African Journal of
Business Management

  • Abbreviation: Afr. J. Bus. Manage.
  • Language: English
  • ISSN: 1993-8233
  • DOI: 10.5897/AJBM
  • Start Year: 2007
  • Published Articles: 4137

Full Length Research Paper

Incentives as correlates of employees’ loyalty towards management in organisation

Idowu H. A. O.
  • Idowu H. A. O.
  • Department of Family, Nutrition and Consumer Sciences, Obafemi Awolowo University, Ile-Ife, Nigeria.
  • Google Scholar
Soyebo K. O.
  • Soyebo K. O.
  • Department of Management and Accounting, Obafemi Awolowo University, Ile-Ife, Nigeria.
  • Google Scholar
Adeoye E. A.
  • Adeoye E. A.
  • Department of Management and Accounting, Obafemi Awolowo University, Ile-Ife, Nigeria.
  • Google Scholar


  •  Received: 27 September 2017
  •  Accepted: 11 September 2018
  •  Published: 28 June 2019

 ABSTRACT

The study investigates the effects of incentives on employees’ loyalty towards organisational management. It considers the types of incentives structure implemented for employees, and its probable effects on the performance and loyalty of employees to the management of an organisation. Data were collected through the administration of questionnaire to one hundred and twenty respondents, comprising thirty respondents; they were selected using convenience sampling from four organizations namely Sumal Foods Limited, Yale Foods Limited, Coca Cola Bottling Company, and Zartech, all located within Ibadan South west Local Government Area of Oyo State. Data collected were analyzed using descriptive statistics such as frequency counts, percentages, means and standard deviation. The findings revealed that the core of the respondents was within their active ages, with majority (65.8%) being married, (63.3%) having a household size of 3-5, and (79.2%) having post-secondary education. Majority (75%) were full time workers (53.3%), with 11 to 20 years of work experience, while 63.3% earned between ₦19,000 and ₦54,000 per month. The organisations provided tangible and intangible financial incentives to their employees with mean between 2.5-3.5. Respondents indicated that non-availability of all types of incentives will negatively affect loyalty and performance (mean between 3.0 and 3.3). Therefore, for sustained employees’ loyalty and increased performance, adequate incentive packages should be available for workers of all categories.

 

Key words:  Incentives, employees' loyalty, organizational management.

 


 INTRODUCTION

The imperative to gain a deep understanding about the interrelationship between giving incentives and enlisting the loyalty of employees has become a major issue to management practitioners. In this respect, Perry et al. (2009) and Frey et al. (2013) alluded to research findings linking pay to commitment and performance. Similarly, Bertelli (2006) posited that intrinsic motivation in terms  of financial compensation could spur employees to higher productivity. As it were therefore, if the assumption by Ogbonnaya et al. (2017) that managers hold common view with respect to the claim that productive employees are considered as instrumental to organizational success is acceptable, it presupposes that performance-based incentives  are  sine-qua-non  for  individual’s  loyalty and
 
commitment to organizational performance.
 
By and large, employees are considered a vital resource for all organizations irrespective of orientation towards profit making. This is particularly so given the fact that they represent a significant investment in terms of locating firms; undertaking recruitment exercise; conducting training and development programmes; meeting financial obligations; provision of healthcare scheme, all geared towards the accomplishment of organisational goals and objectives. LaMalfa and Expert (2007) posited that employees are the lifeblood of every organisation deserving more than salaries, trainings or benefits. Usually, investments on employees are products of a company’s policies, designed to build loyal employees and ensure relatively lengthy tenure at work. Longevity is akin to symbiotic existence between an organisation and its crop of employees, especially as the latter become psychologically attached to the organisation. Iqbal et al. (2015) therefore argued that employees and organizations have a functional two-way relationship as well as mutual commitments between both parties.
 
Loyalty, as a general term, signifies a person's devotion or sentiment of attachment to a particular object, which may be a person or group of persons, an ideal, a duty, or a cause. It expresses itself in both thought and action and strives for the identification of the interests of the loyal person with those of the object (Britannica, 1998). Indeed, LaMalfa and Expert (2007) opined that emotionally connected employees are deemed fully engaged, optimally productive, feel validated and appreciated in an obvious win-win situation.
 
Employees’ loyalty is the extent to which the personnel are faithful to the organisation, having feelings of bonding, inclusion, care, responsibility, and disposition to personal sacrifice. The requisite conditions which could spur employees towards loyalty at work transcend mere assumption by managers (Dobre, 2013). Employees’ loyalty and commitment are closely related concepts. Bateman and Strasser (1984) submitted that commitment of employee is multi-dimensional in nature which involves high degree of employee’s dedication with the organisation, their readiness to put forth high level of effort, similarity of objectives and values and a strong wish or desire to be a part of the organisation. Commitment is a constructive assessment of the organisation and its objectives (Sheldon, 1971). According to Buchanan (1974), commitment signifies a psychological relationship between the workers and organisations. Porter et al. (1974) as well as Meyer and Allen (1997) posited that employee commitment is based on faith in the objectives of the company, readiness to put forth high level of effort in the company and a strong wish to be a part of the organisation. Kamalian et al. (2010) therefore concluded that a motivated employee has his/her goals aligned with those of the organisation and accordingly directs efforts toward organisational success.
 
It is instructive to state that incentives are considered as essential factors which encourage employees to work efficiently. In other words, incentives and reward system enhance workers’ capabilities and facilitate the accomplishment of institutions’ goals (Baba and Bababe, 2011). In contrast, the absence of a suitable incentive scheme may adversely affect employees’ productivity, nay the attainment of institutions’ objectives (Palmer, 2012).
 
Incentives may be financial or non-financial. While financial incentives are largely pecuniary in nature such as salary increments or profit sharing, non-financial incentives are non- monetary and include motivation, praise and commendation from line supervisor, attention from leaders, opportunities to lead projects or task forces, subsidized transportation for staff and provision of free or subsidized refreshment at work. Kompaso and Sridevi (2010) thus suggested that managers should adopt both financial and non-financial benefits for employees to encourage better commitment from them.
 
The existing studies have largely emphasized profit sharing initiatives as employees have the tendency to take their pay and huge benefits for granted (Ogbonnaya et al., 2017). Profit sharing may be considered a high level participation as distinct from the floor level participation. This explains the gap in literature as this study attempts to find out causal relationships between incentives of any kind and the extent of the loyalty of employees toward the management of an organisation.
 
Objective of the study
 
The main objective of the study was to assess the effect of incentives, both financial and non-financial, on the loyalty of employees towards the management of an organisation. The specific objectives are to:
 
(1) identify the types of incentives given to workers at selected organizations; and
(2) examine the perceived effects of ineffective incentive on the employees performance  and  loyalty.


 REVIEW OF LITERATURE

Here, the concepts covered in the study from existing literature and attempt to look at the relationships between and among the concepts were covered.
 
Incentives
 
Scholars have expressed diverse views about incentive, its definitions and application. Iqbal (2009) posited that incentives are directly related to performance of an individual  employee,  a  team   of   employees   and  total business unit. A unit of performance can be classified as cost savings; volume produced, quality assurance, revenues/return on investments, or increased profit (Kabeer, 2014). The Society of Incentive and Travel Executive (SITE, 1996) as quoted by Joppe and Martin (2001) defines incentive as a management tool that uses an exceptional travel experience to motivate and/or recognise participants or increase level of performance in support of organisational tools. It is a kind of compensation that has been designed to recognise employees’ performance and their accomplishment. Meanwhile, from organisational standpoints, incentive is defined as a technique, which is usually used by employers to carry out their aspect of the employment contract, a form of compensation to the employees for their effort (Hartman, 1994). Incentives are tangible or intangible rewards used to motivate a person or group of people to behave in a certain way (Collins et al., 2008). However, Banjoko (2006) regards incentive as variable payments, usually made to employees or a group of employees on the basis of the amount of pre-set output or based on the achieved result. This view was corroborated by Martocchio (2006) in his submission that incentive could be regarded as compensation rather than basic salaries or wages that usually fluctuates in direct proportion with employee’s exceptional performance leading to the attainment of some standard set by the organisation.
 
Types of incentives
 
Generally speaking, there are two major types of incentives namely financial, or monetary and non-financial or non- monetary. This core classification has also been tagged by Buchan et al. (2000) as either positive, or negative.  Expanding this same classification, Condly et al. (2003) identified three types namely: monetary incentive, non-monetary tangible incentive (coupons or vouchers for foods, vacation trip or others), and non-monetary intangible (employee recognition, praise or appreciation on job accomplishment, positive evaluation and feedback). In the main, financial incentives involve granting of monetary rewards. Financial benefits, Kreisman (2002) and Joiner and Bakalis (2006), argued potentially enhance employees’ loyalty and organisational commitment. In the same vein, the Development and Learning Organisation (Harrison, 2011) submitted that monetary rewards ensure continuation of the employment relationship, thereby assuring management of solid foundation for succession plan (De Cenzo and Stephen, 1996; Buchan et al., 2000). Non-financial incentives do not involve any payments or benefits and it mostly relates to psychological and emotional fulfilment (Assaf, 1999; Buchan et al., 2000). Milkovich and Newman (2008) underscore this fact in their submission  that  an  emerging  perspective   indeed argues that the most important component of the contemporary human resource management is rewards structure. The position is premised on global competition and environmental uncertainty which have combined to awaken a shift from traditional ways of rewards structure to one dependent on employees’ performance, skills, initiative, ingenuity, knowledge and competence (Lawler, 2000). By and large, the essence of incentives is to establish linkage with desired behaviour and the outcome that makes the employees feel appreciated (Whetten and Cameron, 2007). Incentives, in summary, involve all economic benefits supplied by the organisation: pay, promotion, verbal recognition and responsibilities (Deperi et al., 2010).
 
Interconnections among incentives, loyalty, job satisfaction and work performance
 
The relationship between incentives or rewards and job satisfaction, on one hand as well as job satisfaction and work performance, on the hand is best appreciated by situating the employee within the context of an organisational success. A survey by Business Management Daily (2015) revealed that 60% of employees stated that they do not feel recognised as they indeed looked forward to better gestures from employers than mere salaries. Accordingly, Business Management Daily (2015) devised two rules considered contingent for employees’ loyalty. These are golden rule which stipulates that employees should be treated the same manner management wants the organisation to be treated, and platinum rule which requires that the employees should be treated just as management want customers treated. The level of self- satisfaction derived by individuals or group of employees in the workplace correlates positively with their overall performance (Judge et al., 2001; Kim, 2004).
 
This proposition reflects the theoretical exposition by Vroom (1964) that “a happy worker is a productive worker”. Therefore, when employees’ performance decline, Martocchio (2006) argues that it is apposite to address workers’ satisfaction rather than isolate their performance for attention. Thorpe and Homan (2000) emphasised the importance of employees’ motivation having established a positive relationship between pay and productivity. Moreover, Dubrin (2004) states that employees’ motivation through incentive largely results in overall productivity, responsibility and self- development. There is no doubt that an appreciable percentage of employees would, ordinarily, express preference for financial incentives, but in reality, non- financial incentives have been found to be more powerful (Business Management Daily, 2015). In summary, the correlation or direct link among job satisfaction, loyalty and employees’ work performance has been proven by empirical  evidences  from  Naff and Crum (1999), Bright,  (2008), Leisink and Steijn, (2008), Judge et al. (2001) and Kim (2004).


 METHODOLOGY

The study was carried out in Ibadan South west Local Government Area of Oyo State, Nigeria with its headquarters at Oluyole Estate, Ibadan. The local government serves as the home for many medium to large scale industries, mainly manufacturing, out of which four namely Sumal Foods Limited, Yale Foods Limited, Coca Cola Bottling Company and Zartech were purposely selected for the study based on their relatively equal size. A total of thirty respondents were randomly selected from each of the organisations in the study, totalling one hundred and twenty employees. The respondents were selected from lower factory workers to management staff, with due consideration for years of experience, educational background and age hence, convenience sampling was used to select the respondents. Structured questionnaire was administered on the respondents while the data collected were analysed using one-way analysis of variance (ANOVA) shown in Table 1.
 
Table 2 highlights the various financial and non-financial incentives which organisations give to employees and the percentages of responses on each of the variables. Table 3 shows the perceptions of respondents towards ineffective incentives and its effect on the loyalty and performance of employees within an organisation. Table 4 highlights the various reasons which respondents expressed as being responsible for quitting their jobs.
 
 
 

 


 RESULTS AND DISCUSSION

Table 5 shows the results of the analysis of the data collected on the types of incentives given to employees. It indicates that the value of Fcalculated is greater than the value of the Ftable at each of the three confidence levels, with the consequence that H1 is accepted. In other words, accepting H1 is an indication that the types of incentives affect the performance and loyalty of employees within an organisation and its management.
 
The analysis of the results in Table 6 shows that the Fcalculated is greater than the Ftable at each of the confidence levels, which implies that H1 is accepted. The results   thus  showed  that  ineffective   incentives   could adversely affect the performance and loyalty of employees to management and the organisation.
 
The analysis of the results in Table 7 shows that the value of Fcalculated is greater than the value of Ftable at each of the three confidence levels.  It presupposes therefore that H1 is accepted and that employees may be inclined to quit their jobs work due to financial and non -financial incentives accruing to them within an organisation.
 

 


 CONCLUSION

The research aimed at finding out the relationships between incentives and performance of employees in terms of loyalty to management as well as performance within the organisation. Different types of incentives like monetary, intangible and tangible non-monetary were considered in the study and findings indicate that employees were favourably disposed to either financial or non -financial incentives as they bear the capability to affect performance positively or adversely. The implication is that workers’ loyalty and performance could be affected by the absence of incentives or non- recognition of its importance by the management of an organisation, such that employees may feel not being important. Moreover, ineffective incentive plays a major role in determining the loyalty to management and performance of employees as findings revealed that employees reject ineffective incentives. The results equally showed that employees were most inclined to quit organisations either for total non-existence or inadequate financial or non-financial incentives. It could thus be safely deduced that incentives play a crucial role in employees’ loyalty towards management and their performance within an organisation. Employees’ loyalty is considered crucial for improved performance which, by extension determines the likelihood that the goals of an organisation would, or would not be achieved. Organisation without a robust incentive structure could find it difficult, if not impossible to enlist the loyalty of employees towards management.


 RECOMMENDATION

The study reveals that incentives play a great part in enlisting the loyalty of employees to management of an organisation. It supports the arguments of scholars  that organisations should place adequate emphasis on the issue of incentives as a means to spurring employees to higher  performance  in  terms  of  productivity and continued commitment to the future of such organisations. It thus buttresses the submission of Meyer and  Allen  (1991)  that  employees  with  a strong loyalty and commitment are naturally inclined to stake their working career to their organization. It equally  lends  credence   to   the conclusion of Buchan et al. (2000) that an organisation requires an all-inclusive incentive schemes  to  reward  and   recognise  employees’ performance in direct proportion to their respective productivity. Therefore, organisation would secure its future as long as it adopts meaningful incentive packages which cut across financial and non-financial gestures to employees.


 CONFLICT OF INTERESTS

The authors have not declared any conflict of interests.



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