SELECT COLLEGE

SCHOOL OF POSTGRADUATE STUDIES

MASTER OF BUSINESS ADMINISTRATION

/MBA/ PROGRAM

ASSESSMENT OF REWARD MANAGEMENT PRACTICE

IN ABAY BANK SHARE COMPANY HEAD OFFICE

A RESEARCH PROPOSAL SUBMITTED TO THE DEPARTMENT OF

MASTER OF BUSINESS ADMINISTRATION /MBA/ SCHOOL OF
POSTGRADUATE STUDIES, SELECT BUSINESS AND TECHNOLOGY
COLLEGE IN PARTIAL FULFILLMENT OF THE REQUIREMENTS
FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION
BY
TADELE BERKU

ADVISOR

Dr. MESELE KUMILACHEW

JUNE, 2024

ADDIS ABABA/ETHIOPIA
 TABLE OF CONTENTS

Table of Contents page

TABLE OF CONTENTS.................................................................................................i
ACKNOWLEDGEMENT.............................................................................................iv
LIST OF TABLE............................................................................................................vi
LISTS OF FIGURES......................................................................................................v
LIST OF ACRONYMS AND ABBREVIATIONS.....................................................vii
ABSTRACT...................................................................................................................viii
CHAPTER ONE..............................................................................................................1
1. INTRODUCTION.......................................................................................................1
1.1 Background of the Study..........................................................................................1
1.2. Statement of the Problem.........................................................................................4
1.3. Research Questions...................................................................................................5
1.4. Objectives of the Study.............................................................................................6
1.4.1 General Objective.............................................................................................6
1.4.2 Specific Objectives............................................................................................6
1.5 Delimitation of the Study..........................................................................................6
1.6. Limitations of the Study...........................................................................................6
1.7. Operational Definitions............................................................................................7
1.8. Organization of the Study........................................................................................8
CHAPTER TWO.............................................................................................................9
2. REVIEW OF RELATED LITERATURE................................................................9
2.1. An Overview of Reward Management...................................................................9
2.2. Reward System.......................................................................................................12
2.2.1. Elements of Reward Management...............................................................12
2.2.2. The Framework of Reward Management...................................................13
2.3. Objectives of Reward Management......................................................................16
2.3.1. Different Forms of Reward...........................................................................16
2.3.2. Intrinsic Vs. Extrinsic Rewards...................................................................17

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2.4. Financial Vs. Non-Financial Rewards..................................................................17
2.5. Linking Compensation and Rewards to Organizational Goals.........................17
2.6. Reward Strategy.....................................................................................................18
2.7. Reward Strategy and Business Strategy...............................................................19
2.7.1. Reward Strategy and HR Strategy..............................................................20
2.7.2. Rewarding Strategies....................................................................................20
2.7.3. Factors That Influence Pay Rate of an Organization................................22
2.8. Equity.......................................................................................................................23
2.8.1. The Influence of Equity on Wage Rate........................................................24
2.8.2. Motivational Theories...................................................................................25
2.8.3. Hierarchy of Needs Theory...........................................................................25
2.8.4. Theory X and Theory Y................................................................................26
2.8.5. ERG Theory...................................................................................................26
2.8.6. Mcclelland’s Theory of Needs......................................................................27
2.8.7. Motivation-Hygiene Theory..........................................................................27
2.8.8. Equity Theory................................................................................................27
2.8.9. Expectancy Theory........................................................................................28
2.8.10. Reinforcement Theory................................................................................28
2.9. Empirical Studies....................................................................................................28
CHAPTER THREE.......................................................................................................30
3. METHODOLOGY OF THE STUDY......................................................................30
3.1. Background of the Organization...........................................................................30
3.2. Description of Study Area......................................................................................31
3.3. Research Design......................................................................................................31
3.4. Research Approaches.............................................................................................32
3.5. Sources of Data.......................................................................................................32
3.6. Target Population and Sampling Techniques......................................................32
3.7. Method of Data Collection Techniques................................................................33
3.8. Construction of the Instrument.............................................................................33
3.9. Reliability and Validity of Instrument.................................................................34
3.9.1. Reliability.......................................................................................................34

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 3.9.2. Validity...........................................................................................................34
3.10. Method of Data Analysis......................................................................................34
3.11. Ethical Consideration...........................................................................................34
CHAPTER FOUR.........................................................................................................35
4. TIME SCHEDULE AND COST BUDGET............................................................35
4.1 Time Budget / Schedule...........................................................................................35
4.2 Cost Budget..............................................................................................................35
Appendix -1:...................................................................................................................35
Appendix -2:...................................................................................................................36
Reference.......................................................................................................................37

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 ACKNOWLEDGEMENT

First and foremost, I would like to thank God for everything he has done for me, and I believe
that I could not have completed this work without the support of many people around me. It
seemed like a special recognition and appreciation for my proposal advisor Mesele Kumilachew
(PhD) who supervised me in preparing this proposal and gave me his unstinted professional
assistance. I am very thankful to my family, especially my father, mother and husband for their
moral encouragement and support in all my academic pursuits. Also, Abay Bank employee
Ashagre Deneke for his voluntary thinking and generous experience. Thank you. I have no
words to thank and appreciate all my close friends who directly or indirectly helped me during
the proposal preparation.

Thank you!

Tadele Birku

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 LISTS OF FIGURES

Fig1. Reward Management Framework (adapted from Armstrong, 2010)

Fig2. Factors Affecting Payout Rate (in Nankervis, 1999)

v
 LIST OF TABLE

Table 1. Proposal Activity Schedule

Table. 2 Planned budget allocation

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 LIST OF ACRONYMS AND ABBREVIATIONS

AB - Abay Bank

HRM - Human Resource Management

SPSS- Statistical Package for Social Sciences

BS- Business Services

S.C- Share Company

HR - Human Resource

ERG- Existence, Relatedness, Grow

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 ABSTRACT

The purpose of this research proposal is to evaluate the reward management system in AB SC
(Abay Bank Share Company) and to evaluate the reward management system that the
company is using to attract and retain employees based on employee awareness. Fix it. It will
ensure that reward management is not only related to pay and employee benefits (financial
rewards). It is also to ensure that it is equal to non-monetary rewards such as recognition,
training, development and increased job responsibilities. Respondent feedback is used based
on fairness, transparency, consistency and alignment, as well as the bank's overall reward
management practices. The study uses both primary and secondary sources of data. A
quantitative research approach will be used for data collection and questionnaires will be
distributed and answered. The data will be analyzed using descriptive statistics. The findings
of the study show that Abay Bank SC is successful in terms of internal rewards and Abay
Bank SC sees some things that are lacking in clarity regarding equity. It will be confirmed that
Abay Bank SC is successful in ensuring salary payment and aligning the reward management
strategy with the HR strategy. Banks' reward management practices will be evaluated by
evaluating whether they affect employee motivation. It will show that Abay Bank is paying
great attention to administrative staff by attracting and retaining competitive employees who
have the required knowledge and skills to achieve their goals and contribute to the
development of the country.

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 CHAPTER ONE

1. INTRODUCTION

1.1 Background of the Study

Rewards can be tangible or intangible things that satisfy or meet specific needs that an
organization provides to its employees knowingly or unknowingly by contributing to the
potential or tangible work contribution of the employees. (Shield, 2007).

According to (Armstrong, 2009), reward management focuses on the formulation and

implementation of strategies and policies with the aim of rewarding people in a fair, equitable
and consistent manner to value the organization and help the organization achieve its strategic
goals. It also deals with developing appropriate organizational cultures, instilling core values and
increasing employee motivation and commitment. It deals with the design, implementation and
maintenance of reward systems (reward processes, practices and procedures aimed at meeting
the needs of the organization and its stakeholders).

A reward system exists to motivate employees to work towards the achievement of strategic
goals set by an organization. Reward management is not only related to compensation and
employee benefits (financial rewards). It equates to non-monetary rewards such as recognition,
training, development and increased job responsibilities. (Shield, 2007).

The way people are rewarded determines the survival of the organization and one of the most
important tools in the hands of any management is to manage an effective reward system to
attract and retain a competent workforce. In order to achieve this goal, an organization should
decide on the type of activity/objective that should be rewarded. An organization can use reward
management to show that the employees' contribution to the organization is recognized.

A reward management philosophy recognizes that people should be valued for what they do and
what they do, and should be strategic in terms of addressing long-term issues. Reward strategies
and the processes needed to implement them should flow from the business strategy (Armstrong,
2009).

Reward management should be based on a set of beliefs and guiding principles that are
consistent with the organization's values.

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Now a day, one of the major influences in the organization is that the competitive advantage and
core competency is measured by the quality of their employees and the organization that has a
fair and consistent HR policy, strategy and procedure, then the employee feels loyalty and
loyalty to the organization. It allows them to increase their commitment and motivation for
organizational goals. In this way, the source of the success of the organization comes from the
talent, creativity and motivation of the employee.

Reward management is an important tool that the management can use to channelize the
motivation of the employees in the desired way. In other words, reward systems seek to motivate
people to join the organization and perform at a higher level. The reward system encompasses all
organizational elements and includes people rules and decision-making functions, including
allocating compensation and benefits to employees for their contributions to the organization
(Armstrong and Murlis, 2007).

In order to increase HR's contribution to organizational effectiveness in the future, organizations

must rethink the basic value proposition, structure, services and programs to address how HR can
add value (Lawyer, Boudreau & Albers, 2006).

Rewards are seen as an important tool in employee performance. A well-rewarded employee

feels that he/she is valued by the company he/she is working for.

The long-term success of any organization depends heavily on the quality of its human
resources. This is especially true in a service-oriented industry such as a bank that requires
constant service improvement, which is impossible to meet the increasing expectations of its
customers without a motivated workforce.

Fair pay, incentives, special allowances, benefits, leadership, encouragement, trust, respect,
shared decision-making, quality of supervision, adequate working relationship, appreciation,
growth opportunities, organization loyalty, identification and fulfillment of their needs,
recognition, motivation are the factors that enhance employee motivation. , motivation,
importance related to their work, safe working conditions, availability of training and
information and to perform actions (Aguinis, 2009).

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A good reward system should attract talented people and motivate and satisfy them once they
join the organization. In addition, a good reward system should promote personal growth and
development and prevent talented people from leaving (Kreitner, 2010).

Any company engaged in manufacturing or providing services needs manpower to achieve its
objectives. Among other things, people often consider the attractiveness of the rewards package
an organization offers at the time of employment, and existing employees work in anticipation of
certain rewards. In most cases, reward systems are designed to attract and retain skilled workers.

A reward may be an intangible or intangible thing that an organization provides to its employees,
either intentionally or unintentionally, for the employee's potential or actual work contribution
that the employee as an individual holds with satisfaction or some degree of positive value.
Award managementIt focuses on designing and implementing strategies and policies with the
objective of rewarding people based on their value to the organization in a fair, equitable and
consistent manner and helping the organization achieve its strategic goals. Cultures, supporting
core values and increasing employee motivation and commitment. It deals with the design,
implementation and maintenance of reward systems (reward processes, practices and procedures
aimed at meeting the needs of the organization and its stakeholders).
A reward system is developed to motivate employees to work towards the achievement of
strategic goals set by an organization.
The way people are rewarded determines the survival of the organization and one of the most
important tools in the hands of any management is to manage an effective reward system to
attract and retain a competent workforce. In order to achieve this goal, an organization should
decide on the type of activity/objective that should be rewarded. An organization can use reward
management to show that the employees' contribution to the organization is recognized.
In order to retain qualified employees, the organization should establish a systematic reward
system for employees, which will enable them to gain a sustainable competitive advantage.
Many organizations in the private and public sectors adopt their own reward practices. However,
the existence of a reward system in itself does not guarantee the effectiveness of their reward
practices; on the contrary, it will greatly motivate the employees if they are not properly trained.
The importance of a transparent reward system includes choices to have clear communication
about how the reward will be distributed. Employees must understand the relationship between

3
the company's business objectives, how they contribute and how they are rewarded. In addition,
rewards should be fairly distributed among employees based on job performance.
Therefore, this study should be conducted to understand the reward management practice of
Abay Bank.
This Proposal focused on assessment of reward management practices in Abay Bank and tried to
assess the current reward management practices that the company is using to attract and retain
employees.
1.2. Statement of the Problem
In our increasingly skilled and knowledge-based economy, employees have become critical
determinants of organizational success. Reward management policies should take into account
the aspirations, expectations and needs of employees as well as stakeholders within the
organization. (Armstrong, 2007) Employees seek certain rewards in their respective jobs.
Organizational systems that tend to reward employee performance can contribute greatly to
employee productivity. The objectives of reward management are fairly and consistently reward
people based on their value to the organization and help the organization achieve its strategic
goals. The practice of reward management deals with the design, implementation and
maintenance of reward systems (procedures, and processes) aimed at meeting the needs of the
organization and its stakeholders (Armstrong, 2006).
However, In the Abay Bank Share Company employees complained that there is a gap in the
planned and consistent reward system considering the aspirations and expectations of the
employees. The only reward implemented is special benefits for top level managers like annual
benefit from annual profit, phone card with equipment, vehicle with fuel allowance. (The phone
and the vehicle can be returned when you leave the bank). Another award is given annually to an
employee from the department or branch office. This award is given when managers allow the
employee to choose the best performer in the eyes of the employees. The only person who gets
the most number from the department or branch, he/she will get some cash prize. The third
award is given to employees who have been with the company for ten years whether he/she is the
best performer or not.

Although these rewards create motivation only for some section of employees, it creates unfair
feeling among employees and negative work area.

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The way a company manages its reward systems has an effect on employee behavior as well as
on the company's effectiveness in achieving its overall goals. One of the main challenges
organizations face today is how to attract, engage and retain qualified employees due to reward
systems. Abay Bank's compensation policy formulation is mainly guided by the current
economic and market conditions. In today's competitive and challenging business environment,
management strives to find or retain well-educated, motivated and experienced employees to
remain competitive in the market and to make the organization profitable. Later, unless
rewarding employees properly leads the organization to better human-performance relations, it
can discourage future careers of employees, reduce productivity, increase operational errors,
decrease employee morale and commitment, and increase employee turnover. The banking
industry is highly competitive and Abay Bank is playing an important role in economic
development. The Bank sees employees as a source of quality and productivity, ensuring a spirit
of cooperation and commitment within its sphere of influence. Their satisfaction, competence
and commitment will determine the bank's goals and success. In order to keep the employees
engaged and committed to their work, strong and effective motivation is required at various
levels. Because employees can only give their best if they are satisfied, and their satisfaction
leads to 4 customer satisfaction, otherwise, disgruntled employees will seek the opportunity to
get what they did not get from their bank. Specifically, we were able to find studies on the
evaluation of rewards management at Abay Bank, but none of them were after the recent salary
adjustment of Abay Bank, so this study focuses on filling the gap by evaluating Abay Bank's
reward management practices. The current practice is that employees are stakeholders in the
organization.

Therefore, employees are not satisfied with the current reward system and there is a high rate of
turnover. According to the researcher's preliminary research, this can happen due to: insufficient
remuneration, balance sheet effort and reward focus from management to reward leadership
practices. For these reasons, the researcher is interested in conducting the research in such
problems to find solutions to reward management problems.
1.3. Research Questions
In light of the above problem the following research questions;

1) How reward management practiced in Abay Bank?

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2) To what extent the reward system is related to the Human Resource Policy of Abay Bank?

3) To what extent does the reward system motivate the employees of Abay Bank?

4) What are the major problems of the reward system in Abay Bank?
1.4. Objectives of the Study
1.4.1 General Objective
The general objective of the study is to assess reward management Practices of Abay Bank.
1.4.2 Specific Objectives
1) To assess reward management practices of Abay Bank.
2) To explore the alignment of reward with Human resource Policy of Abay Bank.
3) To examine the relationship between reward management and motivation of employees in
Abay Bank.
4) To identify problems related with reward management practices in Abay Bank.
1.5 Delimitation of the Study

The study was limited to reward management practices. However, Abay bank is a huge company
with many branches in the city and all regions, and collecting information from all branches
takes a lot of time and resources. Therefore, the research is focused in the human resources
department where the employees from all branches and departments get a lot of motivation,
promotion and benefits so that they can get useful and adequate information. Therefore, the
researcher believes that the data obtained from the head office samples reflect the feelings of
other branches. Abay Bank is one of the banks in Ethiopia and has more than 487 branches
spread across the country, so it is difficult to conduct research on all branches due to time and
capacity limitations. They differ from the head office because of the similarities in the
educational history and work experience of the employees. Time limits and some departments
under headquarters are included as representatives of all employees.

The employees involved in the study are manager, customer service managers, employees in
various positions of the bank and human resources personnel are important to provide the various
information required for this study.

1.6. Limitations of the Study

Among the obstacles that the researcher had when conducting this study. The Abay Banks lack
awareness of customers to fill questionnaires carefully and return them on time and some

6
employees are unwilling to fill questionnaires. In addition, there may be a lack of budget to
conduct this research.

1.7. Operational Definitions

Extrinsic Rewards: Financial, material and social rewards from the environment.

Intrinsic/Psychic Rewards: Self-indulgent gratifications can be derived from the activity itself
or experienced as a sense of competence or self-determination.
Internal equity: Paying equal wages or salaries for work of equal value. It is important to
achieve both job satisfaction and legal requirements. (Armstrong and Helen(Helen & Armstrong,
1994)

External equity: Equity is considered the relationship between what a person does (inputs) and
what a person receives (outputs).

Business Strategy: It is the "strategic agenda", which describes the direction the organization
will take in relation to the environment to achieve its objectives.

Transparency/Clarity: Employees perceive the organization's reward management procedures

to be fair and know what they are and how to use them to determine their pay levels and pay
process.

Financial rewards /Cash prizes: Related to salary provision are rewards in terms of basic and
variable pay and employee benefits and pensions (Armstrong and Helen Murlis, 2004).

Non-monetary awards: They are rewards that focus on the needs of most people, although they
are of varying degrees for achievement, recognition, impact of responsibility, and personal
growth.

Motivation: Motivation is the complex of forces that make and initiate a person to work in an
organization. To put it broadly, motivation initiates and maintains movement along a prescribed
line. The motivation is Som.(Dubin, 2005). Motivation is what moves the individual to action
and it is the continuation of the action that has already been started.

Benefit Packages: A company has a set of advantages to attract and retain its employees.

1.8. Organization of the Study

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The study organized in five chapters. The first chapter includes Introduction, background of the
study, statement of the problems, objectives of the study, Delimitation of the study, Limitation of
the study, Operational Definition and organization of the study. In the second chapter review of
related literature, An Overview of reward management, Reward System, Objective of reward
management, Financial vs. Non-Monetary Rewards Linking Compensation and Rewards to
Organizational Goals, Reward Strategy, Reward Strategy and Business Strategy, Fairness/Equity
and Empirical Studies.

The third chapter deals with in deep presentation of Methodology of the study, Description of
Study Area, Research Design, Research Approaches, Sources of Data, Target Population and
Sampling Techniques,, Method of Data Collection Techniques, Construction of the Instrument,
Reliability and Validity of Instrument, Method of Data Analysis, Ethical Consideration, in this
part research design was discussed, population, sample size and sampling techniques was shown,
what type of data required and from which source it obtained, what analysis method be
implemented. The fourth chapter Data Analysis and Presentation or consists of results and
discussion from respondents. The last chapter includes summary of major findings, conclusion
and recommendation part. Finally the references and appendixes attached at the end of the
research paper.

CHAPTER TWO

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 2. REVIEW OF RELATED LITERATURE

2.1. An Overview of Reward Management

This literature review on reward management systems encompasses the areas of
performance related pay, total reward systems and team rewards. It will reveal the many
different types of incentives available to modern day employees as well as the most favorable
way to apply those incentives to get the best performance form staff via improvement of
employee productivity. Reviewing the current published literature in this field will allow the
researcher establish a base, to which further research can be added.

This thesis explores the main theories and practices of rewards in the workplace and how they
affect employee productivity and the organizational performance, as well as specific cases within
organizations explored in the critical review of already published literature.

The theory on reward management systems and their effects on performance cannot be
evaluated without looking at how work motivation is also affected by these rewards and how
that motivation is directly linked to performance. Kanfer et al (2012) describe motivation in
the work sense as a set of processes which are ultimately used to determine a person’s actions,
and which actions they will use to achieve a desired outcome. This psychological procedure
determines how personal effort is used in the direction, intensity and persistence of these actions
in relation to your work. How you are rewarded for this work will have a great effect on this
direction, intensity.

“What’s in it for me?” nearly every individual consciously asks the question before engaging in
any behavior. Our knowledge of motivation and people’s behavior at work tells us that people do
what they do to satisfy needs. Before they do anything, therefore, they look for a payoff or
reward.

Reward can be anything tangible or intangible that an organization provides to its employees
either intentionally or unintentionally in exchange for the employees potential or actual work
contribution to which employees as individuals attach a positive value as a satisfier or certain
self-defined needs. The most obvious reward employees receive from work is pay. However

9
rewards also include promotions, desirable work assignments, and a host of other les obvious
payoffs-a smile, peer acceptance, work freedom, or a kind of recognition (Shields, 2007).

Reward management is based on a well-articulated philosophy a set of beliefs and guiding

principles that are consistent with the values of the organization and help to enact them. The
philosophy recognizes that, if Human Resource management (HRM) is about investing in human
capital from which a reasonable return is required, and then it is proper to reward people
differentially according to their contribution (i.e. the return on investment they generate
( Armstrong &Murlis, 2004).

The potential benefits to organizations of rewarding performance are many. They include
motivating employees to perform better, increasing the retention of effective employees and
decreasing the retention of ineffective employees, and creating a culture that values performance.
These are clearly outcomes that any knowledge based organization would like to achieve and
indeed may need to achieve in order to be competitive. Unfortunately, it is one thing to state the
potential advantages of effectively rewarding performance and quite another to achieve those
advantages by doing so (Lawler, 1990).

Rewarding people involves reward management process concerned with the design,
implementation and maintenance of reward systems that are geared to improvement of
organizational, team and individual performance .It includes both financial and non-financial
rewards (Armstrong, 2007).

The concept of reward management has been authored by various academicians regarding the
need to manage and drive reward management to the organizations strategic goals.

Numerous authors have defined reward management; one of the acclaimed authors has defined
the definition of reward management as follows,

'Reward management is concerned with the formulation and implementation of strategies and
policies in order to reward people fairly, equitably and consistently in accordance with their
value to the organization. It deals with the development of reward strategies and the design,
implementation and maintenance of reward systems (reward processes, practices and procedures)
which aim to meet the needs of both the organization and its stakeholders. Reward can be
regarded as the fundamental expression of the employment relationship.' (Armstrong, M, 2009).

10
According to Armstrong, the need to compensate employees‟ consistently and transparently and
most of all to create an employment relationship with the organization is one of the goals of
reward management. Furthermore, according to Armstrong reward

Management deals with the development of reward strategies and the design, implementation
and maintenance of reward systems. This can be elaborated by designing the appropriate strategy
oriented reward package and implementing the package that was designed and maintaining the
reward package with the employees of the organization.

Torrington, Hall & Taylor (2008), suggests that a variety of different terms are used to

Describe reward that is given by an employer in return for the work carried out by workers.
“Compensation” is a term widely used in the American literature, yet the idea of compensation is
that it is from loss or injury.

The terms reward and compensation are used interchangeably, but the term compensation is
fading away slowly. Since compensation does not accurately describe the reward management.
Currently, “Remuneration” is a more straightforward word which means payment according to
Torrington et al, (2008). Remuneration encompasses the benefits that are extrinsic and intrinsic
in nature and value to the employees.

Reward management:-

By adopting a 'total reward' perspective, which recognizes that there are many and perhaps even
more powerful ways to support business strategy success in relation to other HRM strategies,
especially those related to workforce development, besides financial rewards, HRM should
recognize people as their contribution (i.e. the return on investment they generate) if there is a
reasonable return on investment in human capital.

It focuses on developing the skills and competencies of employees to increase the resource-based
capabilities of the organization (skills or skill pay).

It supports other key HRM initiatives around resourcing, employee development and employee
relations, which itself is an integrated process that can operate flexibly.

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Essentially, the notion of total reward says that there is more to rewarding people than throwing
money at them. For O’Neal (1998), a total reward strategy is critical to addressing the issues
created by recruitment and retention as well as providing a means of influencing behavior: ‘It
can help create a work experience that meets the needs of employees and encourages them to
contribute extra effort, by developing a deal that addresses a broad range of issues and by
spending reward dollars where they will be most effective in addressing workers’ shifting values.

2.2. Reward System

The reward system of an organization incorporates the organization’s reward strategies policies,
practices processes and procedures. These components dealt with varied issues such as what is
the organization intends to do in the long run, how decision making is made, how grade and pay
structure are formed, how policies are implemented and practices are carried out, and what
procedures supposed to be maintained in the system in order to operate the system efficiently and
flexibility (Armstrong, M, 2006).

The reward system has varied elements which are interrelated to each other. The system begins
from the business strategy, which is a base for reward strategies and policies and goes through
varied steps up to the development of total reward packages.

2.2.1. Elements of Reward Management

According to Armstrong (2006) the following are the basic reward management elements.

A) Reward system

A reward system consists of;

• Guidelines that provide guidance on methods of administering awards?

• Practices that offer monetary and non-monetary rewards?
• Processes involved in evaluating the relative size of the job (job evaluation) and
evaluating the performance of individuals (performance management)?
• To ensure that the processes to maintain the system ant run efficiently and
flexibly and provide value for money?

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B) Reward strategy
Reward strategy sets out what the organization intends to do in the long term to develop and
implement reward policies, practices and processes that will further the achievement of its
business goals.
Reward strategy is a declaration of intent that defines what the organization wants to do in the
longer term to develop and implement reward policies, practices and processes that will further
the achievement of its business goals and meet the needs of its stakeholders.
Reward strategy provides a sense of purpose and direction and a framework for developing
reward policies, practices and process. It is based on understanding the needs of the organization
and its employees and how they can best be satisfied. It is also concerned with developing the
values of the organization on hoe people should be rewarded and formulating guiding principles
that will ensure that these values are enacted (Shields, 2007)
C) Reward policies
Reward policies address the following broad issues are; the level of rewards, taking into account
‘market stance’, i.e. how internal rates of pay should compare with market rates, for example
aligned to the median or the upper quartile rate, Achieving equal pay, the relative importance
attached to external competitiveness and internal equity, the approach to total reward, the scope
for the use of contingent rewards related to performance competence, contribution or skill, the
role of line managers and transparency- the publication of information on reward structures and
processes to employees.

2.2.2. The Framework of Reward Management

The design and operation of reward management process and practices should start from
understanding of the implications of the psychological contract concept, motivation theory and
the factors affecting pay levels. But it must focus on the needs of the organization and the people
who work in it. These needs are most likely to be met if reward processes are based on an
articulated and integrated approach to the development of the framework of reward philosophies,
strategies and policies that will support the achievement of the organization’s business strategies,
as well as acting as levers for change (Armstrong, 2010). The framework consists of the
following elements:-

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 The internal and external environments:-The analysis of these provides the information
required to help in the formulation of the strategic agenda for the organization and for human
resource management strategies. The internal analysis will also influence reward philosophies.
 The business strategy:- As a ‘strategic agenda’, this defines the direction in which the
organization is going in relation to its environment in order to achieve its objectives.
 Human resource management strategy:-This flows from the corporate strategies and is
concerned with the key areas of resourcing, skills acquisition and development, performance
and quality management, rewards and employee relations. The aim is to make strategies in each
of these areas mutually supportive. It is important, therefore, for the reward strategy to be
integrated with every other aspect of the human resources strategy.
 Reward philosophy:-This consists a set of beliefs which underpin the reward strategy of the
organization and govern the reward policies that determine the reward policies that determine
how reward processes operate.
 Reward strategy:-This defines the intentions of the organization on the reward policies,
processes and practices required to ensure that it has the skilled, competent and well-motivated
people it needs to achieve its business goals .it will flow from the business and human
resources strategies of the organization and lock them, will be affected by environmental factors
.those preparing reward strategies essentially find out where the business intends to go and then
take steps to help it get there. Reward strategy strongly influences reward policy and largely
determine the form of pay practices, structures and procedures.
 Reward policies:-These provide guidelines for the implementation of reward strategies and for
the principles and the operation of the reward management processes and practices.
 Reward practices:-Financial and non-financial rewards, job evaluation, external benchmarking,
pay structures, performance management and employee benefits.

14
Fig1. Reward Management Framework (adapted from Armstrong, 2010)

External
Area

Business
Strategy Award Award Award
HRM Policies Experiences
Strategy Strategy

Internal
Area

Dimensions of Reward Management Practices

To achieve the aims of reward management, the reward management strategies, policies,
processes, and practices should rely on certain principles. Armstrong (2007), mentioned that all
the reward management policies and practices supposed to operate in accordance with the
principles of distributive and natural justice, function fairly, equitably, consistently and
transparently, are aligned to the business strategy, fit the context and culture of the organization,
are fit for purpose and help to develop a high performance culture.

Strategic Alignment/Fit

To be effective, the reward practices of an organization supposed to be aligned with the business
strategy of the organization. According to Armstrong, the strategic alignment of reward practices
ensures that reward initiatives are planned by reference to the requirements of the business
strategy and are designed to support the achievement of business goals.

Transparency

Transparency exists when people understand how reward processes function and how they are
Affected by them. The reasons for pay decisions are explained at the time they are made. The
need for a transparent system, according to Gibbons (1998), involves the preferences towards

15
having a clear communication of how the reward are distributed and offered and also the
concerns on the understanding of the methodologies, measures and targets used while
introducing any rewards. The employees need to understand the connection between the
company’s business objectives, how they contribute, and how they are rewarded. Perceived
uncertainty decreases the effectiveness of incentive compensation.

2.3. Objectives of Reward Management

According to Stone (1998), the objectives of reward management are:

Organization

 To attract and retain quality and desired employee engagement?

 Encourages employees to improve their work performance through efforts?
 Achieving the organization's strategic objectives.
 It reinforces the core values and culture required by the organization?
 Encourages and reinforces work behavior as required by the organization?
 Ensures compensation is competitive?
 Manages compensation costs?
 It ensures maximum returns on every used ring?
 Complies with legal requirements?
Employee

 Increasing participation as part of the process?

 Giving performances commensurate with the rewards as seen?
 Improving working relationships?
2.3.1. Different Forms of Reward

According to (Armstrong M. , A Hand book of human resource management practice, 11th ed.
Kogan page limited great Britain by Cambridge university Press UK., 2009) total reward is
elaborated as defined by Manus and Graham(2003), total reward includes all types of rewards
indirect as well as direct, and intrinsic as well as extrinsic. Each aspect of reward namely base
pay, contingent pay, employee benefits and non-financial rewards ,which include intrinsic
rewards from the work itself, are linked together and treated as an integrated and coherent whole.

16
 2.3.2. Intrinsic Vs. Extrinsic Rewards

According to Shields(2007) explanation intrinsic rewards arise from the content of the job itself,
including the interest and challenge that it provides, the task variety and autonomy ,the degree of
feedback, and the meaning and significance attributed to it. It follows that one of the most
important determinants of the level of intrinsic rewards in any organization is the way in which
its jobs are designed .extrinsic rewards arise from the factors associated with, but physically
external to, the job that he employee does that is, from the job context. Extrinsic rewards are of
three main types: financial rewards, developmental rewards and social rewards. Developmental
rewards cover those rewards associated with personal learning, development and career growth,
such as skills training and performance and leadership coaching, social rewards are those
rewards and ‘indirect (or non-cash) benefits associated with the organizational climate,
performance support, quality and supervision, workgroup affinity, and opportunities for
enhanced work-life balance, such as flexible work time arrangements, fitness and wellness
programs, and the like.

2.4. Financial Vs. Non-Financial Rewards

Financial rewards (or pay, remuneration or ‘compensation’) are of the three main types base pay
(the relatively fixed component of total remuneration); performance –related pay (which by
definition varies with measured performance); and direct benefits, such as employer
contributions pensions, health care, childcare and the like. While non-financial rewards
constitute an increasingly important aspect of total reward management, financial rewards are
almost always of primary importance in reward management practice.

2.5. Linking Compensation and Rewards to Organizational Goals

Employee performance increases dramatically when an organization’s compensation and reward
strategy is linked to its mission and goals. Linking compensation and reward programs to goals
requires working in harmony with other vital systems within the firm. (Ann Gilley, jerry w.
Gilley, Scott A Quatro, Pamela Dixon, 2006).

1. Linkage ensures the consistent allocation of compensation and rewards, helping the
organization function in a way that is acceptable to all constituents. Developing an
effective compensation and reward program requires a well-conceived, designed,

17
 implemented, and monitored plan, as evidenced by the following nine principles of
effective compensation and reward programs:
2. Align your compensation with the organization’s culture, values, and strategic goals and
objectives. Compensation should be integrated with all aspects of the business.
3. Link compensation to other changes. Compensation should support and reinforce
organizational change initiatives.
4. Time the compensation program to best support other change initiatives. Timing is
everything. Compensation should not force change or lag behind the process. 4. Integrate
compensation with other employee processes. Compensation is not a substitute for
developing relationships with employees.
5. Democratize the compensation process. Incorporate employees’ opinions and decisions in
compensation and rewards.
6. Demystify compensation. Since knowledge is power, communication counts. Clearly
articulate aspects of the organization’s compensation and reward program so that all
understand. Therefore, share the wealth, so to speak, in more than the traditional way.
7. Measure results. Performance can and should be measured with fairness and consistency.
8. Refine. Refine again. Refine some more. Continually improve the compensation program
Analyze and revise. Keep up with the times.
Be selective. Do not take to heart everything you hear or read about compensation.

2.6. Reward Strategy

According to Armstrong (2007) Reward strategy clarifies what the organization wants to do in
the longer term to develop and implement reward policies, practices and processes that will
further the achievement of its business goals. It is a declaration of intent, which establishes
priorities for developing and acting on reward plan that, can be aligned to business and HR
strategies and to the needs of people in the organization. Brown believes that:’ reward strategy is
ultimately a way of thinking that you can apply to any reward issue arising in your organization,
to see how you can create value from it.

18
2.7. Reward Strategy and Business Strategy
One of the defining features of strategic reward is that reward strategy should be aligned to (fit)
the business strategy. (Armstrong ,2007) According to this concept, reward strategy as an aspect
of HR strategy exists to satisfy business needs and support the achievement of business goals. A
serious objection to this notion is that it ignores the needs of the people in the organization. It can
also be argued that it is simplistic in suggesting that ‘fit’ is easily attained. It is not. The
formulation of business strategy is a complex, interactive process influenced by a variety of
contextual and historical factors. ‘How can there be a straightforward flow from the business
strategy to the HR strategy? ‘Hendry and Pettigrew suggest that there are limits to the extent to
which rational HR strategies can be drawn up if the process of business strategic planning is
itself irrational.

Fit may be difficult to attain but reward strategy needs to take into account an important
approach to business strategy that has evolved over the last decade. This is the concept of
resource-based strategy, which is founded on the belief expressed by Hamel and Prahalad(2005)
that competitive advantage is obtained if a firm can obtain and develop human resources that
enable it to learn faster and apply its learning more effectively than its rivals. Barney contends
that sustained competitive advantage stems from the acquisition and effective use of bundles of
distinctive resources that competitors cannot imitate. The benefits arising from competitive
advantage based on the effective management of people are that such a resource advantage is
hard to imitate. According to Armstrong (2007), an organization’s HR and reward strategies,
policies and practices are a unique blend of processes, procedures, personalities, styles,
capabilities and organizational culture. One of the keys to competitive advantage is the ability to
differentiate what the business supplies to its customers from what is supplied by its competitors.

Such differentiation can be achieved by having HR and reward strategies that ensure that:

1. The firm has higher-quality people than its competitors,

2. The unique intellectual capital possessed by the business is developed and nurtured, and
3. A culture is created that encourages commitment, engagement and continuous development.

19
 2.7.1. Reward Strategy and HR Strategy
Reward strategy is only part albeit an important part of an organization’s HR strategy. It is
necessary to ensure that reward strategies are ‘bundled’ with other HR strategies so that they
complement and reinforce one another.
2.7.2. Rewarding Strategies

Rewards have been studied, at length, for years. Historically, efforts to motivate employees and
improve organization performance have focused on universal motivators a one-size fits-all
strategy. This approach ignores individuality, priorities, and degree of motivation due to intrinsic
and extrinsic rewards. Recognizing the power and importance of individualism enables firms to
offer a variety of unique incentives to reward individual employees along their journey of
productivity, growth, and renewal. The following rewards are intended to promote continuous
growth and development of the individual and organization: recognition, noncash incentives,
group/team incentives, responsibility and authority, Professional development, freedom and
independence, vacation, leisure time, sabbaticals, and fun. (Ann Gilley, jerry w. Gilley, Scott A
Quarto, Pamela Dixon, 2006).

Recognition: it is second only to cash as a powerful motivator. It is impossible to negate the

power of recognition and the genuine pleasure we feel when acknowledged for our efforts.
Recognition boosts our self-esteem, places us on a pedestal, and validates our abilities. (Ibid)
Recognition proves effective for rewarding stellar performance, professional development,
Attainment of performance goals, earning of advanced degrees, innovations and creative Ideas,
teamwork, community involvement, promotions, years of service, cost-savings Ideas and so
forth.

Appropriate recognition includes timely praise for a job well done; involvement in major project
teams, acquisitions, or strategy sessions; employee of the month or year awards; honors
banquets; trophies, certificates, and plaques; publicity in the organizational newsletter; formal
and informal announcements by supervisors or leaders; organizational gifts such as pens, rings,
watches, etc.; president’s club or hall of fame; and so forth.

Noncash Incentives: Noncash incentives such as gift certificates, organizational merchandise

and clothing, trophies or plaques, or other prizes are often desirable incentives. Noncash
incentives may also be distributed and awarded on a peer-to-peer basis (Gilley, 2006).

20
 Group/Team Incentives: Group incentives reward performance of a particular set of
employees, often a small Group, cross functional team, unit, or department. If group performance
improves or Reaches a certain goal, members are rewarded accordingly. This practice bolsters
teamwork and cooperation, often resulting in a closeness and camaraderie absent prior to
inception of the recognition program. Group incentives are important to those organizations that
Encourage or demand group or team work of their employees (Gilley, 2006).

Responsibility and Authority: Employees prove themselves every day; from completing small,
routine tasks too far Exceeding personal and professional expectations. Those who are willing
and able to Assume greater responsibility should be given opportunities to do so. Many firms
take care to balance additional responsibility with correspondingly increased authority.
Responsibility without authority is a frustrating, de-motivating phenomenon (Gilley, 2006).
Professional Development Some organizations treat personal growth and development as a
routine function, not an award for doing well. Internal ongoing training and external educational
reimbursement send powerful messages that the employee is valued, and his or her growth and
development are critical to organization success (Gilley, 2006).

Freedom and Independence: ‘‘Highly enterprising employees will welcome the opportunity to
obtain freedom and Independence as a reward for a job well done. ‘Freedom takes many forms:
the ability to develop a new product or process; casual dress days; opportunities to work on a
‘‘special’’ project; and so forth. Genuine growth and development are by-products of individual
creativity set free (Gilley, 2006).

Vacation and Leisure Time: Hardworking employees push themselves to achieve personal and
professional growth, often working overtime, evenings, or weekends. Since companies reap the
benefits of extra Effort and growth, it makes sense to compensate individuals for their efforts.
Too much Work can cause frustration or burnout; thus, employees need time to relax and
reenergize. Extra vacation or leisure time is an appropriate reward for someone who has devoted
long Hours to business pursuits, and may provide a refreshing ‘‘time out’’ in preparation for the
next challenge (Ibid).

21
 2.7.3. Factors That Influence Pay Rate of an Organization

Nankervis (1999) stated that a few factors like external or internal will influence the wage rate
developed by an organization. These factors are as shown in Figure3, which include the legal
environment, market demands, work values, compensation administration strategies and personal
factors.

Fig2. Factors Affecting Payout Rate (in Nankervis, 1999)

(A) Legal Environment

The compensation policy in every organization has to be aligned with the legal labor
requirements in a country. Among the issues related to wage rate, are:

• Minimum wage rate;

• Fixed wage component; and
• Variable wage component.
(B) Market Survey

Organizations have to conduct environmental scanning in the labor market to review the
relationship between demand and qualified manpower supply. Besides that, organizations also
have to take note on other information before a certain salary policy is set. The information
includes:

• The differences between local wage rate and city and suburban wage rate;
• The different wage rates for works from the same work groups; and
• The different wage rates in the same industry.

22
 Economic environment including inflation unemployment, man power participation level
increase in education status, lack of specific skills and others.

(C) Working Values

Each organization has to have its own values in increasing employee motivation to work
productively. Among the working values that need to be focused on by an organization are:

• The latest knowledge and experience;

• Task complexity can be solved easily; and
• Problem solving is a path towards excellent work performance.
(D) Compensation Administration Strategies

Compensation administration strategies are formed as a way to achieve organizational strategic

objectives. The development of this strategy has to be focused on a few questions such as:

• The purpose of giving the rewards to employees the relationship between rewards and results
achieved by the organization;
• The employers ability to give rewards to employees; and
• The type of employees desired by employers.
(E) Individual Factors

Other factors that need to be considered are factors on individual performance which are as
important in creating more motivated employees to carry out work exceptionally. A few factors
that have to be thought of are:

• Individual contribution towards the organization;

• Real performance compared to forecasted performance; and
• Skill development or competency.
2.8. Equity

Equity theory, as developed by Adams(2010), argues that satisfaction with pay is related to
perceptions about the ratio between what one receives from the job (outcomes in the form of
pay) to what one puts into it (inputs in the form of effort and skill) compared with the ratios
obtained by others.

23
Equity theory is related to discrepancy theory which, as stated by Lawler, indicates that
satisfaction with pay depends on the difference between the pay people receive and what they
feel they ought to receive. Equity theory, however, emphasizes that these feelings are based on
comparisons.

The significance of equity was also emphasized by Jacques (2011). He stated that:

1) there exists ‘an unrecognized system of norms of fair payment for any given level of
work, unconscious knowledge of these norms being shared among the population
engaged in employment’; and that
2) An individual ‘is unconsciously aware of his own potential capacity for work, as well
as the equitable pay level for that work’. Jacques called this the ‘felt-fair’ principle,
which states that, to be equitable, pay must be felt to match the level of work and the
capacity of the individual to do it.
2.8.1. The Influence of Equity on Wage Rate

According to Dessler (2000), equity factor whether internal or external are critical factors in
determining wage rate. External factors take into account the similarities between an established
wage rate and other organizations wage rate to attract and retain capable employees. On the other
hand, Internal factors stresses on fair wage when an employee compares his or her wage with the
wage rate of a colleague in the organization. In general, an established salary grade must take
into account both issues in creating Equity on the wage rate developed.

According to Gary (1994) the need for equity is perhaps the most important factor in determining
pay rates, and there are two types of equity to address: external equity and internal equity.
Externally, pay must compare favorably with wages in other organizations or you’ll find it hard
to attract and retain qualified employees. Pay rates must also be equitable internally: each
employee should view his or her pay as equitable given other employees’’ pay rates in the
organization. Some firms administer employee attitude surveys to obtain information from
employees regarding their perceptions and feelings regarding the firm’s compensation system.
Questions typically addressed by such employees’ compensation surveys include “how satisfied
are you with your pay?” “What criteria were used for your recent pay increase?” and “what
factors do you believe are used when your pay is determined?”

24
According to Gary (1994) in practice, the process of establishing pay rates while assuring
external and internal equity involves five steps:

1 Conduct a salary survey of what other employers are paying for comparing jobs (to help
insure external equity).
2 Determine the worth of each job in your organization through job evaluation (to ensure
internal equity.)
3 Group similar jobs into pay grades.
4 Price each pay grade by using wage curves.
5 Fine tune pay rates
2.8.2. Motivational Theories

Motivation is the complex of forces starting and keeping a person at work in an

organization. To put it generally, motivation starts and maintains an activity along a prescribed
line. Motivation is something that moves the person to action, and continuous him in the course
of action already initiated (Dubin, 2005).

Motivation is concerned with the strength and direction of behavior and the factors that influence
people to behave in certain ways. People are motivated when they expect that a course of action
is likely to lead to the attainment of goal and a valued reward: one that satisfies their needs and
wants (Armstrong, Michael, 2009).

(David & DeCenzo,2005), further explained motivation as a process. An unsatisfied need creates
tension, which stimulates drives with in the individual. These drives generate a search behavior
to find particular goals that, if attained, satisfy the need and lead to the reduction of tension.

2.8.3. Hierarchy of Needs Theory

This theory was developed by Abraham H.Maslow (2005). The theory suggests that each
individual has a series of innate needs. If such needs are unfulfilled then the individual will be
motivated to act in a specific manner in an attempt to satisfy these unfulfilled needs (Hume,
2000).according to Maslow the theory advocates that all individuals have a set of human needs.
Which are prioritized on an ascending scale, primary needs dealing with physiology and safety,
and secondary needs dealing with the psychological aspects of human existence? Maslow’s
hierarchies of needs is ascending order are: psychological, safety, social /love, esteem and self-

25
actualization. This theory assumes reward should help to satisfy needs in each level of the
hierarchy.

2.8.4. Theory X and Theory Y

Douglas McGregor (2010) proposed two distinct views of human beings In this theory: one
basically negative, labeled theory x and the other basically positive labeled theory y (Robbins,
2005).the base for McGregor‘s theory on motivation is the belief that there is a direct correlation
between

The way managers treat their workers and worker motivation. Theory x is an elitist management
approach where workers are treated with little or no respect, with an emphasis on control,
discipline, conformity, obedience and dependence. Theory y approaches employee management
from an entirely different point of view. It emphasizes decentralization, delegation, participation
and consultation.

Theory x and y emphasized the importance of commitment, rewards and integrating individual
and organizational needs (Armstrong, 2009)

2.8.5. ERG Theory

The existence, relatedness, growth (ERG) approach to motivation adopted by Clayton P.

Alderfer (2007) suggests that people are motivated to act in a specific manner in an attempt to
bring about individual satisfaction (DeCenzo & Robins, 2005). These satisfactions depend on the
fulfillment of three sets of innate needs: existence, relatedness and growth. The theory adopts an
‘open system’ in that individual are constantly interacting with the environment which in turn
affects their behavior.

According to DeCenzo & Robbins (2005), existence needs are basically concerned with survival
and related to material and physiological factors relatedness needs are concerned with social
processes such as sharing, acceptance, conformation, understanding and influence; and growth
needs essentially refers to creating the optimum use of existing capacities, and the development
of new capacities. Hence, the theory perceives reward as a means of satisfying the needs
existence, relatedness and growth.

26
 2.8.6. Mcclelland’s Theory of Needs

The theory of motivation developed by David C.McClelland(2000) is based on the assumption

that individuals have the desire to fulfill three innate needs which are present to differing exists
in all individuals(Robbins,2005).The need for achievement-described as the need for competitive
success and high standards of personal excellence. The need for affiliation- described as the need
for warm, friendly and compassionate relationships with others and the need for power-described
as the need to control or influence others.

The relationship between reward and motivation in this theory can be seen as the importance of
reward in helping the person in the fulfillment of the above needs.

2.8.7. Motivation-Hygiene Theory

The two factor model of motivation developed in 1959 by Fredrick w. Herzberg tries to find out
what people want from work. According to DeCenzo & Robbins (2005), the theory identifies
two sets of factors that influence work behavior: dissatisfies (hygiene factors) and satisfiers
(motivators).

Hygiene factors are related to the context of jobs which do not result in the individual being
satisfied but prevent the individual from being dissatisfied. These include pay, working
condition, supervision, status, security company policy and administration.

Motivators are those factors within the workplace which resulted in the individuals being
satisfied at work includes achievements, responsibility, recognition, advancement, growth and
the work itself. The two-factor theory underpins the proposition that reward system should
provide for both financial and non-financial rewards (Armstrong, 2009).

2.8.8. Equity Theory

Equity theory recognizes that individuals are concerned not only with the absolute amount of
rewards they receive for their efforts, but also with the relationship of this amount to what others
receive(Ivanevich,2008).according to J. Stacy Adams(2010) people who are experiencing
inequity are motivated to do something to correct it. On another note Adams suggests that the
degree of fairness (equity) or unfairness that an employee perceives in the work place determines
employee’s productivity and satisfaction. The degree of equity is defined as a ratio of an

27
employee’s input (effort,competence,etc) to outcome (pay,benefits,service,etc),compared with a
similar ratio of others(Robbins,2oo5).according to the theory ,when people perceive an
imbalance in their outcome-input ration relative to others, tension is created. This tension
provides the basis for motivation, as people strive for what is perceived as equity and fairness.

Equity theory focuses on both distributive and procedural justice. The perceived fairness of the
amount and allocation of rewards among individuals are procedural justice: the perceived
fairness of the process used to determine the distribution of rewards, the theory suggests that
there should be equitable reward and employment practice in organizations

2.8.9. Expectancy Theory

Expectancy theory which was developed by Victor Vroom (2005) states that, motivation depends
on the expectation that effort will produce performance. The theory states that individuals will
behave in a specific way when there is a higher expectancy that such behavior will result in a
desired outcome.

Expectance theory suggests that motivation of an individual depends on a perception of

A. specific behavior will result in the attainment of a specific goal

B. the value of the desired goal
C. the degree to which such behavior is contributing in the attainment of other additional goals
(Hume,2000). it is also emphasized that there must be a link between effort and reward and
reward should be achievable and worthwhile,
2.8.10. Reinforcement Theory

Reinforcement theory as cited by Armstrong (2009) was developed by hull suggested that
motivation results from the direct interaction of the individual with the external environment.
Human behavior is motivated by the extent to which it has been rewarded or punished, on the
basis of an automatic stimulus-response. The theory suggests reward act positive incentives and
reinforces the successful behavior which is repeated the next time as similar need emerged.

2.9. Empirical Studies

The research conducted by Lemessa Duffera (2012) assessed the compensation management
practices of AB, Data were collected through questionnaire prepared based on various scholar

28
work. The validity of the instrument was checked by AB’s HR professionals, Branch managers,
graduate program student and university lecturer. The result of the study showed that AB
employees‟ perceive they are on treated equally both internally and externally. In addition,
majority of the employees are motivated with AB non-financial compensation than financial
compensation. Besides, majority of the employees perceive that AB labor union has been acting
as nominal figure and it is inactive in most compensation management decision of the
organization.

A research was also conducted by Yitbarek Gochel (2012) on Assessment of reward

management practices in Ethiopian airlines the pay, promotion, and benefit practices of the
airline are assessed from varied reward management dimensions. In doing this, the alignment,
transparency, equity, fairness, competitiveness, flexibility, and some other aspects of the existing
reward practices are valued based on employees’ opinion.

The result of the research work revealed that many aspects of the reward management practices
of the airline are exercised poorly except some aspects in relation to promotion and benefit
administration. John Jurgle (2005) conducted a research titled reward and recognition programs,
the secret to maintaining a high morale and motivated work force in Pompano Beach fire
department (Florida) the purpose of the research was to evaluate the current employee
recognition and reward problem and develop a program that would be valued by employees. The
results of the project indicated members of the department didn’t believe that the current
employee recognition/reward program was effective and did not offer any value.

29
 CHAPTER THREE

3. METHODOLOGY OF THE STUDY

3.1. Background of the Organization

The great Nile River, which is the source of Ethiopia's beauty and pride, is not only a gift of
nature endowed with a special attraction, but also proving that it is a river with potential energy
for the continued development of our country. The bank got the name "Abay" from the character
of this great and highly energetic river, and the bank is a loyal customer servant to provide a safe
and reliable banking service, by developing capital reserves and supporting various sectors that
create job opportunities, and is accelerating growth. Just like the tourists who come from
different countries to visit the Nile River, they look at the environment and the residents'
reception with special satisfaction and joy, the diligent and efficient employees of the bank, with
the help of modern technology, bring happiness by handling them quickly and efficiently. Just as
the Nile River, the largest river in Ethiopia, plays an important role in the future development of
the country, our bank is moving forward with a vision of creating rapid growth and development
for the farmers, producers' associations, commercial institutions, as well as for the customers
who work with the bank in the financial sector.

Abay Bank S.C was established on July 7, 2002, meeting the requirements of the National Bank
of Ethiopia, and officially started its operations on October 25, 2003. When the bank was
founded, there were 174.5 million Birr signed capital and 125.8 million Birr paid-in capital, 823
founding members. As of June 30/2023, the bank's paid-up capital has reached 4.733 (four
billion seven hundred and thirty-three million birr) and the number of shareholders of the bank
has reached 4437 (four thousand four hundred and thirty-seven).

Abay Bank is providing efficient services to all sectors of the economy, including domestic trade
and services, international trade, agriculture, industry, transport, construction, real estate and
others. Abay Bank is developing its capacity to be your preferred business partner by meeting the
financial demands and needs of every business by using all business and business opportunities.
The bank is contributing to fill the gap in financial services and supply in the sector. Abay Bank
has achieved great success at all levels. The bank has opened many branches in the whole

30
country within a short period of time and has now increased the number of branches to more than
487. Accordingly, until June 30/2023, more than 2509638 (two million five hundred nine
thousand six hundred thirty eight) customers have opened and served the bank account. The bank
has been providing banking services for thirteen years. According to data, the number of
employees of Abay Bank is 552 only at the head office as of April 30, 2024. The bank is a bank
that operates with a specific vision, mission, value and authority, reporting relationship, policy
and procedure to achieve its objectives.

Abay Bank Savings Services, Loan Services, Revolving/Revolving Loans, Term Loans,
Guarantees, International Services, Outgoing Trade Services, Incoming Trade Services, Hawala
Services, Sadiq/Interest Free Services, Wadiyah and Mudarabah, Customer Accounts, Mobile
Banking, It conducts online banking operations. But all these jobs can only be achieved by
motivated and dedicated employees. To this end, the study focused on evaluating the reward
management system at Abay Bank and evaluating the reward management system that the
company is using to attract and retain long-term employees.

3.2. Description of Study Area

This research was conducted at Abay Bank headquarters, one of the private banks operating in
Ethiopia. Abay Bank head office is located at Qara Complex/Building, District 8, Kirkos Sub-
City. According to the 2016E.C HR data, a total of 552 employees are working in different
positions in the head office of Abay Bank.

3.3. Research Design

The current chapter presents the methods used to conduct this research. The researcher uses
qualitative and quantitative data analysis keeping in mind the objective of the study.

According to (CR Kotari, 2004)Descriptive research includes various types of surveys and fact-
finding questions. The main purpose of descriptive research is the description of the current state
of affairs. Descriptive studies are more concerned with facts and can answer questions like "what
was" and "what is". Therefore, descriptive research is used in this study to obtain information
about the characteristics of the problem.

31
3.4. Research Approaches
Research can be classified into two basic approaches, viz., quantitative approach and the
qualitative approach (Kothari, 1990). Quantitative research is based on the measurement of
quantity or amount. It is applicable to phenomena that can be expressed in terms of quantity.
Qualitative research, on the other hand, is concerned with qualitative phenomenon, i.e.,
phenomena relating to or involving quality or kind. This type of research aims at discovering the
underlying motives and desires using in depth interviews for the purpose. Therefore, for our
research we will use mixed approach because it useful to capture the best of both quantitative
and qualitative approach.

3.5. Sources of Data

Primary Sources of Data: Both open-ended and closed-ended questionnaires were distributed
to employees, which were mainly taken from John Jurgel (2005) and other researchers, John
Jurgel's study was conducted on a fire department located in Florida, and since AB is a service
sector company, most of the questions on the fire department questionnaire were mainly taken
from him. And the other questions were based on the dimensions of reward management. A five-
point Likert scale questionnaire with strongly disagree, disagree, neutral, agree and strongly
agree was distributed to employees working in the headquarter. The questionnaire measured
employee perception regarding intrinsic and extrinsic rewards, equity, transparency, consistency.

Secondary Sources of Data: In this study, secondary data sources are used along with primary
data by referring to various books written on the subject (reward management), articles and
company sources such as union agreement HR reports and the bank's library materials.

3.6. Target Population and Sampling Techniques

When selecting research participants, in this study, the researcher will apply strategic random
sampling technique to determine the participants who will be able to answer the research
questions and achieve the research objectives. According to Kothari (2004), since each stratum is
more homogeneous than the population as a whole, we can obtain more accurate estimates for
each stratum, and by accurately estimating each stratum, we obtain a better overall estimate.

The survey uses census method to select each employee. This is because the total number can be
considered analytically, and each rank is used as a simple random sample.

32
Adopting proportional allocation, the sample sizes under different strata are then calculated using
Taro Yamane's (1973) formula. The formula for estimating the sample size at the required 95%
confidence level from the population is given by Taro Yamane (1973).

The formula for sophisticated random sampling is: n = N∕1+N (e2)

n = sample size

N = total population

E = Acceptable error (ie at 95 confidence level, 5% margin of error)

The sample size dictates to include the respondents in the sample; proportional strategic
sampling method is used. The reason behind using this method is that the respondents will be
different between groups and homogenous within groups. Therefore, the number of respondents
from each column will depend on their rank. Finally, to obtain the specified number of customers
from each straw list, simple random sampling is used because each element in the population has
an equal chance of being selected, thus avoiding bias.

The selection of sample from the branch is by using simple random sampling method. From the
total population in head office 110 sample sizes will be selected. The simple random sampling
technique was preferred because every member of the sample population got an equal chance to
be selected.

3.7. Method of Data Collection Techniques

According to the Data collected from the HR management of Abay Bank, employees are
working in different positions at the head office of Abay Bank Stock Association. The
participants of the study are among these employees and the subjects of the study are the
employees of Abay Bank working in different positions.

The employees included in the study are manager, customer service managers, employees in
various positions of the bank and human resources personnel are important to provide the various
information required for this study

3.8. Construction of the Instrument

The researcher focused on primary and secondary data and was collected using various books,
magazines and articles written on topics related to reward management and internal companies.

33
Such as various annual reports, manuals, pamphlets, collective agreement signed between
management and labor union, archives and other related written sources will be useful for us to
conduct research.

3.9. Reliability and Validity of Instrument

3.9.1. Reliability
To ensure the reliability of the response (internal consistency of the items measuring the level of
similarity of measures in the instrument and reliability across the group of observers), the study
conducts a reliability test of 14 target group respondents by calculating Cranach’s alpha with all.
Variable using SPSS. For this reason, the Cranach's alpha questionnaire states that 86.7 as
recommended by (Walsh, 1995) should be the minimum level of Cranach's alpha so that the
reliability of the response can be ensured.

3.9.2. Validity
Validity is a very important criterion and indicates how well a device measures what it is
supposed to measure. (Kothari, 2004) In designing and verifying the content validity of the
instrument as well as checking the clarity, length and wording of the questionnaire, the
researcher considered the input of the consultant as well as the HR professional working in AB
in the HRM sub-process. Finally, valuable feedback is provided from both the consultant and the
expert and based on the feedback, some adjustments are made to the questionnaire.

3.10. Method of Data Analysis

Data collected using primary and secondary sources of data and using tables, frequency
distributions and percentages to give a complete picture of the data collected. Accordingly, the
collected data was analyzed to reach meaningful conclusions and provide useful
recommendations. To reach conclusions and draw possible conclusions, the Statistical Package
for Social Sciences (SPSS version 20) is used to prepare the final report.

3.11. Ethical Consideration

It would be unethical to access some confidential documents of the organization. Therefore, the
code of ethics of the organization is taken without causing significant damage to the study. It
may also be unethical to ask employees to answer questionnaires while on the job. Therefore,
respondents are given enough time to take the questionnaire home or use their leisure time.

34
 CHAPTER FOUR

4. TIME SCHEDULE AND COST BUDGET

4.1 Time Budget / Schedule

A time plan or time budget is a time table explaining how the researcher expected to carry out his
project. It is a plan in terms of months and expected completion. Dates, it is presented in the
table form or charts in the following schedule.

4.2 Cost Budget

There are different cost tables incurred to undertake this study. The researcher estimates the
following minimum cost per item.

Appendix -1:
Table 1. Proposal Activity Schedule

No Time frame in months

Activity
. May June July Augest September
1 Research topic selection
Consulting with the coordinator about the
2
topic
3 Topic approval
4 Preparation of thesis proposal
5 First draft proposal summations
6 Revision of the thesis proposal
7 Submission of final proposal

8 Approval of final proposal and clearance

9 Data collection /field work

10 Data analysis and report writing

11 Submission of final thesis first draft

12 Submission of final thesis

13 Handover approval thesis
14 Presentation and defense of final thesis

35
 Appendix -2:
Table. 2 Planned budget allocation
T/
Goods Measurements Quantity unit price Total price
No
1 Pen packet 2 750 1500

2 Computer paper packet 5 400 2000

3 Printing Page 150 5 750

4 Photocopy Page 600 2 1200

5 Secretary service Page 150 5 750

6 arrest Pieces 6 25 150

for a taxi per
7 Transportation cost 20 30 600
day
8 Notebook No 12 70 840

9 Flash memory No./8 GB 2 400 800

10 Mobile card No 12 50 600

11 Internet cost hours 8 25 200

12 Scanning Page 10 10 100

13 Assistant data collector for 10 days 5*15 150 11250

14 CD case No 5 60 300

15 Researcher's expenses daily 30 300 9000

16 Spontaneity 2000
Total
32,040.00
amount

In the table on As indicated the study Estimated Cost Rs 32,040.00/thirty two thousand fourty/
indicates that it is required.

36
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