RESEARCH PROPOSAL

DEBRE BERHAN UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS
MASTER OF BUSINESS ADMINISTRATION
EFFECTS OF MOTIVATIONAL INCENTIVES ON EMPLOYEES’
PERFORMANCE: A CASE
STUDY OF MANUFACTURING CAMPONY IN DEBRE BERHAN,
ETHIOPIA

BY,

SAMUEL GOBENA PGR/267/2011 E.C

A RESEARCH PROPOSAL SUBMITTED TO COLLEGE OF BUSINESS AND

ECONOMICS OF DEBRE BERHAN UNIVERSITY IN PARTIAL FULFILLMENT OF
THE REQUIREMENTS FOR THE AWARD OF MASTER OF BUSINESS
ADMINISTRATION

ADVISOR: ABDUREZAK MOHAMMED (PhD)

MAY, 2019

DEBRE BERHAN, ETHIOPIA

TITLE: EFFECTS OF MOTIVATIONAL INCENTIVES ON EMPLOYEES’
PERFORMANCE.

1. BACKGROUND AND OVERVIEW

Industrial globalization presents the need for companies to expand and enter into new territories
for the goods and service they provide contineously and constantly without affecting the quality
of product or service they provide toward competiteviness. Human resource or employees of any
organization are the most vital part so they need to be inclined and influenced towards tasks
fulfillment to achieve organizational goals and objectives. The present study was conducted on
the Effects of Motivational Incentives on Employees’ Performance towards organizational
success. Human resources are everything for any company /organization, although a company
needs many other resources for its promotion and success but without human resources they are
useless. It is the man who operates the machines and utilizes other resources for development.
(Hitt, Miller, & Colella, 2006, 524-526). It is not enough for an employee to be satisfied
materially but non material aspects are as essential as material aspects, an employee need both to
be fulfilled. Material means his salary, bonuses, allowances, job security and other facilities.
While non-material aspect includes leaves, excellent working environment, good understanding
among other fellow workers and top management, all these elements have much to do with
motivation of employee. Employees play very important part in the daily operations of any
organization especially where the markets are very competitive and have ever-changing
environment which is supported by majority of the theorists. The fate of an organization is
usually determined by its employees so it sounds logical to understand how employees can be
motivated. As far as the employee’s motivation is concerned, employee motivational incentive
programs have been found to be the most commonly adopted technique among organizations.
The purpose of the program is to reward productive performance, reinforce positive behavior and
stir interest in employee. Performance and how it could it be enhanced is central to the concern
of industries and organizations, therefore many organizational scientists, are very much
interested in different schemes and techniques related to performance and its growth incentives
are one of those techniques used in workplaces to stimulate employees in order to get desired
performance. Money is considered to be the universal motivator although other financial and
non-financial incentives and benefits create a very special relationship between organization and
employees. Employees preform certain tasks; fulfill goals in exchange of money and other
incentives packages.
Some types of incentive plans are available in industries in which bonuses, conveyance
allowance, medical allowance, increase salary, monthly leaves, promotion, recognition are
included. These incentives encourage the employees and hence productivity enhances by
affecting the performance, efficiency, satisfaction, responsibility, effectiveness and commitment
of employees.
Thrust of incentive plans is to build the sort of highly trained, empowered, self-governing and
flexible work force that companies today need as a competitive advantage. Employees desire
appreciation and other monetary and nonmonetary incentives in exchange for a job done well.
This trend is becoming more popular as businesses explore ways to motivate employees.
Incentives can really work to accomplish the goals of an organization. Some of the needs for
incentives for an organisation are:
1. To increase productivity,
2. To drive or arouse a stimulus work,
3. To enhance commitment in work performance,
4. To psychologically satisfy a person which leads to job satisfaction and avoid turnover,
5. To shape the behavior or outlook of subordinate towards work increasing efficiency,
6. To get the maximum of their capabilities so that they are exploited and utilized maximally to
achieve their personal goals as well as organizational goals (Management Study Guide, 2013).
Employee monetary incentives and recognition programs:
Presently, formal Manufacturing organizations are using teams in order to manage most of their
work. They use different types of incentive plans that not only encourages teamwork but it also
focuses on team members’ attention on their performance. Merit pay or a merit raise is any
salary increase the firm awards to an individual employee based on his or her individual
performance. It is different from a bonus in that it usually becomes part of the employee's base
salary, whereas a bonus is a one-time payment. Many are also offering benefits that are highly
attractive to professionals, including better vacations, more flexible work hours, equipment for
home offices and improved pension plans.
Employee non-monetary incentives and recognition-based awards:
Besides the monetary incentives, there are certain non-financial incentives which can 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”. Organizations use non-
monetary incentives to increase their employees’ efficiency and performance to achieve their
goals and in turn organizations’ productivity also increases. Those incentives include; job
security, pension plans, insurance (both life and medical), training, suggestion schemes, praises,
job enrichment, promotion opportunities, vacations & holidays, leaves (sick, medical leave,
prenatal leave, flexible timings, retirement benefits etc.
STATEMENT OF THE PROBLEM
One of the greatest challenges organizations face today is how to manage turnover of work force that may
be caused by migration of a lot of industrial workers. Therefore, it has become an important area of
research that how to reduce turnover and absenteeism and improve performance of an organization.
Moreover, it has been observed many times that employees who are satisfied with their jobs are still not
good performers. This may be because of their lack of Motivation and commitment for the organization
which is linkened with Incentives; this point of view emphasizes the importance of the study of
Motivational Incentives on Employees performance.
OBJECTIVES OF THE STUDY
General objectives
To explore the numerous types of motivational incentives received by employees in
Manufacturing Companies in Debre Berhan Area.
To analyze the impact of those motivational incentives on employees’ work performance; that
either their performance after getting different incentives increases or not.
Specific objectives
1. To examine the level of job Satisfaction in Manufacturing Industries,
2. To examine the level of performance and efficiency in Manufacturing Industries,
3. To examine organizational productivity, employees’ loyalty and professionalism.
THE RESEARCH QUESTIONS
This study will attempts to answer the following questions
1. How is Motivational Incentives in Manufacturing Industries in Debre Berhan Area in the
study area?
2. How Job satisfaction in Manufacturing Industries in the study area?
3. Is there a relationship between Motivational Incentives and productivity?
 4. To what Extent Motivational Incentives will affect Job satisfaction and productivity?
5. How Motivational incentives are relationship to reduce turnover and absenteeism?
RESEARCH HYPOTHESIS
Based on the objectives, the following hypothesis were proposed as Null hypothesis (Ho) and
Alternate hypothesis (Ha).
1. Ha1: Motivational Incentives are practiced in Manufacturing Industries in Debre Berhan
Area.
Ho1: Motivational Incentives are not practiced in Manufacturing Industries in Debre
Berhan Area
2. Ha1: There is significant relationship between Motivational Incentives and Job
Satisfaction
Ho1: There is no significant relationship between Motivational Incentives and Job
Satisfaction
3. Ha1: There is significant relationship between Motivational Incentives and Productivity
Ho1: There is no significant relationship between Motivational Incentives and
Productivity
4. Ha1: There is significant relationship between Motivational Incentives and Turnover
Ho1: There is no significant relationship between Motivational Incentives and Turnover
5. Ha1: There is significant relationship between Motivational Incentives and absenteeism
Ho1: There is no significant relationship between Motivational Incentives and
absenteeism
SIGNIFICANCE OF THE STUDY
The finding and outcome of the study will expect to contribute a lot in a rapid growing of
manufacturing industries in Ethiopia.
Since Manufacturing Industries are competing nationally and internationally, the survival of the
fitness is in terms of productivity is the key issue. Hence, Human resource or employees of any
organization are the most vital part for the success of an organizations which plays a great role
for the development of our country in Industrialization.
To the selected manufacturing industries, improving their Motivational Incentive if they are
practicing it or they will prepare for motivetional incentives to improve Job satisfaction and
productivity. Hence, the study helps, in Identifiying weekeness and strenght in Manufacturing
Industries.
To other researchers, Hopefully it will inspire to conduct the research on the topic furthermore
and will be useful as an input other manufacturing Sectors.
LIMITATIONS OF THIS STUDY
A possible limitation of this study:
 Cooperation of the employees might be a problem depending how the organisation deals
with the research. The employees should not feel forced to participate. The results should
also be of concern to the employees. The organisation should ensure that their employees
are aware of the motivation for the study.
 Inaccessibilty of Seconadry Data, shortage of previous researches and journals in the area
of Motivational Incentives and productivity, Job satisfaction might be a problem.
SCOPE OF THE STUDY
The study will focus on the relationship between Motivational Incentive and Employee
performance in beer and water manufacturing Industries in Debre Berhan Area North Shewa
Zone of Amhara Region. To make the research manageable it will delimit to one Beer Company
and two more water companies which will be selected convenience sampling techniques which
are found in Debre Berhan Town and Debre Berhan Area North Shewa zone Amhara regional
state. In this study the researcher will assess the relationship between Motivational Incentives
and Employee performance as Motivational Incentives are Independent variable while Employee
performance is Dependent variable.
LITERATURE REVIEW:
Evidences have been found in the literature about the significance of the relationship between
compensation & reward and the employee behavior and organizational performance. Pritchard et
al, (1988) study indicated that group-level feedback increased productivity an average of 50%
over baseline, group goal setting increased productivity 75% over baseline, and group incentives
increased productivity 76% over baseline.. In addition, work attitudes such as job satisfaction,
turnover intentions, and morale were better after the interventions. Jenkins et al, (1990) studied
whether financial incentives were related to quality and quantity of performance or not. Results
showed that financial incentives were not related to the quality of performance rather it had a
correlation with quantity of performance. Bonner et al (2000) findings suggested that the type of
task being performed and the type of incentive scheme being employed affected the efficacy of
financial incentives and therefore influenced the design of management accounting and control
systems. The results of the study conducted by Stajkovic & Luthans (2001) showed that the
money intervention based on the organization behavior. Condly et al (2003) studies 600 studies
which revealed that the overall average effect of all incentive programs in all work settings and
on all work tasks were a 22% gain in performance. Milne (2007) research results revealed that
reward and recognition programs had positive effects on motivation, performance and interest
within an organization. Nawab & Bhatti (2011) conducted research on influence of employee
compensation on organizational commitment and job. In their research attention was drawn on
the role of each component of financial & non-financial reward towards organizational
commitment, which they can implement and increase their practices to maximize the employees
contribution and production. Gichuru (2015) paper showed relationship between motivational
incentives and employee performance. The study highlighted that motivation improved level of
efficiency of employees where the level of a subordinate or an employee did not only depend
upon his qualifications and abilities. The findings further suggested that motivational incentives
affected employee performance in an organization in various ways as increased output, boosting
employee morale, improved participation and improved employee relations.
INCENTIVES AND PERFORMANCE
Typically different types of incentives are categorized into two groups. These groups are financial
and non-financial incentives. In figure 1 these two different groups have been introduced. Figure 1
also introduces typical types of rewarding in Ethiopia from both financial and non-financial group.
Financial incentives are in upper of the picture and non-financial incentives in turn in lower of the
picture.
Financial incentives include base pay, profit sharing, gain sharing, benefits, initiative rewards and
special rewards. Except for benefits and special rewards financial incentives are typically paid as
money. However benefits and special rewards are part of financial incentives because recipients
benefit from them economically.
A base pay is the pay employee typically gets from the job. It is a task specific mini-mum pay. In
Finland base pay is often determined by collective labour agreement. A base pay is not in a very
important role when talking about motivating employees’ because all employees working in the same
task get the same base pay regardless of performance. That is why a base pay has not been enlarged
any further. It is however im-portant to notice that base pay is more important as a motivator at a
lower organization al level than upper level because at lower level a base pay is smaller and it is
important in fulfilling one´s physiological needs (Stjkovic & Luthans 2001, p. 581).

Figure 1. Typical types of rewarding

Profit sharing means that employees are paid a proportion of the organization´s pre-tax profits. In
Ethiopia the central organizations of parties in the labour market (työmarkki-nakeskusjärjestöt)
have given a special definition for profit sharing. According to definition we can talk about profit
sharing compensation when the interdependence between profit sharing and organization´s profit
is over 50 percent. This means that organization can pay profit sharing compensation based on
only organization´s profit or based on organization´s profit and some other measures, for
example customer satisfaction. However, organization´s profit has to be in the biggest role in
determining whether profit sharing compensation is paid for organization´s employees or not.
The Finnish central organizations of parties in the labour market have also given a definition for
gain sharing. According to this definition in gain sharing determinants for compensation can
include different goals or their combinations, such as economic key ratios, customer satisfaction
and some specific development targets. Also organization´s profit can be one of the determinants
for gain sharing but profit´s proportion of total de-terminant has to be less than 50 per cent.
(Elinkeinoelämän keskusliitto 2005, p. 27) Gain sharing creates a stronger link between pay and
performance than profit sharing because bonus payments in gain sharing systems are based on
specific criterions of do-cumented improvements within specific group (Hanlon & Taylor 1994,
s. 88).
Company car, company flat, life insurance, private medical care and annual holiday entitlement
are examples of different benefits. Also flexible working hours and exercise possibilities are
examples of different benefits. Nowadays it is talked a lot of about flex-ible benefits. In flexible
or cafeteria benefit systems employer offers different kinds of benefits and employees can choice
their own benefits packets among benefits that had been offered by employer (Tremblay, Sire &
Pelchat 1998, p. 671).
Initial rewards refer to rewards giving employees’ for useful initiatives. The main goal of initial
rewards is to encourage employees to develop work and their working place. Special rewards are
non-monetary tangible rewards. Special rewards can be almost eve-rything. For example trips,
tickets to sport event or golf club membership offered by employer can be special rewards.
Special rewards can be delivered unexpected without any bonus plan or there can be bonus plan
according to which rewards are distributed. (Jeffrey & Shaffer 2007)
Non-financial incentives include feedback, recognition, possibilities to participation, the work
itself and permanence of the employment. Feedback has been defined actions taken by an
external agent in order to provide information regarding some aspects of one´s task performance
(Kluger & DeNisi 1996, p. 255). One of the advantages of feedback is that according to
definition it besides motivating also provides important knowledge of employee´s performance
for employee itself. Recognition can for example be verbal confession from the work that has
been done well or the employee of the month prize. Participation means that employees´ are able
to take part and influence organization´s operations and contents of their own work (Brown
1996; Fernie & Metcalf 1995, p. 382). For example employees´ possibilities to choose working
order or their own work-ing times are examples of participation. Also the work itself can be seen
as reward if work is interesting and challenging. Permanence of the employment is important be-
cause in a permanent job employee can plan more his or her future. Because of that the
permanence of employment can be seen as reward. Only the most salient and most studied
incentives are discussed because of li-mited space. Incentives discussed are feedback,
participation, recognition, monetary in-centives, non-monetary tangible incentives and benefits.

Figure 2. Effect of incentives on effort and task performance (Modified from Bonner & Sprinkle
2002)
According to Locke effort consist of three aspects; direction, intensity and duration. Direction
refers to individuals’ choice of the target of the action. Intensity in turn means the amount of
effort that individual put in the specific task. Duration is defined as the continuance of action.
(Locke 2004, p. 709). In every incentive’s case has to note that task complexity and person’s
skills are important variables in determining if improved effort can lead to improved
performance. If incentives improve effort but individual do not have skills, which is needed to
accomplish the task, improved effort cannot generate better performance. In this situation
performance remains at the same level as without incentives. This applies in every incentive’s
case. Also individual’s educational background and experience have effect on introduced
situation. For example Camerer and Hogarth (1999, p. 9–23) reported that incentives do not have
effect when a task is hard and individual’s skills and task demands do not match. Furthermore
they (1999, p. 21–22) found that in these cases incentives can even hurt performance. This can
be because of individual’s frustration. Individual know that he or she would get reward if he or
she accomplished the task but is not able to do it. Also Awastki and Pratt (1990, p. 799) noticed
in their study that monetary incentives can generate higher levels of effort without improving
performance if individual do not have requisite skills. According to Awastki and Pratt (1990, p.
804–808) this applies in decision making tasks. However Camerer and Hogarth’s (1999, p. 21)
findings do not support this. Instead they find that incentives improved performance especially in
decision making tasks. (Camerer & Hogarth 1999, p. 21).
2.2. Non-financial incentives
2.2.1. Feedback
Feedback is an efficient and quick way to motivate employees because feedback is given in the
working situation (Stakovic & Luthans 2001, p. 583). Feedback has also indirect effect on
motivation. Feedback gives important information to employee how he or she is performing
which in turn helps employee to set goals and attain goals that are set earlier. (Kluger & DeNisi
1996, p. 255) Because of that, feedback is in an important role also when there are some other
rewards (Rynes, Gerhart & Parks 2005, p. 573; Cameron & Hogarth 1999, p. 33).
According to most studies researching feedback and performance, feedback has positive effect
on performance (Deci et al. 1999. p. 638─639; Kluger & DeNisi 1996, p. 254─355; Cameron et
al. 2001, p. 15─22; Rynes, Gerhart & Parks 2005, p. 579). In their empirical study Stajkovic and
Luthans (2001, p. 586─587) found that feedback increased performance 20 per cent. Moreover
Deci et al. (1999, p. 638─639) found that feedback affect specifically intrinsic motivation.
Increased intrinsic motivation in turn led to improved performance. When Rynes et al. (2005, p.
579) combined earlier studies of feedback they noticed that overall positive effect of feedback on
performance is quite modest. Besides Kluger and DeNisi (1996, p. 254─255) found that
feedback has quite variable effect on performance although on average feedback have positive
effect. Sometimes feedback can improve performance, sometimes decrease and sometimes there
is no effect. For example in the study of Kluger and DeNisi (1996), feedback improved
performance on average but in one third of cases performance decreases after feedback.
Stajkovic and Luthans (2001, p. 587) indeed assume that the key variation in motivating effect of
feedback is task complexity. Stajkovic and Luthans (2001, p. 587) found that feedback is not an
effective motivator when the task is simple and well defined. Instead in complex setting
feedback is likely to be the strongest motivator. (Stajkovic & Luthans 2001, p. 587─588) Also
Kluger and DeNisi (1996, p. 275) found that in mental tasks feedback improved performance
more than in physical tasks. Besides they found that negative feedback improved performance
more than positive feedback. In fact when feedback signal was positive performance decreased
or maintained. According to authors people work harder when they are not performing up
expectations. (Kluger & DeNisi 1996, p. 260─263) The results partly supplement each other. It
is quite logical that in complex settings people can easily un-derperform which lead to negative
feedback. Negative feedback in turn improves performance because typically negative feedback
causes people to strive to attain the goal. Also the goal-setting theory supports results. In
complex setting feedback can clarify the goal which in turn increases effort. Also Kluger and
DeNisi’s (1996, p. 275) research supports this idea. They found that feedback which includes
some solution improved performance more than feedback without solutions. The negative
feedback and improved performance is inconsistency with Bandura’s self-efficacy theory.
Negative feedback can lower self-esteem which in turn can decrease effort and performance.
However in complex settings especially positive feedback can increase self-esteem which led to
improved performance. This was also found by Deci et al. (1999, p. 638─639). The self-esteem
theory can also explain Stajkovic and Lu-thans’ results about complex setting and feedback’s
positive effect on performance. In fact also Kluger and Denisi (1996, p. 269, 275) found that
negative feedback can has negative effects on performance if individual does not believe that he
or she are able to manage the task (i.e. have low self-esteem). In low self-esteem situations,
negative feedback easily turns employee’s attention from task to the self. In every situation
where feedback focuses on the worker self instead of the task, has feedback negative effect on
performance. Feedback that includes comparison with others moves easily employee’s attention
from task to self. Also verbal feedback moves attention from task to self-more easily than written
feedback because the feedback provider is in the salient role. Unexpectedly also praise turns
attention to the worker itself. In all of these situations feedback’s effect on performance is
attenuated because of moved attention. (Klug-er & DeNisi 1996, p. 269─275)
2.2.2. Participation
Employees’ possibility to participation is the source of intrinsic motivation (Herzberg 1968, p.
57; Fernie & Metcalf 1995; p. 382; Brown 1996, p. 235─237). According to Brown (1996, p.
235─237) participation is a key to activate employee motivation. Participation engages employee
in work and makes work more meaningful which in turn increases intrinsic motivation. Four of
the six above demonstrated motivation theories support participation’s positive effect on
performance. According to Maslow’s hierarchy of needs participation can fulfill peoples’ social
and self-actualization needs. In 10 Herzberg’s motivation hygiene theory participation is a
motivation factor which in-creases motivation and job satisfaction. Cognitive evaluation theory
hypothesis individual’s basic needs are autonomy and competence. Participation gives
employees’ possibility to influence on their work. In that way, participation can fulfill
individual’s need for autonomy and motivate employees. In their empirical study Fernie and
Metcalf (1995, p. 383) also found that participation great better understanding about
organization’s goals. According to goal-setting theory the clarity of goals can also improve
employees’ performance.
Although participation has been considered the source of intrinsic motivation and some of the
motivation theories support participation’s motivating effect several studies have been found out
that generally participation has modest positive effect on performance. Locke, Feren, McCaleb
and Shawn (1980) researched how monetary incentives, partici-pation and job enrichment affect
performance. In their study, they found that participa-tion has the most minor effect on
performance. Participation improved performance less than one per cent. (Locke et al. 1980)
Also Brown (1996, p. 243─244) found that gen-erally correlation between participation and
performance is positive but weak. Cotton, Vollrath and Froggatt (1988, 12─13) found that
employees’ possibility to influence on decision focusing on the employees’ work or job issues
has positive effect on performance. However, they did not report how strong correlation between
participation and performance was. Besides participation’s positive effect on performance, they
also found that short time participation has no effect on performance and that the improvement
of the performance is dependent on the amount of the influence. The more influence employees
had the more performance improved. (Cotton et al. 1988, p. 12─14)
Although participation’s direct effects on performance have reported to be modest there is
possibility that participation has some indirect effects on performance. For example Fernie and
Metcalf (1995, p. 381─383) found that possibility to participation increases employees’
commitment to organization and organization’s goals. One reason for employees’ increased
commitment can be that employees feel they are important when they have access to
management info and influence on decision making. Also Brown (1996, p. 239─244) found that
participation has strong positive correlation with com-mitment. Brown also reported that
participation has negative correlation with turnover. More involvement employees want to stay
in organization. (Brown 1996, p. 239─244) The participation’s commitment aspect can be one
reason why Cotton et al. found no effect with short term participation and performance. Maybe
participation’s effects on performance come out only in long run. This hypothesis also partly
impugns the results of other studies which reported participation to have only modest effect on
performance. Like in the case of feedback it is important to notice that participation is also
important when implementing other incentive plans. Especially in monetary incentive’s case
participation has positive effect on incentives satisfaction. (Brown 1996, p. 247)
Recognition
Like participation also recognition is a source of intrinsic motivation (Herzberg 1968, p. 57;
Maslow 1947; Deci et al. 1996). In their field study Stajkovic and Luthans (2001 p. 582) defined
recognition as personal attention which express interest, approval and appreciation. They also
stated that usually social recognition is delivered verbally and it requires interpersonal skills of
managers. (Stakovic & Luthans 2001, p. 582) in their empirical study their found that verbally
conveyed social recognition improved employees’ performance 24 per cent (Stakovic & Luthans
2001, p. 586─587). There have not been many other studies about the effects of recognition on
performance. However considering motivation theories four of them support the motivating
effect of recognition. Both Maslow and Herzberg see recognition as a motivation factor. In
Maslow’s hierarchy of needs recognition satisfies individual’s need for esteem (Maslow 1943).
According to self-efficacy theory individual’s belief about her or his ability to perform the task is
an important determinant of effort. Recognition can improve self-esteem which in turn can lead
higher effort and increase performance. Cognitive evaluation theory emphasizes the importance
of need for competence as a source of intrinsic motivation. It is logical that recognition can fulfill
the individual’s need for competence and increase motivation.
There have been some studies which have identified different variables considering recognition’s
motivating effect. Middle managers usually find recognition important. Also for blue-collar men
recognition is important. However, usually among blue-collar worker recognition can be seen as
possible career opportunities in the future. (Tsutsumi & Kwakami 2004, p. 2351) Also Stjkovic
and Luthans (2001, p. 582, 587) found that in low income jobs social recognition can be seen as
a promise to the future outcome usually monetary. Stjkovic and Luthans (2001, p. 581) also
found that recognition is more important in higher income than lower income because a person
with higher incomes is likely to have been fulfilled her or his physiological needs. Also
Maslow’s hierarchy of needs supports this idea.
It has been also considered that the motivating effect of money can be based on social
recognition. According to some studies, money can be seen as a symbol of achievements (Frey
1997, p. 430; Deci et al. 1999, p. 628; Rynes, Gerhart & Minette 2004, p. 385). Rynes et al.
(2004, p. 385) even profess that money itself is not a good motivator but the symbolic value of
money is an only important factor that can cause motivation.
2.3. Financial incentives
2.3.1. Monetary incentives
In this review monetary incentive refers to incentives which are paid as money. Most commonly
used types of monetary incentives are gain sharing and profit sharing. Among different
incentives monetary incentives are the most researched and several studies have researched how
monetary incentives affect motivation and performance. Many of the researchers have found
positive correlation between monetary incentives and performance. Stajkovic and Luthans (2001,
p. 585─587) conducted an empirical study in two facilities which conducted the same tasks and
located several miles apart from each other. According to study monetary incentives improved
performance over 30 per cent compared with those who did not get incentives. Also other
researchers have conducted similar empirical studies and found that performance increase in
groups with monetary bonus systems whereas in control group’s performance usually stays at the
same level (Pelty, Singleton & Connell 1992, p. 430; Hanlon & Taylor 1994, p. 97; Condly,
Clark & Stalovicth 2003, p. 51). Furthermore Locke at al. (1980) compared in-dividual pay
incentives, job enrichment and employee participation and found that monetary rewards are most
efficient. There are also some studies which have ended up in different results. According to
these studies, monetary incentives have no effect or have negative effect on performance. In their
review Camerer and Hogarth (1999, p. 22─23) found that in studies researching monetary
incentives the most common result was that monetary incentives have no effect on mean
performance. Pfeffer’s example also states against motivating effect of money. According to
Pfeffer (1998, p. 110) Southwest Air-lines have never used monetary rewards in order to
improve performance and they are number one in productivity in the industry in which monetary
incentives are commonly used. Moreover in Jamer’s study (2004, p. 19) fixed pay generates
more effort than monetary incentives paid based on employees’ performance.
Some of motivating theories supports the motivating effect of money and some do not. Lower
needs of Maslow’s hierarchy can be fulfilled by money. For example physiological needs can be
fulfilled by money buying food and clothes. Also some empirical studies support Maslow’s
theory. According to Canerer and Hogarth (1999, p. 8) monetary incentives cause persistence
diligence in boring and mundane jobs in which intrinsic motivation is usually low. In that way,
monetary incentives improve performance in boring and mundane jobs. At lower income levels,
jobs are usually more mundane and boring than at upper income levels. In that way, study’s
results support Maslow’s theory. Besides at lower income level jobs are also more commonly
psychical than at upper income level. This can explain why monetary incentives are more
effective in psychical than in mental work (Condly et al. 2003, p. 56; Cameron, Banko & Peierce
2001, p.15; Bonner & Sprinkle 2002, p. 324). According to Maslow’s theory, money does not
motivate at upper level. For example Rynes et al. (2002, p. 386─388) noticed that the motivating
effect of money dilutes at upper income level because of declining marginal utility. Studies
according to which money motivates also at upper income levels emphasizes the symbolic value
of money. Money can symbolize status and it can help you to gain social status. This is
supported by the research according to which relative pay is more important in motivating than
absolute pay levels (Rynes et al. 2002, p. 385; 2004, p. 385). Also some researchers who
constantly criticize the motivating effect of money have admitted that money can be seen as
recognition and symbolic reward if worker regard monetary incentive as acknowledging their
competence and work morale (Frey 1997, p. 430; Deci et al. 1999, p. 639─646; Jamer 2004, p.
4). Cognitive evaluation theory also supports the motivating effect of money if it symbolizes
individual’s competence. According to cognitive evaluation theory individual’s basic needs are a
need for competence and autonomy. Deci et al. (1999, p. 628) emphasize that monetary
incentives have to be informational to be able to fulfill a need for competence. However if the
motivating effect of money at upper income levels is mainly based on social recognition and its
symbolic value it has to considered can the same results be achieved with non-financial social
recognition in more efficiency way. Also goal-setting and agency theory support the motivating
effect of money. Monetary incentives show employees what is valued in organization. Especially
monetary incentives can also clarify organization’s goals because usually monetary incentives
are paid based on a certain indicator. These factors help employees to attain the goal. (Gupta &
Shaw 1998, p. 27) There are inconsistent results whether monetary incentives great commitment
or not. In their empirical study Hanlon and Taylor (1994, p. 97) found that commitment was two
times stronger in the group with a bonus system than in the group without a bonus system.
Instead (Wright, George, Farnsworth & McMahan 1993, p. 377─378) found in laboratory study
that monetary incentives do not create commitment. Also Frey (1997, p. 432─434) stated that
extrinsic incentives like money can change what we do but do not create lasting commitment.
According to goal-setting theory goal commitment is important determining amount of effort. In
turn agency theory hypothesis that individual motivation is solely dependent on self-interest,
which is the function of wealth and leisure. According to theory monetary incentives motivate
because people can maximize their wealth.
According to agency theory money can also be demotivational if individual want to maximize
his or her leisure at the expense of wealth. Some studies have found that monetary incentives can
be seen as possibility to regulate working effort. In fixed pay systems it is a social norm that
employee do honest day’s work for honest day’s pay. Instead in bonus payment systems people
can feel that they have the right to put less effort at their work because they are paid based on
their performance. (Jamer 2004, 19─21) That is not in accordance with the interests of the
company because there are lots of fixed costs which do not disappear. Also according to
cognitive evaluation theory money can motivate if it is regarded as acknowledging competence
but money can also be seen as controlling. In this case money does not provide motivation
because of indi-vidual’s basic need for autonomy is hurt. In fact in a case in which money is
perceived as controlling, intrinsic motivation decreases (Cameron et al. 2001, p. 15─21). This is
called motivation crowded out effect. Monetary incentives can be seen as controlling if
incentives are large and salience. (Frey 1997, p. 432─434: Deci et al. 1999, p. 628; Ja-mer 2004,
p. 9; Frey 2007, p. 4) Deci et al (1999, p. 651) found that crowded out effect was greater for
interesting jobs because people were already intrinsically motivated. They found no effect on
boring jobs. Besides cognitive evaluation and agency theory also Herzberg’s motivation-hygiene
theory posits that monetary incentives cannot motivate.
According to expectancy theory motivation is the function of two factors: the expected
relationship between effort and outcome and the attractiveness of reward. The attractiveness of
reward in turn depends on different variables. Usually, it is considered that individuals find
monetary rewards attractive because with money they can buy different things. However, Rynes
et al. (2005, p. 5829 found that monetary incentives are more attractive for people with a high
need for achievement and higher feelings of self-efficacy. This finding supports Bandura’s self-
efficacy theory according to which individual’s self-esteem is an important determinant of effort.
It is also important that individual feels that his or her work have influence on attaining a target
(Rynes et al. 2005, p. 590). Usually individual incentive systems are more effective than group
based incentive systems because individual feel that he or she can have effect on attaining a goal.
Profit sharing incentives are based on company’s pre-tax profit and because of the wideness of
goal individual can feel that his or her performance does not matter. In that case monetary
incentives do not motivate. Rynes et al. (2005, p. 590) also cite Kauf-man’s study where he
found that doubling the numbers of employees in gain sharing decreases productivity nearly 50
per cent. However, Condly et al. (2003, p. 54─55) found that team based monetary incentives
were more effective than individual based incentives. Team based incentives increased
performance 48 per cent whereas individual based incentives increased performance 19 per cent.
The reasons for this can be group motivation and social pressure. (Condly et al. 2003, p. 54─55)
The more tightly incentive pay is related to performance the more individual feel that his or her
work have influence on attaining a target. Contingent incentives usually improve performance
more than non-contingent incentives. There are also studies which reveal that the more
contingent the reward is on performance the more harmful it is for intrinsic motivation. That is
because contingent incentives are easily perceived as controlling. (Frey 1997, p. 432─434; Deci
et al. 1999, p. 657; Cameron et al. 2001, p. 17─18; Frey 2007, p. 41).
There are also some drawbacks considering monetary incentives. Many studies have found that
monetary incentives can lead to situation where people follow incentive systems strictly i.e.
people do only things that are rewarded (Wright et al. 1993, p. 378; Gupta & Shaw 1998, p. 27;
Jamer 2004, p. 4─15). Some of the researchers posit that this is only measurement problem and
all relevant aspects of behavior have to be included in measurement so incentive systems can
work. It has to think it is really possible to measure all relevant behavior. In this way, incentive
systems would be quite complicated and expensive. The other drawback is that incentives can
make employees lose the immediate goal (Camerer et al. 1999, p. 8; Frey 2007, p. 48─51). In the
long run, this can be harmful for the organization. For example Wright (1994, p. 43) introduced
in his article a manufacturing firm called Lincoln Electric and their problems with monetary
incentives when employees trade quality for quantity. Wright (1994, p. 45) also discussed Sears
automobile repair shop where employees get monetary bonuses by the job rates. This lead to
situation, in which employees cheated and to get bonuses they did unnecessary repairs. This in
turn led to customer dissatisfaction which in turn hurt company’s market position. (Wright 1994,
p. 45) Furthermore there is negative correlation between monetary incentives and extra-role
behavior i.e. helping co-workers (Wright et al. 1993, p. 377─378; Hanlon & Taylor 1994, p. 99;
Marsden & Richardson 1994, p. 252─258; Shaw, Grupta & Deleny 2002, p. 507─508). Extra-
role behavior is important to organization’s effectiveness but not directly associated with
individual goal attainment. Extra-role behavior is higher in team based incentive systems than in
individual incentive systems (Wright et al. 1993, p. 377─378; Hanlon & Taylor 1994, p. 99).
2.3.2. Non-monetary tangible incentives
Besides monetary incentives also non-monetary tangible incentives and benefits are financial
incentives because recipients benefit from them economically. Both non-monetary tangible
incentives and benefits are extrinsic rewards like monetary incentives. There are not so much
studies about non-monetary tangible incentives and their effects on performance. One of the
reasons can be that it is almost impossible to deter-mine the actual cash value of non-monetary
tangible incentives and this makes studies disparate (Condly et al. 2003, p. 52).
In their meta-analytic review Condly et al. (2003, p. 52) found that non-monetary tangible
incentives improved performance on average 13 per cent. Jeffrey and Shaffer (2007, p. 45) state
that non-monetary tangible incentives are effective because they are very visible. Because of
visibility, the symbolic value of non-monetary tangible incentives is higher than other incentives.
Another reason for the effectiveness of non-monetary tangible incentives can be that these
incentives are usually distributed right after performance. Instead in monetary incentives’ case it
can take months before incentives are distributed to employees. In this case reward-
compensation relation is not so tight than in situation where reward is given right after
performance. This can have effect on motivation and performance. Jeffrey and Shaffer (2007, p.
45─46) also state that monetary incentives are easily perceived as part of a basic pay. In this case
monetary incentives can lose their motivating impact. Instead non-monetary tangible incentives
are really noted and employees perceived them as extra reward. Because of that in some cases
non-monetary tangible incentives can be more effective than monetary incentives. One problem
in non-monetary tangible incentives is that people like different things (Jeffrey & Shaffer 2003,
p. 48). One can be motivated through football tickets whereas the other can find a holiday trip
more attractive. It is challenging for manager to decide which would be appropriate incentive in
different situations. Another problem is that at lower income level non-monetary tangible
incentives can be perceived worthless because of the need for money (Jeffrey & Shaffer 2007, p.
49). Usually non-monetary tangible incentives are delivered unexpectedly. This means that there
is not a special incentive plan according to which the rewards are distributed. Be-cause of
unexpectedness, non-monetary tangible incentives do not have similar negative effect on
intrinsic motivation as monetary incentives have (Deci et al. 1999, p. 639─640). For example
individuals do not perceive non-monetary tangible incentives as controlling because incentives
are not evidently contingent on performance. Because of unexpectedness non-monetary tangible
incentives neither have similar drawbacks as monetary incentives have (Deci et al. 1999, p.
639─640). For example non-monetary tangible incentives do not lead so easily to the situation
where employees lose the immediate goal because of incentives, than in monetary incentives’
case. That is because unexpected incentives do not create the goal which employees should
attain. However, it is important to notice that according to some studies non-monetary tangible
incentives have usually no effects on performance because of unexpectedness (Deci et al. 1999,
p. 639─640; Cameron et al. 2001, p. 15─22). That is because these incentives do not guide
employees’ actions. The goal-setting theory supports this finding.
2.3.3. Benefits
The effects of benefits on the performance has not been studied much either. Studies focusing on
benefits usually research how benefits affect employees’ job satisfaction and which benefits
employees find attractive. Usually benefits are considered to be something which makes
employer and workplace attractive.
The computer software company SAS Institute offers exceptional benefits to its employees
instead of monetary incentives which are common and popular in industry. Partly because of
benefits SAS Institute’s turnover rate is much lower than usually in industry and employees are
also very bound to the company (Pfeffer 1998, p. 111). According to goal-setting theory
commitment is an important factor affecting effort and motivation. Tremblay, Sire and Pelchat
(1998, p. 671) found that employees find flexible benefits more attractive than normal benefits.
In flexible benefit system employees can choice their own benefit packets among benefits that
had been offered by employer. In other words, employee can choose benefits which he or she
finds the most attractive. According to the expectancy theory this increases motivation because
attractiveness of reward is an important determinant of motivation. It was also found that
because of the attractiveness flexible benefits generate more effort and motivation. One problem
in benefits is that easily workers do not perceived them as reward. Instead employees feel that
benefits belong to them automatically. This can dilute benefits’ motivating effect. Employees can
also expect more benefits in subsequent years than they did have in pre-ceding years. (Williams
1995, p. 1119)
3. INCENTIVES AND JOB SATISFACTION
According to Locke (1976) job satisfaction consists of satisfaction with different independent job
elements. These job elements include for example pay and working conditions. (Locke 1976,
according to Barber, Dunham & Formisano 1992, p. 57) Like Locke, also Kalleberg (1977, p.
126) define job satisfaction as a sum of different elements. According to Kalleberg job
satisfaction is individual’s overall affective orientation toward work. Job satisfaction can be also
seen as extent to which employees like their work (Agho, Mueller & James 1993, p. 1007).
Pay satisfaction and satisfaction with incentives are important determinants of overall job
satisfaction which in turn has great effect on commitment and turnover. Employees’ satisfaction
with incentives is also an important role in achieving of the goals of organizations compensation
system. Because of these reasons it is important to study how incentives affect job satisfaction.
3.1. Non-financial incentives
Often when asked employees directly, which incentives they find the most attractive and
important, monetary incentives are not at the beginning of the list (e.g. Kalleberg 1977, p.
135─136; Towers Perrin 2003; Kauhanen LTT Research Inc. 2009). According to Kalleberg’s
research (1977, p. 135─136) intrinsic rewards have the greatest effect on employees’ job
satisfaction. Towers Perrin study surveyed about 40 000 full-time employees working in North
America in 2003. According to study monetary incentives were not in the top ten factors
engaging (motivating) employees. Instead top ten factors motivating employees include the
management interest of well-being of the employees, work itself, possibility to influence in
decision making and career opportunities. In top ten factors attracting employees a base pay was
ranked second and a performance based pay were eight. Top ten attracting factors also include
different kind of benefits, challenging work and recognition. (Towers Perrin 2003, p. 21─23)
Kauhanen (LTT Re-search Inc. 2009) researched how important different incentives are for
employees. A base pay was ranked to be the most important. After that list contains mainly non-
financial incentives such as the permanence of employment, possibility to arrange work-ing
times, feedback and career opportunities. Different financial incentives were at the end of list.
However, employees find financial incentives to be somewhat or quite important to them.
(Kauhanen LTT Research Inc. 2009) These studies show the relative importance of non-financial
incentives to employees. Because of that it is logical that non-financial incentives can also cause
job satisfaction.
3.1.1. Feedback
In Kauhanen’s research Finnish employees listed feedback as fifth important rewarding means
(Kauhanen LTT Research Inc. 2009). This indicates that feedback can cause also job satisfaction
because employees find it important. In deed Locke (2004, p. 711) have stated that mental
challenging, which includes among others feedback, is one of the most important factor
influencing individuals’ job satisfaction. Moreover Rynes et al. (2005, p. 576) found that
feedback correlates with employees’ job satisfaction. Cameron et al. (2001, p. 15─16) reported
that feedback correlates positively with employees’ self-reported task interest. This can be
transferred to employees’ job satisfaction. Jaworski and Kohli (1991, p. 197─198) divided
feedback into negative and positive feedback and researched how different kind of feedback
affect job satisfaction. They found that positive feedback generates job satisfaction but negative
feedback does not have effect on job satisfaction. (Jaworski & Kohli 1991, p. 197─198)
Moreover Katz (1978, p. 212) reported that feedback have great effect on employees job
satisfaction especially at the beginning of employment. These findings sound reasonable.
Feedback can indicate to employees that managers and supervisors are interested in employees
and their jobs. It is also logical that feed-back generates more satisfaction at the beginning of
employment. New employees need more guidance and counseling than employees who have
worked longer time and feed-back can provide useful information about employee’s performance
for new employee. At the beginning of employment especially positive feedback can also
improve individual’s self-esteem which in turn can lead to increased overall job satisfaction.
However finding which suggest that there is no correlation between negative feedback and
Satisfaction is somehow inconsistent with the finding introduced above which claims that
negative feedback have greater effect on performance than positive feedback. Maybe in short
term negative information can improve performance but in long run it is not so effective.
Inconsistent results can also be the cause of different research methods be-cause also Kluger and
DeNisi found that negative feedback can decrease performance if feedback focuses on employee
itself instead of a task.
3.1.2. Participation
In Towers Perrin (2003, .p. 21─23) research possibility to influence decisions considering work
was ranked a third important motivating factor. Also Brown (1996, p. 235) suggested on the
basis of his meta-analysis that participation is an important determination of job satisfaction
because it can make work more meaningful. Also Locke (2004, p. 711) has stated that possibility
to influence decision making and take responsibility about decisions is a part of work mental
challenging which in turn is the most important determinant of job satisfaction. Indeed, Brown
(1996, p. 239─244) found strong positive correlation between participation and commitment.
Commitment to organization and work in turn indicate job satisfaction. Brown (1996, p.
243─244) also found that participation correlates negatively with employee turnover. Like
employee commitment also decreased turnover indicates employees’ job satisfaction. In addition
Fernie et al (1995, p. 382) found that employees’ possibility to participation increases job
satisfaction. Also Cotton et al. (1988, p. 12─14) reported that employee participation has
positive effect on job satisfaction. However unlike other researches Cotton et al. found that
participation’s effect on job satisfaction was only modest. Moreover they also found that only
long term participation has effect on job satisfaction. Indeed, short term participation has no
effect on employees’ job satisfaction. (Cotton et al. 1988, p. 12─14) This finding sound also
logical and it is consistent with finding introduced above ac-cording to which only long term
participation improves performance.
Besides participation’s positive effect on job satisfaction Katz (1988, p. 219) found that
participation’s effect on satisfaction is dependent on the duration of the employment. Indeed
when employee has worked for some time the positive effect of the participation on the
employee’s job satisfaction increases. (Katz 1988, p. 219) This indicates that employees need for
the participation increases as a function of the time working in the organization. Katz (1988, p.
219) also stated that the greater the employee’s influence on decision making the more satisfied
employee is. Furthermore, Katz (1988, p. 211─214) found autonomy be an important
determinant of employees’ job satisfaction. Employee’s autonomy can be seen as a part or a form
of participation because employee is able to make his or her own decisions considering his or her
work. Cognitive evaluation theory supports Katz’s finding. According to cognitive evaluation
theory autonomy is one of the individual’s basic needs together with competence. Fernie et al.
(1995, p. 383─396) reported that participation has also positive effect on industrial relations and
climate in workplace. Improved climate and better industrial relations can in turn generate job
satisfaction. For example in Tower Perrin (2003, p. 21─23) study work environment was
important factor engaging employees. In that way, participation can also affect indirectly job
satisfaction. Furthermore Brown (1996, p. 247) stated that employees with participation
possibilities have greater job satisfaction in every situation than employees without participation
possibilities. This means that employees without participation possibilities became more easily
dissatisfied than employees with participation possibilities for example in exceptional conditions.
(Brown 1996, p. 247) This can be easily explain by the fact that employees with participation
possibilities can have better information and understanding and this in turn can make exceptional
situations more acceptable.
3.1.3. Recognition
In Towers Perrin (2003, p. 21─23) study recognition was ranked ninth important in attracting
new employees. Also according to Herzberg’s (1968, p. 54─66) motivation-hygiene theory
recognition is a source of job satisfaction. Indeed a study which re-searched teachers’ job
satisfaction found that recognition from management and co-workers has strong positive effect
on teachers’ job satisfaction (Chapman & Lowther 1982, p. 244─245). In addition Cameron et
al. (2001, p. 15─16) reported that verbal rewards which include verbal recognition have positive
effect on employees’ self-reported satisfaction with job. However there can be some bias in this
result because in study verbal rewards include also verbal feedback besides verbal recognition.
Sibbald, Enzer, Cooper, Rout and Sutherland (2001) researched GPs’ (general practitioner) job
satisfaction in 1987, 1990 and 1998. In their study, recognition was ranked either first, second or
third important factor determining GPs’ job satisfaction. (Sibbald et al. 2001, p. 367)
Several studies researching monetary incentives effect on performance suggest that the
motivating effect of money is based on the symbolic value of money which can be seen as social
recognition (e.g. Frey 1997, p. 430; Deci et al. 1999, p. 628; Rynes, Gerhart & Minette 2004, p.
385). However there have not been many studies researching how this aspect affects job
satisfaction. However, it sounds logical that recognition can be the source of job satisfaction
because it can indicate to employees that good work is noticed and that organization value
employees’ work.
3.2. Financial incentives
As mentioned when discussing non-financial incentives, employees find usually financial
incentives less attractive and satisfied than non-financial incentives when asked directly
employees’ opinions about incentives (e.g. Kalleberg 1977, p. 135─136: Towers Perrin 2003;
Kauhanen LTT Research Inc. 2009). However, some researches have claimed that this is not
really a case and pointed out some reasons for the results which indicate that intrinsic rewards
have greater effect on job satisfaction than extrinsic re-wards such as monetary incentives.
Kalleberg (1977, p. 136) states that effect of re-wards depends on their relative variance. For
example if employer concentrates only on intrinsic rewards, such as feedback and participation,
the variance of intrinsic rewards would reduce. At the same time, however, the relative variance
of financial rewards such as monetary incentive and benefits increase. Because of the relative
high variance of financial rewards financial rewards can be found to be the most important
determi-nant of job satisfaction. Financial rewards have been in the center of rewarding for a
long time. This could lead to situation where the relative variance of intrinsic rewards has
increased and that is why intrinsic rewards have become the most important determinant of
employees’ job satisfaction. (Kalleberg 1977, p. 136) Rynes et al. (2002, p. 384) have a different
view. According to Rynes et al. studies results depends on how matter has been studied. If
employees are asked directly do they find money an important determinant of motivation and
satisfaction, they usually undermine the effect of money. When employees are asked indirectly
for example does your colleague find financial incentives important, results are usually different
and financial incentives are find to be more important than non-financial incentives. One reason
for this can be that employees may find it social unacceptable to rank money the most important
thing for themselves. (Rynes et al. 2002, p. 384)
Whether financial incentives are or are not the most important incentives affecting employees’
job satisfaction it has to be notice that especially in financial incentives case equity is a very
important factor affecting employees’ incentive satisfaction which in turn is part of overall job
satisfaction (e.g. Marsden & Richardson 1994, p. 252─258; Tremblay et al. 2000, p. 273─280;
Salimäki, Hakonen & Heneman 2009, p. 164─173). Equity can be divided into distributive and
procedural justice. Distributive justive refers to equity with co-workers. Employees’ incentives
should be relative to reference group. Procedural justice in turn refers to means according to
which incentives are distributed to employees. (Tremblay et al. 2000, p. 273─280; Salimäki,
Hakonen & Heneman 2009, p. 164─173) It can be also talked about external and internal
comparison (Sa-limäki et al. 2009, p. 165). According to external comparison, satisfaction
depends on the comparison of individual’s outcome-input ratio to the ratio of co-workers
(Adams 1965, according to Salimäki et al. 2009, p. 165). Internal comparison in turn refers to
individual’s perception what he or she should get and what he or she really gets. Internal
comparison shares similar thoughts with the expectancy theory. If employee feels that incentives
are unfair, he or she would be less satisfied with them. For example in Mars-den and
Richardson’s case study (1994, p. 252─258) employees experienced incentives unfair and partly
because of that employees found incentives overall negative. Moreover Trembly et al. (2000, p.
273─280) found that procedural justice is more important than distributive justice in reward’s
case. This is quite logical because usually there is an incentive plan according to which
incentives are distributed employees and it may makes it possible that employees receive
different amount of incentives.
3.2.1. Monetary incentives
According to Tang’s (1992, p. 201) study income generally has strong positive correla-tion with
employees’ job satisfaction. This can indicate that also monetary incentives should have positive
effect on job satisfaction. Indeed several studies have reported that different kind of monetary
incentives have positive effect on employees’ overall job sa-tisfaction (Ruobol & Farrel 1983, p.
433─436; Cameron et al. 2001, p. 16; Green & Heywood 2008, p. 716─717; Puoliakas &
Theodossiou 2009, p. 673─675). In their meta-analysis Cameron et al. (2001, p. 16) reported that
monetary incentives have only small effect on overall job satisfaction whereas other studies
found strong correlation between monetary incentives and job satisfaction. There are also some
empirical studies which have not researched correlation but in turn have reported employees’
positive reactions towards monetary incentives. In case study on electric utility industry 72 per
cent of employees wanted to continue under monetary incentives after one year long
experimental time (Petty, Singleton & Connell 1992, p. 430─431). This can indicate that major
of employees were satisfied with monetary incentives. Similar in case study in three screw
machine companies’ employees reported quite positive reactions towards monetary incentive
program and also companies’ turnover rate reduced (McGrath 194, p. 593).
However there also some studies which have found that monetary incentives have negative effect
or do not have effect at all on job satisfaction. In their laboratory test Wright et al. (1993, p. 378)
found no correlation between a monetary bonus and commitment which in turn would indicate
job satisfaction. Also in Marsden and Richardson’s case study (1994, p. 252─258) employees
reported negative feelings and effects on job satisfaction after the monetary incentive program
was introduced. Besides decreased job satisfaction employees also reported that atmosphere has
got worse. Moreover Rynes et al. (2005, p. 582) found that after introducing a monetary
incentive program some of the employees quit their jobs. This result strongly indicates that those
employees were not satisfied with monetary incentives. However according to researchers this
can also indicate that people with a need for achievements and high self-efficacy find monetary
incentives more attractive and are more satisfied with them (Rynes et al. 2005, p. 582). Puoliakas
and Theodossiou (2009, p. 673─675) found in their long empirical study (1998─2005) that
monetary incentives have significant positive correlation with overall job satisfaction. However,
their also found that employees with a monetary incentive system were less satisfied with the
working hours and level of stress they experience in their work than employees without an
incentive program. According to the finding monetary incentive systems can cause psychological
strain to employees. (Puoliakas & Theodossiou 2009, p. 673─675) It has to be considered if
psychological strain can have negative effects on job satisfaction in the long run.
Like in screw machine companies’ case, also other studies have reported some indirect results
considering monetary incentives and employees’ job satisfaction. In their empirical study Hanlon
and Taylor (1994, p. 100) found that monetary incentives generate increase in moral
commitment. Also Roubol and Farrel (1983, p. 433─436) reported that monetary incentives
correlate with employee commitment. Commitment can in turn indicate employees’ job
satisfaction.
3.2.2. Non-monetary tangible incentives
In Kauhanen’s research (LTT Research Inc. 2009) employees regard non-monetary tangible
incentives somehow important. However, employees ranked them the least important rewards.
(Kauhanen LTT Research Inc. 2009) Shaffer and Arkes (2009, p. 862─863) found that when
people evaluated non-monetary tangible incentives separately from monetary incentives they
find non-monetary incentives more attractive than monetary incentives. Researchers suggested
(Shaffer & Arkes 2009, p. 862─863) that finding can be explained by the luxurious value of non-
monetary tangible incentives. Usually non-monetary tangible incentives are something special
and luxurious. Because of luxurious value, people find these incentives desirable but not
justifiable to buy them. This is why people find non-monetary tangible incentives attractive. The
attractiveness of non-monetary tangible incentives can indicate that non-monetary tangible
incentives can generate employees’ job satisfaction. However Shaffer and Arkes (2009, p.
862─863) also found when people evaluate non-monetary tangible incentives jointly with
monetary incentives people become more rational and they choose monetary incentives instead
of non-monetary tangible incentives. This finding in turn indicates that non-monetary tangible
incentives may be a less important source of job satisfaction than monetary incentives because
according to study employees prefer monetary incentives over non-monetary tangible incentives.
Another thing, which has to be considered when thinking about non-monetary tangible
incentives, is justice. As mentioned earlier non-monetary tangible incentives are usually
delivered unexpectedly. In another words, usually there is no incentive plan according to which
non-monetary tangible incentives are distributed to employees. This violates procedural justice
which is an important determinant of incentive satisfaction. Incentive satisfaction in turn affects
overall job satisfaction. So, non-monetary tangible incentives may have negative effect on job
satisfaction at least in the long run.
3.2.3. Benefits
In Tower Perrin study (2003, p. 21─23) benefits were find to be relative important attracting
employees. In the study over 50 per cent found benefits favorably. This can be compared with
the monetary incentives. Only 25 per cent found monetary incentives favorably. (Towers Perrin
2003, p. 25) Also in Kauhanen’s study employees thought that benefits are somehow or quite
important although benefits were almost at the end of the list. In addition the above introduced
example of Software Company SAS Institute and its benefits indicate that benefits generate job
satisfaction. In the example this was proofed by increased commitment and decreased turnover.
(Pfeffer 1998, p. 111) In fact Williams (1995, p. 1098) has reported that benefit satisfaction is
related to commitment and citizenship. Logically benefit satisfaction in turn affect overall job
satisfaction. Employees are more satisfied with benefits when there is communication about
benefits and employees’ opinions are taken into account (Williams 1995, p. 1120; Tremblay
1998, p. 674─675). This finding may indicate that flexible benefits have a stronger positive
effect on job satisfaction than normal benefits. Indeed some other studies have found that
flexible benefits generate more job satisfaction than normal benefit plans (Barber, Dunham &
Formisano 1992, p. 57─58; Tremblay 1998, p. 674─675). Baber et al. (1992, p. 65─66) reported
that flexible benefits increased benefit satisfaction significantly which in turn lead to improved
overall job satisfaction. However, overall job satisfaction did not improve as much as benefit
satisfaction. (Baber et al. 1992, p. 65─66)
According to Barber et al. (1992, p. 57─58) flexible benefits create job satisfaction in two
different ways. First flexible benefits increase job satisfaction because people can have what they
find important. Because freedom of the choice employees are more satisfied with their benefits.
Also Tremblay et al. (1998, p. 671) found this in their study. Second employees are more aware
of nature and value of organization’s benefit when using a flexible benefit system. This is
because employees find more about benefits when choosing their own benefit package.
According to Barber et al. (1992, p. 57─58) employees usually undervalue benefits ordered by
employer. This is not a case in flexible benefit systems because employees are more aware of the
value of different benefits. Employees improved awareness of values makes benefits more
attractive and important to them. This in turn can lead to improved job satisfaction.
RESEARCH METHODOLOGY
INTRODUCTION
Methodology is a path and gives understanding how the research will be conducted and
organized in order to obtain information. Methodology shapes the process of research through
providing the user with framework to select the means how to find out, analyze and order
information about an issues Moti (2005). This chapter deals with research design, research
approach, sampling design, sampling technique, data collection techniques and ways of
analyzing data and presentation, validity and reliability of research instrumentation and ethical
issue consideration.
RESEARCH DESIGN
The research design constitute the blue print for the collection, measurement and analyses of
data. The nature of this study is descriptive and explanatory studies which involves precise
procedure and data source specification to discover the degree of association/correlation among
variables and the aim is to test the hypothesis and answer research questions.
In order to achieve the intended objectives of this study the researcher will use explanatory and
descriptive research design to assess attitude, opinion and perception of employees about the
relationship between Motivational incentive and performance, Motivational incentives and Job
satisfaction in beer manufacturing company and water manufacturing companies.
RESEARCH APPROACH
To answer the above research questions. A quantitative-qualitative approach will be followed in
this study. A quantitative approach will be followed in developing a scale able to measure the
level of empowerment of an employee in an organisation. A quantitative qualitative approach
will be followed to determine the indicators for the organisation. The study will be controlled
and defined. The researcher will be an objective observer. Data collection procedures will be
constructed in advance and applied in a standardized manner. Statistical methods will be used to
analyze the data.
Case studies typically utilize multiple data collection methods, such as interviews and
questionnaires. To conduct this research I think that data collection should begin with some
interviews. Based in this knowledge in the next phase I will develop a survey to send to all
managers of the case study originations and use a quantitative method (for example: statistical
analysis, econometric models) to analyze data in order to find answers to research questions.
The reason why the researcher will use both quantitative-qualitative approach include the
following:
1. Collecting and analyzing both quantitative (closed-ended) and qualitative (open-ended)
data.
2. Using rigorous procedures in collecting and analyzing data appropriate to each method’s
tradition, such as ensuring the appropriate sample size for quantitative and qualitative
analysis.
3. Integrating the data during data collection, analysis, or discussion.
4. Using procedures that implement qualitative and quantitative components either
concurrently or sequentially, with the same sample or with different samples.
5. Framing the procedures within philosophical/theoretical models of research.
SAMPLING DESIGN
The study will conduct in Debre Berhan Town and Debre Berhan Area North Shewa of
Amhara Regional state. In this study Dashen Brewery, Alpha Water PLC and Aqua Safe PLC
Will be selected using non probability sampling.
The sample design will also include Vice Managers, Line Managers, Supervisors and Machine
Technicians possibly to make the research manageable.
POPULATION
Population composed of all observations on the entire group under our consideration to gather all
the necessary Data. Therefore, Employees of the three companies that are working and living in
Debre Berhan will be Population of this Study.
SAMPLING FARME
The sample frame is the target population list from which the sample is drawn. The sampling
frame list of the study consists of all the sample to mean the sample frame to include junior
technicians, senior technician, Vice Managers, Line Managers, and Supervisors of the companies
are list of sample frame of the study which helps for the sample size determination from the
target population of the study.
SAMPLING UNIT
The sampling unit of the study will be junior technicians, senior technician, Vice Managers, Line
Managers, Supervisors and other Administrative employees of the companies in debre berhan
town and Debre Berhan Area.
SAMPLING TECHNIQUES
There are two types of sampling techniques, probability and non-probability (Field 2005). In this
study the researcher will use both probability and non-probability and three sampling techniques
convenience sampling techniques, purposive sampling techniques and simple random sampling
techniques.
There are a number of manufacturing companies in debre berhan town, out of these companies
Dashen brewery, Alpha Water Company and Aqua Safe PLC will be selected using simple
random sampling.
To select managers and line managers of all the selected companies the researcher will select by
using purposive sampling techniques.
To select junior technicians, senior technicians, supervisors and administrative employees the
researcher will use simple random sampling techniques from probability sampling method.
Finally the researcher will use proportional sampling technique to select proportional number of
respondents from each selected manufacturing companies.
SAMPLING SIZE
To determine the sample size both probability and non-probability sampling method will be
used, since the target population of this study is junior technicians, senior technician, Vice
Managers, Line Managers, Supervisors and other Administrative employees. Hence, three
companies have 21 vice managers each have 7 vice managers and three companies have 30 line
managers which will be selected purposively.
Meanwhile, to determine the sample size of the respondent in the study the researcher will use
Kothari, (2007) formula. To get more representative sample size, since the population of the
study is less than 10,000 the sample size is determined by:
n=Z2*p*q
d2
Where:
n= desired sample size
N= Population size
Z= Confidence level
p= estimated characteristics of the study population
q= 1-p
d= level of statistical significant
Since there is no estimates of the population of the targeted population which have a particular
characteristics 50 percent is recommended to use. Thus, p=0.5, and 1-p=0.5.
The researcher will consider the 95 percent level of confidence and the standard value is Z=1.81
and the desired level significance (margin of significance at 95 percent confidence) are 0.07
The reason why the researcher will use the Z static 95 percent level of confidence is that more
than this sample size is not manageable for the study. Based on this:
 n=Z2*p*q
d2
Where, Z= 1.81, p=0.5, q= 1-0.5, d= 0.07
n= (1.81)2*0.5*0.5
(0.07)2
n= 167
The total number of employees is 700, which is less than 10,000, then the sample size of the
employee will be determine by;
/
nf= (n) (1+(n/N))
Where:
n= sample size where the population is calculated
N= the population of the study
nf= the sample size of employee
nf= (167/(1+(167/700)
nf= (167/(1+0.24)
nf= 135
135 employees of the companies will be included into the sample size without vice managers and
line managers that might be selected purposively.
Hence the proportion of the sample size will be:

No Name of the organization Population Rate of Sample Sample size

1 Dashen Brewery Share Company 350 50 68

2 Alpha 200 29 39

3 Aqua Safe PLC 150 21 28

Total 700 100% 135

Source: own computation, 2019
Therefore the total sample size of this study will be
 Vice managers…………………………………………………………………………...21
 Line managers…………………………………………………………………………...30
 Junior technicians, senior technicians, supervisors and administrative employees……135
Total sample size…………..……………………………186
MEASUREMENT OF VARIABLES
A questionaries’ comprising of 20 questions related to rewards and Incentives will be included
with 5 point scale to come up with the findings. The range will be from strongly agree to
strongly disagree as a scale: 5. strongly agree, 4. Agree, 3. Neutral, 2. Disagree, 1. strongly
disagree.
A sample question is:
1. Your immediate manager recognizes you work and help you for you carrier development.
1. Strongly agree 3. Neutral
2. Agree 4. Disagree 5. Strongly Disagree
A questioners will include both financial and non-financial motivators of performances such as
salary adjustment, recognition etc.
To measure the relevance of job satisfaction 8 items will be included in to the questionnaires