EFFECTS OF MONETARY INCENTIVES ON EMPLOYEES PERFORMANCE IN THE OFFICE OF THE SANGGUNIANG PANLALAWIGAN OF QUIRINO

CEINA GRACE PARUNGAO JUNE 2013

Table of Contents

Title Page . 1 Table of Contents . 2 Introduction . 3 Problem Statements . 6 Significance of the Study . 6 Literature Review . 7 Research Methodology . 10 Results and Discussion . 12 Conclusions . 19 Recommendations . 20 Bibliography . 21 Letter to Conduct the Study. 23 Letter to the Respondents .. 24 Questionnaire .. 25

I. Introduction Every person has their own set of motivations and personal incentives to work hard or not as the case may be. Some are motivated by recognition whilst others are motivated by cash incentives. Whatever the employees motivation, the key to promoting motivation as an employer is understanding and incentive. Managers are constantly searching for ways to create a motivational environment where associates (employees) to work at their optimal levels to accomplish company objectives. Workplace motivators include both monetary and non-monetary incentives. Monetary incentives can be diverse while having a similar effect on associates.

Employee incentive programs promote work place harmony, employee performance and most of all employee motivation. This is the key to long term benefits for your company. Motivated employees means staff retention and company loyalty, these are two things that will have a significant impact on the growth and development of organizations and business. Employee incentive programs work by offering rewards for outstanding performance, hard work or results. Employees who meet targets, go beyond the call of duty or simply do a good job are rewarded for their efforts. The rewards and incentives vary and can be as individual as the employees themselves. Employee incentive programs work because they offer diverse rewards that meet the needs of the company as a whole.There are a host of competing ideasamong both scholars and lay peopleabout what motivates workers. Most of these ideas focus on the types of rewards employees derive (or at least expect to derive) from their jobs and, in particular, intrinsic versus extrinsic benefits. Intrinsic rewards are those that stem from performing the work

itself. They can include, among other things, feeling important or successful, learning valuable skills, and enjoying the outcomes of completed work (e.g., helping other people, pioneering new technology). Extrinsic rewards, on the other hand, accompany the work process but aren't directly part of it. The most common are financial compensation and benefits such as health insurance and paid time off. Many modern theories of employee motivation emphasize intrinsic rewards as being central to the motivation process, while extrinsic rewards are often seen as necessary but not sufficient. For all the championing of alternative motivators, money still occupies a rightful place in the mix of motivators. The sharing of a company's profits gives incentive to employees to produce a quality product, perform a quality service, or improve the quality of a process within the company. What benefits the company directly benefits the employee. Monetary and other rewards are being given to employees for generating cost savings or process-improving ideas, to boost productivity and reduce absenteeism. Money is effective when it is directly tied to an employee's ideas or accomplishments. Nevertheless, if not coupled with other, nonmonetary motivators, its motivating effects are short-lived. Further, monetary incentives can prove counterproductive if not made available to all members of the organization. No one works for free, nor should they. While pursuing money based on negative motives can lead to a poorer psychological well-being, this is not the same as pursuing money to provide security and comfort for oneself and family. Obviously, employees want to earn fair wages and salaries, and employers want their workers to feel that is what they are getting. To that end, it is logical that employees and employers alike view money as the fundamental incentive for satisfactory job performance. Incentives are one technique by which employers carry outtheir end of the employment contract-that is, compensatingemployees for their efforts. In its most generic form, the incentivepayment is any compensation that has been designed to recognizesome specific accomplishment on the employee's part. In general, itis hoped that the prospect of the incentive payment will inspire thedesired performance; in fact, employers sometimes refer to the kindof behavior they are trying to "incent." With the foregoing discussion, the researcher is challenged on how monetary incentives

impact the employees performance of the Sangguniang Panlalawigan of Quirino.

II. Statement of the Problem The study focused on the effect of incentives on the work performance of the employees of the (LGU) Local Government Unit of Diffun, Quirino Province. Specifically, it answered the following questions: 1. What are the profile of the respondents in terms of the following: 1.1 age 1.2 Sex 1.3 Civil Status 1.4 Educational Attainment 1.5 Length of Service 2. How do the employees perceive the effects of monetary incentives to their work performance?

Significance of the Study Hopefully, the results of the study will benefit the following:

yees. The findings of the study will strengthen their knowledge on the role monetary incentives play towards their work performance.

Government Officials. The results of the study will furnish them vital information that will help them chart future strategic plans on employees monetary incentives and other benefits.

III. LITERATURE REVIEW

The purpose of monetary incentives is to reward associatesfor excellent job performance through money. Monetaryincentives include profit sharing, project bonuses, stockoptions and warrants, scheduled bonuses (e.g., Christmasand performance-linked), and additional paid vacationtime. Traditionally, these have helped maintain a positivemotivational environment for associates (Kepner, 2001). The use of monetary or other financial incentives in the classic work performance paradigm is based primarily on reinforcement theory (Sirgy, J. M.,1998). Reinforcement theory focuses on the relationship between a target behavior (e.g., work performance) and its consequences (e.g., pay), and it is premised on the principles and techniques of organizational behavior modification. Organizational behavior modification is a framework within which employee behaviors are identified, measured and analyzed in terms of their functional consequences (i.e., existing reinforcements) and where an intervention is developed using principles of reinforcement. In a much publicized study, Gupta (1998) and her colleagues analyzed thirty-nine studies conducted over four decades and found that cold-hard cash motivates workers whether their jobs

are exciting or mundane, in labs and real-world settings alike. But the research team acknowledges that money is not the only thing that concerns employees noting that beyond a certain point higher salaries will make employees happier, but it will not buy better performance. Still, Gupta (1998) warns that employers who dole out small merit raises less than 7% of base pay may do more harm than good. According to her, small raises can actually be dysfunctional in terms of motivation because employees become irritated that their hard work yielded so little. Because of this, she advises employers who must give small raises to be careful about linking them to results and to be scrupulous about being fair. Financial incentives moderately to significantly improve task performance, but their effectiveness is dependent upon organizational conditions. Differences in institutional arrangements contribute to the feasibility and effectiveness of various monetary incentives, as do differences in employees preferences for specific incentives. Therefore, companies are wise to study these issues before implementing changes to existing incentive plans. This is especially pertinent for service organizations, where financial reinforcements tend to produce a stronger effect on task performance than non-financial rewards used alone. Even stronger results are seen with a composite approach. For example, one metaanalysis of 72 field studies found that monetary incentives improved task performance by 23%, social recognition improved task performance by 17% and feedback elicited a 10% improvement (Stajkovic, A. D., & Luthans, F., 1997). Simultaneously combining all three types of reinforcements improved performance by 45%. Group incentive systems are consistently effective in private sector settings. Team-based or small-group incentives are defined as rewards whereby a portion of individual pay is contingent on measurable group performance (De Matteo, 1998). In general, its effectiveness is dependent on the characteristics of the reward system, the organization, the team and the individual team members1. Here again, studying this issue via employee surveys or interviews can be useful. But generally speaking, research suggests that equally divided smallgroup incentives sustain high levels of productivity and satisfaction for group members, and that small-group incentives are at least as effective as individual incentives with groups of two to twelve people (Nickerson, 2001).

Qualitative, quantitative and survey research studies of alternative pay systems such as profitsharing or gain-sharing plans are even more consistent in their findings (Welbourne, 1995). These incentive programs include various pay-for-performance approaches that link financial rewards for employees to improvements in the performance of the work unit. Research reveals that these types of incentive systems are associated in practice and in employer and employee minds with both higher productivity and improvements in organizational performance.

IV. Research Methodology

Research Design The study made use of the descriptive method of research. This study is essentially

qualitative in nature and analyzes data by means of appropriate statistical tools. The researchers design is descriptive in nature since it is primarily concerned on how the respondents perceive monetary incentives towards their job performance. The Respondents The respondents of the study includeinclude 55 regular employees working at the Sangguniang Panlalawigan of Quirino. Research Instrument The questionnaire was the primary instrument used in this study. It was formulated as a result of the researchers perusal of published and unpublished materials, pamphlets, books and other available sources of information pertinent to the problem under investigation. The questionnaire was divided into two parts. The first part contained items concerning the profile of the respondents. The second part is concerned on the perceived effects of monetary incentives on the employees work performance.

Data Gathering Procedures After the final copy of the instrument was arrived at, the researcher requested permission of the authorities of the Local Government Unit of Diffun, Quirino to administer the instruments to be floated. After the permission was granted, the researcher started floating the questionnaires to the target respondents. The questionnaires was retrieved and tallied. Statistical treatment of Data The data was treated with some statistical tools. For questions as regards the respondents perception, a scale value was assigned to each of the five categories below.

Points Range Description 5 4.50-5.00 Strongly Agree 4 3.50-4.49 Agree 3 2.50- 3.49 Uncertain 2 1.50-2.49 Disagree 1 0.50-1.49 Strongly Disagree

V. Results and Discussion This chapter presents the analysis, interpretations and tabular representation of data gathered for this study. The presentation conforms to the arrangement of problems stated in Chapter 1 of the study. Profile of the Respondents Age. Table 1 shows the frequency and percentage distribution of the ages of the respondents of the study. The table shows that the respondents are varied and range from 29 years below to 50 years above. But the largest group of 40 constituting a proportion of 36.6 percent respectively, have ages ranging from 30 to 49 years of age.
Table 1

Frequency and Percentage of Respondents

According to Age Categories Age Categories 29 below Frequency (N) 9 Percentage 16.36

30 - 39 40 - 49 50 above Total

20 20 6 55

36.36 36.36 10.90 100.00

The smallest group numbering 6representing10.90 percent belongs to the oldest group of 46 years and above.

The age of the respondents cluster towards a man point estimate of 35.485 years and identifies them as in their middle thirties and forties, physically strong and capable of doing their respective line of work or job assignment. Gender. Table 2 shows the summary of the information of the respondents by gender.

The results show a lopsided distribution towards the females numbering 37employee respondents, representing 67.27 percent and more than one half of the sample. The male employee respondentsconstitute the lesser number and the smallest of the group of the respondents.

Table 2

Frequency and Percentage of Respondents

According to Gender Gender Male Female Total Frequency (N) 18 37 55 Percentage 32.73 67.27 100.00

Civil Status. Table 3 records the information of the civil status of the respondents. The group of married employees with an obtained frequency of 50 or 90.91 percent constituting almost half of the total number of respondents outnumbered the respondents who are single and the respondents who are widowed with recorded frequencies of 3 and 2, respectively.

Table 3

Frequency and Percentage of Respondents

According to Civil Status Civil Status Single Married Widow (er) Total Frequency (N) 3 50 2 55 Percentage 5.45 90.91 3.64 100.00

Educational Attainment. Table 4 summarizes information on the educational attainment of the respondents. The results show that the educational attainment are varied and range from bachelors degree holders, for fresh graduates and new employees to those with masters units and degree.

Table 4

Frequency and Percentage of Respondents

According to Educational Attainment Ed. Attainment College Undergraduate Bachelors Degree MA Units MA Degree Doctoral Units Total Frequency (N) 17 32 3 3 0 55 Percentage 30.91 58.18 5.45 5.45 0 100.00

The largest group of 32 respondents or 58.18 percent and slightly less than one half of the group isbachelors degree holder with contemplations of obtaining higher degrees in education and also for professional growth. It could be noted that there are 17 or 30.91 percent respondents who are college undergraduates. The smallest group numbers 6 or 10.9 percent of the respondents have masters units and degrees.. Length ofwork experience.Table 5 records the information on the length of work experience of respondents. As shown in the table, experience of is varied ranging from 5 years below to 11 years above. The largest group of 26 or 47.27 percent has been working within 11 to 15 years, some of them are pioneers of the Sangguniang Panlalawigan. This is followed by a relatively moderate group of 15 respondents or 27.28 percent who have 6 to 10 years of work experience. In general therefore, the respondents are in their middle thirties, competitive in gender sample sizes, similarly in civil status, have varied educational attainment and length of work experience of less than 10 years.

Table 5

Frequency and Percentage of Respondents

According to Length of Work Experience Experience Frequency (N) Percentage

5 years below 6 10 11 15 Total

14 15 26 55

25.45 27.28 47.27 100.00

Effect of monetary incentives Table 6 presents in tabular form the perception of respondents on the effects of monetary incentives. It shows that the respondents strongly agree that Monetary incentives provide increased motivation with an obtained weighted mean of4.89. Many people find it hard to motivate themselves at work. This is a common occurrence and one that has been significantly impacted by Incentive Programs. Provision of monetary incentives motivates employees by offering rewards for reaching targets and organizational goals. These come in many forms ranging from cash to cars to holidays to gifts. The rewards are a great motivator but what is more inspiring for the employee is that the organization where they belong cares enough to offer these incentives. The respondents strongly agreed that monetary incentives boost company morale with a mean of 4.75. Rewards, incentives and recognition make for a happy, harmonious working environment. Goal setting and targeting objectives helps with focus and purpose. Monetary incentives offer all of these things and are highly conducive to company morale. Increases in organizational morale help to reduce absenteeism and overall organizational costs. It can be gleaned from table 6 that the respondents strongly agreed that monetary incentives increase organizational loyalty with a mean of4.68. Loyalty is not something you can buy. However, incentives for good work and rewards for hard work go along way to securing commitment from employees. Monetary incentives show employees the company values their input and their work. If an employee feels valued and appreciated they are more likely to form an

allegiance to the organization.

The respondents strongly agreed that incentive programs promote productivity with a mean of 4.60. Employees are offered incentives for reaching targets or for good work in general. These incentives vary but the main aim is to encourage employees to work towards company goals. With the promise of incentives and clearly defined targets employees are more productive and motivated. Table 6 shows that the respondents strongly agreed that overall organizational costs can be reduced as a result of monetary incentives with a mean of 4.58. This cost can be measured in terms of reduced absenteeism, reduced recruitment costs and turnover of staff. There is probability of significant return of investment via increased productivity and motivation within the organization and/or department. The respondents strongly agreed incentive programs are a great way to reach targets and company objectives with an obtained mean of 4.50. Using incentives,employers can set realistic goals and reward employees when they reach them. This is a great way to boost productivity and morale while at the same time achieving organizational goals.

Table 6

Perception of respondents on the effects of monetary incentives

Statements WM Interpretation Strongly Agree

1. Monetary incentives provide increased motivation. 2. Monetary incentives provide increased company morale. 3. Monetary incentives increase company loyalty. 4. Monetary incentives provide increased productivity. 5. Monetary incentives provide increase objective achievement. 6. Monetary incentives promote reduced company costs. 7. Monetary incentives reduces occurrence of absenteeism. 8. Monetary incentives promote teamwork and foster an environment that is conducive to success. 9. Monetary incentives promote decreased turnover.

4.89

4.75

Strongly Agree

4.68

Strongly Agree

4.60

Strongly Agree

4.50

Strongly Agree

4.58

Strongly Agree

4.30

Agree

4.25

Agree

3.70

Agree

The respondents agreed that monetary incentives promote decreased turnover with a mean of 3.70. Monetary incentives foster happy, productive working environments. Employees enjoying this kind of environment will be more likely to stay long term. This means incentive programs reduce the amount of turnovers within the organization. The advantage of consistent staffing is that you are not spending money on recruiting or training new staff. You are also able to retain loyal committed employees with a vested organizational interest. The respondents agreed thatIncentive Programs promote teamwork and foster an

environment that is conducive to success with an obtained mean of 4.25. Employees working towards rewards or targets will pull together to achieve desired results. Teamwork increases efficiency and creates harmony within the workplace. As shown in table 6, the respondents agreed thatmonetary incentives reduces occurrence of absenteeism with a mean of 4.30. The bottom line with incentive programs comes down to the very simple fact that people like being rewarded for hard work and a job well done. The rewards are only part of the equation. Incentive schemes show employees the organization where they belong cares and appreciates the work they are outputting. If an employee feels appreciated and has clear targets that result in rewards then they are more likely to want to come to work. VI. Conclusions 1. The respondents are in their middle thirties, competitive in gender sample sizes, similarly in civil status, have varied educational attainment and length of work experience of more than 11 years. 2. Most respondents expressed the belief that monetary incentivesplay a significant role towards their work performance. They believed that the provision of monetary incentives primarily motivates them to perform their job into a more considerable extent. 3. The respondents perceive that monetary incentives does not only motivate them to perform their job better but also promote higher level of morale and it helps them with their familys finances.

VII. Recommendations The researcher suggests the following: 1. Acomprehensive analysis and evaluation be conducted towards the incentive program to employees.

2. Superiors and subordinates alike must attend seminars on motivational management. 3. Future researchers must conduct analysis on the effects of incentives to work performance on other setting.

VIII. BIBLIOGRAPHY De Matteo, J. S., Eby, L. T., & Sundstrom, E. (1998). Team-based rewards: current empirical evidence and directions for future research. Research in OrganizationalBehavior, 20, 141183.

Diener, E., & Biswas-Diener, R. (2002). Will money increase subjective well-being? A literature review and guide to needed research. Social Indicators Research, 57, 119-169.

Heneman, R. L. (1992). Merit pay: linking pay increases to performance ratings. New York: AddisonWesley.

Honeywell-Johnson, J. A., & Dickinson, A. M. (1999). Small group incentives: a reviewof the literature. Journal of Organizational Behavior Management, 19, 89-120.

Jenkins, Jr, G. D., Mitra, A., Gupta, N., & Shaw, J. D. (1998). Are financial incentives related to performance? a meta-analytic review of empirical research. Journal ofApplied Psychology, 83, 777-787.

Kasser, T. (2002). The high price of materialism. Massachusetts: MIT Press

Kasser, T., & Ahuvia, A. (2002). Materialistic values and well-being in business students. European Journal of Social Psychology, 32, 137-146.

Kasser, T., & Kasser, V. G. (2001). The dreams of people high and low in materialism. Journal of Economic Psychology, 22, 693-719.

Kepner, Karl W. 2001. Class lecture notes from AEB 4424:Human Resource Management in Agribusiness. Taught at theUniversity of Florida, Gainesville, FL.Luthans, F. (1973). Organizational behavior. New York: McGraw-Hill.

Luthans, F., & Kreitner, R. (1975). Organizational behavior modification. Glenview, IL: Scott, Foresman.

Milkovich, G. T., & Wigdor, A. K. (Eds). (1991). Pay for performance: evaluating performance appraisal and merit pay. Washington, DC: National Academy Press.

Nickerson, C., Schwarz, N., Diener, E., & Kahneman, D. (2001). The American dream: the dark side is in the wish, not the realization. Psychological Science, 14, 531536.

Perry, J. L., Mesch, D., & Paarlberg, L. (2006). Motivating employees in a new governance era: the performance paradigm revisited. Public AdministrationReview , 66, 505-514.

Sirgy, J. M. (1998). Matherialism and quality of life. Social Indicators Research, 43,227-260.

Skinner, B. F. (1969). Contingencies of reinforcement. New York: Appleton-Century- Crofts.

Srivastava, A., Locke, E. A. and Bartol, K. M. (2001). Money and subjective well-being its not the money, its the motives. Journal of Personality and SocialPsychology, 80, 959-971.

Stajkovic, A. D., & Luthans, F. (1997). A meta-analysis of the effects of organizational behavior modification on task performance, 1975-1995. Academy of ManagementJournal, 40, 11221149.

Stajkovic, A. D., & Luthans, F. (2003). Behavioral management and task performance in organizations: conceptual background, meta-analysis, and test of alternative models. Personnel Psychology, 56, 155-194.

Tolchinsky, P. D., & King, D. C. (1980). Do goals mediate the effects of incentives on performance? Academy of Management Review , 5, 455-467.

Welbourne, T. M., & Gomez Mejia, L. R. (1995). Gainsharing: a critical review and a future research agenda. Journal of Management, 21, 559-609

Appendix A

LETTER TO CONDUCT THE STUDY

June 15, 2013

________________ Vice Governor Quirino

Dear Mr. ________, Greetings in the Name of Peace and Reconciliation! The undersigned is on the process of conducting a research study entitled Effect of Monetary Incentives to Employees Performance in the Office of the Sangguniang Panlalawigan of Quirino, as significant part of my job requirements. In this connection, may I therefore request permission from your good office to allow me to administer the questionnaire, to gather the needed data pertinent to my research study. I am hoping for your kindness and usual consideration. Thank you very much and God bless you a hundredfold.

Very respectfully yours,

Ceina Grace Parungao

APPENDIX B

LETTER TO THE RESPONDENTS

Dear Respondents,

The undersigned is undertaking a research project entitled Effect of Monetary Incentives to Employees Performance in the Office of the Sangguniang Panlalawigan of Quirino.

There is no right or wrong answer, but it is best that you answer the questionnaires objectively, so that proper decisions and directions may be made.

You are assured that every assertion made in these questionnaires shall be held confidential, and will not be taken against you, rather as a helpful assessment of a cause.

Your cooperation is very much desired and without your help this paper will not be successful.

Thank you for making this part of your day.

Much appreciation,

Ceina Grace Parungao

RESEARCH QUESTIONNAIRE

Respondents Information Sheet Directions: Please put a check or fill in the blanks with the necessary information. Age 1.1 29 below _____________ 1.2 30 39 _____________ 1.3 40 49 _____________ 1.4 50 above _____________

Gender 2.1 Male _____________ 2.2 Female _____________

Civil Status 3.1 Single _____________ 3.2 Married _____________ 3.3 Separated _____________ 3.4 Widow/er _____________

Educational Attainment 4.1 Bachelors Degree _____________ 4.2 Masters Units _____________ 4.3 Masters Degree _____________ 4.4 Doctorate Units _____________

Length of Work Experience 5.1 5 years below _____________ 5.2 6 10 years _____________ 5.3 11 years above _____________

Effect of Monetary Incentives

Direction: Below are statements pertinent to the impact of monetary performance in your work performance. Please put a check mark the box which you think is the best answer, using the following options:

Strongly Agree (5) Agree (4) Not Sure (3) Disagree (2) Strongly Disagree (1)

Statements 1. Monetary incentives provideincreased motivation.

2. Monetary incentives provide increased company morale. 3. Monetary incentives increase company loyalty. 4. Monetary incentives provide increased productivity. 5. Monetary incentives provide increase objective achievement. 6. Monetary incentives promote reduced company costs. 7. Monetary incentives reduces occurrence of absenteeism. 8. Monetary incentives promote teamwork and foster an environment that is conducive to success. 9. Monetary incentives promote decreased turnover.