Introduction
Human Resources provide a basis for an organisation to achieve sustainable competitive advantage (Edirisooriya, 2014). More recently, organisations are operating in a dynamic competitive environment to which they need to develop strategies to acquire and retain a competent workforce (Edirisooriya, 2014). Human capital is considered to be the most important asset to any organisation and in order to get effective results from human resources, motivation in the form of rewards and benefits are necessary (Zaman, 2011). Rewards encourage positive behaviours whilst cementing values in the workplace (HR Magazine, 2014). Employee benefits also influence a workforce in motivating, retaining and attracting employees (HR Magazine, 2014).
This essay aims to critically analyse this area of HRM by scrutinising researched literature against established HRM theory and a private vs public sector analysis. The essay will begin with a detailed summary of employee benefits and rewards, examining their importance and how they affect the workplace. Two theories will then be discussed comparing their findings and their validity to the research. The two theories that will be discussed are Maslow’s Hierarchy of Needs and Herzberg Two Factors Theory. The essay will go onto examine how benefits and rewards effect the private and public sector which will analyse the research and the theory in a case study setting. The essay will conclude with a summary detailing the findings and the theories and how impactful employee rewards and benefits are to an organisations HRM policy.
Employee Rewards
Motivation of employees has been in practice and has proven to be a critical element of HRM since the 1930’s (Lee-Ross, 2002). Motivation refers to the complexity of an individual’s mental and physical objective which when combined with their environment makes them perform and act a certain way (Lee-Ross, 2002). Employee rewards are a significant contribution to an employee’s motivation to work (Griffin and Moorhead, 2009). Employee rewards refer to all form of financial returns and tangible services an employer offers to their employees as part of the employment relationship (Bratton, 1999). A reward is the benefit that arises from an employee performing a task, offering a service, or delegating responsibility (Bratton, 1999). Employee rewards aim to attract, motivate and retain employees (Griffin and Moorhead, 2009). Rewards also aim to increase employee performance by enhancing skills, knowledge and abilities in order to achieve the organisational objectives (Ajila and Abiola, 2004). If employers fail to reward employees it will directly decrease employee performance (Eisenberger & Stinglhamber, 2011). An inefficient reward system can de-motivate employees which can lead to low productivity, internal conflicts, absenteeism and a lack of commitment and loyalty (Edirisooriya, 2014). A reward system contains all components of the organisation including people, processes, rules and decision-making activities (Griffin and Moorhead, 2009). Employee rewards can be categorised into two broad areas: extrinsic rewards and intrinsic rewards (Searle, 1990).
Extrinsic rewards focus on the performance and activities of the employee in order to obtain a desired outcome whilst intrinsic rewards are associated with making the employee feel happier and comfortable within the organisation (Munir et al, 2016). Extrinsic rewards are typically financial or tangible assets that include pay, promotion, bonuses and financial benefits (Zaman, 2011). They aim to fulfil the employees needs to deter them from leaving the organisation. Employees engage in employment with employers based on the cost-benefit when comparing rewards expected with the exchange with effort (Lin, 2007). Examples of extrinsic rewards include pay increases, bonuses, commission, and paid leave (Ahmad, 2009). An extrinsic reward system retains higher preforming employees when related to their productivity (Ahmad, 2009). Extrinsic rewards are quantitative in nature (Munir et al, 2016).
Intrinsic rewards aim to create and maintain a more durable positive effect on an employee’s performance and their feeling towards their job (Shipley & Kiely, 1988) and are usually associated with the individuals’ psychological benefits (Stoner and Freeman, 1992). An intrinsic reward is a tool used by employers to motivate employees to perform as expected (Ahmad, 2009). They refer to employees engaging in an activity to which they gain pleasure and satisfaction from the experience (Deci, 1975). Intrinsic rewards are mostly qualitative in approach (Munir et al, 2016). Recognition is an example of an intrinsic reward. Recognition can be informal or formal but both with the aim of boosting an employee’s self-esteem and happiness to result in additional contributing efforts (Munir et al, 2016). Another example of an intrinsic reward is employee empowerment. Employers delegate authority and tasks to employees to increase their level of importance boosting organisation morale and employee productivity (Munir et al, 2016). This form of reward for organisations is based upon the principle that two minds are better than one (Deci, 1975).
Employee Benefits
Employee benefits are non-financial provisions that employers offer to their employees in addition to their contracted wage or salary (CIPD, 2021). Employee benefit schemes encompass all other inducements and services provided by an organisation (BLS, 2005). During the 20th century, to increase the economic security of employees, employers began to provide employee benefits and benefit schemes (Dulebohn et al, 2009). Employee benefit schemes have been influenced by social, cultural and legislative forces (Kaufman, 2004). Employers offer voluntary benefits to improve employee satisfaction which is associated with attitudes and behaviours that aim to serve the employees interests (Harris & Fink, 1994). High levels of employee satisfaction show a positive association to the actuarial value of benefits and a benefits package (Micelli & Lane, 1991). The implied response is that when employees are satisfied with their benefits they are committed to their employment and so will perform their job to a high standard leading to strong organisational performance (Dulebohn et al, 2009). Employee benefits also allow an organisation to create and maintain a desired company culture whilst also nurturing and creating relationships with employees (Employee Benefits, 2020).
Benefit packages differ across all organisations and should be tailored to the company culture rather than undertaking the ‘one-size-fits-all’ approach (Boudreau & Ramstad, 2007). Employee benefits are influenced by the nature of the employer and employee relationship (Dencker et al, 2007). A positive relationship tends to instigate wider benefits and larger offerings to employees (Dencker et al, 2007). The company culture and the approach of the management team also plays a detrimental effect (Dencker et al, 2007). Differences of culture and management approach and their effect on benefit packages can particularly be seen when comparing the private and public sector. Furthermore, the generation of employees also may affect the content of employee benefits in an organisation (Dencker et al, 2007). For example, older employees are likely to have experienced a period when career-long employment benefits were prominent and so these individuals may prefer packages with defined benefits where the employer undertakes the risk of economic fluctuations (Dulebohn et al, 2009). The recent generation have witnessed the dismantling of internal labour, job security and lifelong benefits (Dulebohn et al, 2009). As a result, these individuals may prefer benefit schemes in which employers define contribution and specify risk (Dulebohn et al, 2009).
One benefit that employers offer to employees is a pension scheme. Pensions schemes are a legal requirement of an employee’s benefits package that are often the centre of major internal or external change (CIPD, 2021). Another statutory benefit to employees is an allotted holiday allowance as well as maternity, paternity and bereavement leave however studies carried out by the CIPD have shown that many employers offer more than the legal minimum to employees (2021). Healthcare benefits may be provided by employers to ensure both the welfare and productivity of employees (Kaufman, 2004). Healthcare benefits include occupational sick pay, death in service/life assurance, gym membership and employee assistance plans (CIPD, 2021). Some healthcare benefits are offered to all employees whilst others are often dependant on factors such as grade, occupation, or location (CIPD, 2021). Other benefits include a company car, free or subsidised staff canteens or concierge services.
Maslow’s Hierarchy of Needs
Maslow’s hierarchy of needs is a theory that outlined five hierarchical needs which are associated with the motivation and needs of an organisation’s employees (Gordon, 1965). The cultural framework of an organisation should aim to reflect the needs and key motivators of its employees to ensure increased performance (Maslow, 1954). According to Maslow employees have five levels of needs: psychological, safety, social, esteem and self-actualisation (Talukder 2014). The theory argues that the lower-level needs must be satisfied before the next higher-level need can motivate employees (Talukder 2014). The lowest and most basic level of needs are the psychological needs of the employee which would include pay and basic working conditions (Talukder 2014). The safety needs of an organisation include insurance, pension plans, safe working conditions and medical aid (Lopez, 2013). Mullins (2002) suggests that social needs include creating and promoting interpersonal relations, friendly supervisions, corporate identity and regular social interactions. Stoner, et al (2001) infers that promotions, recognition of performance and offering respect are ways of satisfying the self-esteem needs of employees. Self-actualisation needs involve giving employees the opportunity to use their skills and capabilities to the fullest extent (Mullins, 2002). McNamara suggests an ideal situation where individuals in the self-actualisation stage are not motivated by money but instead derive satisfaction from finding solutions from solving challenging problems (2005).
This theorem can be used to critically analyse organisational orientation and employee motivation with regards to rewards and benefits (Baron & Greenberg), 2003). This is because the theory categorises the rewards and benefits offered by an employer with relation to an employee’s needs and key motivators. Maslow’s theory suggests that the basic extrinsic reward of pay is a primary psychological need for employers that must be satisfied before any other needs or motivators cause influence (Lopez, 2013). The theory suggests that the benefits that an employer offers to its employees such as a pension plan, insurance and safe working conditions are categorised as second level safety needs (Lopez, 2013). The social needs of employees can also refer to employee benefits such as a company cafeteria and regular social gatherings that encourage all employees and employers to engage in social interaction (Jonas, 2016). The intrinsic rewards such as promotion and recognition can be identified as the fourth hierarchical need, self-esteem. This form of reward can be shown to be of strong priority to employees but also to organisations as a way of stimulating employees to take on new opportunities to improve themselves resulting in better organisational performance (Talukder, 2014). This form of reward sets the employees in a stronger position for career growth (McNamara, 2005), leading them onto the final hierarchical need of self-actualisation. Self-actualisation can be associated with the intrinsic reward of employee empowerment. This is because employees are granted authority to act freely with their chief reward being the outcome of the work itself (Jonas, 2016). Once employees reach this level of need, organisations can fully utilise their ability and potentials to enhance the overall productivity and effectiveness of the business (Lopez, 2013).
Herzberg Two Factor Theory
Herzberg Two Factor Theory defined two sets of factors to analyse an employee’s working attitude and level of performance (Robbins, 2009). The theory determined that different aspects cause job satisfaction and dissatisfaction whilst also emphasising the needs and the strengths of employees that employers must identify in order to gain the best from their workforce (Alfayad & Arif, 2017). Herzberg’s theory categorises the factors which affect job satisfaction and dissatisfaction into hygiene and motivational factors (Robbins, 2009). Motivation factors are intrinsic factors that are said to increase an employee’s job satisfaction whereas hygiene factors are extrinsic factors that aim to prevent employee dissatisfaction (Shipley & Kiely, 1988). Motivation factors include recognition, promotion, responsibility and individual achievement (Alfayad & Arif, 2017). Hygiene factors are associated with organisation policy, pay, supervision and employee relations (Alfayad & Arif, 2017). Herzberg noted it was essential to fulfil the hygiene elements for employees to reduce job dissatisfaction however it is more necessary and beneficial for organisations to focus on the motivational factors in order to improve and encourage job satisfaction (1959). Job motivators contain the factors that are built on the job and the employees’ employment itself whereas the hygiene factors are related to environment surrounding the job (Shipley & Kiely, 1988). Hygiene factors aim to promote a positive working environment and relationship for employers and their employees whereas motivational aspects are the actual aspects that motivate employees to work for their employer (Herzberg, 1966). Hygiene factors retain employees from being unhappy or dissatisfied in their employment by employers specifying the actual aspects of work (Alfayad & Arif, 2017). Motivational factors specify the aspects of work that provide individuals with contentment and job satisfaction (Alfayad & Arif, 2017).
Herzberg’s theory can be used to analyse the various behavioural and environmental rewards and benefits offered by employers to employees (Denhardt & Aristigueta, 2008). Motivational factors are typically related to an employee’s personal growth and self-actualisation which often include recognition, accomplishment, and responsibility (Lewis et al, 2001). These intrinsic rewards are widely recognised as the components to which pose employee satisfaction when present (Fisher, 2009). These levels of needs are the basic requirement to ensure a motivated and satisfied workforce (Herzberg, 1966). Basset-Jones and Lloyd exclaim that Herzberg’s theory challenges the normalised assumption that money is the principal factor to a motivated employee and suggest that motivator factors should therefore be an organisations priority (2005). This can somewhat be agreed however to ensure a full effective workforce, organisations require attention to both hygiene and motivator factors (Latting 1991). Hygiene factors are ‘job satisfiers’ associated with the work environment that constitute needs that must be met to prevent dissatisfaction (Castillo and Cano, 2004). Hygiene aspects often include salary, security, working conditions and organisational policy (Fisher, 2009). Hygiene factors are often associated with extrinsic and external rewards (Deci & Ryan, 1985) but they also show relation to employee benefit schemes. The hygiene factors such as salary and working conditions are basic extrinsic factors for an employee however pension schemes, holiday allowance and levels of job security can be interpreted as employee benefits. Employers and employees interpret their needs and motivators differently (Deci & Ryan, 1985). It is a manager’s prerogative to ensure their employees are offered the support and facilities to fulfil their individual level of need (Lewis et al, 2001).
Private vs Public Sector
When analysing the critical concept of rewards and benefits a comparison can be made between the private and public sector and their organisations. Differences can be made between the two sectors to determine which employees benefit the most (Woolf, 2017).
Employee Rewards
When analysing employee rewards, salary and wage benefits is the best example to examine. Pay determination between the private and public sector differs significantly and can be examined from various viewpoints (Lucifora & Meurs, 2004). The private sector has traditionally been more reliant upon merit, pay-for performance, commission, bonuses, and other forms of extrinsic employee rewards (Coggburn & Kearney, 2010). In comparison to the public sector which focuses more upon benefits and intrinsic reward schemes with lower financial reward (Brady, 2007). A primary reason for this is that there is a higher level of regulation posed on wage management in the public sector where salaries are determined by national government expenditures (Christofides & Michael, 2013). This has caused disparity and a “sector pay gap” (Lucifora & Meurs, 2004). Private sector organisations have a more decentralised wage setting meaning organisations have higher levels of management autonomy (Christofides & Michael, 2013).
However, when analysing public sector wages from a lesser skilled workers perspective the minimum rates of pay are higher in the public sector (Lucifora & Meurs, 2004). A wider union presence and a more effective use of union power protects lower paid workers to reduce wage dispersion in this particular area in the public sector as compared to the private (Bender & Elliot, 1999). Public sector workers are also protected by review bodies, index linking and collective bargaining (Lucifora & Meurs, 2004). A recent study since the Covid19 pandemic indicates that public sector wages increased by 4% whilst private sector wages decreased by 1% (Reuben, 2020). The Institute for Fiscal Studies research also showed that during 2019 and 2020 workers were being paid 9% more in the public sector than the private sector (IFS, 2019). This indicates that a shift in sectors is occurring with regards to financial rewards (Somerset-Webb, 2020).
Comparing pay levels between the public and private sector has its limitations due to both sectors undertaking different activities and job contents with employees obtaining varied qualifications making comparisons often misleading (Lucifora & Meurs, 2004).
Employee Benefits
There is evidence to show a varying level of employee benefits between the two sectors. When analysing the public sector, it evident that it has traditionally relied upon job tenure, cost-of-living increases, and average increases in compensation practices (Reilly, 2013). When examining the difference between sectors, postretirement and pension plans are a key example to use.
The known benefits of the public sector include a defined-benefit (DP) pension plan and subsidised retiree health care (Reilly, 2013). Figures from the BLS show that 84% of public sector employees have access to a DB plan when compared to 21% of the private sector (2008). A larger majority of public workers are also offered retirement health care coverage (Fronstin & Adams, 2012). Instead of pensions and DP’s private sector employees have defined contribution plans also with little access to retiree health care (Reilly, 2013). The benefit schemes in place such as job security and established health and retirement plans offset the pay limitations and are often what attracts employment to this sector (Brady, 2007). Public sector employees have benefits of higher value than counterparts in the private sector (Fleet, 2007). The NHS is an example of a public sector organisation that offers a wide range of benefits to employees, the most notable being a secure and legitimised pension plan (NHS, 2021). The NHS’s pension plan is more secure than that of private sector company Google whose pension benefits are present but not as well established. However, Google offer a wider range of benefits including free food, free onsite gym usage and massage therapists (D’Onfro, 2021). Google are predominantly known for their creative and unique benefits which largely contributed to them being awarded the UK’s best company to work for in 2020 (Taylor, 2019).
There are new and creative benefits emerging across the public sector including mortgage assistance plans, cycle to work schemes, housing for key workers and investment in learning and development (Nugent, 2020). However, when comparing the sectors there is still a noticeable difference. There are many reasons for this disparity. The most significant being that it is politically easier for governments to increase public sector benefits instead of wages making these incremental changes less visible to the public where the cost can be spread out over time (Kearney & Carnevale, 2001). However, many may argue that by doing this it becomes more expensive as the costs are transferred with interest via taxation (Reilly, 2012).
Conclusion
When critically analysing employee rewards and benefits it is evident that both concepts are of significant importance to HRM as well as key motivators for employers and their employees. Employee rewards can be categorised as extrinsic which typically refers to financial assets including pay or bonuses. They can also be categorised as intrinsic rewards which are associated with an employee’s psychological benefit which typically arise in the form of recognition or employee empowerment. Employee benefits are additions to an employees contracted agreement which aim to serve employee interests and increase satisfaction. Employee rewards show similarity to employee benefits in that they both aim to retain and motivate employees however I can infer they are two different concepts which operate with different actions. In order for benefits and rewards to be an effective motivator for employees, employers must tailor them to their organisation and more specifically to each employee. Organisations operate with a different set of rewards and benefits but their ultimate goals for implementing them remain the same. The difference in approach can be seen throughout the private and public sector where organisations have different priorities with regards to implementing and actioning them.
When studying Maslow’s theory in relation to the topic I can infer that the benefits and rewards an employer offers to its employees must fit the hierarchal needs stated in the theorem. This is to ensure that employees reach self-actualisation which as a result brings full effectiveness and productivity to the organisation. Without the employee rewards and benefits the employees won’t ever work at full maximisation effecting organisational performance. Maslow’s theory examines both rewards and benefits and suggests that they’re both of equal importance and validity to achieve an effective workforce. I believe this theorem if incorporated into an organisations HRM policy would be of significant benefit as it encourages organisations to incorporate both rewards and benefits into their structure. However, the theorem infers to incorporate the latter into the organisation on a general basis rather than a specific individual employee basis. This may cause concern and may lead to dissatisfaction if employees feel they are being generalised and their needs are not being met.
Herzberg’s Two Factor Theory is also an effective theorem to critically analyse employee benefits and rewards. When analysing the theory, I can infer that it focuses upon the extrinsic and intrinsic factors of motivation that aim to encourage job satisfaction. Theorists suggest that the intrinsic motivating factors should be a higher priority. I propose this to be a limitation to the theory as to ensure a fully satisfied workforce both extrinsic and intrinsic factors need to be considered. I also can infer that the theorem focuses more upon the rewards given to employees rather than the offering of benefits. This may cause dissatisfaction as employee benefits are also a significant attraction and a key motivator for employees. I believe the theorem would be effective if implemented into an organisations strategy as it encourages employers to tailor the motivators to their individual employees. This will boost an employees’ sense of individualism and importance and as a result will encourage higher levels of satisfaction. However, to ensure higher levels of satisfaction, employees must include and highlight equal importance to both employee rewards and benefits as well as motivators and hygiene factors.
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