IMPACT OF MONETARY REWARDS ON EMPLOYEES MOTIVATION IN

SMALL AND MEDIUM SCALE ENTERPRISES IN NIGERIA

BY
Elikwu, Michael Ikechukwu
Department of Business Administration
Nasarawa State University, Keffi, Nigeria
alwayzcoolconcepts@yahoo.com

Abstract

In Nigeria, there is the problem of most employees of various SMEs scouting for better jobs in
order to earn a higher wage and attain a higher standard of living. This is coupled with the
problem of low productivity, stagnated growth of SMEs and very high overhead costs as
compared to output. There is also the problem of less reward, likely resulting to the decreasing
of employees' motivation and performance such as high number of absenteeism, as well as lack
of interest in doing task that is not included in their job description. Hence, the main objective
of this study is to evaluate the impact of monetary rewards on level of employee motivation in
SMEs in Nigeria. Structured questionnaire was used to collect data from one hundred and
thirty eight (138) respondents through random sampling method from the selected Small and
Medium Scale Enterprises in Abuja, Asaba and Lagos, all in Nigeria. Data collected were
analyzed using simple statistical tables with percentages, while, postulated hypothesis tested
using the Multinomial Logistic Regression (1 4 > 0 ). The findings revealed that, monetary
rewards (over-time, salary increase, bonus and sales commission) have significant impact on
(level of) employees motivation in SMEs, but at varying degree; hence, it was recommended
that, a well-articulated monetary rewards system be maintained to influence level of
employees motivation in order to ensure commitment and enhanced productivity. However,
since money can stop being a motivator once gotten, it is also recommended that owners of
small and medium scale enterprises should endeavour to explore the use of non-monetary
reward to boost employees motivational drive, so that both individual and organizational
objectives can be achieved.

Key words: Reward, Employees, SMEs, Motivation and Monetary Rewards

1.1 Introduction

In the contemporary global economy, employees are the most valuable asset to organizations

and as such, play important roles in ensuring performance and growth of Small and Medium

Scale Enterprises (SMEs) as in every other organization. Employee motivation is a critical

factor in ensuring that organizations operate optimally and efficiently, hence, appropriate

motivating reward will enhance employee and organizational performance.

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To maintain a good employee performance, a suitable reward system is needed, as such; one of

the fundamental tasks of every organization globally in the management of human resources is

effective and appropriate reward mechanism. It is a complex task that occurs intermittently,

demand precision and must not be delayed. Reward being one of the central pillars of human

resources management is concerned with compensating people fairly, equitably and

consistently in accordance with their value to the organization (Armstrong, 2005).

This however requires integrating employees with business process and strategies improved

efficiency (Ash, 1993) to achieve optimal organizational goals and objectives. In other words,

reward is a powerful means of focusing attention within an organization, communicating clear

messages to all employees of the organization (Schell & Solomon 1997), informing them about

expected productivity level.

The fact that people work to get reward for their efforts confirms that, exchange of labour for

financial rewards is the heart of employee motivation. Hence, employees only put forward

their best if they get reward for their work (Odoh, 2011). There are therefore are two types of

reward system, monetary rewards (salary, bonus, commission, incentives) and non-monetary

rewards (promotion, opportunity to completion, training, skills, meaningful work and work

kind condition) (Malik, Maria, & Muhammad 2011).

Thus, significance of reward emanates mainly from the fact that it provides motivation to

employees and constitutes a strategic and important item to performance and growth of SMEs.

Hence, this research work evaluates the impact of monetary rewards on employees motivation

in Small and Medium Scale Enterprises in Nigeria.

A preliminary literature review for this thesis had revealed a gap between general reward

literature and employee motivation literature regarding the question of how to reward and

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motivate employees (Beel 2006) especially in Small and Medium Scale Enterprises. Initial

investigation revealed that, employee motivation literature focuses on many aspects in

motivation but covers rewards only superficially.

In Nigeria, there is the problem of most employees of various SMEs scouting for better jobs in

order to earn a higher wage and attain a higher standard of living. This is coupled with the

problem of low productivity, stagnated growth of SMEs and very high overhead costs as

compared to output. Less reward as asserted by Adams Equity Theory (1963), may result to

the decreasing of employees' motivation and performance such as high number of absenteeism,

as well as lack of interest in doing task that is not included in their job description.

In order to solve the questions raised by the identified questions in the above statement, the

research question was directed specifically to address the following issue;

1. What is the impact of monetary rewards on employees' motivation in SMEs?

i. What is the impact of over-time Pay on employees motivation?

ii. What is the impact of Salary Increase on employees motivation?

iii. What is the impact of Bonus on employees motivation?

iv. What is the impact of Sales Commission on employees motivation?

Specifically, the main objective of this study is to evaluate the impact of monetary rewards on

level of employee motivation in SMEs in Nigeria. Specifically, the objective focuses on over-

time benefit for extra work done, increase in salary to enhance productivity, bonus and sales

commission as a reward to motivate sales personnel to increase performance.

Therefore, in order to achieve the objectives of the study, this hypothesis has been formulated

for testing:

H0: There is no significant effect of monetary rewards on employees' motivation.

H1: There is a significant effect of monetary rewards on employees' motivation.

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2.0 Literature Review

2.1 Conceptual Framework

Employees who are effective and efficient are likely to be limited if they are not motivated to

Perform. Mendonca, (2002) sees reward and compensation system that is based on the

expectancy theory, which suggests that employees are more likely to be motivated to perform

when they perceive there is a strong link between their performance and the reward they

receive. Guest, (2002) is of the opinion that reward is one of the keys that motivate employees

to perform as expected.

The reward can be in the form of cash, recognition and praise or a combination of both Group

Performance-related schemes reward a group or team of employees with a cash payment for

achieving an agreed target. These schemes are all designed to enhance company performance

by aligning the interests of employees with the financial performance of their companies

(Chin-Ju, 2010). Huselid, (1995) sees reward as a system (e.g. profit sharing) that contributes

to performance by linking the interests of employees to those of the team and the organization,

thereby enhancing effort and performance. La Motta (1995) is of the view that performance at

job is the result of ability and motivation.

Rewards are said to signal the organizational values to the employees as Trevor (2008:21-41)

describes them as a means of aligning a companys most strategic asset their employees to

the strategic direction of the organization. Ghoshal & Bartlett (1998) captures the essence of

rewarding which is not only attaching value to the employees but also more importantly adding

value to the people (Armstrong et al., 2010).

Employee Motivation and Rewards

Diener & Biswas-Diener (2002) and Kasser & Ahuvia (2002) assert that, the idea of using

monetary factors as inducements for employees to work well is not a new one, as there are

records of some payment schemes as far back as the seventeenth century. In recent times,
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reward system such as bonus scheme, profit sharing, merit rating, psychological motivation,

promotion, fringe benefits, social incentives and welfare have been introduced as better ways of

motivating people at work for maximum productivity (Milkovich & Wigdor, 1991; Srivastava,

Locke & Bartol, 2001).

The importance of money as a motivator has been consistently downplayed by most behavioral

scientists like Herzberg who point out the value of challenging jobs, feedback, cohesive work

teams and other nonmonetary factors as stimulants to motivation (Harunavamwe & Kanengoni,

2013). However, money is the crucial incentive to work motivation because it is the vehicle by

which employees can purchase the numerous need-satisfying things they desire (Robbins et al.

2003).

Bates (2006) indicates, for money to motivate, merit pay rises must be at least seven percent of

base pay for employees to perceive them as motivating and to catch anybodys attention.

Studies by Locke (1998) on the four methods of motivating employees indicated that money

rated the second among lower-level employees. Though, such evidence demonstrates that

money may not be the only motivator, but its difficult to argue that it does not motivate.

In a survey, Ellis and Pennington, (2004) asserts that direct financial reward played a critical

role in attracting talented employees, and have a term impact on the motivational levels of

employees. According to Armstrong (2007), in a much publicized study, Gupta and her

colleagues analyzed thirty-nine studies conducted over four decades and found that cold-hard

cash motivates workers whether their jobs are exciting or mundane in labs and real world

settings alike. However, small raises can actually be dysfunctional in terms of motivation

because employees become irritated that their hard work yielded so little.

Theoretical Framework

There is no doubt that good reward is the crux for motivation, but there is no clear-cut answer

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to the question of what kind of reward actually motivates an employee. Vroom (1964)

maintains in his expectation theory that everyone works in expectation of some rewards (both

spiritual and material), and welfare is one of them. In other words, the degree of reward

influences the quality and quantity to work, and in turn productivity.

Wallace and Zeffane (2001) noted, management depend upon rewards like money as the main

factor of motivation because according to Maslows hierarchy of needs, money is a unique

reward that can satisfy different needs such as physiological need for food. In McClellands

acquired needs theory, money is an important source of performance feedback for high need

achievers. Non-monetary rewards on the other hand attract persons with a high need for

affiliation through verbal recognition, and high achievers through challenging jobs.

Many theories have been propounded to examine the factors that contribute to employee

motivation in an organization. These theories are important because they provide explanations

to the reasons why employees are motivated, therefore, if properly applied; they could lead to

having better motivated employees which ultimately may lead to increased productivity in

organizations. This study is therefore anchored on Abraham Maslows need hierarchy theory.

Empirical Review

Garlick (2009) carried out an online study of 1,913 full-time employees and asked people to

rank order 14 potential performance incentives in order of preference. These performance

incentives included monetary rewards such as cash bonuses, gift cards, award points, and travel

awards, as well as intrinsic rewards such as having more freedom and autonomy at work, being

able to choose interesting projects, and being assigned to mentor other employees. Not

surprisingly, cash bonuses were listed as the most preferred incentive by three-out-of-four

people (74%) surveyed. Nine-out-of-ten (89%) listed cash bonuses within their top three

preferences. However, the primary issue the study investigated was whether offering cash
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bonuses really influenced employee attitudes, as well as other business outcomes. The results

showed that offering a cash bonus exclusively does not seem to make much of an impact on

performance, despite the fact cash bonuses are nearly everyones preferred reward. While cash

bonuses are the most preferred reward for three-out-of-four, and among the top three rewards

for nine-out-of-ten, those who only receive a cash bonus are just slightly more satisfied than

those who get no reward at all. Furthermore, offering exclusively cash bonuses only seems to

have very little impact on company performance, either in terms of increased customer service,

or in increased profitability.

It is the researchers opinion that though money is a motivator, as Wallace & Zeffane, (2001)

averred that management depends upon rewards like money as the main factor of motivation.

This is based on Maslows hierarchy of needs, which sees money as being a unique reward that

can satisfy different needs such as physiological need for food. However, it is the researchers

opinion that when such need is satisfied, money stops being a motivator, hence, the level of

employee motivation is quite low.

3.0 Methodology

The research design employed in this study is the descriptive research design, which is useful

for solving problems only when the process is guided by one or more specific research

problems. The choice of descriptive study is to discover and describe the characteristics of the

variables of interest in a certain situation (Omale, 2013). Furthermore, the survey design is

adopted, because it involves administration of questionnaire and sampling of elements selected

from the population of interest that are measured at a single point in time.

The population of this study is hinged on the staff fifteen (15) Small and Medium Scale

Enterprises in three different cities, Abuja, Asaba and Lagos, with a total population of two-

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hundred and fifty (250) employees. Therefore, in determining the sample size, the Taro Yamane

(1973) sample estimation technique was employed. The formula being:

n= N

1 + N (e)2

where; N= Population size

n= Sample size

e= Error of margin (0.05)

Hence; 250
n = 1 + 250 (0.05)2 = 154

Also, copies of the questionnaire were randomly administered to one hundred and fifty four

(154) staff selected to participate in the survey.

Model Specification

Data collected were analyzed using simple statistical tables with percentages. Also, postulated

hypothesis tested using the Multinomial Logistic Regression, which is useful for situations to

classify subjects based on values of a set of predictor variables. This type of regression is

similar to logistic regression, but it is more general because the dependent variable is not

restricted to two categories.

In this study, overtime, salary increase, bonus and sales commission are used as indicators of

monetary reward.

The model for this study functionally becomes;

MOT = f (OT, SI, B, SC)

Where;

MOT: Employees Motivation (Very High, High, Average, Low, Very Low)

OT: Over time

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SI: Salary Increase

B: Bonus

C: Commission

The econometric equation for the model is specified as

MOT= 0 + 1 OT+ 2 SI+ 3 B+ 4 SC + (1)

The a priori expectation in the model is that the independent variable (monetary reward) is

expected to have a positive relationship on employees level of motivation measured by Over

Time, Salary Increase, Bonus and Sales Commission. The mathematical expression is

represented as; 1 4 > 0 implying that a unit increase in the independent variables will lead to

increase in employees motivation by a unit. Thus, regression was employed in the study to

forecast relationship between variables and estimate the influence of each explanatory variable

to the dependent variable.

4.0 Result of Data Analysis

Response Rate of Respondents: Table 1 shows analysis of return rate of distributed

questionnaire. The analysis reveals that of the 52 copies each of the questionnaire distributed in

Abuja and Lagos, 46 and 49 representing 30% and 32% respectively were duly completed and

returned, while 43 copies representing 28% were returned from Asaba. This shows that, 16

copies were not returned, representing 10%, while a total of 90% response rate was recorded,

which gives credence to the analysis. The respondents were selected from the manufacturing,

hospitality (Hotels & restaurants) and Services (sales & marketing) sectors. The analysis

reveals that, 23% are from the manufacturing sector, 46% from the hospitality (hotels &

restaurants) sector, while 31% of the respondents are from the services (sales & marketing)

sector.

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Test of Hypothesis

The multinomial logistic regression is employed in the test of this hypothesis, based on the

classification of values of a set of predictor variables. This type of regression is similar to

logistic regression, but it is more general because the dependent variable is not restricted to two

categories

H0: There is no significant effect of monetary rewards on employees' motivation.

label data Motivation Level:
1= very high;
2= high;
3= average;
4= Low
5= very low"

Multinomial logistic regression Number of obs = 138

LR chi2(6) = 143.59
Prob > chi2 = 0.0000
Log likelihood = -41.262897 Pseudo R2 = 0.6350

------------------------------------------------------------------------------
mot | Coef. Std. Err. z P>|z| [95% Conf. Interval]
-------------+----------------------------------------------------------------
High |
salary | 37.39081 . . . . .
bonus | -24.53918 .5700877 -43.04 0.000 -25.65653 -23.42182
commission | -36.44139 . . . . .
_cons | 24.05975 . . . . .
-------------+----------------------------------------------------------------
Low |
salary | 21.33159 2692.329 0.01 0.994 -5255.536 5298.2
bonus | 18.56096 1794.886 0.01 0.992 -3499.351 3536.473
commission | -2.726003 . . . . .
_cons | -93.23051 . . . . .
------------------------------------------------------------------------------
(mot==average is the base outcome)

Source: As generated by the Researcher, 2014

The result in the above table shows the level of motivation attained as a result of the rewards

given to employees. The table shows three levels of motivation (high, average and low) as a

result of monetary rewards (salary, bonus and commission). The average motivation level is

used as a baseline against the High motivation and low motivation.

Discussion of Findings

Analysis of tested hypothesis shows the level of motivation attained as a result of the reward

system given to employees. The analysis shows three levels of motivation (high, average and

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low) as a result of monetary rewards (salary, bonus and commission). The Average motivation

level is used as a baseline against the High motivation and low motivation.

There is a positive relationship between motivation and salary. This means that a unit increase

in salary of employees in an organization is more likely to bring about a high level of

motivation of about 37.4 units. However, bonuses and commission show a negative

relationship with motivation. This means that increases in bonuses and commissions by a unit

is less likely to motivate the employees of an organization.

The row for Low motivation from analysis shows that both salaries and bonuses have a

positive relationship with motivation. This means that increase in salaries and bonuses by one

unit is more likely to increase motivation by 21.3 and 18.56 units respectively. This implies

that when salaries and bonuses are increased, their increment brings about a low level of

motivation to the employees. This may be as a result of insignificant salary and bonus

increment. The commission coefficient showed a negative effect to low level of motivation.

The Pseudo R2 with a value of 0.6350 implied that the 63.5% variations in motivation levels

are explained by the influences of salaries, bonuses and commissions, which are monetary

reward systems.

The Likelihood ratio (LR) Chi-square test of the two equations of levels of motivation is used

to test for the significance of the models. From the table, the P-value of the Chi-square is 0.000

which is lower than the level of significance of 0.05. Therefore, the null hypothesis is rejected

while the alternative is accepted concluding that there is a significant effect of monetary

rewards on employees' motivation, but at a low level.

In the researchers opinion, the findings of the analysis on monetary reward and level of

employee motivation confirms Maslows hierarchy of needs, which sees money as being a

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unique reward that can satisfy different needs such as physiological need; however, when such

need is satisfied, money stops being a motivator, hence, the level of employee motivation is

quite low based on monetary reward alone. This finding therefore contradicts the assertion of

Wallace & Zeffane (2001); thus, management should not rely mainly on monetary rewards as

the main factor for employee motivation.

5.0 Conclusion and Recommendations

Small scale enterprises do not only contribute significantly to improved living

standards, they also bring about substantial local capital formation and achieve high

level of productivity and capability. Small and medium scale industries are increasingly

recognized as the principal means for achieving equitable and sustainable

diversification and dispersal and, in most countries, they account for well over half of

the total share of employment, sales and value added.

The importance of reward in employees motivation for enhanced day-to-day performance of

assigned tasks and responsibilities cannot be over emphasized, especially when it comes to

being rewarded for a job done. It is a well-known fact that human performance of any sort is

influenced by the level of motivation attained. On the basis of the findings, it can be concluded

that monetary rewards (over-time, salary increase, bonus and sales commission) have

significant impact on (level of) employees motivation in SMEs, but at varying degree. Thus,

the system of workers reward package matters a lot and should be the concern of both

employers and employees. However, the implication of the study is that most of the employee

motivation theories are not fully operational in Small and medium scale enterprises in Nigeria.

Also, the factors that influence motivation do not necessarily come in rigid steps and they vary

from one employee to another.

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Recommendations

Based on the findings of the study, it is recommended that;

1. Having a well-articulated monetary rewards system to influence level of employees

motivation in order to ensure commitment and enhanced productivity. This will

ultimately result in higher productivity; thereby ensuring that small and medium scale

enterprises achieve their organizational goals.

2. Since money can stop being a motivator once gotten, it is recommended that owners of

small and medium scale enterprises should endeavour to explore the use of non-

monetary reward to boost employees motivational drive, so that both individual and

organizational objectives can be achieved.

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Monetary Rewards and Employees Motivation

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Table 3: Level of Motivation and Over-time benefit
RESPONSE FREQUENCY PERCENTAGE
Very High 0 0
High 8 6%
Average 87 63%
Low 43 31%
Very Low 0 0
TOTAL 138 100%
Source: Field Survey, 2014

Table 4: Increase in Salary as a motivator for enhanced productivity

RESPONSE FREQUENCY PERCENTAGE
Very High 48 35%
High 67 49%
Average 23 16%
Low 0 0
Very Low 0 0
TOTAL 138 100%
Source: Field Survey, 2014

Table 5: Motivational Level attained with Bonus

RESPONSE FREQUENCY PERCENTAGE
Very High 13 9%
High 54 39%
Average 71 52%
Low 0 0
Very Low 0 0
TOTAL 138 100%
Source: Field Survey, 2014

TABLE 6: Sales Commission as a motivator for increased performance

RESPONSE FREQUENCY PERCENTAGE
Very High 47 34%
High 85 62%
Average 6 4%
Low 0 0
Very Low 0 0
TOTAL 138 100%
Source: Field Survey, 2014

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