (years)

1. 18-27 b) 28-37 c) 38-47 d) 47 and above

4. Highest level of education attained

a) Master’s Degree b) Degree c) Diploma d) Certificate

5. How long have you worked in First Community Bank?

a) Below 1 years b) 2-5 years c) 6-9 years d) More than 10 years

6. Please tick your job level

a) Senior Management b) Middle Level Management c) Subordinate

7. Which department do you work for?

a) Finance b) Branch Operations c) Human Resource d)

Credit

e) Audit f) other - Please specify ___________________________________

71
 SECTION B: FINANCIAL INCENTIVES

Kindly tick (√) the most appropriate answer to the questions below.

Scale: 1= Strongly Disagree, 2= Disagree, 3= Neutral, 4= Agree, 5= Strongly Agree

1 2 3 4 5
1. Salaries are paid promptly
2. Employees are given cash award, allowances or
salary increment as a reward for outstanding
performance
3. The bank has properly structured, well selected,
implemented and monitored monetary incentives
4. The management offers annual cash bonus for good
performance.
5. The employer gives packages / gifts to outstanding
performers.
6. The monetary incentives offered to employees of
First Community bank motivates me to perform
better
7. Stock Option (share ownership) is for all employees
irrespective of their grade / category
8. I will be encouraged to perform even better if am
given salary increment as a reward for outstanding
performance
9. The bank has a profit sharing mechanism for all the
employees

72
 SECTION C: NON - FINANCIAL INCENTIVES

Kindly tick (√) the most appropriate answer to the questions below.

Scale: 1= Strongly Disagree, 2= Disagree, 3= Neutral, 4= Agree, 5= Strongly Agree

1 2 3 4 5
1. The management involves employees in decision making.

2. Employees have appropriate amount of information to make

informed decisions on their work.
3. Employees have a good understanding of structures and
processes of the bank.
4. The bank is concerned with the development needs of the
employees and sponsors them for training programs that
addresses their competency gaps.
5. The challenging nature of my job has kept me in this
profession
6. The bank always grants certificates of appreciation and
recognition to efficient employees.
7. The working environment is conducive.
8. The management recognizes employees’ efforts towards
achieving the bank’s objectives.
9.
The management team celebrates milestones together with
the employees
10. Employees are given an opportunity for both in-house and
external training programs.
11. My job gives me recognition and respect from the
community.
12. There is formal communication system in the bank.
13. The working equipment and facilities are adequately
provided.
14. Employees are given fixed contracts and they feel they are in
control and confident of their day to day role.

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 SECTION D: EMPLOYEE PRODUCTIVITY METRICS

Kindly tick (√) the most appropriate answer to the questions below.

1. How many official emails do you receive on daily basis?

a) Below 5 b) 6-10 c) 11-15 years d) More than 16

2. How many official emails do you send on daily basis?

a) Below 5 b) 6-10 c) 11-15 years d) More than 16

3. On average, how many meetings do you attend on weekly basis?

a) Below 2 b) 3-7 c) 8-12 d) More than 12

4. Do you find the emails and meeting you attend necessary or unnecessary?
Necessary
Unnecessary

5. On average, how many training programs do you attend annually?

a) Below 2 b) 3-5 c) 6-8 d) More than 8

6. For the last 1 year, how many social events organized by the bank did you attend?
a) Below 2 b) 3-5 c) 6-8 d) More than 8

7. How many employees have resigned in your department this year?

a) Below 2 b) 3-5 c) 6-8 d) More than 8

8. How many Senior Management Team members have resigned this year?
a) Below 2 b) 3-5 c) 6-8 d) More than 8

9. Would you recommend a friend to work for First Community Bank?

Yes
No

THANK YOU FOR YOUR TIME

74
Appendix 2: Frequency Table for Financial Incentives

Strongly Disagree Neutral Agree Strongly

Disagree Agree

Salaries are paid 6(3.7%) 13(7.9%) 3(1.8%) 94(57.3%) 48(29.3)

promptly
Employees are given 92(56.1%) 56(34.1%) 6(3.7%) 7(4.3%) 3(1.8%)
cash award, allowances
or salary increment as a
reward for outstanding
performance
The bank has properly 45(27.4%) 99(60.4%) 13(7.9%) 7(4.3%)
structured, well
selected, implemented
and monitored
monetary incentives
The employer gives 82(50.0%) 74(45.1%) 8(4.9%)
packages / gifts to
outstanding performers.
The monetary 39(23.8%) 92(56.1%) 10(6.1%) 21(12.8%)
incentives offered to
employees of First
Community bank
motivates me to
perform better
Stock Option (share 97(59.1%) 61(37.2%) 6(3.7%)
ownership) is for all
employees irrespective
of their grade /
category
I will be encouraged to 13(7.9%) 11(6.7%) 19(11.6%) 83(50.6%) 38(23.2%)
perform even better if
am given salary
increment as a reward
for outstanding
performance
The bank has a profit 100(61.0%) 57(34.8%) 7(4.3%)
sharing mechanism for
all the employees

75
Appendix 3: Frequency Tables for Non-Financial incentives

Strongly Disagree Neutral Agree Strongly

Disagree Agree

The management 15(9.1%) 109(66.4%) 12(7.3%) 28(17.1%)

involves employees in
decision making
Employees have 73(44.5%) 5(3.0%) 86(52.4%)
appropriate amount of
information to make
informed decisions on
their work
Employees have a 8(4.9%) 20(12.2%) 3(1.8%) 133(81.1)
good understanding
of structures and
processes of the bank
The bank is 54(32.9%) 87(53.0%) 9(5.5%) 14(8.5%)
concerned with the
development needs of
the employees and
sponsors them for
training programs that
addresses their
competency gaps
The challenging 11(6.7%) 25(15.2%) 20(12.2%) 108(65.9%)
nature of my job has
kept me in this
profession
The bank always 78(47.6%) 77(47.0%) 9(5.5%)
grants certificates of
appreciation and
recognition to
efficient employees
The working 19 93(56.7%) 21(12.8%) 31(18.9%)
environment is (11.6%)
conducive
The management 46(28.0%) 96(58.5%) 15(9.1%) 7(4.3%)
recognizes
employees’ efforts
towards achieving the
bank’s objectives
The management 49(29.9%) 96(58.5%) 5(3.0%) 14(8.5%)
team celebrates
milestones together
with the employees
Employees are given 79(48.2%) 57(34.8%) 21(4.3%) 7(4.3%)
an opportunity for
both in-house and
76
 Strongly Disagree Neutral Agree Strongly
Disagree Agree

external training
programs
My job gives me 7(4.3%) 157
recognition and (95.7%)
respect from the
community.
There is formal 12(7.3%) 39(23.8%) 14(8.5%) 99(60.4%)
communication
system in the bank
The working 2(1.2%) 29(17.7%) 9(5.5%) 124(75.6%)
equipment and
facilities are
adequately provided
Employees are given 19(11.6%) 110(67.1%) 6(3.7%) 29(17.7%)
fixed contracts and
they feel they are in
control and confident
of their day to day
role

77
Appendix 4: Descriptive Analysis on Employee Productivity

N Minimum Maximum Mean Std. Deviation

Official emails do you 50 2.00 4.00 3.4800 .73512
receive on daily basis
Meetings do you attend on 50 1.00 4.00 3.0000 .98974
weekly basis
social events organized by 48 1.00 2.00 1.0417 .20194
the bank attend For the last 1
year,
Training programs attended 50 1.00 2.00 1.0400 .19795
annually
employees have resigned in 48 1.00 4.00 2.8958 .88100
your department this year
How many Senior 50 2.00 4.00 3.0000 .40406
Management Team members
have resigned this year
Would you recommend a 50 1.00 2.00 1.5200 .50467
friend to work for First
Community Bank

78
Appendix 5: Factor Analysis

1. Financial incentives

Financial incentives Extraction

Salaries are paid promptly .960
Employees are given cash award, allowances or salary increment as a .850
reward for outstanding performance
Bank has properly structured, well selected, implemented and .833
monitored monetary incentives
Management offers annual cash bonus for good performance. .957
Monetary incentives offered to employees of First Community bank .852
motivates me to perform better
Stock Option (share ownership) is for all employees irrespective of .793
their grade / category
Encouraged to perform even better if am given salary increment as a .820
reward for outstanding performance
The bank has a profit sharing mechanism for all the employees .961

2. Non-Financial incentives

Non-Financial incentives Extraction

The management involves employees in decision making .810
Employees have appropriate amount of information to make informed .905
decisions on their work
Employees have a good understanding of structures and processes of the .913
bank
The bank is concerned with the development needs of the employees and .723
sponsors them for training programs that addresses their competency
gaps
The challenging nature of my job has kept me in this profession .691
The working environment is conducive .802

The management team celebrates milestones together with the .822

employees
Employees are given an opportunity for both in-house and external .751
training programs
There is formal communication system in the bank .849
The working equipment and facilities are adequately provided .901
Employees are given fixed contracts and they feel they are in control and .934
confident of their day to day role

79
3. Reward systems

Reward systems Extraction

The employer gives packages / gifts to outstanding performers. .943
The job give me recognition and respect from the community. .988
The bank always grants certificates of appreciation and .941
recognition to efficient employees
The management recognizes employees’ efforts towards .856
achieving the bank’s objectives

4. Employee productivity

Employee productivity Extraction

Official emails do you receive on daily basis .854
Official emails do you send on daily basis .906
Meetings do you attend on weekly basis on average .956
Emails and meeting you attend necessary or .937
unnecessary
Training programs do you attend annually on average .988
Social events organized by the bank attended for the .988
last 1 year
Employees have resigned in your department this year .809
Senior Management Team members have resigned this .774
year
Would you recommend a friend to work for the Bank .921

80