REWARD SYSTEM AND EMPLOYEE PERFORMANCE OF SELECTED MANUFACTURING COMPANIES IN LAGOS (NESTLE)

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Itistheconcernoforganizationsallovertheworldoneffectivehumancapitalstrategies to enhance their productivity. It is clear that employee’s productivity in the expanding organization is a key factor in organization performance. Employees, technically knownashumanresourcesinmodernorganizations,arerightlyconsideredasthemost importantassets(Ong&Teh,2012).IndevelopedcountriessuchasUSA,JAPAN,UK andGermanyorganizationsrecognizeemployeesastheimportantassetthatneedshigh consideration in promotion (Lawler & Worley, 2006). The rationale behind the use of rewards to employees is that motivated employees become satisfied in terms of fulfillingtheirwants,bothfinancialandnonfinancial.Failuretodoso,employeeswill be tempted to leave the organization (Azasu, 2009). On one hand, employees prefer receiving intrinsic rewards in terms of praise and recognition for certain work accomplishments, while other employees are happy with extrinsic reward in terms of salaries, bonus and incentive offered to employees (Lawler, 2008, Sajuyigbe, Bosede & Adeyemi, 2013).In developing countries such as China, India and Thailand also employees reward is one of highly demanded factors in influencing organization performance. One of the mostimportantfactorsinrewardingemployeesfororganizationperformanceisthrough recognition and appreciation (Ajila & Abiloa,2004). In Tanzania like any other country employees are motivated by rewards. There is a need for organization to reward its employees for creating a successful competitive Environment. This is one of the essential for the organizations to achieve high work performance.Someemployeesarehighlymotivatedby extrinsicrewardssuchas increase in pay, promotions and bonus, others employees are motivated with intrinsic rewards such as appreciation, praise and recognition on (Bana & Kessy, 2007). Paying employees for productivity has been the cornerstone of industrial and business development for centuries. Financial reward has always been important in managing employee’s performance, but over the last 25 years other elements of compensation have been developed to provide employers with more scope to reward, and thus, motivate employees. Performance management influences performance by helping people to understand what good performance means and by providing the information needed to improve it while reward management influences performance by recognizing along with rewarding good performance as well as providing incentivesto improve it. The rewards that an enterprise apply to both individual and team performance are critical in determining how affective the reward strategy will be.Also performancemanagementinvolvesthevalueanenterpriseworkforcecouldmaketothe overallbusinessgoalsandhowitcouldbegroomedandcultivatedtoaddmostvalueto competitive advantage. This necessitates the need to identify how these rewards impact employee performance and how well the current reward system does this, within the chosen manufacturing companies forming the basis for thisresearch. Theproductivityandsuccessofeveryorganizationishighlydependentonitsstaff(Ali, 2013; Gabcanova, 2011; Markova & Ford, 2011; Vlachos, 2009). Thus maximizingthe overall organization performance requires an understanding of those factors that encourages the employees to put in extra effort at work and also in enhancing their performances (Hafiza, Shah, Jamseheed & Zaman, 2011). Reward system and managementisoneimportantHumanResourceManagementstrategyforattractingand retaining high quality employee as well as facilitating them to improve performance (Dewhurst, Gutridge& Mohr, 2010; Ibrar& Khan,2015). According to Anku-Tsede & Kutin (2013) reward system can be seen as a means of activelyengagingandtherenewingtheemployee’ssenseofcommunityandmissionof anorganization.Inthisview,aneffectivelyadministeredsystemofrewardscanprovide incentive for quality workmanship and performance. Likewise, a poorly administered reward system can lead to low morale, unproductive performance and in the extreme cases a high percentage of employee turnovers. Organizations provide rewards to membersintheformofwagesandsalaries,promotions,longserviceawardsand certificates, end of the year bonus and other fringe benefits. These rewards are to motivate behavior that will contribute to the achievement of the goals of organizations. Thequestionsthatreadilycometomindare,whatsortofbehaviordoes an organization want? How can reward process promote that behavior? What motivates an organization to design reward packages for the employees? Nearly all organizationsinvestintheprovisionofrewardstomotivatetheiremployeesinorderto get the desired results. According to equity theory, the adequacy of such rewards will to a large extent depend on the value the employees place on the inputs they bring to thejobintheformofeducation,experience,training,time,effortetc,withtheoutcomes (rewards) such as pay, promotions, praises and recognitions they receive as a result of performing the job (Fajana,2002). Reward systems is a broad construct that generally represents anything thatemployees may value and are willing to acquire in exchange for his or her contribution to work Chiang & Birtch (2008).Pratheepkanth (2011) describe reward system toinclude all organization components which may include people, processes, rules and decision makingactivitiesinvolvedintheallocationofcompensationandbenefitstoemployees in exchange for their contribution to the organization. From both definitions, rewards can be described as tangible benefits one can receive from engaging in a specific task. This opinion is reiterated by Torrington, Hall, Taylor and Atkinson (2011) who argue that although there are few people who claim to enjoy work for the sake of it, most people work in large part because it provides a means sustaining livelihood. This implies that people generally are concerned with the amount of benefits (whether financial or non-financial) attached to their work. The positive relationship between reward systems (especially financial rewards) on employee performance has been established in past studies (Lazear, 2000; Osa, 2014; Prendergast, 1999; Metha, 2014; Saleem,2011.). Other commentators have put forward the notion that non-financial rewards are also important facilitators of organizational performance with the argument that financial performance on its own is incapable of effectively motivating employees towards optimum performance (Babakus, Yavas, Karatape & Avci, 2003; Bason, 2003; Dewhurst et al.(2009); Perry, Mesch & Paarlberg, 2006; Neckermann & Kosfeld, 2008; Dewhurstetal.(2009)forinstanceadvancedthenotionthatnon-financialrewardshave a more significant influence on employee performance than financial rewards withthe argument that financial rewards are mostly effective in boosting employees’ energy in the short-term and in most cases can have damaging unintended consequence. Three major non-monetary rewards reported to have significant effect on employee morale are: (i) praise from immediate managers, (ii) leadership attention (i.e. one on one conversation) and (iii) the opportunity to lead projects or task forces. In addition, Neckermann and Kosfeld, (2008) identify significant non-financial rewards to include social recognition from managers and colleagues alike in the form of appreciation for job completed, acknowledgement and certificates of recognition, were reported to be better drive improved performance than financial/monetary rewards. The debate on whether to use monetary or non-monetary rewards has led to the development of the concept, Total Reward System. WorldatWork (2011) defines total rewardsasholisticapproachthatstrategicallyincorporatesseveralemploymentfactors (such as compensation, benefits and work-life amenities) in unison, to deliver desired employee attraction, motivation and retention. Thompson (2002) also defines total reward to typically encompass not only traditional, quantifiable elements like pay and benefits, but also more intangible elements such as scope to achieve and exercise responsibility, career opportunities, learning and development, the intrinsicmotivation providedbytheworkitselfandthequalityofworkinglifeprovidedbytheorganization. Kaplan (2007), also sharing this view, define total rewards as a holistic approach aligning business strategy and people strategy, aimed at bringing about maximum return and builds up employment brand, all of which create sustainable competitive advantage for organizations. According to Armstrong (2007) the conceptual basis of total reward is the bringing together of the different reward processes (that are interrelated, complementary and mutually reinforcing) with the focus of stimulating a deeper and long-lasting impact on the motivation and commitment ofemployees. Similarly, Nazir, Shah and Zaman (2012) describe total rewards as an enclosing of aspects of work benefits that employees attach value to; whether it concerns provision of healthy work environment, better opportunities of learning and development or the benefitspackagelinkedtothepay.Hence,aneffectiverewardsystemincorporatesboth thefinancialincentives(suchaspay,fringebenefitsandothermoney-relatedplans)and non-financial incentives (such as vacations/holidays, recognition and appreciations) in driving employee motivation for improved performances. Given that employees’ moraleandimprovedproductivitygohandinhand,itisthereforeimperativefor organizations to foster a properly administered reward system which not only has the capacity to improve the quality work efforts and employee but also act as a strategic tool for attracting skilled employees to the organization (Armstrong & Brown, 2005; Herman, 2009). Notwithstanding, most organizations are still finding it difficult to establish an effective reward system that fairly suits the organizational demands in relation to employee performance and over organizational profitability (Osa, 2014; Roberts, 2005; WorldatWork, 2011.). Dewhurst et al. (2009) argue that the present economic situation has pushed successful companies around the world to adjust their reward systems – moving from financial to non-financial sensitive systems; whereas some organizations (to their detriment) are still sticking to the traditional method of rewards that emphasis bonuses and payment compensation. Additionally, the findings that the workers’ needs and desire from work differs from one individual to another require organization management to develop reward systems that is tailored towards theindividualneedsoftheirstaffs(Dewhurstetal.2009).Nevertheless,asemphasized by Brian (2006), rewarding and recognizing employee can be a tricky task as there is no generalized model towards its implementation; arguing that a successful system in one organization can be a failure inanother.

Nestle Nigeria Plc

Nestle Nigeria Plc is a Nigeria-based food manufacturing and marketing company foundedin1961(NestleNigeria,2016).TheCompanyoperatesthroughtwosegments: Food and Beverages. The Food segment includes the production and sale of Maggi, Cerelac, Nutrend, Nan, Lactogen and Golden Morn. The Beverages segment includes the production and sale of Milo, Chocomilo, Nido, Nescafe and Nestle Pure Life. The Company manufactures and markets a range of brands, which include Infant Formula- Nestle NAN, Nestle LACTOGEN, Infant cereals-Nestle NUTREND, Nestle CERELAC, Family cereals-Nestle GOLDEN MORN, Confectionery-Nestle CHOCOMILO, Nestle KITKAT, Bouillon-MAGGI Cube, MAGGI Mix'py and Table Water-Nestle PURE LIFE. Its products include MAGGI Star Cube, MAGGI Crayfish, MAGGIChicken,Ginger&Garlic,GoldenBeefandClassic.Itpromotesfoodcultures throughMAGGIStarCookparticipatorycookeryprograminneighborhoods,and MAGGIWomenForum,ahomemanagementprogramtargetedatsemiurbanandrural women.

1.2 Statement of theProblem

Considering the importance of reward systems in employee performance of manufacturing organizations, it is disheartening to note that salaries and wages reward systems and practices in the manufacturing sector are largely disconnected from the demands of fairness, prevailing realities and moderation (Ejumudo, 2014). The environment created by the reward system has the potency of constituting a cog in the much-desired process of initiating and sustaining motivation by a team of competent, efficient, goal-driven, proactive and value-adding employees in the organizations thus leading to counterproductive behaviors which consequently leads to reduction in employee performance, reduction sales and profits by the organizations and business failures (Ejumudo, 2011). According to Obikeze (2012), a greater percentage of the employees in manufacturing companies have been major culprits of lateness to work and not keeping appointment to customers, very unfriendly and even become hostile while attending to customers, some lose focus and consequently supply wrong brand of products to customers and these result in long waiting time for customers to receive the needed goods and services, and the consequent low performance as some customers lose patience and consequently take their leave and even go the alternatives. The poor attitudes of the sales force such as lateness to work, delayed sales calls, lack of information for customers problems, could contribute to the low growth of employee performance in manufacturingcompaniesandthesearisesfromthepoorlystructuredandinsomecases unavailable reward system through lack of fringe benefits to workers, recognition and appreciation offered by the manufacturing companies to their employees Obikeze (2012). Various organizations staff has shown that they have diverse needs that require a comprehensivetotalrewardsystemtomeettheneedsofvariousemployees.Asaresult organizations has been faced with the challenge of implementing and offering competitive rewards to the workforce for the purpose of enhancing their performance as the lack of special recognition to acknowledge outstanding individual or team achievements with small cash awards, individual performance rewards based on specific employee performance criteria and stock ownership rewards to professionals who meet specific goals have been neglected by management in several organizations (Kawara, 2014). Due to these, the conceptual and adaptive performance of the employeeshasbeenonthedeclineleadingtocustomerlossesastheemployeesfeelless motivated towards work and organizational profit will decline (Hafiza, Shah, Jamseheed, & Zamam,2011). The ability to attract and retain effective and efficient employees, as well as keepthem highly motivated has become a great challenge among organizations that has led to reductionintheemployeesperformancewithemployersnowrequiringtheiremployees todomorewhilegivinglessintermsofrewardsandemployeesontheirpart,areasking for more incentives with the inability of organizations to strike a balance resulting in reduced task performance by the employees (Nnaji & Egbunike,2015).The poor productivity of Nigerian workers has been blamed on several factors, among them is employer’s failure to provide adequate compensation for hard work and the indiscipline of the privileged class that arrogantly displays their wealth, which is very demoralizing to working class and consequently reduced their productivity (Sajuyigbe, Olaoye & Adeyemi, 2013). Markova and Ford (2011) mentions that the real success of companies originate from employees’ willingness to use their creativity, abilities and know-how in favor of the company and it is organization’s task to encourage and nourish these positive employee inputs by putting effective reward practices in place. Lautizi, Laschinger, & Ravazzolo, (2009) stated that the current level of satisfaction by employees is quite low and the reward system offered by organizations play a vital role and this has led to the dismal performance of the organizations and their inability to emerge from its doldrums. The poor reward system in the manufacturing companies has also led to the employee performance rates within the last decade become a nationwideepidemic.Employeesintheorganizationsnolongerfeelthesenseofloyalty that once existed and have left employees feeling detached from the organizationslead the employees to focus more on job hunting rather than increasing their performance therebyhurtingthegeneralperformanceoftheorganizations.Muhammad(2014)stated that in today’s business scenario only high salary and designation is not significant for employees to retain them in organizations, but others factors also play important role in their performance improvement, other factors such as recognition and appreciation systems, sense of accomplishment and fringe benefits has been found to be a missing vital link that could help achieve increased employee performance but most organizations lack it and there by their lack of organizationalgrowth. AccordingtoZameer,Ali,NisarandAmir (2014)rewardsystemsinmostorganizations fail because they are not usually performance based the lack of proper remuneration system and all these leads to decreasing employee performances. Wasiu and Adebajo (2014) reveals that most Nigerian organizations fails to pay adequate attention to the wellbeing of the employees and in most cases the remunerations they receive is not evenproportionatewiththeeffortsandskillsthattheyputintoworkandorganizational activities.Akinbowale,JinabhaiandLourens,(2013)revealsthatmostorganizationsin Nigeria consider the employee as an additional cost (or liability) to their profit making goalandassuchastheydonotremuneratethemappropriately.Insteadofregardingthe employees as the most valuable asset, attention is rather paid to other organizational resources such as materials, machineries and process of operations with theunderlying drive for the organizations being to improve the production process with little or no consideration for human efforts. Ajila and Abiola (2004) describe the attitude of most Nigerianmanagementtowardsworkersasasocialconcernandstressedtheimportance of investigating this problem at the industrial settings that are resulting in their indifferent attitude towards reward systems as a means of maximizing employee productivity.

1. 1. Objective of the Study

The specific objectives are to:

1. EvaluatetheeffectofSenseofAccomplishmentontaskperformanceinselected manufacturing companies in Lagosstate;
2. Examine the effect of Recognition/Appreciation system on contextual performance in selected manufacturing companies in Lagosstate;
3. Determinetheeffectofsalary & wagesoncounterproductivebehaviorinselected manufacturing companies in Lagosstate;
4. Assess the effect of fringe benefits on adaptive performance in selected manufacturing companies in Lagos stateand
5. Determine the effect of combined reward system variables on employee performance in selected manufacturing companies in LagosState;

1.4Research Questions

In line with the stated objectives, the study will answer the following questions:

1.What is the effect of Sense of Accomplishment on employee’s task performance in selected manufacturing companies in Lagosstate?

2.What is the impact of Recognition/Appreciation system on employee’s contextual performance in selected manufacturing companies in Lagosstate?

3.What is the influence of salaries/wages on employee’s counterproductive behavior in selected manufacturing companies in Lagosstate?

4.Evaluatetheextenttowhichfringebenefitsaffectemployee’sadaptiveperformance in selected manufacturing companies in Lagosstate?

5. What is the effect of combined reward system variables on employee performance in selected manufacturing companies in LagosState?

1.5 Hypotheses

To provide answers to the research questions, the following hypotheses will be tested in this study:

H01:Salary/Wages has no significant effect on employee’s counterproductive behavior in selected manufacturing companies in Lagos state.

H02:Fringe Benefits have no significant effect on employee’s adaptive performance in selected manufacturing companies in Lagos state.

H03: Joint Reward System Variables has no significant effect on employee performance in selected manufacturing companies in Lagos state.

1.6 Scope of theStudy

This study investigated reward system and employee performance of selected Manufacturing companies in Lagos state.

1.7 Significance of theStudy

Thestudyisexpectedtoincreaseknowledgeandunderstandingoftheeffectsofreward system on the performance level of employees in the Nigerian manufacturingindustry. The study of management would be enhanced as different approaches have been used to view reward system and employee performance. As such this study would help to increasetheknowledgeofbothmanagementtutorandstudentsastheywouldgainmoreinsight into this study. Industries would utilize this study to formulate and implement policies that would lead to a fair reward system for private and public servants and which would improve efficiency and effectiveness in organizational processes/staff performance. It is also hoped that firms within the industry utilizes the findings from the current study to formulate and implement policies that would lead to the implementation of fair reward systems, aimed at improving individual and collective performances of employees and in the long run would aid in improving the efficiency andeffectivenessoforganizationalprocesses. Employersarealsoexpectedtolearnfrom this study so that they avoid development and selective implementation of haphazard reward systems through creation of highly qualified and sensitive human resource departments that would select, train and equip employees in order to reduce their withholding of effort at their workplace. The study would be utilized to create more convenient and satisfactory rewards for the employees in industries and thereby yielding a higher result in the output .It is also expected that at the completion of this study, the society would adopt the concept of absolute and sincere reward system that enables individuals to offer their best in every undertaken to ensure success and completion of tasks handled. This implies that the study contributes to the daily implementation of reward systems that enhances the output and performance of individuals at home and at workplace. The government of Nigeria through public service commission would use this study to formulate and implement policies that would lead to a fair rewardsystem.

1.8Operational Definition ofTerms

Reward: can be defined as anything that an employee may value that an employer is willing to offer in exchange for his or her contributions.

Reward System: comprises of all interrelated organizational processes – including people, process, rules and decision making activities which combine to ensure that reward management is carried out effectively to the benefit of the organization and the people who work there.

Intrinsic Reward: refers to the reward one derives from the content of the work itself and includes factors such as interesting and challenging work task, self-direction and responsibility, variety, creativity, opportunities to use one’s skills and abilities, sufficient feedback regarding effectiveness of one’s effort, personal satisfaction with job, recognition and appreciation, career development opportunities, etc.

ExtrinsicReward:referstotherewardattainedthatareexternaltothejobitselfandit usuallyincludefinancialandtangiblerewardscomponentssuchaspay,fringebenefits, job security, promotions, private office space,etc.

Employee Performance: is defined as the undertaking of complex series of actions that integrate the skills and knowledge of the employee(s) to produce a valuableresult. It also can be defined to reflect the quality and quantity of the employee’s output, presence at work, accommodative and helpful nature and timeliness ofoutput.

Task Performance: can be defined as the proficiency (i.e., competency) with which oneperformscentraljobtasks;reflectinganindividual’sproficiencywithwhichhe/she performs activities which contribute to the organization’s goals andobjectives.

Contextual Performance: refers to activities which do not contribute to the technical core of the organization but which support the organizational social and psychological environment in which organizational goals are pursued and includes behavior suchas helpingcolleagues,beingareliablememberoftheorganizationandmakingsuggestions about how to improve workprocedures.

Counterproductive Behavior: defined as behavior that harms the wellbeing of the organization and it includes behavior such as absenteeism, being late for work, engaging in off-task behavior, theft and substance abuse. It also include overt acts such as aggression and theft or more passive acts, such as purposely failing to follow instructions or doing work incorrectly.

Adaptive Performance: is defined as the extent to which an individual adapts to changes in a work system or work roles and include, for example, solving problems creatively,dealingwithuncertainorunpredictableworksituations,learningnewtasks, technologies, and procedures, and adapting to other individuals, cultures, or physical surroundings.