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 DOI: 10.1177/0886368712471591

2012 44: 254Compensation & Benefits ReviewJennifer E. Wynter-Palmer

Is the Use of Short-Term Incentives Good Organization Strategy?  

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Compensation & Benefits Review44(5) 254 –265© 2013 SAGE PublicationsReprints and permission: sagepub.com/journalsPermissions.navDOI: 10.1177/0886368712471591http://cbr.sagepub.com

Compensation Management

Introduction

This article is based on a research survey of the use of incentives in Jamaica’s hotel industry. Using theories of motivation to construct a theoretical framework for the study, it is asserted that where organizations are on a quest to improve workforce productivity, their employees need to be motivated to do so. There are different ways of motivating employees to higher performance. Rewards are seen as one motivational strategy that has been used by organizations over the annals of time. The belief is that the right types of rewards should lead to employees performing at desired levels. Employee performance is fundamentally important to success in the hotel industry.

It is accepted that the motivational strategies are influ-enced by the thinking of an organization’s leadership team as well as the culture of the organization. Additionally, it is argued that there is no “one-size-fits-all” remedy for employee performance improvement, although there are commonly similarities in the types of practices employed by organizations, especially those proven to be effective in a specific industry.

The study focused on the motivational value of short-term incentives (STIs), whether they are financial or oth-erwise. Understandably, the debate by both academicians and human resource (HR) practitioners is on going about the right types as well as the right mix of workplace moti-vators. There are acknowledged to be strong arguments on all sides. This article seeks to add to the academic debate by positing that finding the right strategies to improve worker productivity should not be viewed as optional but must be fully appreciated, planned and implemented thoughtfully by employers.

Theories on Incentives and MotivationThe current economic environment necessitates high lev-els of efficiency, quality and cost-consciousness. One of

471591 CBRXXX10.1177/0886368712471591Compensation & Benefits ReviewWynter-Palmer2013

Corresponding Author:Jennifer E. Wynter-Palmer, University of Technology, 237 Old Hope Road, Kingston, Jamaica Email: Jennifer.wynter-palmer@utech.edu.jm

Is the Use of Short-Term Incentives Good Organization Strategy?

Jennifer E. Wynter-Palmer, Senior Research Fellow (Associate Professor), University of Technology/Jamaica Institute of Management -School of Advanced Management

Abstract

This article is based on research conducted on Jamaica’s hotel industry. The study sought to determine if there are any advantages to both employers and employees in use of short-term incentives in that industry. Using theories of motivation and the concepts governing incentive compensation to construct a theoretical framework, the article sought to make the link between short-term incentives, motivation and employee productivity. The debate by both academicians and human resource practitioners is about the right types as well as the right mix of workplace motivators. It is acknowledged that there are strong arguments on all sides. This article seeks to add to the academic debate by advancing that what is critical is that (a) the need for employee motivation should not be viewed as optional but must be fully appreciated, planned and implemented thoughtfully by employers; and (b) the motivational processes used will be influenced by the thinking of an organization’s leadership team as well as the culture of the organization. It is posited for this discussion that where organizations are on a quest to improve workforce productivity, their employees need to be motivated by a combination of intrinsic and extrinsic rewards. In turn, the right types and levels of motivation will lead to employees performing at the desired levels.

Keywords

short-term incentives (STIs), variable pay, rewards, compensation, motivation, productivity

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the current buzz terms is high-performance work culture, which suggests optimal productivity in terms of delivery of goods or services. With respect to the term culture, Marquez states that company executives attribute their success to a “corporate culture based on using positive strategies to motivate employees and then rewarding and celebrating their victories.”1 He further opined that a corporate culture “rooted in kindness and positive feedback can make compa-nies winners in the cutthroat world of business.”2

That argument focuses on the business of workforce motivation and rewards within the right type of organiza-tional culture as a strategy for business success. Specifically with regard to organizations offering services, there is also the belief that “Front line employees . . . often have signifi-cant autonomy and responsibility for providing their firm’s services to clients.”3 It is therefore seen as critical to moti-vate these workers with the objective of improving orga-nizational performance.

A number of theoretical models have been developed by researchers linking incentives to behavioral outcomes and explaining the psychological mechanisms governing behav-ior. Kroumova and Lazarova, assert that existing models share important similarities in advocating that “ financial participation . . . is expected to influence employee attitudes (commitment and involvement), and thus have an effect on employee behaviors (performance, cooperation etc).”4 At the same time, it is advanced that for these positive behav-iors to emerge, certain management practices need to accompany the incentive plan, such as employee empower-ment and information sharing, as well as other management practices that clarify and strengthen the link between indi-vidual performance and organizational performance.5

This viewpoint serves as a launching pad for the dis-cussion in this article about the effectiveness of STIs, as well as the policies and processes governing their man-agement. It is important to reiterate that there are strong arguments for and against the use of incentives as motiva-tional tools. Whichever side of the debate one wishes to accept, organizational reward systems have their genesis in motivation.

Richard Henderson differentiates “content” theories from the “process” theories of motivation. The content theories focus on “the needs individuals attempt to satisfy through various kinds of actions or behaviors,” which underscores the basic definition of motivation.6 This defi-nition sees it as a path through which individuals are seek-ing to satisfy a need that is possibly induced or brought about by an incentive. Among the notable researchers of the content theories are Abraham Maslow, Frederick Herzberg, Edward Deci and Edward Lawler. Some of the arguments that have been put forward by those research-ers are that there are both intrinsic and extrinsic motiva-tors; satisfaction is highly individualistic and situationally based; and incentives must bear a strong relationship to

the “work performed, behaviors demonstrated, and results achieved” because, if not, they can become demotivators instead of being positive motivators.7

The process theories of motivation expand on the con-tent theories and have been accepted by both behavioral science researchers and reward system designers. The acceptance of the process theories lies within their implicit recognition of motivation as a process with identifiable and potentially observable parts. Among the process theo-ries are expectancy theory, operant conditioning and rein-forcement theory. The expectancy theory, developed by Victor Vroom, is the most widely accepted of these theo-ries. It attributes an individual’s behavior to the anticipated or expected consequences resulting from a certain action. Two main assumptions underlie the theory: (a) individuals have choices among possible responses and (b) behavior is directed toward pleasure and away from pain.8

Another researcher, B. F. Skinner, developed the con-cept of operant conditioning.9 This concept sees operant or learned behavior being not only a function of its con-sequences but also being directed, shaped and changed by circumstances in the environment. The concept was developed further by other researchers into the reinforce-ment theory, which focuses on “the relationship between the target behavior (e.g., performance) and a motivational tool” (e.g., pay for performance) and is premised on the principles and techniques of organizational behavior modification.10

Organizational behavior modification is a framework within which employee behaviors are identified, mea-sured and analyzed in terms of their functional conse-quences, and intervention is developed using the principle of reinforcement.11 Additionally, Henderson identified the four reinforcement approaches used to achieve desired behavior as positive reinforcement, punishment, negative reinforcement and extinction.12 STIs are designed to fos-ter positive reinforcement; therefore the other approaches are not pertinent to this discussion. The arguments for and against the use of incentives follow.

Arguments Against the Use of IncentivesStrickler, who is among those arguing against incentives, describes the reward–motivation relationship as “subju-gation in return for safety” and calls it a bad deal where “workers give up their freedom for money.”13 It is seen as leading to a deteriorating state of affairs where work-ers resent their supervisors and do less and less work but expect rewards in return. Rosenzweig, too, thinks that it is highly debatable that a generous employee reward system will yield better business performance.14 Alfie Kohn, who has been one of the main opponents of organizational reward systems, calls the thinking “pop behaviorism,”

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256 Compensation & Benefits Review 44(5)

which essentially states, “Do this and you will get that.”15 He sees the practice as based on misleading assumptions and generating behaviors that are “intrinsically objec-tionable and counter-productive.”16

Kohn contends that there is “uncritical allegiance to the use of rewards” and if one truly gets into the mechan-ics of reward systems they are not sustainable for a num-ber of reasons.17 Rewards and punishment “not only lie at the core of faith, but are central to our idea of rationality as well, particularly as it makes its presence felt in eco-nomic choices.”18 This means that rational decision mak-ers by definition will naturally seek what is pleasurable and avoid what is painful or costly.

This reasoning is seen as the coming together of behavioral psychology and orthodox economic theory. Among the common features to both disciplines is the assumption that the “reward-seeking/punishment avoid-ing” impulse that drives our behavior is necessarily and exclusively dictated by self-interest. The older model of this is the “carrot-and-stick” model of motivation, which is deemed to generate immediate and short-lived responses. Kohn says that most people are raised that way and find it easy to pass it on to others with the hope that it will have a longer term effect on behavior.19 Crano, who is also an opponent of the use of incentives, stated that the “apparently obvious connection between incentive and performance is just that—apparent, not real.”20 He felt that when the necessary assumptions that mediate the effects of financial incentives on behavior are inspected closely, “the difficulty of the transposition becomes clear.”21 His argument is that while the evidence suggests that monetary incentives appear easy to manipulate and control and their influence can extend across a number of crucial performance dimensions, in actuality it is a far more complex process than meets the eye.

Johnson and Dickinson add another negative aspect to the reward-motivation relationship. Their study focused on employee-of-the-month (EOM) programs, which are expected to “give credit to deserving individuals, boost morale through symbolic rewards and motivate excel-lence by providing positive examples for other employees to emulate.”22 They conclude that the EOM incentives are based on results, without consideration for the behaviors that may have produced those results. As such, they con-tend, employees may be engaging in undesirable behav-iors to produce the results, including unethical or illegal behaviors.23 Behavior described as sabotage was seen as a common temptation and thus an aspect of EOM programs. This means a contender might engage in activities that will worsen the appearance of another employee’s efforts in order to improve his or her own chance of obtaining the desired outcome. This type of behavior is usually done covertly, hence will go undetected and unpunished by supervisors. Therefore, undesirable behavior may be

rewarded and desirable behavior may be neglected under the program.

Part of the reason for this is, Johnson and Dickinson believe, the structure of EOM programs, in which the win-ner takes all. The actual competition for an indivisible prize may be unhealthy and counterproductive for the organization. They therefore believe that the winner-take-all nature of the competition is its worst aspect in that many employees end up not being rewarded despite potentially small differences in performance.24 Additionally, even if sabotage does not occur, there is a high probability that some desirable behaviors are being unduly neglected.

In concluding those arguments from the opponents, two sets of viewpoints are outlined, which are deemed to be essential for understanding the reward–motivation relationship. Ellingsen and Johnnsen, proposed a model of motivation that is consistent with McGregor’s Theory Y, which sees individuals as innately responsible, honest and creative who will respond positively when treated well.25 Their view is that the principal–agent relationship is based on reciprocity. This is essentially saying that, being social animals, people’s altruism or spite is influenced by their social esteem and also by their beliefs about their opponents. Using that premise for the motivation–reward relationship, they believe that “the principal’s [employer’s] choice of incentive scheme wholly or partly reveals the principal’s character to the agent [employee], thereby affecting the agent’s esteem for the principal.”26 Moreover, “the agent’s [employee’s] behavior in response to an incentive reveals the agent’s character to the principal, affecting the principal’s esteem for the agent.”27 In other words, people care relatively more about the approval of those that they themselves approve of. This viewpoint suggests that ultimately the response to rewards is not really based on the reward or program itself but rather is determined by people’s views about each other.

This focus on individuals’ behavior as social animals, with respect to their response to motivational tools, was also examined by Rynes, Gerhart and Minette.28 Their study revealed that people are likely to do or say what is socially acceptable and hence will say one thing but do another in keeping with socially desirable responses. This behavior pattern, they believe, accounts for people down-playing the importance of pay as a motivational tool. Their research indicates that pay is much more important in people’s actual choices and behaviors than it is in their self-reports of what motivates them.29 This they believe is because social norms view money as a less noble source of motivation than factors such as challenging work or work that makes a contribution to society.

Their review of the research, however, reveals that “no other incentive or motivational technique comes even close to money with respect to its instrumental value.”30

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These innate human tendencies that influence people’s responses to rewards cannot be ignored in a discussion on factors that will stimulate or motivate employees to per-form at high levels. In seeking a better understanding of the relationship, Kohn captures it well in saying that “we need to look at the intention of the rewarder, the percep-tion of the rewardee, and various characteristics of the reward itself.”31 Yet he believes that all rewards, by virtue of being rewards, “are not attempts to influence or per-suade or solve problems together, but simply to con-trol.”32 Therefore, “if a task is undertaken in response to a contingency set up by the rewarder, the person’s initial action in choosing the task is constrained.”33

These latter arguments about social behavior point to one of the main issues governing rewards: Do they lead to only temporary change or can they bring about lasting change? Kohn critically advocates that “rewards must be judged on whether they lead to lasting change—change that persists when there are no longer any goodies to be gained” and argues that they cannot.34 If, therefore, as Kohn contends, the main intention of the rewarder is to find ways and means to control people, the system will not be sustainable, because by its very nature “it is inimi-cal to democracy, critical questioning, and the free exchange of ideas among equal participants.”35 In spite of these strong arguments against them, hope springs eter-nal, and there are equally robust arguments in favor of incentives, as outlined in the next section.

Arguments Supporting the Use of IncentivesAccording to Henderson, “with ever-increasing employer interest in controlling labour costs, the use of STI schemes or variable pay for employees at all levels in an organization continues to receive greatly increased interest and attention.”36 STIs is one component that usually form part of a comprehensive compensation package comprising base pay, STIs, long-term incen-tives, perquisites and benefits. Not all components of the package will purposefully apply across the board to all categories of employees. STIs can be applied to all employees. They are add-ons to base pay within the cur-rent operating year. (An expanded definition of STIs is in the Study Design section.) STIs can take a variety of forms, which practically allows any organization to be able to offer one or more of these incentives. The four levels at which STIs may be offered are the following: individual employees; teams of various sizes and con-figurations; departments, divisions or other types of work units; and organization-wide. Henderson advises that one of the secrets in designing STI schemes is to know when to provide an incentive for individual effort and when to provide incentives for a group.37

It is important to note here that this article seeks to examine the business of incentives not as an end in itself or just for the benefit to individuals, but as an investment based on an expectation of gains that the organization will make as a result of that investment. Boachie-Mensah and Dogbe, in emphasizing the need for strategies to keep up with the competitiveness of the current business envi-ronment, state that “the potential to influence employees’ work attitudes and behavior, and subsequently the pro-ductivity and effectiveness of the organization, is . . . why many people believe that pay decisions can become a source of competitive advantage.”38 Wolf and Zwick fur-ther state that:

although changes in the work organization during the last decades are diverse and difficult to sum-marize by a few key concepts, there has emerged an agreement that employee involvement and mon-etary incentive systems are important measures in modern personnel management.39

Additionally, Zingheim and Schuster see pay and other rewards as a powerful way to help communicate business directions and values and for linking goals and results to workforce efforts.40 They see STIs (or variable pay) as “flexible, agile, adaptable, responsive and capable of rewarding a combination of individual and collaborative results, as well as focusing on a host of measures and goals, from financial to strategic.”41 The above arguments are strengthened by the view that not only do employees con-sider compensation as a return for services rendered but they further see it as a reflection of their personal worth in terms of skills and abilities, as well as the education and training that they have acquired. Against that background, McCoy’s reminder is useful that the “potential for employ-ees to affect overall performance is the single largest com-petitive asset that a company has.”42

Further, on the side of the organization, according to Henderson, if a higher level of competitiveness is to be achieved, the traditional employee mentality of “I’m owed it” has to be changed to “I earned it.”43 Hence, in linking the importance of compensation to the individual with the organization’s need for competitiveness, it is advanced that a major opportunity available to organiza-tions to bring about this change in attitude is through the use of incentives in pay-for-performance programs. The incentives or rewards must, however, be linked directly to the desired employee behaviors, contributions or results achieved. McCoy sees the change thus: “Instead of hav-ing a closed view of competitive equity, incentive com-pensation presents a business strategy of competition not only for labor but for the customer.”44

Evidently, it is a quid pro quo relationship, which states that when employee effort yields the desired (or

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better, unexpected) growth and other gains, then those gains will be shared among all those who made it happen. When properly designed and administered, incentive pro-grams are expected to relate to an entirely different set of behavioral factors than do mere wages and salaries. McCoy views behavior-based compensation as a better way of dis-tributing compensation funds, because it is based on per-formance improvement and is contingent on results.45 He adds that changing this approach to compensation changes the employment relationship into a partnership, which brings a new set of psychological elements into play.46

These elements are the motivational tools that differ-entiate incentive compensation from the traditional approaches to compensation. In this approach, behav-ioral psychology’s motivational tools are combined with incentive compensation’s reward mechanisms. McCoy posited that incentive-based compensation plans, prop-erly designed and implemented, are effective because they tap into the basic desire to participate and contribute that exists in each of us.47

Along the lines of the desire of humans to contribute, which again is in keeping with Theory Y, Harari identi-fied a generic performance equation, which states that “performance equals ability × motivation.”48 He added that since the equation is multiplicative, a high level of one factor cannot compensate for a low level of another. The formula was subsequently updated with respect to managers adding the component of accuracy of role per-ception. This role perception is essentially an individual’s understanding of the specific contribution that he or she is expected to make toward enhancing the work process. The revised formula Harari used is “performance = abil-ity × motivation × accuracy of role perception.”49 That formula is being extended in this discussion to all employ-ees because of the definition of accuracy of role percep-tion. Essentially, those individuals who possess accuracy of role perception strongly believe that it is their respon-sibility to plan and act proactively in the face of chal-lenges, and they characteristically

do not cling to behaviors and decisions that may have led to success in the past but are no longer relevant, do not shirk from challenging sacred cows, do not procrastinate about embarking on paths that may be uncharted, are not squeamish in committing to tenacity and persistence, even in the face of organizational lethargy and resistance.50

What more could an organization desire by way of employee performance? It may be that such individuals are intrinsically (self-) motivated and do not need induce-ments, but using the old adage that “reward sweetens labor,” it is advanced that there is something to be gained from providing some kind of extrinsic stimulus. In fact,

Henderson asserts that to have true motivational value, incentives should be compensation components designed to recognize contributions considered to be beyond the call of normal duty assignments.51 These contributions require extra intellectual, emotional and physical efforts, and by stimulating the kind of extra effort described, incentives will lead to improved individual and team per-formance, which in turn results in increased work unit and organizational productivity.

It is also well known that productivity improvements result in increased and improved output, lower costs and higher profitability, among other organizational gains. The underlying partnership philosophy is emphasized when employees share the gains or profits, strengthening the employment bond and even leading to higher levels of trust. Higher levels of trust should then result in higher lev-els of involvement and commitment. In clear opposition to Kohn’s views, Henderson states that the message sent by the incentives is “Your contribution is essential to our suc-cess and, and here is a thank you from the organization.”52

It is further advocated that group incentives can yield even greater advantages by generating positive attitudes such as job satisfaction, commitment and team spirit if employees value the expected incentive reward and believe that they can attain it, if they perceive the incen-tive plan as fair and if they are involved in decision mak-ing.53 Henderson strongly supports organization-wide incentives, describing them as “possibly the easiest kind of incentive program to implement.”54 The philosophy underlying that type of incentive plan is that profit shar-ing and cost reduction are opportunities and should be the responsibility of every member of the organization. Group incentives give sections of, or better yet the entire workforce, a chance to share the attendant performance-related gains with the employer.

Finally, Kroumova and Lazarova see the use of incen-tives as part and parcel of a suite of strategic HR practices. By aligning HR practices, organizations can create mutu-ally reinforcing conditions that will support employee motivation and concurrent skill acquisition.55 They identi-fied “employee voice,” information sharing and training as complementary to company-wide incentives. Ostensibly, this suggests that the incentives by themselves will not likely have the potential impact on performance. They see the need for complementary practices through “co-occurrence and reinforcement.”56

This means that a number of mutually reinforcing pro-cesses must be actioned at the same time (which include the use of STIs) to yield the desired productivity outcome(s).

Study DesignThe study’s primary objective was to identify the types of incentives that exist in Jamaica’s hotel industry and to

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ascertain the linkages, if any, between STIs and levels of employee motivation, with a view to identifying appro-priate organizational practices that can stimulate higher levels of productivity. The study employed a mixed-method research of both quantitative and qualitative data collection that used two survey instruments and inter-views with senior hotel and tourism officials. A mix of measures and a summary of attitudes and opinions were also used in an inductive way to influence theory with respect to the Jamaican situation.

In the study, over 900 employees of all categories were surveyed at 50 hotel properties in Jamaica. Interviews were conducted with property owners, managers and tour-ism officials to gain a working understanding of the nature of the industry, especially with regard to the main com-petitiveness “ingredients.” Hotels of different sizes and product category across the island were included in the survey to ensure that (a) as many of the incentive systems currently in use were examined and (b) a wide cross sec-tion of the workforce was covered. The 50 hotel properties that participated in the survey were categorized as small, medium, large and extra large as shown in Table 1.57

Table 1 also shows the breakdown of the participation level of each category of hotel against the total number of employees, plus the number of employees who were sur-veyed per segment. The hotel participation level was seen to be reflective of the property size makeup of the coun-try’s hotel industry. The basic criterion for participants was that they should be employed by one of the participating hotels.58 They were then randomly selected on their prop-erties based on their availability to participate in the exer-cise. This approach produced an overall 88.6% employee response rate or 907 respondents. From the industry target population of approximately 35,000 employees, the total employee response of 907 to the survey yielded a 3% to 4% margin of error, at the 95% confidence interval.

Additionally, using the information provided by the hotels on their organization structures and qualifications required for the various job levels, all the positions stated as being held by the employees at the various hotels were collapsed into 10 job categories. These categories are senior manager/executive, managerial, professional, supervisory, clerical administrative, operational (front of

the house and heart of the house), ancillary, casual tempo-rary, contractor and consultant. The six skill groupings that were used to determine the skills mix within the industry were the following: (a) Higher Professional/Executive, (b) Lower Professional/Managerial, (c) Highly skilled, (d) Skilled, (e) Semiskilled and (f) Unskilled. The frequency of responses regarding gender showed 61% female versus 39% male.59

It is important to mention that the study did not seek to ascertain whether employees were individually skilled enough to perform their jobs properly, nor was the con-nection between skills and motivation levels examined. That would require examination of the relevant indicators and variables as a specific exercise and was deemed beyond the scope of the study.

The focus of this study is employer determined and paid, job-related incentives awarded to individual employ-ees, or collectively to employee groups or to an organiza-tion’s entire workforce, based on performance targets. These targets or goals would either be set by prevailing organizational policy/practice or be specific to a particular program. Broadly defined, STIs include the following:

• Pay for additional units produced or work done• Individual-based bonuses and awards, for

example, suggestion plans, attendance, special achievement and contest awards

• Organization-wide STIs, for example, productiv-ity gain–sharing programs, profit-sharing plans

As stated earlier the incentives listed above may be applied to all categories of employees. It is worth men-tioning that some employers included premiums and dif-ferentials in their incentive schemes as “sweetners” to address extended or unorthodox hours of work, or peculiar circumstances related to some jobs. The latter are treated separately from overtime and holiday compensation stipu-lated by law.

Following on the above, the variables being exam-ined are (a) STI schemes, (b) employee motivation and (c) productivity (performance). The independent variables are (a) and (b), and the dependent variable is (c). This arti-cle seeks to establish whether or not there is a relationship

Table 1. Size and Level of Participation of Hotels and the Employee Respondents

Number of rooms Category No. of hotels % (Segment) of the 50 hotels No. of respondents per segment

10-100 Small 26 52 277101-300 Medium 14 28 271301-500 Large 6 12 224>500 Extra-large 4 8 135 50 100 907

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in the Jamaica hotel industry among (a), (b) and (c) and the direction of that relationship. Of necessity and relat-edly, selected intrinsic motivators and indicators of job satisfaction, as well as some industry-specific measures of performance (service quality), were also examined. As indicated in the theoretical overview, elements of the workplace environment other than compensation must be considered if levels of motivation are examined. The fol-lowing hypothesis is being used:

Hypothesis 1: The use of STIs tied to stipulated end results has motivational value for employ-ees, which will translate into improved individ-ual performance and/or workforce productivity levels.

Study ResultsKey findings of the study would be (a) the existence of STIs in the organization and (b) establishing a link between those incentives and motivation and between incentive-induced motivation and productivity. Other findings about performance-enhancing organizational elements such as communication, as well as employees’ levels of job satisfaction, were also useful.

The survey data revealed that 91.7% of the employees surveyed had received an incentive from either their cur-rent or their previous employer. The data also showed that the highest percentage, 36.9%, of employees fell in the 1 to 3 years of service category, followed by the under-12 months category with 23.6%, which means that some were not at their current place of work long enough to receive an incentive there. However, having received an incentive elsewhere meant that they could answer the survey questions.

Among the incentives that the respondents reported they received were tips from guests, gratuity payments from the company, productivity payments, EOM/quarter/year awards, profit sharing, attendance bonuses and most improved department award. Additionally, some listed health benefits, travelling allowances and educational benefits, which are not incentives by definition. In response to the question about the importance of those incentives, 97.7% of the employees responded (yes vs. no) that receiving incentives is important to them. The level of importance was also examined; this found 75.1% of respondents saying that receiving incentives is very important, with 20.6% saying that incentives are impor-tant. Table 2 shows the responses to the question on why receiving incentives is important.

The overall results show that STIs are highly valued by the employees. It is important to mention here that the hotel industry is usually characterized as a low-paying industry, because the majority of the jobs do not require a

high skill level.60 From the skills groupings used, the sur-vey showed that the largest group of employees, 35.4%, falls in the semiskilled group, followed by the skilled group, which comprised 30.8% of the workforce. The unskilled group was 2.6%, to yield a combined total of 68.8% of the workforce requiring basic technical skills and/or education up to the secondary level.

The employee and hotel surveys also sought to exam-ine the compensation issue in general. The answers to two of the employee questions are central to the findings. One result is that 78% of the respondents indicated that they would leave the hotel industry for better pay. The employees also indicated a number of other reasons, apart from better pay, for being on the constant look out for new job opportunities. Among these are the following: for personal development or career advancement oppor-tunities, for example, to travel the world (42.3%); shorter working hours (18%); better working relationships (13%) and better working conditions (12.5%). Additionally, the responses indicated that the two main attractions that would encourage them to remain in the industry are the love of the hospitality industry (32.2%) and the pursuit of a career path (33.6%). Another significant result is that from the seven reasons offered (see Table 3), 40.2 % of respondents indicated that, in their opinion, the most sig-nificant factor toward improving productivity in their industry is better compensation and benefits.

These responses validate the arguments presented in the literature review about individuals’ strong feelings about their level of compensation. Concomitantly, in the interviews, several owners and members of management as well as tourism officials cited the constant departure of their trained workers as one of the major employment challenges facing them. The main sources of competition they reported are the overseas hotels and cruise lines.

In seeking to link the variables incentives, motivation and productivity, the employees’ responses to the ques-tion “In terms of work effort, having received an incen-tive how motivated were you to work harder?” is

Table 2. Why Would Receiving Incentives Be Important to You? Please Choose All That Apply

It compensates me for the extra effort that I put in the job

30.8%

It is part of my wages/salary package so I need it

19.0%

I think I deserve it 17.6%It represents profit sharing by the company with the employees

16.9%

It is not part of my wage/salary package so it represents extra income

13.1%

Other, please specify 2.6%

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significant. The responses showed that 64.4% were very motivated, 30.9 % motivated and 4.7% were not moti-vated at all, from an overall 91.3% response rate. This would suggest that a prima facie case could be made that the hypothesis has been proven. Furthermore, 56.6% of the employees responded that they felt that the organiza-tion appreciates their accomplishments on the job. However, in seeking to incorporate the matter of rein-forcement, an interesting result is that whereas 66.1% of the respondents receive regular feedback from their immediate supervisor, 57.5% responded that their super-visor’s rating of their performance did not in any way influence the incentive they received.

Additionally, 93% of the employees responded that they like their current job for a variety of reasons, while 95% indicated that they like their current employer. With regard to the latter, the respondents were given the reasons listed below to choose from in a close-ended question:

The good reputation of the companyThe competitive wages paidThe good management–worker relationshipThe opportunities for personal growth and develop-

mentThe good relationship among the workersThe types of incentives paidThe beauty and location of the property

The responses showed the good reputation of the company, the opportunities for personal growth and development and the good relationship among the workers as the main reasons for liking their place of employment. However, when asked about why the place of employment is not liked, of those who do not like it, 54.1% indicated that the cause is the poor worker–management relationship. This response could be linked with the results in Table 3, which shows 16.5% and 17.5% (combined 34%) of employees citing better communication and labor/management relations, respectively, as key ingredients toward improving pro-ductivity levels.

Responses to the hotel survey were equally insightful. Of the respondents, 83.8% indicated that their organiza-tion uses incentive scheme(s) in an effort to increase employee output, with 88.9% indicating that the incen-tives are over and above basic wages or salaries. When asked to list the incentives offered, a plethora of incen-tives (mainly STIs), allowances and benefits were named, the latter indicating a lack of understanding by some hotels of the components of a compensation package. Their response to the categories of employees covered under the incentive schemes (in indicating that all levels of employees received incentive payments) corresponded with that of the employees.

The responses from both hoteliers and employees showed that the main incentive called “gratuity” (which is of course very short term), paid along with wages and salaries, is based on a government concession to the indus-try and is not tied to operational targets. For the other STIs, the hotels indicated the use of various payment intervals—daily, weekly, fortnightly, monthly, quarterly and annually. With regard to recognition programs, 52% of the hotels reported that they have an EOM program. From the list of schemes provided and some of the mea-surement methods used, it was evident that some of the STI schemes used measures that allowed the hotels to see the immediate impact on service quality.

The inadequate understanding of incentives, however, was also evident in the response to the question about the method(s) used to determine rewards, which included years of service, competence, qualifications and experi-ence. In seeking to ascertain that appropriate measures are being used, in response to a closed survey question the hotels indicated that fewer guest complaints, higher rates of repeat guests, less breakage, pilferage, waste and less absenteeism are key productivity measures. Of note is the general views by hoteliers that they believed their employees were handsomely rewarded when incentives and benefits were added to the compensation package. However, some of the HR personnel lamented that they detected an entitlement and/or a “taken-for-granted” atti-tude by their workforce toward the incentives. There are therefore cases where some schemes were discontinued because it was felt that they were making no impact.61 In general, the hoteliers felt that their efforts should go a fair way in encouraging their staff to work harder and also remain with the organization. They were therefore bewil-dered about their staff choosing to leave at the first win-dow of opportunity, as they often experienced. Noteworthy too, in the hotel survey, in response to an open-ended question about the most significant factor toward improv-ing employee productivity in the industry, the highest percentage of responses (30.2%) pointed to better com-pensation, followed by good working environment and training (each at 13.2%).62

Table 3. What in Your Opinion Is the Most Significant Factor Toward Improving Employee Productivity in the Hotel Industry? Choose Only One From the Following List

Better labor–management relations 16.5%Better use of incentives 9.2%Better working conditions 12.0%Better compensation and benefits 40.2%Better communication within the organization 17.5%Better performance evaluations 3.2%Other 1.4%

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262 Compensation & Benefits Review 44(5)

Discussion

This section opens with a critical question in keeping with the title of the article: When does an organization adopt innovative HR practices that include strategic com-pensation? Is it to get out of a crisis, to keep pace with the competition, to get ahead of competition or just because it is in vogue? One proposition, which hopefully people are beginning to realize, is that pay in the current climate of organizational change, must be viewed as an investment that is closely linked to the success of the business, and therefore should play a much more significant role than in the past.63 Organization incentives are important because many tasks are “accomplished more effectively and quickly through the impetus generated by incentives.”64 However, when the terms motivation and incentive are used synonymously (with the relationship between these two powerful compensation elements being underval-ued), both terms are misconstrued. In that scenario, moti-vation is trivialized, and as a consequence the demands placed on incentives may be out of sync with organiza-tional reality.

Incentives must be used to build on employees’ exist-ing motivation, which drives them to stay employed and more so to succeed. Research results are yet to identify any motivational interventions that work better than per-formance-contingent pay for enticing people to achieve higher performance levels. Furthermore, Rynes et al. assert that the broad usefulness of money as well as its many symbolic meanings suggest that far from being a low-order motivator, pay can assist in obtaining virtually any level on Maslow’s motivational hierarchy, including social esteem and self-actualization.65 Pay can be regarded as a proxy of self-worth, and therefore a force as powerful as pay should not be trivialized.66 The key is to strengthen the link between “performance and rewards which can lead to increased feelings of empowerment by reinforcing feelings of competence . . .”67

Lamentably, according to Zingheim and Schuster, the potential positive value from variable pay is only partially being realized.68 What is even worse is that variable pay is so common that it sometimes becomes an HR project, with only the technical aspects of the pay design being emphasized, rather than being a message from the leader-ship team about the business importance of variable pay and business-aligned goals.69 Presumably, the underuti-lization or misuse of STIs has to do with wrong or inade-quate compensation philosophies or policies that ignore the fact that STIs are not gifts but rather require re-earning and attention to the goals for the next performance cycle.70 By its very nature, variable pay is not guaranteed, although organizations have allowed such programs to become entitlement, like base pay, as was lamented by some of the hotel executives in the survey.71

Key to the purposeful continuation of the incentive program is that communication does not stop with the rollout of the plan(s) but requires “on-going discussions about progress on variable pay goals and expands into education about the business . . . to stimulate everyone’s involvement in the business.”72 Gebauer and Lowman assert that employees are more inclined to give discre-tionary effort when “purpose and meaning infuse their day-to-day activities and long-term agendas making them active participants in the mission, not just passive players following orders.”73 If you fail as a company, they believe, “to understand what drives employees’ behavior, what makes people tick and what ticks them off, then you will fail to achieve the maximum return on investment in your people.”74 The disconnect between traditional compensa-tion practices and philosophies with what is required in this highly competitive globalized environment is per-haps best summed up by Kelly, who explained that in the past, “material demands and entrepreneurial instincts of workers have been ignored or suppressed with organiza-tions expecting workers to subordinate individual self-interest to organizational goals.”75 Companies must become adept at profiting “synergistically with the indi-vidual rather than at the worker’s expense.”76

Short-term incentives or variable pay has been a fea-ture of employee compensation for decades, but as shown in the Theories section, it has earned some justifiably harsh critics for the way these schemes have been exe-cuted. Wilson rightly blames company leadership for their schemes’ failings by concluding that “executives are attracted to incentive pay plans because they offer a method to reduce the fixed costs of compensation and make pay more variable.”77 While this may serve the executives’ interest in managing costs and is often a ben-efit of such programs, the philosophy may inherently establish a win–lose framework for the plan.78 As noted earlier in the article, the incentive plan needs to stimulate new actions by people in order to make the organization more competitive. This approach should yield a genuine win–win arrangement in which the company makes com-petitive gains and the employees not only benefit finan-cially but also feel more appreciated. Organizations should seek to “create reinforcers by which people learn, continue to learn, and strengthen the capabilities of the organization to meet ever-changing and challenging external situations.”79

On the matter of the types of rewards to use in order to ensure that they are motivational, Lawler cautions that a reward system that does not offer something of signifi-cant value is unlikely to be effective, even though mea-sures are in place.80 This means the designers of these programs must be cognizant of both the intrinsic and extrinsic motivational elements because they are impor-tant to determining how important a reward will be. For

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example, research shows that rewards that are in the pub-lic domain tend to be valued much more than those that are not.81

Furthermore, generally speaking, according to expec-tancy theory, people value amounts of money in proportion to the amount that they and others receive.82 Expectancy theory does not argue that individuals are motivated only by extrinsic rewards.83 To the contrary, it argues that indi-viduals may reward themselves for certain kinds of perfor-mance because they feel they have accomplished something that is worthwhile, have achieved a personal goal, have learned a new skill or were intellectually stimulated and excited. Thus, in the framework of expectancy theory, indi-viduals can be motivated both by organizationally given rewards and by intrinsic rewards they give to themselves. Importantly, it does not see a cancellation or interference effect between the two kinds of rewards. Rather, it argues that “the greatest amount of motivation is present when individuals are doing tasks that are intrinsically rewarding to them, when they perform them well, and which at the same time provide important financial and recognition rewards for their performance.”84

It is therefore asserted that the views of Kohn and other opponents of incentive plans essentially highlight bad management practices (which include the poor design of STI schemes). Clearly, the forces of globalization plus the new type of knowledge worker require constant review of all processes used to drive employee performance, chief among them compensation.85 However, research on the relationship between pay-for-performance programs, employee motivation and organizational productivity shows that pay-for-performance programs have little pos-itive effect when there is little trust in the organization and/or organizational communication is inadequate, among other deficiencies.86

Where problems such as inadequate communication, poor working relationships and absence of good values exist, incentive schemes cannot be used as a panacea for these organizational ills. Additionally, if a worker is incompetent or insufficiently trained or equipped, vari-able pay will only make a bad situation worse. In fact, those scenarios will almost guarantee that the goals will not be attained and the scheme will have a demotivating effect, giving fodder to the critics of these schemes.

Expectancy theory places great emphasis on the impor-tance of goals. Furthermore, research shows that when individuals commit themselves to a goal, they become highly motivated to achieve it because their self-esteem and self-worth get tied to accomplishing that goal. Of course, it is expected that individuals may also be moti-vated to achieve a goal because a financial reward is tied to it. The connection between performance and reward is often called the “line of sight.” Lawler suggested that per-haps a better term would be line of influence, because it

refers to the fact that in order to be motivated in an organi-zational setting, people must see how their behavior influ-ences a performance measure, which in turn drives the allocation of a reward.87 Expectancy theory also argues that if valued rewards are clearly seen as being tied to a particular performance behavior, the organization is likely to get more of that behavior. Unsaid but also important to remember is that if a particular behavior is not rewarded, the organization will get less of that behavior.

Deming lamented that that whereas people are born with intrinsic motivation, self-esteem, dignity and an eagerness to learn, “lousy pay and performance manage-ment strategies, as well as bad supervision and bureau-cratic administrative practices, crushes those traits by constantly judging people and replacing those traits with extrinsic motivation.”88 It is therefore advanced that a well-designed compensation program that is fully and properly aligned with an organization’s values and cul-ture can do wonders for self-esteem and an eagerness to learn, not to mention performance.

STIs can be used effectively as motivators particularly in times of organization transformation to hasten accep-tance of and commitment to change. However, the pro-viso is that STIs cannot define, drive or lead change. Neither can STIs establish values or replace effective leadership. It is therefore critical that those involved in the development of pay strategies also understand how work cultures are reengineered or transformed, and how compensation can effectively be linked to these change processes.89

To conclude this section, the matter of empowerment that has been alluded to is reemphasized. “Strengthening the link between individual performance and rewards can lead to increased feelings of empowerment by reinforcing feelings of competence and providing individuals with incentives for participating in and affecting decision-making processes at work.”90 This concept of empower-ment has even provided some clarity on the difference between individual versus organization-based incentives. Lawler believes that “whereas group rewards are effec-tive they do not always allow employees to clearly see the link between their actions, performance at higher levels and the subsequent reward,” hence the advantage of indi-vidual STIs.91 The matter of empowerment is also strongly advocated by Gebauer and Lowman, who have identified the five essential steps for an employer to engage their employees as knowing, growing, inspiring, involving and rewarding them, without which true work-force engagement will not exist.92

ConclusionHaving weighed the pros and cons of using STIs, the conclusion is that their use can be a robust organizational

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264 Compensation & Benefits Review 44(5)

strategy for motivating or stimulating higher levels of employee productivity. This conclusion is hinged on the assumption that pay (money) is important to individuals even when they pretend that this may not be the case. Further extrinsic motivators are practical and meaningful and are just as important perhaps sometimes more impor-tant than intrinsic motivators. It is also evident that incen-tives may be used to accomplish a number of things simultaneously, such as reducing overall compensation costs, linking employees’ personal goals to organiza-tional goals and strategies in a win–win partnership, communicating good values of profit and gain sharing and allowing organizations to link two critical organiza-tional elements that impinge heavily on competitiveness—transformation and compensation. However, the use of STIs as an end in themselves will not be effective for a number of reasons if used as a stand-alone policy. Among the reasons is that intrinsic motivators must never be ignored. There must also be careful design, execution and ongoing evaluation of incentive plans by knowledgeable (competent), perceptive and forward-thinking persons to minimize the possible negative aspects of these plans, such as sabotage. Summarily, best described as “co-occurrence and reinforcement,” as explained earlier, it is clear that the incentive plans are most effective when adopted as an ele-ment of an integrated strategy of mutually reinforcing HR practices, buttressed by strong organization leadership and robust management practices. An essential ingredient that cannot be overemphasized is ongoing communication. Without the right support systems, the STI strategy will lack momentum and may even have a demotivating effect.

Declaration of Conflicting Interests

The author declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author received no financial support for the research, authorship, and/or publication of this article.

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Bio

Jennifer E. Wynter-Palmer, PhD, CEBS, is a senior research fellow (associate professor) at the University of Technology/Jamaica Institute of Management School for Advanced Management. Previously she spent 17 years as an HR practitio-ner. She has a BA from The University of the West Indies; an MPA from Roosevelt University; an MSc from International HR Centre for Labour Market and Globalization, University of Leicester, United Kingdom and a PhD in social policy from the University of the West Indies, Jamaica. She has published a number of peer-reviewed journal articles and presented at con-ferences, workshops, guest lectures and training sessions both in Jamaica and overseas.

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