Advances in Finance and Accounting

Empirical investigation into the quality of rewards systems

implemented in Czech companies
PETR PETERA, JAROSLAV WAGNER, MICHAL MENK
Department of Managerial Accounting
University of Economics, Prague
W. Churchill Sq. 4, 130 67 Prague 3
CZECH REPUBLIC
wagner@vse.cz http://kmu.vse.cz
Abstract: - This paper introduces our research and presents results of our empirical investigation (survey)
conducted among Czech companies with focus on part of the survey dealing with rewarding of employees in
relation to performance measurement. Descriptive statistics are given and weaknesses of rewards systems
implemented in analyzed companies are identified.
Key-Words: Performance measurement and management, rewards for performance, short- and long-term
incentives plan
about the quality of the implemented PMMS and
about performance of the company in comparison
with its competitors.
Part C is fully dedicated to rewarding of
employees, especially in relation to PMMS and also
addresses other methods of influencing employees
behavior.
Full questionnaire has in total 72 questions on 28
pages (format A4), hence is rather comprehensive.
Parts A (15 questions, usually with sub-questions)
and B (35 questions, usually with sub-questions)
should be preferably filled in by CFO or controller;
part C (22 questions) by HR manager if possible.
The questionnaire contains various types of
questions (mostly Likert questions, closed format
questions, dichotomous questions and also some
open format questions).

1 Introduction
This paper has been processed as an output of the
research project Performance measurement and
management system and its connection with the
system of rewarding and motivating workforce
registered by the Internal Grant Agency of the
University of Economics, Prague under the
registration number F1/9/2011.
Within our project we are preparing a
methodology for a quick estimation of the quality of
implemented performance measurement and
management system (abbreviated PMMS
hereinafter) in its relation to rewards system
(abbreviated RS hereinafter). The first results of
this enquiry were incorporated into a questionnaire
investigating crucial properties of PMMS, RS and
their interconnections. The questionnaire was
distributed among the biggest companies located in
the Czech Republic and in this paper we present the
current state of evaluation of responses with focus
on the part dealing with rewarding employees.
Our questionnaire and is divided into 3 parts.
Part A deals with basic information about a
company, the quality of strategy formulation, formal
strategy execution process and finally examines
level of use of selected contemporary methods of
managerial accounting.
Part B deals with specific methods of
performance measurement and management and is
divided into 5 sections - overall characteristics of
the implemented PMMS and strategic PMMS;
financial measures; non-financial measures;
performance measurement and management in
connection with incentives; subjective feelings

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2 Problem Formulation
While preparing our questionnaire we used a vast
body of literature on performance measurement and
rewarding of employees. It is above the scope of this
paper to give even a mere list of these resources.
Basic
findings
on
rewards,
performance
measurement and management and interconnections
of these areas including the most important
references were published in [5]. We addressed
similar issues also in [7]. As for rewards systems in
their connection to PMMS we based our work on
publications of Armstrong, e.g. [1] and
WorldatWork, e.g. [8]. Based on the above
mentioned resources we prepared a questionnaire
which can be used for getting a clear view of basic

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Table 1 Respondents characteristics (year 2010)

Mean
Median Min
Max
Number of
4 225
1 730
676 34 374
full
time
employees
Assets
7 401
3 070
264 25 458
(millions of
CZK)
Turnover
8 717
3 866
357 32 459
(millions of
CZK)
In the following part of the article we deal only
with respondents who sent us filled-in part C of our
questionnaire (13 companies).

properties and quality of the implemented RS. We

used this questionnaire to obtain information about
properties and weaknesses of RS implemented in
companies of our respondents.
Firstly, we describe results of our question about
who is responsible for creating conception of
rewards system as a whole in surveyed companies.
Secondly, we calculate index of quality of
rewards strategy formulation and index of quality of
rewards system.
Thirdly, we analyze whether process of
evaluation of rewards system is put in place and in
case it is implemented, then we examine how
thoroughly rewards system is evaluated by our
respondents.
Fourthly, utilization of elements of total rewards
approach (abbreviated TRA hereinafter) is
checked and types of rewards in use are analyzed.
Fifthly, other managerial tools for influencing
employees behavior (next to compensations) are
surveyed and evaluated.
Sixthly, utilization of incentives (that is rewards
for performance) is investigated in detail. We
noticed that there is a school of thought that is
refusing rewards for performance or at least warning
about risks connected with these rewards. Very
resolute rejection of incentives as the main tool for
influencing employees behavior can be found in
works of Kohn, e.g. [3]. Critical (or better said
cautious) views on incentives can be found also in
[4] and [2]. Nevertheless prevailing thoughts both in
literature and practice are views supporting
intensive use of incentives, especially incentives for
individuals, for example [6]. We therefore examine
how intensively incentives are used in practice of
our respondents.
Seventhly, overall approach to rewarding is
investigated.
Finally, subjective evaluation of rewards system
is surveyed.

3 Results
of
investigation

the

3.1 Responsibility for creating a concept of

rewards system
At the beginning of the questionnaire (part C) we
ask companies, who (position in an organization) is
responsible for preparation of the overall concept of
rewards system, results are summarized in the Table
2. Letter N In the second column stands for the
number of companies in which respective position
(or approach) is responsible (used) for creating a
concept of RS.
Table 2 Responsibility for concept of RS
Position / approach
N
HR manager
5
C & B manager
3
Chief of personnel & wages department
1
CEO
1
Corporate rules
1
Decentralized
2
Total
13
We can conclude that responsibility for creating
concept of RS is usually centralized under one
person (in 10 instances). One company reported to
follow corporate methodology. Centralized
management accords with principles of TRA. Two
companies seem to use decentralized approach (one
of them describing its situation as a combination of
centralized and decentralized elements).

empirical

We collected data through an e-mail survey. In total

we sent the questionnaire to the 100 largest Czech
companies according to number of their employees.
After excluding unusable questionnaires, we
have 16 responses from CFO (parts A and B of our
questionnaire) and 13 responses from HR managers
(part C of our questionnaire). Basic characteristics
of these 16 respondents are given in the Table 1.

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3.2 Rewards strategy

rewards system

formulation

and

For each company we computed an index of

quality of rewards strategy formulation as a mean
of responses to questions (in total 13 questions)
about various properties of rewards strategy.
Analogically we computed index of quality of
rewards system (in total 20 questions). In the Table

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3 are these indexes calculated as a mean for all

respondents.
It is above the scope of this paper to give detailed
information on calculation of these indexes,
nevertheless we point out that calculated mean
values are very close to the subjective evaluation of
RS as given by our respondents (see chapter 3.8).

Area of Evaluated
Compared with/in
evalu(N
of time
compet plan
ation
comp.)
itors
A2
9
8
0
1
A3
10
9
0
2
A4
11
9
0
7
A5
12
10
0
10
A6
12
12
2
12
A7
12
8
2
8
A8
10
9
0
9
Next we asked companies to specify in detail
how they evaluate expenses on rewards. We got 10
responses, according to which evaluation is aimed
solely on wage expenses (which are in all cases
furthermore segmented, e.g. to base pay and
variable pay etc.), only 1 company reported to
analyze expenses on benefits.
Therefore we can conclude that companies do
not have a complete knowledge about expenses on
rewards as wages are only a subset of such
expenses.
Moreover we hypothesize that there is a lot of
window-dressing in the answers to questions about
evaluation of RS and objective results would
probably be far less encouraging. Possible is also
misinterpretation of our questions (though the
questions were clearly formulated), for example
answering yes to questions A7 and A8 only
because financial results are evaluated (without
analysis of interdependences with rewards system).

Table 3 Indexes of quality of rewards strategy

formulation and quality of RS (scale (1) low level
... (7) high level)
Index of
Mean Median Stand.
dev.
Quality of rewards 5.07
5.23
1.10
strategy formulation
Quality of rewards 5.11
5.53
0.86
system
Unfortunately it is not possible to analyze these
results in detail here. Nevertheless we would like to
point out that companies admit that their rewards
systems are not unique, that employees cannot
choose from various types of rewards and that our
respondents often do not compare their rewards
systems with external reference points (e.g.
competitors). Weak is also intensity of
communication of RS with stakeholders.

3.3 Evaluation of RS
Evaluation of rewards system is an important part of
dynamics of these systems as without processes of
revision, measurement and evaluation it is hard to
rationally manage updating of RS.
Especially important is evaluation of the
following areas analysis of acceptation of
implemented rewards system by employees (A1),
analysis of understanding the aims targeted by
rewards system by employees (A2), analysis of
impact of RS on behavior of employees, e.g.
fluctuation (A3), analysis of impact of RS on
substantive outputs of the work, e.g. quality (A4),
analysis of impact of RS on final results, e.g.
customer satisfaction (A5), analysis of expenses on
rewards (A6), analysis of impact of RS on financial
results by non-quantitative methods (A7), analysis
of impact of RS on financial results by quantitative
methods (A8). Results of our investigation are
summarized in the Table 4.

3.4 Total
rewards

of

First of all, we were examining to which extent our

respondents use various elements of TRA. We asked
respondents to express extent to which they agree
with following 8 propositions - person responsible
for rewards also participates on creating of
companys strategy (P1), rewards are communicated
with employees and they understand to concept of
total rewards (P2), people responsible for various
parts of total rewards are mutually coordinated (P3),
CEO supports total rewards program (P4), costs on
rewards are considered to be more an investment
than expenses (P5), managers are encouraged to
explain value of the total rewards approach to their
subordinates (P6), changes are taking place in the
total rewards approach, depending on the results of
research using quantitative methods (P7), employees
are satisfied with TR program (P8). Results are in
the Table 5.

Table 4 Areas of evaluation of RS

Area of Evaluated
Compared with/in
evalu(N
of time
compet plan
ation
comp.)
itors
A1
10
8
3
2

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rewards approach, types

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training managers to use supportive interpersonal

style (T2), hiring people that match the
organizations needs (T3), supporting pro-social
behavior from the top to the bottom of the
organization (T4), training employees (T5),
empowering (T6) and teamwork (T7). We asked
organizations whether they use these tools and
results are summarized in the Table 7

Table 5 Total rewards approach (scale (1) fully

disagree ... (7) fully agree)
Proposition
Mean Median Stand.
dev.
P1
6.23
7.00
1.17
P2
4.77
5.00
1.24
P3
5.69
6.00
1.25
P4
6.08
7.00
1.55
P5
4.31
5.00
1.44
P6
5.15
6.00
1.46
P7
3.83
4.00
1.47
P8
4.08
4.00
1.12
As we can see, the lowest mean value is
attributed to the proposition P7, which is neither
surprising nor fundamental. What is a real problem
is low mean value observable for propositions P8,
P5 and P2 which all basically deal with
communication of rewards between management
and other employees. Low mean value of agreement
with these proposition can be interpreted as a sign of
possible flaw in design of TRA because
communication is (or better said should be) in a
very centre of this approach.
Secondly, we addressed types of rewards used by
companies. Results can be found in the Table 6.

Table 7 Tools for influencing employees

behavior (N=13)
Tool N of companies
Percentage
of
companies
T1
6
46.15
T2
10
69.23
T3
11
84.62
T4
8
61.54
T5
10
76.92
T6
9
69.23
T7
10
76.92
In addition to the above mentioned tools,
companies reported that for influencing employees
they utilize also evaluation of employees (in 1
instance) and participation in decision-making (in 1
instance).

Table 6 Types of rewards in use (N=13)

Type of reward
NumPercentaber
ge

3.6 Incentives
By incentives we understand rewards for
performance. We were examining using incentives
deeply in our survey and here are presented the most
important results.
First of all, we asked companies about proportion
of employees of various categories who are entitled
to obtain incentives and about plans to change this
proportion. Results are in the Table 8.

Compensation (base pay and

13
100.00
other types of compensation)
bonus/pay for performance
13
100.00
merit pay
7
53.85
skill based pay
6
46.15
gain-sharing
9
69.23
profit-sharing
4
30.77
Benefits
10
76.92
Work-life balance
9
69.23
Recognition
6
46.15
Career development
10
76.92
Positive workplace
9
69.23
On the whole it is possible to conclude, that
companies use a wide range of reward types
including non-monetary ones.

Table 8 Proportion of employees of various

categories entitled to obtain incentives (N=13;
scale (1) fully disagree ... (7) fully agree)
Tendency
Category of Mean Median
(N=11)
employees
inno
crease change
top mgt.
6.15
7.00
2
9
middle mgt.
5.69
7.00
2
9
line mgt.
5.54
6.00
1
10
non mgt.
5.54
6.00
3
8
We can conclude, that our findings confirmed
our hypothesis about intensive use incentives for
most categories of employees. On the one hand this
is in compliance with recommendations given in
mainstream literature. Nevertheless there are a
growing number of academics and consultants who

3.5 Other tools for influencing employees

behavior
The most often mentioned tools for influencing
employees' behavior in literature are designing the
jobs and the relationships between them in a way
that enhances the intrinsic appeal of the job (T1),

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point out to the fact that adoption of incentives is

many times neither connected with higher
employees satisfaction nor with increased
performance of companies.
Secondly, we asked companies to indicate how
intensively they take into account possibilities of
employees to influence measures according to
which their incentives are calculated. Answers can
be found in the Table 9.

Furthermore, it seems that preferred are shorttime oriented rewards to long-term ones. This

Table 9 Possibility to influence measures used for

calculation of incentives by various employees
categories (scale (1) fully disagree ... (7) fully
agree)
Possibility
to
influence
Category
of
measures used for calculation
employees
of incentives
mean
median
stand.
dev
CEO
5.92
7.00
1.78
top mgt.
5.92
7.00
1.78
middle mgt.
5.68
5.50
1.27
line mgt.
5.73
6.00
1.49
non-managerial
5.36
6.00
1.69
We can see that mean value is constantly
decreasing (with the exception of middle and line
managers). This indicates a need for a methodology
for creating incentive system under which even nonmanagerial employees would feel that they really
can influence measures relevant for setting their
incentives. Of course that for being a real force
leading to a higher performance, incentives have to
be substantive, not only symbolic compared to other
components of total reward.
Thirdly, we asked companies which types of
compensation they use for various categories of
employees and results are summarized in the Table
10.

Furthermore, we asked companies whether they

negotiate method of calculation of incentives for a
period longer than one year, again answers were
segmented according to categories of employees. In
case of CEO only 1 company reported to negotiate
calculation of incentives for a period longer than 1
year, in case of other top managers no one company
reported to use such approach, in case of middle
management, line management and non-managerial
employees always 1 of our respondents reported
such approach. Obviously, we can conclude, that
incentive plans are in case of our respondents in
absolute majority designed to reward short-time
performance more that long-time performance our
respondents use only short-term incentive plans and
not long-term performance plans. We feel this as
potential problem as such approach can lead to
short-term oriented behavior.
Finally, we asked, which performance measures
are used for calculation of incentives for these
categories of employees. Our finding can be found
in the Table 11

claim is supported by the fact that incentives are

usually paid out at once, bonus bank is used
rarely. Specifically in case of top managers is
bonus bank is used in 4 instances, in case of
middle management in 1 instance, in case of
line management in 2 instances and in case of
non-managerial employees in 1 instance.

Table 11 Measures used for calculation of

incentives for various categories of employees
(N=13)
Perspective
Category of
employees
financi- custo- inter- learal
mer
nal
ning
CEO
12
3
2
1
top mgt.
13
3
5
1
middle mgt.
12
3
7
2
line mgt.
11
4
5
2
non12
4
5
2
managerial

Table 10 Types of compensation in use (N=13)

Top Mid Line NonCompensaC
E
mgt. mgt. mgt. mgt.
tion type
O
bonus
12
12
11
10
11
merit
3
3
5
5
6
skill pay
0
0
3
3
3
gain-sharing
2
3
4
5
7
profit3
3
2
2
0
sharing
Obviously, not all compensation types mentioned
in the Table 10 match to our definition of incentives
perfectly - especially skill pay, which does not
necessary correspond to performance.

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3.7 Overall approach to rewarding

employees and its relative importance to
other tools of influencing employees
behavior
According to the results of our survey, 5 of 12
companies that answered this question (41.67 %)
uses rewards as the most important tool for

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All respondents use incentives (rewards for

performance), nevertheless nearly exclusively for
rewarding a short-time performance. We were not
surveying whether incentives are substantial or
symbolic.
Less than 50.00 % uses rewards as the most
important tool for influencing behavior of
employees, the rest of respondents sets rewards so
that they are acceptable for employees and
afterwards uses other tools to influence their
behavior. We see this to be somehow contradictory
to the intensive use of incentives, especially taking
into account declared trends (increasing numbers of
employees entitled to obtain incentives). Such
approach may indicate ineffectiveness and wasting
resources.

influencing behavior of employees, rest 7

companies (that is 58.33 %) sets rewards so that
they are acceptable for employees and afterwards
uses other tools to influence their behavior, one
company did not exposed its overall approach to
rewarding.

3.8 Subjective evaluation of the quality of RS

We asked companies to give a subjective evaluation
of their rewards system. Responses were given
again on a scale from 1 to 7, where 1 means the
lowest quality, 7 the highest quality of RS. Mean
value of responses was 5.15, standard deviation
0.80. The lowest value was 4, the highest value was
6, median 5.00. These results are very close to the
computed indexes, see also Table 3.

References:
[1] Armstrong, M. Brown, D., Evidence-Based
Reward Management: Creating Measurable
Business Impact from Your Pay and Reward
Practices, Kogan Page, 2010.
[2] Frey, B. Osterloh, M., Yes, Managers Should
Be Paid Like Bureaucrats, Journal of
Management Inquiry, vol. 14, no. 1, 2005, pp.
96-111.
[3] Kohn, A., Why Incentive Plans Cannot Work,
Harvard Business Review, vol. 71, no. 5, 1993,
pp. 54-63.
[4] Manzoni, J. F., Motivation through Incentives:
A Cross-Disciplinary Review of the Evidence,
In: Epstein,M.C. Manzoni, J. F. Davila, A.
(eds.):
Performance
Measurement
and
Management
Control:
Measuring
and
Rewarding Performance, Emerald, pp. 19-63,
2010.
[5] Petera, P., Evaluating the Quality of Rewards
Systems, European Financial and Accounting
Journal, vol. 6, no. 3, 2011, pp. 66-91.
[6] Stewart, G. B., The Quest for Value: the EVATM
Management Guide, HarperCollins, 1991.
[7] Wagner, J. oljakov, L. Maty, O.,
Strategic Performance Measurement and
Compensation Systems in the Czech Republic
(Empirical study). European Financial and
Accounting Journal, vol. 2, no. 3-4, 2007, pp.
8-26.
[8] WorldatWork, The Worldatwork Handbook of
Compensation, Benefits & Total Rewards: A
Comprehensive Guide for HR Professionals,
Wiley, 2007.

4 Conclusion
As for responsibility for creating a concept of
rewards system we can conclude, that companies
usually follow recommendations of contemporary
mainstream literature, which suggest centralized
approach to managing this area.
Calculated mean value of indexes of quality of
rewards strategy formulation and of quality of
rewards system is 5.07, respectively 5.11, which is
quite satisfactory value. Respondents usually pay
attention to rewards strategy and they try to improve
their rewards systems.
Nevertheless at the same time mean value of
responses to the question about satisfaction of
employees with total rewards program equals only
4.08. We hypothesize that this is mainly due to
weak communication of rewards system, low
possibility to choose from various rewards and
because of inappropriate use of incentives.
Nevertheless more research is needed in this area.
Various elements of TRA are used, including
various kinds of rewards, but as mentioned,
companies often fail to communicate their rewards
programs. Respondents claim to use numerous
managerial tools for influencing employees
behavior as well.
We suspect our respondents that they overrate
themselves especially as for their ability to evaluate
rewards systems and utilization of the above
mentioned managerial tools. Unfortunately, we
cannot verify this suspicion.

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