The Impact of Effective Organizational Reward System on Corporate Performance: Literature Review

This literature review explores the impact of effective organizational reward system on corporate performance. It discusses the different opinions regarding the effectiveness of rewards, employee motivation, and corporate sustainability. The review also provides insights on the interrelationship between employee behavior and performance and how it affects the overall organizational performance.

Running Head: LITERATURE REVIEW
Intermediate Literature Review: The Impact of Effective Organizational
Reward System on Corporate Performance
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The Impact of Effective Organizational Reward System on Corporate
Performance: Literature Review
According to the researchers Eccles, Ioannou and Serafeim (2014), corporate
performance of a business or commercial organization is driven by the efforts and work outputs
of the employees working in the organization. While the management board emphasizes on
monitoring of the internal and external operations, the employees are responsible for executing
all the operational and marketing works for the organization. Hence, it is important to motivate
the employees from time to time such that they enhance their performances and in turn help to
enhance the corporate performance of the organization.
According to Epstein (2018), the primary target of business organizations is to enhance
corporate performance on a constant basis. Most of the business organizations have identified
that corporate performance is enhanced based on two main factors – technology and employee
productivity.
Lee and Steers (2017) said that in addition to the upgradation of technology, it is
important to keep the employees happy and motivated in order to maintain or enhance their
productivity. The authors have found that one of the major steps taken by most of the business
organization to ensure the employees are motivated to work is incentive or reward i.e. the
employees are rewarded with bonus or other rewards in addition to their regular salary. Most
organizations think this is an effective method to keep the employees happy and motivated and
they also get more competitive to earn more rewards based on their performance.

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On the other hand, Valmohammadi and Ahmadi (2015) said that organizational reward
may not always be effective to motivate the employees to increase their productivity. This is
because, some employees may have the mindset to perform only a fixed amount of work per day
and earn their fixed salaries only as well as they do not feel the need to earn any additional
rewards. Again, there are some employees who get overconfident after received one or two
rewards and they slowly start to reduce their productivity. In these cases, the corporate
performance of the organization does not increase at the expected rate and the reward system
fails.
Paillé et al. (2014) argued that while motivating the employees of the organization is
important, it does not necessarily mean the company needs to pay rewards to the employees with
vision to enhance the overall corporate performance. The authors said that employee motivation
can also be done through regular friendly interactions, allowing scope for interactive sessions,
indoor games, fun activities, breaks during holidays and others. These occasional activities allow
the employees to be more refreshed and motivated to work. Thus, the authors want to make a
point that the companies need to pay rewards financially to motivate the employees and enhance
the corporate performances.
Story and Neves (2015) on the other hand expressed a different opinion regarding
organizational rewards. According to the authors, while occasional recreational activities do
freshen up the employees before they go back to their regular duties, it is important to reward
them financially in order to motivate them to enhance their capabilities of providing work output.
This is mainly because the employees are working for the organization for financial gain only
and additional financial rewards will motivate them to work harder and earn more rewards from
the company. The authors also said that the companies should have specific strategies for

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designing and rolling out rewards and incentives for the employees that will not impact the
companies financially but at the same time will allow the employees to be rewarded and
motivated to enhance their performances.
Wang and Hou (2015) made a detailed research on the performances of the employees in
an organization and how the performances are affected by various inputs from the organization
itself. The authors also showed the interrelationship between the various organizational attributes
related to performance that is shown in the following diagram.
Figure 1: Performance Relationship in an Organization
(Source: Wang and Hou 2015)
The author described that behaviour and performance are two interrelated attributes for
both employee and the organization that ultimately affect the overall organizational performance.

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Hence, it is important that these attributes are coordinated with each other in order to ensure a
suitable and optimum performance is reached. For that purpose, the organization needs to
identify the performance capabilities of the employees in order to understand whether their
actual performances can be enhanced further or not. If the company finds that the capabilities of
the employees are much higher than the actual performances of the employees, they should take
appropriate steps to enhance the performances. Again, in order to enhance the performances, the
employee behaviour in the organization must also be favorable towards the organization. For
achievement both performance and behavior enhancement, the company can introduce reward
schemes that will mainly target to reward the employees who show considerable improvements
in their performances and behaviors.
Epstein (2018) explored the concept of human capital and have stated that employee
capability can act as the platform for human capital as well as intellectual capital. According to
the authors, this concept of employee capability helps the organization to determine the potential
value of the individual for them and accordingly, the organization will look to enhance the
employee capability that will in turn increase the value of the employee for the organization. In
order to enhance the capability of an employee, it is also important to enhance the employee
satisfaction and commitment that helps to drive the employees towards self motivation. In order
to achieve these goals, many organizations provide numerous benefits to the employees in the
form of incentives and rewards. These incentives can include monetary bonus, travel expenses
for a trip, in-house promotion and others. As per the authors, these benefits can help the
employees to remain satisfied and committed to the organization and the organization can
receive the benefits of the capabilities of the employees.

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Authors Newman, Nielsen and Miao (2015) argued that organizational rewards may have
positive impacts on the performances of the employees but they do not ensure enhancement of
corporate performances of the organization through the employees. According to the authors, the
corporate performance is defined by the collective efforts of various levels of employees – from
clerical and other lower ladder workers to the top ranked stakeholders in the organization.
Without this collective effort, coupled with some other external factors, it is not possible to
enhance the corporate performance of the organization. Hence, offering rewards to individual
employees who have enhanced their performances have considerable motivational impact on the
employees but in the larger scale, the corporate performance does not get benefitted by much.
According to Selden and Sowa (2015), although many organizations keep in mind in
improving the satisfaction and happiness of their employees, they do not any specific reward
schemes for their employees. They provide sufficient compensation in salary at the end of each
month and promote team work but no added incentives as rewards. The organizations follow a
particular philosophy and believe added rewards are not necessary for enhancing the corporate
performances. Rather, they concentrate more on other factors like customer demands, market
performances and technology in order to enhance the corporate performances.
According to Aguenza and Som (2018), employee performance may not always be the
sole reason behind the organization rewards. Some organizations also give away rewards for
employee retention. They provided a test case in which a business organization is performing
well in terms of corporate output but there is another competitor growing rapidly and is
threatening to take over a major share of business from the organization. The rival organization
is also attracting the employees of this organization with high salaries and other benefits. Now,
in order to retain these employees, the organization develops and rolls out a reward scheme from

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which, the employees will be able to earn huge rewards based on their performances. Thus they
will not leave and they will provide enhanced performance output for the organization. In this
case, the organization is successfully able to retain its core group of employees who have been
instrumental on the enhancement of the corporate performance of the company.
Figure 2: Employee Retention and Engagement Procedure
(Source: Aguenza and Som 2018)
Authors Shields et al. (2015) talked about corporate sustainability of business
organizations and how employee performance enhances the same. According to the authors,
corporate performance of a business organization depends largely on various internal and
external factors like business strategy, market condition, customer demands and others.
However, employee performance still has a very major impact on the corporate performance and
should be considered by the business organizations on top priority. It is important for the
business organizations to ensure the employee performance is always enhanced as much as

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possible and this is only achievable if the employees are happy, content and motivated to work
for the organization. Now, these organizations may have different approaches to motivate their
employees and rewarding them is only one such approach.
Bolino and Grant (2016) countered this argument by stating that the reward system may
spoil the employees instead of motivating them. The authors also said that even if the rewards do
not spoil the employees, they only motivate the employees for a short period of time before they
again lose interest. In this case, the authors argued that while implementing these rewards, the
organizations often set unrealistic targets and in order to overachieve them, the employees have
to work extra hours in addition to their shift times and hence, they often get dissatisfied. As a
result, their performances drop and in turn, the corporate performance of the organization also
drops significantly.
Gomez-Mejia, Berrone and Franco-Santos (2014)said that rewards and other factors
depend on the organization management i.e. it is up to their own discretion regarding whether
there should be any additional rewards for the employees or not. Different business organizations
follow different approaches towards the employees depending on their nature of work and the
expectations from the performances of the employees. For instance, a business organization that
is mainly based on field work (construction, mining, etc.) and depends on the field workers /
labors for business productivity are less likely to give out rewards and the employees also have
minimal expectations of any rewards. On the other hand, a corporate accounting firm that has a
large number of employees working with specific daily targets is more likely to give away
rewards to the employees on the condition of overachieving daily and monthly performance
targets. Again, the reward schemes may or may not have any direct impact on the corporate

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performance of the organization and it depends upon various internal and external factors related
to the employment, business strategies and others.

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References
Bolino, M.C. and Grant, A.M., 2016. The bright side of being prosocial at work, and the dark
side, too: A review and agenda for research on other-oriented motives, behavior, and impact in
organizations. The Academy of Management Annals, 10(1), pp.599-670.
Eccles, R.G., Ioannou, I. and Serafeim, G., 2014. The impact of corporate sustainability on
organizational processes and performance. Management Science, 60(11), pp.2835-2857.
Epstein, M.J., 2018. Making sustainability work: Best practices in managing and measuring
corporate social, environmental and economic impacts. Routledge.
Gomez-Mejia, L.R., Berrone, P. and Franco-Santos, M., 2014. Compensation and organizational
performance: Theory, research, and practice. Routledge.
Guerci, M., Radaelli, G., Siletti, E., Cirella, S. and Shani, A.R., 2015. The impact of human
resource management practices and corporate sustainability on organizational ethical climates:
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Katzenbach, J.R. and Smith, D.K., 2015. The wisdom of teams: Creating the high-performance
organization. Harvard Business Review Press.
Kim, J.S., Song, H.J. and Lee, C.K., 2016. Effects of corporate social responsibility and internal
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Hospitality Management, 55, pp.25-32.
Newman, A., Nielsen, I. and Miao, Q., 2015. The impact of employee perceptions of
organizational corporate social responsibility practices on job performance and organizational

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citizenship behavior: Evidence from the Chinese private sector. The International Journal of
Human Resource Management, 26(9), pp.1226-1242.
Paillé, P., Chen, Y., Boiral, O. and Jin, J., 2014. The impact of human resource management on
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Ramdhani, A., Ramdhani, M.A. and Ainissyifa, H., 2017. Conceptual Framework of Corporate
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Selden, S.C. and Sowa, J.E., 2015. Voluntary turnover in nonprofit human service organizations:
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Shields, J., Brown, M., Kaine, S., Dolle-Samuel, C., North-Samardzic, A., McLean, P., Johns,
R., O'Leary, P., Robinson, J. and Plimmer, G., 2015. Managing employee performance &
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Singhapakdi, A., Lee, D.J., Sirgy, M.J. and Senasu, K., 2015. The impact of incongruity between
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Story, J. and Neves, P., 2015. When corporate social responsibility (CSR) increases
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Valmohammadi, C. and Ahmadi, M., 2015. The impact of knowledge management practices on
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