Human capital is one of the most critical resources of any organization. An organization's success is heavily determined by personal motivation, which is important for the fruitful performance of job-related activities. As a result, organizations strive to keep their employees motivated to increase productivity and interest in the company's goals. An organization can establish various plans to retain employees by creating a work environment with which employees are satisfied. This chapter examines the contribution that employee motivation theories can make in the design and implementation of an employee reward policy and shows the connection between reward, motivation, and performance. The focus will be on some of the most relevant motivation theories: Maslow's hierarchy of needs, the two-factor theory, the equity theory, and the expectancy theory. Several recommendations for managers and policymakers are proposed.
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Motivation has been a central theme in human resource management due to the direct relationship between motivation and job satisfaction. Motivation theories have shown that pay is not the only factor that can lead to job satisfaction. In the pages that follow, it will be argued that, apart from economic incentives, there are non-financial and intangible motivators such as achievement, recognition, responsibility, influence, and personal growth. These non-financial rewards can be powerful in themselves. However, they can work even better if incorporated with financial rewards (Robbins & Judge, 2017). Nonetheless, it is crucial to consider that the needs of every employee are different depending on their background, position, experience, or interests, so reward systems should be customized to meet organizations’ needs as well as employees’ needs.
Other benefits should also be taken into account, such as personal security (healthcare services, sick pay), financial assistance (company loans, mortgage assistance), personal needs (maternity and paternity leave, childcare, restaurant facilities), and pension schemes (Armstrong, 2002). Pay and pay-related concerns (such as social security contributions or pension schemes) account for a significant portion of the total cost of running a firm. Managing this area of human resources has gotten more difficult as organizations seek greater value for their money, have higher expectations of what employees can bring to the company, and compete for talent.
The job demands-resources model serves as the theoretical framework to explain which factors may enhance motivation (Bakker & Demerouti, 2017).
Several employee motivation theories can help us understand the contribution they make in the design and implementation of employee reward policies. For instance, Maslow’s hierarchy of needs recognizes a set of key needs (physiological, safety, social, esteem, and self-actualization) that should be considered in the development of reward policies and acknowledges the significance of non-financial rewards as important motivators (Maslow, 1954). Herzberg’s two-factor theory identifies the different sources of job satisfaction and dissatisfaction (Herzberg, 1987), whereas the equity theory emphasizes the need to implement an equitable reward system and deals with people’s perceptions of how they are treated in comparison with others (Adams, 1963). Furthermore, expectancy theory stresses the importance of establishing a relationship between effort, performance, and rewards (Vroom, 1964).
It is essential to analyze organizational rewards because they can influence attitudes, behaviors, and motivation. Employee attitudes can differ depending on their perception of satisfaction, comparisons to others, and perceived extrinsic and intrinsic rewards. Employee behavior is shaped by rewards. For example, reward systems sway absenteeism and attendance, and employees strive hard to get those rewards if they are based on performance (Griffin, 1997).
According to Armstrong (2002), people can motivate themselves by searching for and accomplishing tasks that may lead employees to achieve their goals. Employees can also be motivated by management through reward systems that include remuneration, promotion, and praise. These two kinds of motivation are intrinsic and extrinsic.
On the one hand, intrinsic factors include responsibility, training and development opportunities, interesting and challenging work, and work environment, among others. On the other hand, extrinsic motivation includes rewards such as pay rises, bonuses, promotion, or profit sharing. Intrinsic motivators are likely to have a deeper and long-term orientation, while extrinsic motivators have an instant effect but do not last long, as will be discussed later (Ryan & Deci, 2000).
This chapter is divided into four sections. First, the job demands-resources model is explained, serving as the theoretical framework. Next, the major motivation theories are examined. Then, a discussion on motivation and economic incentives is presented. Finally, several practical implications and recommendations are made for managers and policymakers, and future lines of research are commented upon.