The Influence of Intrinsic and Extrinsic Rewards on Employee Results: An Empirical Analysis in Turkish Manufacturing Industry

By Özutku, Hatice | Business and Economics Research Journal, July 1, 2012 | Go to article overview

The Influence of Intrinsic and Extrinsic Rewards on Employee Results: An Empirical Analysis in Turkish Manufacturing Industry


Özutku, Hatice, Business and Economics Research Journal


Abstract: The study discussed in this article questions whether certain reward practices used by organizations are better than others when comparing the employee results based on TQM. We first examine reward systems and TQM relevant literature. After related literature review, reward practices have been handled in two groups as intrinsic rewards and extrinsic rewards. In the sample, which consists of 217 businesses that operate in Turkish manufacturing industry and apply TQM, intrinsic and extrinsic reward practices of firms on people results have been analyzed. The results of this survey are analyzed through descriptive analysis, ANOVA and MANOVA analyses. As the main finding of the research, it has been determined that application level of intrinsic and extrinsic rewards in Turkish manufacturing industry is not high. It has been identified that intrinsic rewards have a significant influence on employee results; however extrinsic rewards do not have a significant influence on employee results in Turkish manufacturing industry. This study highlighted the importance of the intrinsic reward system for implementing TQM.

Keywords: Reward systems, intrinsic rewards, extrinsic rewards, TQM, EFQM.

JEL Classification: M12, M50

1. Introduction

During the past few decades, total quality management (TQM) and human resource management (HRM) have been important topics in management and business research due to their potential to impact a range of organizational and individual performance (Ooi, Teh and Chong 2009: 477).

TQM has a high HR context and the quality movement recognizes the importance of HR and states a conceptual and well-defined image concerning human behavior and motivation (Vouzas 2004: 126). For employees to be quality-driven, as TQM requires, there should be consistency between reward system and quality. Meaningful reward and recognition is one of the fundamentals for the practice of TQM, which will in turn influence customers' satisfaction. This suggests that reward could be essential for the implementation of TQM (Ehigie and Akpan 2004: 27). Rewards systems have a critical role in determining the organization's ability to attract high potential employees, to retain high performing employees to achieve greater levels of quality and performance (Fay and Thompson 2001: 213).

For TQM to create lasting improvements in efficiency, it is desirable to establish a system of rewards that complements the new allocation of decision rights and the new performance measurement system. There is a heated debate among experts over what reward system is most appropriate for TQM in organizations. Many quality experts advocate completely severing ties between rewards -particularly monetary rewards- and performance (Wruck and Jensen 1998: 414). We disagree. In fact, we believe that the increased decentralization associated with TQM should be associated with strengthening the relation between intrinsic rewards and organizational performance.

Below, we discuss rewards commonly used by TQM firms. We begin with intrinsic rewards because we agree with quality leaders about their importance and because their use in TQM programs is widespread. We then tackle the more contentious subject of extrinsic reward systems.

Prior literature has remained mostly at the conceptual level in discussing this link between rewards and people outcomes. Authors agree that this should and must exist, but researchers disagree on which rewards best achieve people results goals (Allen and Helms 2001: 74). It seems logical that some rewards are more effective than others, but propositions regarding rewards have remained largely untested and there is a recognized need for more scientific research in this area.

Yet, the literature on reward program evaluation tends to focus on a limited number of programs of specific type. For example, almost all research examining the financial impact of pay systems on organizations focuses on base and/or incentive pay, while ignoring other important elements of remuneration such as recognition rewards. …

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