First Abu Dhabi Bank: Reward Mechanisms & Employee Performance Study

This capstone project investigates the impact of reward mechanisms on employee performance within First Abu Dhabi Bank (FAB). It begins by establishing the significance of HR practices in organizational success, particularly focusing on rewards and recognition. The study explores both intrinsic and extrinsic rewards, examining their relationship with employee performance through hypotheses related to financial and non-financial incentives. The research framework considers factors like pride, public admiration, financial incentives, training opportunities, and job security, linking them to performance scores and ratings. The scope is limited to the banking sector in Abu Dhabi, acknowledging potential sensitivities in data sharing and cultural influences. Ultimately, the study aims to provide insights into optimizing reward systems to enhance employee performance within FAB and similar organizations. The document also contains an abstract, acknowledgement and acceptance sheet related to the capstone project at the University of Fujairah.

Looking at employee performance through the lens of rewards mechanisms in the First
Abu Dhabi Bank

Acknowledgement
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Acceptance Sheet
Capstone supervisor
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Abstract
“When you pay peanuts, you get monkeys,” goes a popular saying. Organizations today want
hard-working, sincere and diligent employees who would contribute to the success and
growth. These employees also expect to be compensated fairly and attractively in order to
perform well and stay with the organization. The proposed study aims to understand the
impact of reward mechanisms on employee performance in the First Abu Dhabi Bank in
recent times. The proposal mentions a detailed review of extant literature, a research
framework and the proposed research design. The study is significant in providing a guide to
compensation design for HR practitioners and would further academic research in the context
of the banking sector in Abu Dhabi.
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Table of Contents
Acknowledgement2
Acceptance Shee3
Abstract.....................................................................................................................................4
CHAPTER I Introduction.......................................................................................................6
1.1 Background of the Study...............................................................................................6
1.2 Statement of the Problem..............................................................................................7
1.3 Objectives of the Study..................................................................................................8
1.5 Research Framework.....................................................................................................9
1.6 Scope and Limitation of the Study................................................................................9
CHAPTER II Literature Review .........................................................................................10
2.1 About Reward Mechanisms ........................................................................................10
2.1 About Employee performance ....................................................................................13
2.2 About banking seector in Abu Dhabi.........................................................................14
CHAPTER III Research Methodology................................................................................15
3.1 Research Design............................................................................................................15
3.2 Sampling........................................................................................................................16
3.3 Statistical Tools and Treatment of Data.....................................................................17
CHAPTER IV Significance of the study..............................................................................18
CHAPTER V Summary........................................................................................................19
References...............................................................................................................................21
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CHAPTER I The problem and its background introduction
1.1Background of the Study
A strong human resource (HR) management system is the one made up of processes and
practices that are significant to the organization, differentiating, have a shared meaning, and
unambiguous (Ostroff & Bowen, 2016). Recruitment, selection, rewards and recognition,
performance management, learning and development, career development, grievance
handling, and employee relations form the strategic HR functions that contribute to an
organization’s growth, productivity and success (Nishii & Paluch, 2018). The AMO model
of HRM i.e. the ability-motivation-opportunity performance model (Appelbaum, Bailey,
Berg & Kalleberg, 2000) suggests that organizational HR practices impact individual
employees’ performance and behaviour at work (including counterproductive work
behaviour) by affecting their individual ability to perform, their motivation to perform and
the available opportunities to participate and do so. The present study aims to look at the link
between the ‘reward mechanisms and employee performance’ in the banking sector in Abu
Dhabi. People management and development practices form an important cog in the wheel
that is the organizational functioning. Any organization needs good and talented people to
run smoothly and achieve its goals. The staffing and acquisition functions of talent
management are suitable to attract potential employees as well as ensure that the present
employees have a positive image of the employer brand. The present employees would be
key in referring the vacancy and thus are the marketers of the employer brand. Competency
development, rewards and recognition programs, and performance assessment programs, in
the talent development framework, are crucial when it comes to development and retention of
talent. Talent planning is an important element of succession and leadership planning that
would enable the organization to create a talent pipeline to meet the future needs for
promotion, career development, and leadership development. The present study is focussed
on one of the most important practices of human resource management, which is ‘rewards
and recognition policy.’ The agency theory and the psychological contract theory suggest a
fair and just compensation commensurate with the job profile and the efforts put in by the
employee, as well as one that is based on the previous educational qualifications and work
experience and expertise of the employee. The proposed study intends to study what is the
relationship between the rewards mechanism and performance of the employees. The First
Abu Dhabi Bank (FAB) in the recent years would provide the context for the study.
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1.2 Statement of the Problem
Organizations are today are faced with a motley of challenges such as diversity in workforce,
globalization, dynamic business landscape, technological explosion, artificial intelligence, gig
economy, changing preferences of working patterns of individuals, environmental damage,
political upheavals, and growing discord between individuals. In such a scenario,
organization need their HR strategies and practices to be up to the mark and provide a
valuable and distinctive competitive advantage. Rewards and recognition forms one of the
high-performance work practices that research has found to be linked to employee and firm
performance (Shin & Konrad, 2017). Milkovich, Newman, and Gerhart (2011) reported that
for a majority of employees, extrinsic motivation continues to be the dominant factor in
explaining their work attitude and job performance. It would follow that the organization’s
reward systems would then be an important determinant of employee behaviour. For
example, if the employee perceive that the HR practices of compensation and rewards focus
more on individual contribution than team-based rewards, the work behaviour would be
inclined towards maximizing those rewards.
1.3 Objectives of the Study
The research proposal is intended to concentrate on the relationship between the rewards
mechanisms and the employee performance in FAB. The proposal aims at the following
research objectives:
 To understand the rewards mechanisms used by FAB
 To understand the reasons behind the differentiation in rewards, if any, between
different managerial levels
 To understand if the rewards systems have an impact on the performance of the
employees
 To understand if different set of rewards can have varying impact on the performance
of the employees
1.4 Hypothesis of the Study
The hypotheses being considered for the proposed study are as explained below. When
employees are provided with positive reinforcement in the form of rewards, they would see it
as the value that the organization puts on their work and efforts. When there are rewards
such as public accolades in the form of ‘employee of the month,’ or a team dinner to
celebrate a project success, the employee feels a sense of pride for his/her work. He/she
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would then celebrate that with his/her family and community as well. According to
Maslow’s hierarchy of needs, intrinsic rewards cater to the social needs of the employee. It is
hence estimated that this would lead to an increase in the employee performance levels. The
future score of performance should increase by the anticipation of the rewards to come based
on the efforts put in.
Extrinsic rewards refer to the financial and non-financial incentives that are tangible to the
employee and are significant when catering to the self-esteem needs of the employees,
according to Maslow’s hierarchy of needs. The past and present performance score of the
employee are expected to increase when the employee has received certain such rewards and
hence knows what to expect when he/she puts in more effort towards the same.
Organizations that offer variable pay do so with the same objective in mind. When a part of
the employees’ rewards is variable on the completion of target, the employee always tries
harder so as to receive the maximum rewards. Extrinsic rewards also refer to the non-
financial incentives that are a part of the job and are also crucial to the motivation of the
employee. These rewards are in the form of job security, challenging job assignments,
opportunities for international assignments, opportunities for availing training, opportunities
for taking a sabbatical for higher education, flexible work arrangements such as work-from-
home, flexibility in leaves and holidays, office facilities such as cafeteria, and recreational
area, office access to clubs and resorts, furnished accommodation provided by the
organization, company sponsored cars and fuel allowance, office space, access to latest
technology, and qualified team members.
H1a: Intrinsic rewards provided to employees will be positively related to employee
performance
H1b: Extrinsic rewards provided to employees will be positively related to employee
performance
H2: Financial rewards will be more positively related to employee performance than non-
financial rewards for entry level jobs
H3: Non financial rewards will be more positively related to employee performance than
financial rewards for senior management level jobs
H4: The use of a combination of financial and non-financial rewards mechanism will be
positively related to employee performance than just a financial system
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H5: Public admiration will be positively related to employee performance
1.5 Research Framework
1.6 Scope and Limitation of the Study
The proposed study is limited to the employees of the banking sector of Abu Dhabi. The
study would use sensitive data pertaining to rewards and performance measures. It is
estimated that the respondents and the organizations may be sensitive to sharing such data
and hence the sampling data would be restricted to the availability of the data. In such a
scenario, it may be difficult to generalize the findings to a larger population. It would
however be a good start for future studies. The compensation and rewards are affected by
national and organizational culture. The study is based in Abu Dhabi and hence may not be
suitable for generalizing globally to workplaces with different national cultures. The study is
quantitative nature which would provide an insight into if there is a relationship between the
said variables and the nature of the said relationship. It would however not be able to provide
the employee perceptions on the causes of such a relationship.
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Intrinsic Rewards
 Pride
 Sense of contribution
 Public admiration
Extrinsic Rewards
 Annual performance
review
 Financial incentives
 Training opportunities
 Promotion opportunities
 Holiday/leaves
 Challenging job profile
 Flexibility in working
hours
 Job security
 Employer Brand
Employee performance
 Performance score
 Performance ratings
 Future performance score

CHAPTER II Literature Review
2.1 About rewards mechanisms
High performance work systems are understood as people management practices that intend
to enhance the knowledge, skills and abilities of the employees, their motivation and morale
to perform their jobs to the best of their abilities, and to seek opportunity for growth, decision
making, and career development (Boxall, Hutchison, & Wassenaar, 2015; Nauta, Van
Vianen, Van der Heijden, Van Dam, & Willemsen, 2009). Developing a sound culture based
on values, aligning the goals of the founder and organization with that of the employees,
harnessing commitment, initiative and engagement among the employees, and creating a
workforce that is ready to take responsibility of leading the organization towards success are
some of the contributions that a good human resource management strategy would make for
entrepreneurial firms (Wright, Nyberg, & Ployhart, 2018). Jiang, Lepak, Han, Hong, Kim, &
Winkler (2012) very succinctly argue in their conceptual work that while the research on
synthesizing the internal components of HR systems is in a developing stage, their additive
properties have a strong influence on employee performance. They also point out that an
organization’s HR policy can provide clarity on the action required to carry out business in
the strategic direction as needed. These systems are generally related to how talent is
acquired i.e. recruitment and selection systems, how talent is developed and retained that is
systems related to socialization, career development, leadership and succession planning,
learning and development, performance assessment, and rewards and recognition.
Compensation and benefits or the rewards and recognition systems in any organization are
meant to serve as motivation for enhancing the performance and productivity of the
employees. The agency theory of compensation and motivation implies that employees
expect to be compensated adequately for the jobs they perform. The employee-employer
relationship is a contractual agreement where pay, both financial and non-financial, is
provided in return for the services of employment performed by the employees. The basic
pay thus becomes a hygiene factor while other forms of intrinsic and extrinsic rewards
become the source of motivation for performance and productivity (Chong & Leung, 2018).
Intrinsic rewards refer to the financial and non-financial inducements that affect the internal
needs for recognition, admiration, and esteem in the employees such as their pride, sense of
identity, sense of connectedness to the organization, identifying with the job, acclaim
received publicly, and the feeling of being valued by the organization (Qiu, Haobin, Hung, &
York, 2015). The extrinsic rewards are those that cater to the functional and more tangible
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needs of the employee and cater to an overt form of accomplishment such as financial bonus
and incentives, as well as external factors to the job such as job security, challenging job
profile, opportunities for learning and development, career development opportunities,
institutionalized socialization, group incentives, stock options, bonus for project completion,
employee value proposition, and physical forms of motivation such as swanky office spaces,
availability of food and beverages, flexible dress code, flexible work arrangements, lenient
leave and attendance policies, state-of-the-art technology and infrastructure, and qualified
team members (Gerhart & Fang, 2015).
Employees in any organization act as sources of competitive advantage. They are strategic
weapons for the organizations and need to be valued accordingly (Dubois & Dubois, 2012).
An attractive rewards and recognition program by the organization is their way of
communicating to the employees that they are valued and needed by the organization.
Employees make sense of how their employers see them and their work by how they are
rewarded for the same (Arthur, Herdman, & Yang, 2016). For example, if an employee is
rewarded in their performance review on their punctuality and sincerity, they will continue to
be so in the future as well. Conversely, if an employee who works hard, is a supportive team
member, is respectful and diligent, but is overlooked for someone who completes his/her
target but is otherwise lacking in the right attitude and is not a team player, the first employee
may deduce that the organization only values achievement of the targets while not caring
about the attitude or the behaviour of the employee. It may also send a message that while
teams exist and the organization insists on teamwork, in reality, the system and thus the
organization rewards individual performance only. There is extensive research available on
the effect of compensation policies on firm performance (Aryee, Walumbwa, Seidu, & Otaye,
2012; Bentley, Fulmer, & Kehoe, 2019; Lee & Bang, 2012) such as its profitability,
productivity, customer loyalty, customer retention, quality, and market positioning.
Similarly, extant literature (Li, Frenkel, & Sanders, 2011; O’Neill, Feldman, Vandenberg,
DeJoy, & Wilson, 2011) suggests that appropriate compensation and rewards policies have a
positive impact on employee performance measures such as productivity, job satisfaction,
organizational commitment, engagement, and retention. There is relatively scarce empirical
literature on how dissatisfaction with the compensation system may have an adverse effect on
employee behaviour and can lead to intent to quit, deviant behaviour, counter-productive
work behaviour, absenteeism, fraud, petty theft, aggressive behaviour, disengagement, loss of
productivity, low morale, and turnover (Hom, Lee, Shaw, & Hausknecht, 2017).
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The compensation structure in any organization would take the form of pay and benefits. The
rewards structure thus includes the basic pay and benefits provided along with any raises such
as increments or bonuses, the variable pay which is a part of the overall pay, and how non-
financial incentives get structured in the rewards system (DeGieter & Hofmans, 2015).
Depending on the position of the employee such as entry level, junior, middle managerial or
senior leadership level, the design of the compensation would be different. The motivation
level of executives at different stages of their careers is different and hence it makes sense
that compensation design reflects these changes as well. For example, an executive who is a
bank manager, at a mid-managerial level, would typically be someone who has a family and
is looking out for benefits related to his children’s education, flexible vacation policies, and
an option for flexible benefits. He may not be interested in getting food allowance but may
react favourably to a fuel allowance. Such an executive would appreciate a medical
insurance policy that covers him as well as his spouse and children compared to a perquisite
that offers him substantial coverage of a new mobile phone or laptop. When such an
employee who may be performing at an average level is granted a host of favourable benefits,
he may take this as an indication that he is valued by the organization and will be
compensated in the desired manner if he performs to the expected standards. Such an
employee may also strive to work harder to earn more benefits and would feel a sense of
pride in his work and desire to stay with the organization for a long time rather than move on
to another job where he would have to cultivate a trusting and mutually beneficial
relationship from the start. Thus, the design of the compensation can be an important factor
in determining the level of performance exhibited by an individual employee.
2.2 About employee performance
Employee performance has been conceptualized in various manner throughout academic
literature depending on the purpose and context of the empirical study. In the context of this
study, employee performance is understood as the sum total of how the employees have met
their targets, fulfilled their responsibilities, and have put in effort commensurate with their
potential. Employee performance is one of the most critical predictors of organizational
success (Gardner, Wright, & Moynihan, 2011). It is said to be one of the antecedents to the
growth, success and performance of an organization (Bohlander & Shell, 2010; Bose, 2018).
Employee performance is just a strategic tool that is used by organization to achieve their
goals and vision. Organizations hence place a lot of importance on how to enhance employee
performance so as to benefit the business and the bottom line. When employees perform well
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