Effect of Reward Equity on the Inclination for Creative Contributions by the Innovative Employee ()
1. Introduction
This research objective seeks to understand the effect of reward equity in encouraging creativity and innovation within an organization; understand the motivating factors for individual employees that will result in creative contribution to organizational success while also suggesting ways an organization can improve the reward system in a fair and equitable manner.
Organizations invest a lot of financial resources in reward management systems and practices such as basic pay, benefits, and other non-financial rewards to create a value proposition that will attract, motivate, and retain the talents for organizational success and create a competitive advantage (Antoni et al., 2015).
The need to balance the three dimensions to organisation’s reward strategy in relation to employer, employee and cost is highly important for business performance. While the employer has interest in rewards translating to knowledge,competence and behavior, emphasis is also placed on the affordability and sustainability of the reward system. The employee on the other hand wants a captivating reward that creates a value proposition that will be motivating enough for innovation and retention (Pilbeam & Corbridge, 2010: p. 258).
Several literature reviews revealed that rewards either financial or non-financial can lead to improved employee performance which ultimately translates to organizational performance.
The use of reward has been described as a means of controlling,managing,and enhancing performance of employees in an organization and the fairness of such rewards influences the attitudes and behaviours of employees with respect to their contributions to organizational performance (Chen, 2015). The competitive advantage of any firm or organization is its human resources and knowledge has also been said to be the most valuable contribution to competitive advantage (Shenkar & Luo, 2008: p. 42). Knowledge can and has been transferred from one organization to another through employee movement. The more an organization can create a value proposition through its reward strategy, the more it would be able to retain the knowledge for competitive advantage.
Organizational reward systems that are adequate and competitive are seen as one of the most effective instruments for knowledge sharing and teams’ integration to enhance organizational performance (Chen, 2015: p. 37). It was observed that employees’ contributions within organizations are strictly based on their job descriptions and little innovation coming up for competitive advantage; also, most organizations in the development sector in Nigeria do not have adequate reward system in place to create a value proposition for employees and encourage innovative ideas, thus there is a lot of movement within and across these organizations as employees are looking for adequate compensation within the sector.
Skalen et al. (2015) defined value proposition as a clear,simple statement of the benefits,both tangible and intangible,that the company will provide,along with the approximate price it will charge the customer. Skalen et al. (2015) categorized the value propositions into provision practices,representational practices and management and organizational practices.The provision practice ensures that resources are provided to resolve any customer issues to reflect the stated value proposition.The representational practices seek to communicate the value proposition both internally and externally while the third category management and organizational practices provide the working methods and resources required to hire and retain employees.
The value proposition created by organizations both internally and externally has a direct influence on the attraction and retention of innovative employees to an organization for the purposes of creating a competitive advantage for firms. The management and organizational practices harmonize both the provisional and representational practices by ensuring there is a fulfilment of the proposed value that has been communicated both internally and externally. Management and organizational practices clarify the firm’s method of fulfilling the proposed value that has been communicated, values such as organizing, staffing and team building activities, networking and knowledge sharing that can further enhance staff motivation for innovation and retention of organizational knowledge. Skalen et al. (2015) in their research discovered that to upgrade employee’s competency that will enhance innovation and organizational performance, they needed to ask key questions on their processes such as what needs to change, what is available and what needs to be done to create the change desired.
One of the most important factors to consider in improving organizational performance is motivating employees for better performance. Highly motivated employees will be enthusiastic to come to work and creatively perform their duties in a satisfying manner with the expectation that their performance will lead to higher remuneration as compensation for their contributions. However, employees that are not motivated will be lethargic in carrying out their duties and will rarely bring innovative ideas that will contribute to better organizational performance and ultimately the firm’s competitive advantage (Faletar et al., 2016).
The research was based on the observation of the reduced level of innovative ideas that would have enhanced the organization’s performance within the sector it operates. It was also observed that the level of staff attrition was increasing due to inequity in the reward system which led to skills set being lost to similar organizations within the development sector thereby affecting the research ability of the organization in implementing projects and programmes.
The research seeks to investigate the connection between employee motivation and creativity which influences organizational performance for competitive advantage and make recommendations to management of the organization for improved reward strategy and processes.
2. Literature Review
The literature review examines the theoretical frameworks on previous studies as regards the effect of reward equity on the inclination for creative contributions of employees. This is guided by two theoretical frameworks, the expectancy theory, and the equity theory. The Expectancy theory is one of the leading theories of motivation proposed earlier in the 19th century which emphasizes the need to rationalize work and economic benefits associated with it. The expectancy theory supports the design and management of contingent pay schemes and their effectiveness, however there are various factors influencing the expectations of employees that will motivate them to perform effectively (Armstrong, 2010). Expectancy theory looks at the relationship between organizational rewards, personal goals of the employees and the work outcomes—it examines the extent an organizational reward meets the employee’s personal goals and the extent to which the reward attracts the employee to be creative (Ferris, 1977: p. 606).
Armstrong (2010) cites Vroom and Porter and Lawler’s theory, which states that employees will be innovative when they are confident that a reward will follow their work and that the reward will be substantial. However, this theory is currently being tested by increased global competition and shifting consumer demands in the marketplace, making it challenging for businesses to motivate their staff (Benson, 2015).
The second theoretical framework is Equity theory which posits that people will perform better and be motivated to work if they are treated in an equitable way (Armstrong, 2010: p. 139). However, it has been stated that equity does not just relate to individual employees’ motivation but that it is also about the fairness of processes in the entire organization (Armstrong, 2010: p. 142).
The theory also explains the perception of equitability and in-equitability, where the employee observes inequality, the employee can reduce their productivity or the quality of the job outcome (Al-Zawahreh & Al-Madi, 2012: p. 158). The equity theory is perceived to be based on realistic ideas as it is process driven and examines the motivation of individual employees in an organization as well as the impartiality in the reward system of an organization. The two theories will examine the relevance in today’s organization as well as the relationship between the reward processes and what motivates individual employees to put in more effort to be the innovative employee in ActionAid Nigeria.
Innovation has been described as the holy grail for organizations and for organizations to ensure competitive advantage and growth, there must be new businesses,services,and products. Innovation activities within organizations are usually concentrated within a committed team which means team leadership is quite crucial in managing the idea development which is very important to the success of any innovation (Alexander & Van Knippenberg, 2014). Employees’ managing themselves within a democratic workplace is no longer the norm, however, organizations are now becoming agile to adapt to the dynamic work environment. This is creating a shift from managing to leading, which means leadership must be transformational and intellectually stimulating and consider each employee as an individual (Benson, 2015). Although this theory was postulated almost two decades ago, but it is still relevant in today’s organization as there are challenges providing intellectually stimulating environment that will motivate employees to be innovative.
Skalen et al. (2015) in their research discovered that to upgrade employee’s competency that will enhance innovation and organizational performance, they needed to ask key questions on their processes such as what needs to change, what is available and what needs to be done to create the change desired. Management will need to clarify values such as organizing, staffing and team building activities, networking and knowledge sharing that can further enhance staff motivation for innovation and retention of organizational knowledge.
Shiva et al. (2011) supported the transfer of knowledge from individuals to organizational level as an important process for organization’s competitive advantage. The need to fully optimize the knowledge that employees possess through knowledge sharing at informal interactions within and across teams promotes effective knowledge management and position the organization for competitive advantage.
The global technological advancement and growing need of the organization to be agile in catching up with the technology is placing emphasis on the need for more knowledge workers within organizations for competitive advantage. One of the strategies being adopted by organizations in today’s world is that of total rewards, which combines various pay elements that motivate employees for creativity and innovation (Akhtar et al., 2015). Research has pointed out that employees are motivated differently; while some prefer financial rewards other experienced workers are motivated through non-financial rewards such as work-life balance,challenging work,recognition and involvement in special projects (Akhtar et al., 2015), however other non-financial rewards such as leadership communication styles, trust in professional capability of employees in innovative ideas and ownership of intellectual property have not been considered in various researches as part of motivating factors for creativity of employees.
Consequently, organizations must develop robust compensation packages that will consider these rewards which will attract and retain competent employees for innovative ideas that will translate to competitive advantage for the organization. Theory supports that organization has in-house reward system that is tailored to motivate employees to contribute to the achievement of organizational goals and objectives. This suggests that organizations should explore different incentives that will motivate employees for creative contributions before establishing their reward systems and such systems should be subjected to periodic reviews in line with global best practice and trends within the organization. Chen (2015) described reward systems as process based and outcome based. The process-based reward system is tied to certain aspect of the procedures, behaviours, and accomplishment of certain stages of the product or service development process irrespective of the output of that process, while the outcome-based reward is tied to the overall result of the process.
Emphasis on subsequent research on this topic can focus on non-financial reward strategies that can motivate employees for creative contribution to organizational objectives while also looking out for the equitability of such rewards. Other areas of further research can investigate what will motivate and retain creative employees beyond the financial rewards and benefits provided by the organization. Further investigation can also be conducted on the role of leadership behaviour especially leadership communication style in creativity and innovation of employees. Also, the role of organizational culture in the innovation and creativity of employees can be further investigated.
3. Methodology
The chosen methodology for the research was centered around the epistemological approach of social constructionist. This approach is termed interpretive as it describes the feelings and thinking of people in relationships (Easterby-Smith et al., 2012: pp. 22-24). The ethnography methodology was engaged in this research to understand the significance of innovation in relation to motivation of employees within ActionAid Nigeria.
The participants are staff of ActionAid Nigeria categorised into junior grade level, middle management level and senior management level. The participants were chosen based on the researcher’s observation of how employees’ contributions were strictly based on their job descriptions and little innovation coming up for competitive advantage. The survey questionnaire was sent to all the staff of the organization to have a wide range of data collection. The qualitative method of data collection is employed for this research based on the social constructionist view which emphasizes the observation of people relationship within the work environment, the various meanings that employees give to their work experiences and the belief that reality is determined by people rather than the external factors (Easterby-Smith et al., 2012: pp. 23-24).
There are two opinions in epistemological perspective which are described as the positivism and social constructionism—these opinions can also be referred to as a set of principles that guides a researcher’s choice of methods. The positivist believes that reality is external and objective and knowledge is of significance if it is based on observations of external reality. The social constructionism is described as an interpretive method which describes the feelings and thinking of people as they relate to each other (Easterby-Smith et al., 2012: pp. 22-24). The qualitative method of data collection was used with emphasis on observation of people relationship within work environment, the meanings that people give to their experiences and the belief that reality is determined by people rather than the external factors (Easterby-Smith et al., 2012: pp. 23-24).
In analyzing the data for the research, a grounded analysis was used as it offers a more holistic approach to the analysis and any observation made during data collection can be contextualized. Grounded analysis helps to tease out themes,patterns and categories that will be declared in the findings and allows for instinctive guidance of the understanding of the data collected (Easterby-Smith et al., 2012: pp. 126, 163, 166). This method of analysis was chosen because of the researcher’s closeness to the data and the observation made that led to the choice of topic and the interview site.
4. Results and Analysis
In analyzing the data for the research, a grounded analysis was used as it offers a more holistic approach to the analysis and any observation made during data collection can be contextualized. Grounded analysis helps to tease out themes,patterns and categories that will be declared in the findings (Easterby-Smith et al., 2012: p. 166).
The questionnaire tool deployed was sent to 79 participants drawn from three categories of staff—junior, middle level staff and management staff. The gender of the participants was one of the parameters considered in designing the questionnaire as the organization places emphasis on maintaining gender balance with affirmation towards female employees. Length of service of the employees was also a consideration to determine when the innovation fatigue sets in.
The demographics of the respondents regarding gender, grade level and length of service of the respondents are as presented in Figures 1-3 below.
4.1. Gender
Participants were asked about their gender, 59.26% of the respondents were female and 40.74% were Male. These are presented in Figure 1 below.
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Figure 3. Analysis of length of service.
4.2. Grade Level
The respondents were asked about their grade level within the organization, 25.93% were in the junior grade level, 48.15% belong to the middle management level, while 25.93% belong to the Management level cadre (Figure 2).
4.3. Length of Service in the Organization
Respondents were asked the length of time they had been working in the organisation to enable the researcher to capture the understanding of these categories of staff in terms of the policies around motivation and creative contributions. The length of service was categorised into 3; 1 - 3 years, 4 - 6 years and above 7 years. 38.46% of the respondents have spent 1 - 3 years in the organization, 23.08% have spent between 4 - 6 years in the organization; while those who have spent 7 years and above in the organisation represented 38.46% of the total respondents (Figure 3).
The research seeks to draw the link between reward and innovation that will lead to improved organizational performance by examining the following factors:
· Motivation and innovation.
· Motivation and retention of creative employees.
· Role of work structure, leadership behaviour, Culture and corporate strategy in innovation and creativity of employees.
4.4. Response to Motivation
Respondents were asked on how to motivate and retain creative employees within the organisation. Almost all respondents agreed that acknowledging employee’s contribution will motivate and retain creative employees for improved organisational performance. Other suggestions are categorised as follows.
4.5. Improved Remuneration
30% of the respondents clarified that better pay that will be competitive in the sector in which the organization operates will further retain creative employees. Linked to the remuneration is the suggestion that the leadership of the organization should source for more funding that will increase the number of projects being implemented, which will enable the organization to give economic rewards to the employees aside the other non-financial rewards and benefits and improve the retention of employees.
4.6. Creating Space for Contributions on Motivations
20% of respondents recommended creating areas where staff could make comments about what would inspire and keep creative employees on board. One of the responses suggested “management of young employees with defined deliverables but not tying them down to precise routines” be flexible.
4.7. Policies and Processes Review
40% of respondents suggest “a review of policies and processes such as training policy to enable the process to be more rewarding for staff”. The respondents believe that employee commitment and engagement will improve if there is a clear career path within the organisation and linked to their capacity development. These, they believe will motivate and retain creative employees.
4.8. Investment of Trust in Employees
Leaders need to have trust in their staff and be able to take ownership of intellectual property. This might motivate and retain creative employees if they are able to lay claim to some of the organisation’s intellectual property as part of their contribution to the literatures produced.
4.9. Grievance Management
One of the respondents advised that “Management should not ignore any rumour or grapevine, but that grievance issues should be addressed as they arise”. The respondent stated that inadequate management of grievance issues can de-motivate staff and cause their exit from the organisation.
Related findings to existing literature:
Considering the literature study in chapter two, the respondents’ claim that leadership does not place much stock in workers’ professional competence may be explained by the organization’s weariness with new ideas. According to Mattsson et al. (2016), innovation weariness develops when employees’ expectations that their efforts would result in high performance are not satisfied. This is typically seen as a pattern of declining engagement among employees who have worked for the company for between 2 and 10 years. According to the study, employees who have been with a company for four to ten years start to exhibit signs of irritation when their innovative ideas are not implemented, and they frequently attribute this displeasure to the leadership of the company.
According to the literature analysis, Paul (2015) found that lack of career development decreased employee loyalty and engagement, which resulted in the employees leaving the company. Without a career development or training policy in place, organizations face the risk of losing creative staff. The study’s findings showed that lack of career advancement contributed to a loss of job commitment and engagement for 51% of the surveyed employees. This might also be related to the organization’s rising attrition rate.
4.10. Response to Role of Culture and Leadership
Respondents were questioned about the roles that organizational culture, leadership style, work structure, and company strategy play in employee innovation and creativity. In relation to research question 4, Table 1 summarizes the answers to questions 5, 6, and 7.
In accordance with Table 1, 41% of respondents agreed that the business strategy and leadership style support employee innovation and creativity within the organization. The respondents also stated that although corporate policy supports and encourages innovation in terms of “employee access to personal development funds”, there are never enough funds to truly assist and invest in innovation and creativity. Additionally, even when donors claim to be interested in creativity and innovation, they do not score these attributes, making it risky to include in the submission of proposals.
Although 63% of respondents (Agree and Strongly agree) felt that the organization’s culture fosters creativity and innovation, only 1.2% of the respondent noted that “few staff genuinely produce and seek innovation. Even fewer people are prepared to let go of the past and embrace the future. Regarding organizational structure, 64% of respondents believed that it fosters employee innovation, while 36% disagreed, stating that it does so “within the confines of the mission, the strategy, the donor, and the revenue levels”. Yes, the format enables you to develop novel ideas and propose them for additional examination, according to another feedback (Figures 4-6).
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Figure 4. Leadership behaviour and corporate strategy in relation to innovation and creativity.
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Figure 5. Analysis of organisational culture and innovation.
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Figure 6. Analysis of organisation’s work structure and creativity.
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Table 1. The leadership behaviour, corporate strategy, culture, and work structure encourages innovation and creativity.
5. Discussion of Result
The expectancy theory and equity theory reviewed confirmed the findings that people are motivated and performed better when they are assured of the reward following their efforts. The findings also confirmed the proposition as stated in the expectancy theory that employees expect a commensurate reward for their efforts as some respondents mentioned that top performers are not rewarded for their efforts but sometimes get an annual award which is more about the attitudes towards work rather than the actual performance on the job. It was also discovered that employees feel there is inequity in the reward system as the annual step increment for all employees does not motivate the highfliers but reward both performing and non-performing employees which further corroborates the equity theory of reward.
Majority of the respondents agreed that the organisation has some reward systems in place that can motivate for creativity and innovation. However, most of the employees who have spent above 4 years in the organisation believed that the reward system is not dynamic and not enough to motivate and retain creative employees for better organisational performance which explains the innovation fatigue as noticed in the organisation. The respondents agreed that there are different ways to motivate creative employees, while some believed financial reward is important, others believed non-financial rewards are equally as important as the financial benefits.
The non-financial reward as mentioned by some respondents are challenging work, trainings, work life balance, investment of trust in professional competency and skills of employees and other social forms of engagement such as retreats, and evening outings involving other members of their families.
5.1. Leadership and Recognition of Employees
Almost all the respondents agreed that the leadership of the organisation communicates ideas and opens them up for debate and contribution by the employees especially as it relates to staff welfare. They mentioned that it makes the employees’ creative knowing that their voices count as regards the strategic directions and decisions of the organisation. The respondents agreed that recognition of employees’ contribution to organisational performance will motivate them for creativity.
Respondents agreed that the work structure is not limiting but simple enough and the systems are well understood by employees, these they felt are effective enough to motivate creativity. They further mentioned that the simple structure creates flexibility in work deliverables and makes employees control over their own area of work which encourages creativity.
5.2. Investment of Trust
Most of the respondents in the middle level and management category believed leadership needs to invest heavily in trusting employees’ professional competency, skills, and intellectual capability of employees. This they mentioned will allow creative employees to come up with innovative ideas and be able to take responsibility for their area of expertise.
5.3. Ownership of Intellectual Products
Management should encourage references to employees’ contribution to the publications and literatures produced in the course of work to motivate employees for creativity and confidence in their professional competence.
5.4. Management of Grievance Issues/Sanctions
Although there are adequate grievance processes in place, however leadership needs to address misconducts immediately and ensure there is equity in sanctions especially for non-performers. The leadership needs to address these issues of grievance and sanctions in a prompt manner to encourage creativity and motivate performing and creative employees for retention.
5.5. Retention of Youthful Creative Employees
Managing organizational diversity recognised that employees are unique and bring different values to the organization. Though there are challenges in managing organizational diversity, the benefits include adaptability, availability of alternatives to problem-solving and array of skills and experiences (Inegbedion et al., 2020). Respondents mentioned that to retain youthful creative employees, there is the need for leadership flexibility in managing such employees with clear deliverables as these young employees might find it difficult to work in a routine manner which means leadership must be able to manage diverse generations in the workplace for creativity and innovation.
6. Conclusion
The findings of the research suggested that intrinsic reward is very important in motivating employees for productivity. The organisation has been able to motivate the employees with financial benefits, however, those benefits need to be reviewed and improved upon for competitive advantage of the organisation and retention of creative employees. The concept of variable pay, or reward system should be adopted by the organisation to increase the innovative performance of the employees. The observed feeling of dissonance by the creative employees was because of the inequitable system of compensation which led to innovation fatigue. Management’s acknowledgment of employee’s contribution to organisational literature, research and project reports will encourage innovative ideas and creativity. This corroborated the findings on employee’s contribution to innovative activities because of personal interest (Pellizzoni et al., 2015).
The above findings confirmed the high attrition rate in the organisation and the movement of talented employees to other organisations within the INGO sector because of the attractive and equitable reward benefits being offered by these organisations. It is therefore imperative that the reward strategies of ActionAid be reviewed to ensure it is fair, equitable and competitive enough to attract, motivate and retain these talents for innovative contribution and creativity of employees.