Effect Of Financial And Non Financial Incentives On Staff Productivity

Project and Seminar Material for Human Resource Management (HRM)

Effect Of Financial And Non Financial Incentives On Staff Productivity


The research focused on the effect of financial and non financial incentives on staff productivity. The study adopted descriptive survey design. The population of interest was the staff of Nigeria Postal Services but limited to the Kaduna branch only. Stratified sampling was used to determine the sample size of 164 employees from the total population. Data was collected using structured questionnaires that were based on the research questions and coding was done for ease of analysis through SPSS. Descriptive statistics was used to analyze data. In conclusion, the study revealed that all the incentives and reward systems are important though they have a different meaning to different categories of employees working for Nigeria Postal Services. The study therefore showed that different incentives and rewards have different effects on employee productivity. The study further revealed that there is a need for Nigeria Postal Services to come up with a comprehensive reward systems that can motivate employee to increase their productivity. Recommendations for improvement at Nigeria Postal Services includes coming up with a well-structured and monitored reward system which includes a profit sharing mechanism, promotions and career growth for all the employees.

Chapter One

1.0 Introduction

1.1 Background of the Problem

All organizations are concerned with what should be done to achieve high level of productivity through staff motivation using the right kind of incentive. Consequently the effect of financial and non financial incentive becomes a burning issue in human resource management. As such a lot of theoretical concept, principles and techniques of management have evolved in response to these challenges/ but most scholars suggest that more conceptual and empirical work is required to show the link between financial and non financial incentive and staff productivity is still vague but some studies have documented in their work that financial incentive is readily perceived as having a high instrumental value that makes putting forth extra effort worthwhile and its has a long term effect in terms of labour turnover rate because of comparative value for alternative employment while non financial incentive has less initial impact as the pragmatics of financial gain, they seem to have a steady, sustainable impact.

Financial rewards have always been important in managing employee’s performance. However, other elements of compensation have been developed to provide employers with more scope to reward and motivate employees to increase productivity.

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

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

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

Despite the growing body of literature and empirical study on the effect of financial and non financial incentive on workers productivity, the subject matter still remains complex. Hence, the need to undertake a survey on the effect of financial and non financial incentives on staff productivity in Nigeria Postal Services Kaduna.

1.2 Statement of the Problem

Nigeria Postal Services (NIPOST) like other public enterprise is constraint with the problem of using non performance based element like salaries to compensate it staff as against performance-related pay structure which has hamper productivity because it does not make worker put in extra effort in their work. This is so because their compensation is not based on incentive schemes that elicit additional effort of workers sequel to unfriendly government legislation on wages clause and bureaucratic inefficiency. Hence the need to examine the effect of financial and non financial incentive on staff productivity in Nigeria Postal Services Kaduna.

1.3 Purpose of the Study

The central objectives of this study are to examine the effect of financial and non financial incentive on staff productivity in NIPOST Kaduna.

Specifically the study is set out to:

  1. Examine the effects of financial incentives on employee productivity in organizations.
  2. Examine the effects of non-financial incentives on employee productivity in organizations.
  3. Assess if effective reward system have positive effects on employees’ productivity.

1.4 Research Questions

The study was guided by the following research questions:

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

1.5 Significance of the Study

This study brings to light the effect of financial and non financial incentives on staff performance in organization. The study will therefore be beneficial to the organization understudy (NIPOST) in area of policy formulations as regard staff incentive schemes and remuneration. To education, the study will contribute to already existing knowledge on the effect of financial and non financial incentives on workers’ performance. Finally, to those in academics and human resource researches, the study will serve as a springboard for further investigations.

1.6 Scope of the Study

The study covers an empirical investigation of the effect of financial and non financial incentives on staff productivity in NIPOST Kaduna.

1.7 Limitation of the Study

The study is limited to bias in respondent opinion about the subject matter as well as the use of one study area and the uncertainly about the generalization of finding sequel to the use of a single research design as well as instrument. For the fact that only NIPOST was used as the sole area of study it is no certain if the same result would be obtained in other organization. Respondent bias and non challant attitude also constitute a greater limitation to this research. For the fact that questionnaire constitute the only instrument use to collect data and survey research design the sole design used for the study. It is not certain if the same result will be used if other type of design as well as instrument were used. All these factor constitute a greater limitation to the research.

1.8 Definition of Terms


Incentives means an inducement which rouses or stimulates one to action in a desired direction (Milton, 2013). These are benefits that are promised to employees to motivate them to achieve their best and improve their behavior, productivity and output continuously.

Financial Incentives

Financial incentives have been defined by a number of authorities in a number of ways, depending on their orientation, context, environment and situation.

Non-Financial Incentives

Meridith (2015) defines non-financial incentives as types of rewards that are not part of an employee’s pay. Non-financial incentives are a means of encouraging employees in boosting their morale without any form of cash payment to employees


Armstrong (2012) defines reward as a benefit that is provided in recognition of achievement, service, commendable behavior etc. It is only given to an employee only after he has provided evidence of his positive behavior and achievements.

Employee Motivation

According to (Goudas, Biddle & Fox, 2011), motivation is the level of energy, commitment and creativity that employees bring to their jobs.

Employee Productivity

Carol (2016) defines employee productivity as a performance measure of both efficiency and effectiveness of an employee or a group of employees.

Chapter Five

5.0 Conclusion and Recommendation

5.1 Introduction

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

5.2 Summary

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

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

5.3 Conclusions

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

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

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

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

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

5.4 Recommendation

5.4.1 Financial Incentives on Employee Productivity

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

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

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

5.4.2 Non-Financial Incentives on Employee Productivity

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

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

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

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

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

5.4.3 Reward Systems on Employee Productivity

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

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