THE EFFECT OF REWARD ON EMPLOYEE PERFORMANCE AT DAHABSHIIL

BANK - MOGADIHU

BY

ABDINASIR ABDIRAHMAN FIDOW

LC0004000576

A RESEARCH REPORT SUBMITTED TO THE FACULTY OF MANAGEMENT

STUDIES IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE

AWARD OF A MASTERS DEGREE IN BUSINESS

ADMINISTDRATION OF HORMUUD

UNIVERSITY IN

SOMALIA

i
 SEP, 2020

DECLARATION

I, Abdinasir Abdirahman declare that this is my original work and it was done to the best of

my knowledge, it has never been presented by anybody to any university or institution of

learning for any academic purpose.

Sign …………………………………

Date ……………………………………

ABDINASIR ABDIRAHMAN

ii
 ACKNOWLEDGEMENTS

I thank and praise “ALLAH” the almighty, the creator of the universe and the sustainer of life

who made my existence possible and chattered a life on me that has seen this work completed.

My sincere thanks go to the supervisor Mr. Abdi Siyad Abshir for his guidance through this

work. Thank you very much. May “ALLAH” reward you.

I am also indebted to my parents, brothers, sisters and relatives for the financial support in an

effort to attain a master’s degree and this report in particular. Also special thanks go to the staff

of Dahabshiil Bank for their effort in allowing me to conduct a study in their area.

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Finally, thanks go to my beloved father who played it well and gave me an Inspiration during the

period of the study especially in this report and those I cannot mention, thank you for the love,

care and support. May God reward you.

iv
 ABSTRAT

The study was intended to establish the relationship between reward management and employee

performance that was carried out at Dahabshiil Bank Mogadishu. The research was based on

five objectives;

1. To establish the different examples of financial and non-financial reward rewards at

Dahabshiil Bank.

2. To examine the factors that influence rewarding of employees in Dahabshiil Bank.

3. To establish the impact of rewards on employee’s performance in Dahabshiil Bank

The researcher would look into detail information on the three objectives in the literature

review.

ii) The researcher made the following recommendations as;

i) There should be equity systems of rewarding employees.

ii) There should be a pay for performance system of the rewarding staff.

iii) There should be a system of rewarding employees according to their level of

education that will spur the employees towards achieving the organizational goals.

iv) Job evaluation should be done first before the pay structure is determined.

v) The management of Dahabshiil Bank should consider the level of skills when

determining their pay systems

vi) The management should also reward according to the profitability of the organization.

v
 vii) There should be promotion of work force after they have attained new skills that will

improve on the employee satisfaction. The Researcher finally identified areas of

further research about reward management.

TABLE OF CONTENTS

DECLARATION..................................................................................................................i

APPROVAL........................................................................................................................ii

DEDICATION...................................................................................................................iii

ACKNOWLEDGEMENTS................................................................................................iv

LIST OF ACRONYMS/ABBREVIATION.....................................................................viii

LIST OF TABLES..............................................................................................................ix

ABSTRAT...........................................................................................................................x

CHAPTER ONE................................................................................................................1

INTRODUCTION.............................................................................................................1

1.0 Introduction...............................................................................................................1

vi
1.1 Background of the study...........................................................................................1

1.2 Statement of the problem..........................................................................................2

1.3 General objective of the study..................................................................................3

1.4 Specific objectives....................................................................................................3

1.5 Research Questions...................................................................................................3

1.6 Scope of the study:................................................................................................3

1.6.1 Geographical scope...............................................................................................3

1.6.2 The Content scope.................................................................................................4

1.6.3 The theoretical scope............................................................................................4

1.6.4 Time scope............................................................................................................4

CHAPTER TWO...............................................................................................................5

REVIEW OF RELATED LITERATURE......................................................................5

2.0 Introduction...............................................................................................................5

2.1 Theoretical frame work of the study.........................................................................5

2.3. Forms of rewards......................................................................................................6

2.3.1 Financial rewards..................................................................................................7

2.4 The factors that influence rewarding of employees................................................10

2.5 The effects of Reward on employee performance..................................................12

CHAPTER THREE.........................................................................................................14

METHODOLOGY..........................................................................................................14

3.0 Introduction.............................................................................................................14

3.1 Research Design.....................................................................................................14

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3.2 Area of the Study....................................................................................................14

3.3 Study population.....................................................................................................14

3.4 Sample size.............................................................................................................14

3.4.1 Sampling techniques..............................................................................................14

3.4.2 Sample selection.................................................................................................15

3.5 Data Collection…………………………………………………………………15

3.5.1 Questionnaire......................................................................................................15

3.5.2 Interviews............................................................................................................16

3.5.3 Observation.........................................................................................................16

3.7 Data Analysis.........................................................................................................16

3.8 Limitations of the study..........................................................................................16

CHAPTER FOUR...........................................................................................................18

PRESENTATION, INTERPRETATION AND DISCUSSIONS................................18

4.0 Introduction.............................................................................................................18

4.1 Bio data information...............................................................................................18

4.2 Research questions one: what are the different examples of financial and non-

financialrewards in local banks?........................................................................................20

4.2.1 Does payment wages in time reduces labor turnover of employees in local banks20

4.2.2 Is salary the most common method used to reward the employees at agency for

technical cooperation and development.............................................................................20

4.2.3. Does Profitsharing increase belongingness of employees at agency for technical

cooperation and development............................................................................................21

4.2.3 Commission increase efficiency of employees in agency for technical...............21

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4.2.4. Employee recognition increases productivity of employees in agency for technical22

Cooperation and development...........................................................................................22

4.2.5 Promotion increase career development cooperationt…………………………….23

4.3 Research questions two:what are the factors that influence local banks................23

4.3.1 Employer’s compensation policy........................................................................23

4.3.2 Ability of the employer to pay increase the productivity development..............24

4.3.3 Labor market conditions will entice workers to demand for more rewards.......24

4.3.4 Favorable wage rates increases labor l cooperation and development...............25

4.4 Research question three what are the impacts of reward....................................25

4.4.1 Does reward help in Achieving organization objectives of the organization.....26

4.4.2 Does reward Increase productivity of employees...............................................26

4.4.3 It Increase labor retention of employees.............................................................27

4.4.4 It improves the company image of the organization...........................................27

4.4.5 It Reduces stress at work.....................................................................................28

CHAPTER FIVE.............................................................................................................30

SUMMARY OF FINDINGS...........................................................................................30

5.0 Introduction.............................................................................................................30

51. Summary of findings..............................................................................................30

5.1.1 The different examples of examples of financial and non-financial rewards.....30

5.1.2 The factors that influence rewarding of employees............................................30

5.1.3 The impacts of reward on employee performance..............................................30

5.2 Conclusion..............................................................................................................30

5.3 Recommendation....................................................................................................31

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 REFERENCES..................................................................................................................32

APPENDIX 1:QUESTIONNAIRE...................................................................................35

LIST OF ACRONYMS/ABBREVIATION

PAYT Payment
FCM Factor Comparison Method
PRM Point Rating Method
IEP Internal Equity Pay
MGT Management
OPPS Opportunities
DEPT Department
GOVT Government

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LIST OF TABLES

Table 1: Showing sample population and size…………………………………………… 15

Table 2: Distribution of respondents by sex………………………………………………. 18

Table 3: Age of respondents …………………………………………………………….. 19

Table 4: marital status of respondents …………………………………………………… 19

Table 5: Responses indicating distribution of academic level of respondents…………….. 20

Table 6: Responses showing whether wages reduce labor turnover of employees in………20

Table 7 Responses indicating whether salary the most common method used to …………21

Table 8: Responses showing that Profit sharing increase belongingness of ………………22

Table9: Responses showing that Commission increase efficiency of employees in ……….22

Table10: Responses showing that Employee recognition increases the…………………… 23

Table11: Responses showing that Promotion increase career development of ……………24

Table12: Responses indicating whether Employer’s compensation……………………… 24

Table 13: Responses indicating Ability of the of employees at agency for technical …… 25

Table14: Responses indicating Labor market conditions will………………………………26

Table15: Responses indicating that Favorable wage rates increases labor retention of……26

Table 16: Responses indicating that reward helps in……………………………………… 27

Table17: Responses indicating that reward Increase productivity of employees …………28

Table18: Responses for the view that reward Increase labor retention of employees…… 28

Table 19: Responses indicating that improves the company image of the organization… 29

Table20: responses indicating Reduces stress at work…………………………………… 29

xi
 ABSTRAT

The study was intended to establish the relationship between reward management and employee

performance that was carried out at local banks Somalia. The research was based on five

objectives;

1. To establish the different examples of financial and non-financial reward rewards at local

banks.

2. To examine the factors that influence rewarding of employees in local banks.

3. To establish the impact of rewards on employee’s performance in local banks

The researcher would look into detail information on the three objectives in the literature

review.

iii) The researcher made the following recommendations as;

viii) There should be equity systems of rewarding employees.

ix) There should be a pay for performance system of the rewarding staff.

x) There should be a system of rewarding employees according to their level of

education that will spur the employees towards achieving the organizational goals.

xi) Job evaluation should be done first before the pay structure is determined.

xii) The management of local banks should consider the level of skills when determining

their pay systems

xiii) The management should also reward according to the profitability of the organization.

xii
xiv) There should be promotion of work force after they have attained new skills that will

improve on the employee satisfaction. The Researcher finally identified areas of

further research about reward management.

xiii
 CHAPTER ONE

INTRODUCTION

1.0 Introduction

This chapter presents and describes a background of the study, statement of the research

study, the purpose of the study, research objectives, research questions, the scope of the

study, and the significance of the study.

1.1 Background of the study

local banks are around 7 majorbanks in Mogadishu as of 2020 including the Centeral

Bank Of Somalia, Salaam Bank & Dahabshiil Bank.

Generally financial institutions play a vital role for development & employment, so it is

one of most priorities. financial institution is a term refers for the combination of banks,

remittances “Hawala” and microfinance institutions each of them plays an important

position for the process of development & job creation. Most of these Bank were created

in the last two decades.

Financial institutions become much more effectives and plays vital character for job

creation. In black continent Africa it’s same as the other parts of the world even if it’s less

developed and there is a lack of valuable financial institution which plays important part

for the job opportunities but in Somalia since the central government was collapsed in

1991 the overall job opportunites of the country was declined although financial

institutions especially the remittances “Hawala” take part in job creation growth in

Mogadishu and in Somalia generally.

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Historically in recent years the number of commercial banks in Somalia was massively

increasing, this encourages the habit of saving and investing and it increases the

liquidation and mobilization of resources in the market (Poutziouris, 2013).

Since the collapse of the Somali state and economy in the 1990s, Somalia has become

even more dependent on remittances from family members working abroad. Today,

remittances are by far the largest solitary source of hard currency entering the country,

and are vital to the country’s limited ability to feed and sustain itself. One study estimates

that remittances to Somaliland alone (which is home to about 1/6 of the total population

in Somalia, which is estimated at about fifteen million people) reach as much as US $500

million per year – two times the value of livestock exports in a normal year (Ahmed,

2000). Another study calculates that remittances constitute nearly 30% of the income of

urban households in the northern towns of Hargeisa, Burao, and Bosasso. Remittances to

southern Somalia are less well-documented.

Mogadishu is unquestionably the largest recipient of remittances; it probably accrues a

similar level of remittances as does Somaliland. In the town of BeledWeyn, with a

population of about 50,000, an estimated US $200,000 per month is received in

remittances, for a monthly average of US $4 per town dweller. Our best estimates are that

remittances nationally probably total somewhere between One billion to 1.3 billion US

dollars per year [ CITATION Aby16 \l 1033 ].

Microfinance institutions in Somalia Despite the many benefits, microfinance institutions

face a range of challenges that limit their reach, especially in predominantly Muslim

countries. One challenge is providing microfinance services under sharia, or Islamic law,

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which restricts the charging of interest for loans. Certain banks and microfinance

institutions started to provide microfinance service for poor people including Somali

Development and Reconstruction Bank and many others but the main challenge they face

was absence of proper functioning financial legal framework and lack of trust among the

beneficiaries.

Microfinance is already enabling some of the poorest Somalis to plan for the future and to

be more resilient to the shocks of conflict and famine. The expertise of companies like

Dahabshiil and their experience of working in such regions will be essential if these

innovations are to live up to their early promise [ CITATION Dua12 \l 1033 ]

Banks respects a strict policies impartiality and operates according to non-discrimination

and transparency principles.

Rewards have been looked at by different people, rewarding employees is seen as an

important function in almost all the organizations.

According to Dressler, (2006), reward refers to all forms of pay going to employees and a

rising from employment

Reward is the process of giving employees use full things like money, cars, free health

cards, job security and others because they have done something good for the

organization. (Riegel, Et al, 2002).

According to Fayal (as cited by Jones, et al, 2000), proposed reward system including

bonus and profit sharing plans, which are increasingly utilized.

3
According to Bureau of labor statistics, (2004), reward refers the all of the monetary,

non-monetary and psychological payments that an organization provides to its

employees.

local banks has two kinds of rewards. Extrinsic rewards, these are concrete rewards that

employees receive for example bonuses, salary raise, gifts, promotion and other tangible

rewards.

Intrinsic rewards. These give personal satisfaction to individuals for example feedback,

recognition and empowerment

According to Kerry (1995), he defined performance as the way in which an activity is

accomplished in a particular level of standards, to which a task is to be accomplished. It

is adapted, carried out, or achieved within the working environment.

The relation between reward and performance is that, individual workers tend to put more

effort in performing a task where they expect a reward. (Bohlander and Snell, 2004).

This is according to expectancy theory of motivation which is related to pay-for-

performance, which states that high performance should result in rewards that are

appreciated (valued), and there is instrumentality. It is therefore very important to have a

well-managed reward system in place because fair and reasonable reward is essential and

very important for good morale. Therefore organizations should consider equity theory

of motivation when rewarding their employees (have element of equity in their pay

system).

4
1.2 Statement of the problem

In most organizations, emphasis has been put on the improvement by the management on

the reward systems, but local banks has failed to do it to the expectation of the

employees, this was according to the arguments from two of the employees named

Mutegevu Jemimah and Ssenabulya Robert.10:30am on 20th March 2015

There appears to be mounting concerns that unacceptably high proportions of staff

working in business organizations in Somalia are poorly motivated due to a combination

of low morale and job satisfaction, poor incentives and Inadequate controls and other

behavioral sanctions.

Employers use pecuniary rewards for high levels of performance, usually defined in

terms produce outcomes on staff performance (Chamberlin et al 2002), it is expected that

without such rewards, employee’ s performance would be low. This has resulted into

high labor turnover, workers part timing as a means of topping up on the late coming,

lack of commitment to the job, dodging assigned tasks which consequently results into

poor performance and growth of the entire company. There is no study that has so far

been undertaken to establish the reason business owners in Mogadishu district usually

have a negative attitude towards rewarding staff for good work done and commitment.

This raises curiosity and hence the need to establish the effect of rewards on the

performance of workers at local banks.

1.3 General objective of the study

The purpose of the study was be to establish the relationship between reward

management and employee performance in local banks

5
1.4 Specific objectives

The following will be the objectives and under which the research will be carried out.

1. To establish the different examples of financial and non-financial rewards at local banks..

2. To examine the factors that influence rewarding of employees in local banks.

3. To establish the impact of rewards on employee’s performance in local banks.

1.5 Research Questions

1. What are the different examples of financial and non-financial rewards in local banks?

2. What are the factors that influence rewarding of employees in local banks?

3. What is the impact of rewards on employee’s performance in local banks?

1.6 Scope of the study:

1.6.1 Geographical scope

The study was carried out in Mogadishu district, country office Plot 1102,Nsambya Road

and this is because the researcher is more familiar with the area of study and due to the

easy access to the required information. The research will cover all the employees who

work in local banks.

1.6.2 The Content scope

The research was focusing on reward management and employee performance in local

banks. In other wards it will be carried out to establish the relationship between reward

management and employee performance only in that company.

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1.6.3 The theoretical scope

The study was to be guided by the expectancy theory by victor vroom that says that an

employee is motivated to put a high level of effort when he or she believes that it results

in to good performance appraisal which in turn leads to organizational rewards like

bonuses, increased salaries, promotion to mention but a few.

1.6.4 Time scope

The study was to be useful in finding how best the management of local banks can

reward its employees in order to improve on their performance and the study will be

conducted in one year from 2014-2015

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 CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.0 Introduction

This chapter was all about the review of the related literature and scholars` and

researchers` views and ideas elsewhere in the world about the problem under the study.

It is concerned with the theoretical frame work of the study, and the conceptual frame

work of the study. The literature review is very vital because it helps to investigate

further. The literature was mainly got from other secondary source of data as text books,

internets, and others.

2.1 Theoretical frame work of the study

This study was guided by the expectancy theory put forward by Victor Vroom. This

expectancy theory of motivation predicts that one’s level of motivation to work depends

on the attractiveness of rewards sought and the probability of obtaining those rewards.

Practically, expectancy theory says that an employee is motivated to exert a high level of

effort when he/she believes that it leads to good performance appraisal; that a good

appraisal lead to organizational rewards like a bonus, a salary increase, or a promotion;

and that the rewards satisfy employees` personal goals.

The theory therefore focuses on three relationships;

Effort-performance relationship; the probability perceived by the individual that exerting

a given amount of effort leads to performance.

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Performance-reward relationship; the degree to which individual believes that performing

at a particular level lead to the attainment of a desired outcome.

Rewards-personal goals relationship; the degree to which organizational rewards satisfy

an individual`s personal goals or needs and the attractiveness of those potential rewards

for the individual.

As applied to this research study the expectancy theory holds that, employees give

maximum effort if it is to be recognized in their performance appraisal; if good

performance leads to attaining organizational rewards; and they perform better when the

reward they get is valued by employees.

Expectancy theory has relationship with Pay-For-Performance model-which predicts that,

first high effort leads to high performance (expectancy): second, that, high performance

should result in rewards that are appreciated (valued).

The implication of the expectancy theory is that; managers should try to compensate

employees with rewards that are valued to them; this enables them to put more efforts

and hence improve on their performance.

However, the theory has some criticisms; it did not look at other factors that affect

employees` performance. Do not forget ability ad opportunity to perform; this is

according to Robin and Chris.

According to Robin and Chris, employee performance is a function of other factors, that

is, ability and motivation. That is, Performance = F (A x M). We need to add

opportunity to performance in the expectancy theory to our equation-Performance = F (A

9
 x M x O). Even though an individual may be willing and able, there may be obstacles

that constrain performance. (Robbins 1999).

The independent variable is reward, both financial rewards such as salary, wages and

allowances; and non-financial rewards (non-monetary) such as recognition and

promotion, and training. The dependent variable is performance which is a result of

rewards.

The reward management has an effect on employee performance. There are also

extraneous variables such as age, seniority, level of education and family background

which have also influence on employee performance. Extraneous variables exist in

between reward and performance.

2.3. Forms of rewards

According to Ivancevich, (2001), there are majorly two forms of rewards; financial and

non-financial.

2.3.1 Financial rewards

Financial reward is a reward given to workers in monetary terms such as wages, salaries,

bonus, commissions, allowances, awards and so on, which cover the basic needs of

income to survive, to pay bills and have a feeling of stability and consistency. In

Maslow`s hierarchy of needs, these are at the lower end. These could also be termed to

as extrinsic reward.

Most well know financial rewards include the following;

10
Salary: it is fixed payment to a worker made for a fixed period of time for his

performance in a given task. Mostly it is on monthly basis. (Byars and Rue, 1991)

Wage: it is payment which employees receive on accomplishing a given task. This can

be awarded on daily basis or weekly basis. (Byars and Rue, 1991).

Allowances: are financial rewards that employees receive due to work related disturbance

such as travel allowances, medical allowances, accommodation allowances, lunch

allowances, and others while on organization duty. (Schermerhorn, 1996).

Bonus: is a financial reward an employee receives on a special contribution of production

process for example over-work, extra task, attendance and others. (Bohlander and Snell,

2004)

Commission: is a financial payment given to employees based on a proportion to the

items he/she has sold or run. (Bartol and Martin, 1998).

Profit sharing: is a financial reward where a sum of money in form of profit is shared

among the organization and employees resulting from cost sharing gains. (Bartol and

Martin, 1998)

Incentives: are financial rewards given to employees for good and better performance

exhibited in organization. This is given to motivate workers do their work. (Byars and

Rue, 1991).

Piece work payment: Is money given to employee for the payment of the work done at a

unit cost example per hour. (Bohlander and Snell, 2004).

11
 A ward: is one of the time rewards received and it is tangible reward for good

performance employee for example house, car, television, laptop, and others. (Cole,

2002).

Objectives of providing financial rewards are to encourage employees to perform to their

best and this is probably the most well-known and longest enduring concept in the work

force.

Non-financial rewards

Non-financial rewards, called “benefits”, refer to that part of reward given to workers

which is in non-monetary terms. Non-financial rewards include health and life insurance

cover, retirement and pension plans, company car, health care, health club membership,

subsidized entertainment (movies, opera, museums), recognition of employee

contribution by given awards, feedback, abroad trips, delegating more responsibilities,

promotion, time off during show periods, staff parties outside of the office, gift

certificates, among others. (Stephen, 1996).

Many managers believe that people only work for money. However, it must be

remembered that there are other reward systems and recent research provided that many

employees work for other objectives other than money. Non-financial reward is the most

important of which is probably job satisfaction, a feeling of completing challenges

competently, enjoyment and even perhaps the social interactions which arise from the

work place. These are at the upper, self-efficacy end of the need hierarchy. We could

also call these psychological rewards. (Crant, 2006).

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While compensation provides strong non-financial rewards for employees to do their

best, people today join a company for reasons other than salary. They want to grow in

their careers. They want to know their efforts are appreciated. They want to know where

and how they can make improvements in their tasks. And they want to work with their

bosses as partners, rather than as subordinates. This is where the platform’s second leg

non-financial rewards come into play. (Campbell and Lee, 2009).

Employee recognition is one of the tools of non-financial reward. Reorganization is not

just a nice thing to do for people. Employee recognition is communication tools that

reinforces and rewards the most important out comes people create for their business.

When you recognize people effectively, you reinforce, with your chosen means of

recognition, the actions and behaviors you most want to see people repeat. An effective

employee recognition system is simple, immediate and powerfully reinforcing. (Adelaide,

2006)

Non-financial rewards are primarily centered on an employee performance appraisal.

This is different from the formalized annual or semi-annual performance reviews that

companies sometimes conduct to determine if a worker deserves a raise or promotion. In

today’s fast-changing business world, waiting six months to a year to provide feedback to

an employee is too long. Performance appraisal implies ongoing feedback; supervisors

need to provide their employees with frequent input, sometimes on a weekly or even a

daily basis. This feedback should include how well an employee is doing and potential

solutions to problems that the worker might experience and good performance record can

lead employees both financial and non-financial rewards. (Bhaskar, 1999).

13
 One important aspect of performance improvement is encouraging an increase in

employee skills and education. This idea of increasing a worker’s learning curve makes

up the third leg of the corporate platform, which is an intrinsic reward. Once upon time,

extra training or education outside of the workplace was at the discretion of the employee

(Scheer, 1969).

Many companies lend assistance by reimbursing the costs, especially if the education

directly impacted the job. Other firms went one step further, allowing employees time

off to attend workshop, seminar, or classes. In today`s reengineered, technology-filled

global business environment, more and more companies are taking over responsibility for

increasing the skill level of their employees. Training is one of the best non-financial

rewards. Employees ultimately helping companies become more competitive and

efficient. (Longneck & Nicole, 2004).

There are many non-financial techniques that motivate employees to do a good job for

the organization, some of them are; personally congratulating employees who do a good

job, writing personal notes about good performance, using performance as the basis for

promotion, publicly recognizing employees for good performance and holding morale-

building meetings to celebrate successes. These techniques along with others are not

only necessary from management. Peer initiated recognition is truly appreciated because

of understanding around the particular job. (AICPA, 2008)

2.4 The factors that influence rewarding of employees

Employer’s compensation policy :Most organizations set their compensation objectives

for example a company may wish to be the industry pay leader or seek to be wage

14
competitive, in that they strive to promote a compensation policy that is internally fair.

The company will establish numerous compensation that affect the pay employees

receive. As minimum employers should set pay policies reflecting

The internal relationship among jobs and skill levels

The external competition or an employer’s position relative to what competitors are

paying

A policy of rewarding employee performance.

Worth of the job: Organizations without formal compensation program generally base the

worth of the jobs on the subjective opinions of people familiar with the job. In such

instances pay rates may be influenced by the labor market or in case of unionized

employees by collective bargaining. Organizations with formal compensation programs

however are most likely to rely on a system of job evaluation aid in rate determination.

Employee’s relative worth :In both hourly and salary jobs, employee performance can be

recognized and rewarded through promotion and various incentive system (commission,

bonus). Superior performance can be rewarded by granting merit raise on the basis of

steps within a rate range established for a job class. If merit raises are to have their

intended value, however, they must be determined by an effective performance appraisal

system that differentiates those employees who deserve the raises and those who do not.

This system however, must provide a visible and credible relationship between

performance and any raise received.

Employer’s ability to pay: In the public sector, the amount of pay and benefits employees

receive is limited by the funds budgeted for this purpose and by the willingness of tax

15
payers to provide them. In the private sector, pay levels are limited by profits and other

financial resources available to employees thus an organization’s ability to pay is

determined in part by the productivity of its employees. This productivity is not only a

result of their performance, but also of the amount of capital the organization has

invested in labor saving equipment. Generally, increase in capital investment reduces the

number of employees required to perform the work and increase an employer’s ability to

provide higher pay for those it employs.

External factors

The major external factors that influence reward include

Labor market conditions: The labor market reflects the forces of supply and demand for

qualified labor within an area. These forces help to influence the wage rate required to

recruit or retain competent employees. It must be recognized, however, the counter forces

can reduce the full impact of supply and demand on the labor market. The economic

power of the union’s for example may prevent employers from lowering wage rates even

when unemployment is high among union members.

Area wage rates: A formal wage structure should provide rates that are in line with those

being paid by other employers for comparable jobs within the area. Wage surveys serve

the important functions of providing external wage equity between the surveying

organizations competing for labor market .When rates rise above existing area levels, an

employer’s labor costs may become excessive. Conversely, if they drop too far below the

level, it may be difficult to recruit and retain competent personnel.

16
 Cost of living: Because of inflation, compensation rates have to be adjusted upward

periodically to help employees maintain their purchasing power. Employers make these

changes with the help of the consumer price index (CPI).

CPI is the measure of the average change in prices over time in a fixed market basket of

goods and services. The consumer price index is based on price of foods, clothes, shelter,

fuels, transportation fare charges and prices for goods and services that people buy for

day to day living

Collective bargaining: One of the primary functions of a labor union is to bargain

collectively over the conditions of employment, the most important of which is

compensation. The union‘s goal in each new agreement is to achieve increase in real

wage. Wage increase larger than the increase in the CPI there by improving the purchase

power and standard of living of its members, This goal includes gaining wage settlement

that is equal if not exceed the pattern established by other unions with in the area.

2.5 The effects of Reward on employee performance

Negative effects of rewards

When the reward is unfair and lower than other market payment, employees develop

beliefs about what is a fair reward for one’s job contribution and compare their exchanges

with their employer to exchanges with other insiders and outsiders. If an employee

believes his treatment is inequitable compared to others, they reduce inputs, try to

influence managers to increase outcomes through complaints and grievances, they try to

influence co-workers` inputs and they criticize others` outcomes or inputs, with draw

emotionally-or physically (engage in absenteeism, tardiness, or quit) all these behaviors

17
can reduce the performance of the organization and reduce the level of productivity and

quality of product and services. It can also damage the name and image of the

organization. (Lawler, 2003).

Bad reward system can damage the health and wellbeing of the organization because if

the reward system of the organization regard unfair and lower than market standard,

employees’ unions can make strike and stay away from work or the government interfere

in the organization reward system (Beach, 1980).

Positive effects of rewards

Good reward system drive the business in the direction that is better, and assist in

achieving the kind of company performance that is desirable, this is when employees are

satisfied with the reward system and they can perform well and increase their

productivity using their potential talent. (Cania, 2009).

It is important that the aims of the organization and the expectation of the employees

should be integrated if a rewards strategy is to be a powerful mechanism in the

implementation of an organization’s Human resource strategy.(Blonder, 2005)

It can reinforce the aims and the objective of the organization and ensure that employees`

behavior is directed to their attainment. (Bacall`s, 2008)

Give clear messages about organizational culture and values particularly in terms of what

behaviors and actions are valued. (Power of Praise, 2001).

Good reward system encourage efficiency, effectiveness and high productivity and this

results into better and improved performance of the company (Bohlander, et al, 2001).

18
It increases the labor retention of workers in a way that employee are contented at their

work because they get rewards which make them to stay at work without moving for

search of new opportunities were they reward them better

It helps accompany to improves the public image of the company this because the

employees talk good about the company to the public and the name will be improved

It reduces stress of the employees they become stress free because there need are

chartered for needs by rewarding them better

It reduces labor turnover the moving of employees because of poor working condition

hence there is job security at the work

19
 CHAPTER THREE

METHODOLOGY

3.0 Introduction

This chapter presents and describes methods and techniques that were to be used to

collect and analyze data. They include research design, area of the study, study

population, sampling procedure, data collection instruments, research procedure, and data

analysis.(Morgan ,2007)

3.1 Research Design

The research was carried out using descriptive research design and the study was to be to

establish the effect reward on employee performance in local banks in Mogadishu.

3.2 Area of the Study

The study was to be carried out at local banks in Somalia, based at the capitol office in

Mogadishu.

3.3 Study population

The study sample will be selected and conducted among employees, casual workers,

leader and team leaders of local banks. In the study, the research intends to interview

employees and employers of local banks, with a total of 100 employee and employers

20
3.4 Sample size

local banks has a total population of 100 employees and a sample of 70 respondents will

be interviews, given questionnaire and at least all of them will return the questionnaires.

3.4.1 Sampling techniques

The study will involve a sample of 70 employees of local banks including 15 top

managers, 10 head of department 7 human resource support personal 68 Employees at

operation a level

3.4.2 Sample selection

Random and purposive sampling will be used in the deletion of respondents. This is

because it was not possible to reach out all employees in the in local banks banks.

Simple random sampling will be used to select employees of all departments who will

be willing to offer information. Purposive sampling will be conducted by top managers

who are heads of the department and will constitute of 70 respondents including both the

managers and employees.

21
 Table 1: Showing population and sample size.

Management Population Sample

Top Managers 10
Head of Department 10
Human resource support personnel 5
Employees at operational level 45
Total 70
Source (Morgan 2007)

3.5 Data Collection Instruments

Data collection instruments were basically to be questionnaires, interviews and

observation. The questionnaire will be administered personally by the researcher to the

respondents and they will be collected after time interval. The questionnaire will be

comprised of both open ended and close ended questions that will require respondents to

answer all the questions to the best of their knowledge. Interviews will comprise of both

structured and unstructured questions. Observation will also be used.

3.5.1 Questionnaire

Questionnaires by definition mean a set of printed questions addressed by the researcher

to the respondent for his or her to answer and after answering return the questionnaires to

the researcher. The questionnaires were to be administered personally by the researcher

to the respondents and collected after time interval. The questionnaire was comprised of

open ended and closed ended questions that will require respondents to answer all the

questions to the best of their knowledge.

22
 In this study, the researcher was to use questionnaires because they are cheap, quick,

cover many respondents, they are free from interview bias, plus giving accurate

information since respondents take their time to answer the questions. However, they

have a disadvantage of high rate of non-despondence.

3.5.2 Interviews

Interviews were also to be used in this study. Interviews were to be comprised of both

structured and unstructured questions that will be asked to respondents from local banks

and answers will be from those respondents. The interview will center on the effects of

rewards on the employee performance in local banks. In this study, the researcher use

interviews just because they encourage interaction between the researcher and the

respondents, there will be clarifications on some questions by the respondents, to mention

but a few.

3.5.3 Observation

In this method the researcher was to be just go at the site such that and saw the employees

of local banks as they were performing their duties. This will enable the researcher to

access and acquire the data without any interaction with the respondents. In this study,

the researcher will use observation because it enables the researcher to get data even

when the respondents are not co-operative.

23
3.7 Data Analysis

After data collection, only correctly filled questionnaires was to be be edited, coded and

analyzed by use of frequencies, percentages and then true findings will be presented by

using pie charts and tables.

3.8 Limitations of the study

As the study was conducted at local banks in Somalia, the researcher faced a number of

challenges and these included the following;

Question voidance was also a challenge since the researcher was familiar with most of

the respondents who could not to expose themselves to the researcher and this was solved

by the researcher picking at random without asking only those ones she was familiar

with.

Language barrier was also a problem due to the fact that the population at local banks is

multi-ethnic and this was solved by the researcher using English that’s well understood

by everyone in the company.

The researcher did not have control over the extraneous variables such as honesty of the

respondents, personal biases and the descriptive nature of the research design. For un

truthfulness where some of the respondents are expected not to say the truth, the

researcher probed the respondents further to establish the truth when it deemed necessary

and personal biases was also avoided by the researcher.

24
Most of the employees were too busy therefore less time was posed to the researcher and

this was solved by the researcher shifting her time table in order to suit in the time

convenient to the respondents.

Confidentiality; In that some information was not supposed to be disclosed to people

limited the study and this was overcome by the researcher probing the respondents until

the information needed was provided.

25
 CHAPTER FOUR

PRESENTATION, INTERPRETATION AND DISCUSSION OF RESEARCH FINDINGS

4.0 Introduction

This chapter presents the findings of the study and their analysis. The study was set out to

analyze the effect of rewards on employee performance at local banks

4.1 Bio data information

Below is the background information of the respondents described by frequency tables.

Table 9: Distribution of respondents by sex

Respondents Frequency Percentage

Male 39 55.72%
Female 31 48.29%
Total 70 100%
Source: primary data

From the table above of the 70 respondents interviewed 39 were males with a total

percentage of (55.72%) and 31 were females with a total percentage (48.29%) .

According to the table, men are more than women and this meant that local banks had

more male employees that female

Table 10: Age of respondents

Age bracket Frequency Percentage

26
Below 20 0 0%
20-35 41 58.57%
35-45 11 15.71%
45-55 11 15.71%
55 and above 7 10%
Total 70 100%
Source: primary data

The majority of the respondents were aged between (20-35) making a41 (58.57%)of the

respondents who participated in this study. This is because is the active age bracket of

work force in Somalia .there was a significant of 11(15.71%) of the respondents aged 35-

45years and 45-55 years There researcher was able to get relevant information from these

respondents because most of them were in the age bracket that needs serious training.

Also 7(10%) were above 55

Table 11: marital status of respondents

Marital status Frequency Percentage

Married 40 57.14%
Single 23 32.85%
Divorced 7 10%
Total 70 100%
Source : primary data

The table above indicates that of the 70 respondents, the majority were married. Actually

40(57.14%) of the respondents were married, 23(32.85%) indicated that they were single

and only 7(10%) indicate they were divorced. Therefore this indicates that Wakisodistrict

local government had more married employees as they believed to be serious with their

27
 tasks due to reasonability they in most cases hold. This is due to that fact age bracket of

respondents is 20 and above

Table 12: Responses indicating distribution of academic level of respondents

Educational level attained Frequency Percentage

O/A level 5 7.14%
Diploma and certificate 8 11.42%
Degree 38 54.28%
Post graduate 7 10%
Masters and above 12 17.14%
Total 70 100%
Source : primary data

4.2 Research questions one: what are the different examples of financial and non-

financial rewards in local banks?

4.2.1 Does payment wages in time reduces labor turnover of employees in local banks

Table 13: Responses showing whether wages reduce labor turnover of employees in local

banks

Response Frequency Percentage

Strongly agree 48 68.57%
Agree 0 0
Disagree 22 31.42%
Strongly disagree 0 0
Total 70 100%
Source: primary resource

From the table 6 above its clearly shown that the majority of the respondents 48(68.57%) agreed

with the view that wages in time reduce labor turnover of employees this implies that if workers
28
are paid or rewarded in time this will help them to carter for the needs which in turn makes them

to stay at work place not to go for search of new opportunities hence reducing labor turnover in

agency for technical cooperation and development. however 22(31.42%) of the respondents

disagree with the view

4.2.2 Is salary the most common method used to reward the employees at agency for

technical cooperation and development

Table 14 Responses indicating whether salary the most common method used to

reward the employees at agency for technical cooperation and development

Response Frequency Percentage

Strongly agree 45 64.28%
Agree 14 20%
Disagree 11 15.72%
Strongly disagree 0 0%
Total 70 100%
Source: primary resource

According to the results in table 7 above , major of the respondents 45(84.28%) agreed

with view that salary the most common method used to reward the employees at local

banks And only 11 respondents (15.72%) disagreed with the view

29
4.2.3. Does Profit sharing increase belongingness of employees at agency for technical

cooperation and development

Table 15: Responses showing that Profit sharing increase belongingness of

employees at agency for technical cooperation and development.

Response Frequency Percentage

Strongly agree 51 72.85%
Agree 7 10%
Disagree 7 10%
Strongly disagree 5 7.14%
Total 70 100%

Source: primary resource

From the table above 8, majority of respondents 58(82.85%) agreed that Profit sharing

increase belongingness of employees this implies that employees feel they are part of the

organization however 12(17.14%) disagreed with the view

4.2.3 Commission increase efficiency of employees in agency for technical cooperation and

Development

Table9: Responses showing that Commission increase efficiency of employees in

agency for technical cooperation and development

Response Frequency Percentage

Strongly agree 51 72.85%

30
 Agree 7 10%
Disagree 7 10%
Strongly disagree 5 7.14%
Total 70 100%
Source: primary resource

From the table above 9, majority of respondents 58(82.85%) agreed that Commission

increase efficiency of employees this implies that the employees will increase the

quantity of output because they get commission however 12(17.14%) disagreed with the

view

4.2.4. Employee recognition increases productivity of employees in agency for technical

Cooperation and development

Table10: Responses showing that Employee recognition increases the productivity

in agency for technical cooperation and development

Response Frequency Percentage

Strongly agree 45 64.28%

Agree 10 14.28%

Disagree 10 14.28%

Strongly disagree 5 7.14%

Total 70 100%

Source: primary resource

According to the results from the table 10 above ,55(78.56%) of the respondents agreed

that Employee recognition increases productivity this implies that employees when are

recognized at work they are motivated to work harder so that another party he or she is

31
 recognized again hence increase in productivity however 15(21.42%) disagreed with the

view

4.2.5 Promotion increase career development of employees at agency for technical

cooperation and development

Table11: Responses showing that Promotion increase career development of

employees at agency for technical cooperation and development

Response Frequency Percentage

Strongly agree 55 78.57%
Agree 10 14.28%
Disagree 5 7.14%
Strongly disagree 0 0%
Total 70 100%
Source: primary resource

According to the results in the table 4.2.5 65(92.85%) of the respondents agreed that

Promotion increase career development of employees this implies that if you are

32
 promoted it will give chance to explore more opportunities hence improving the career

through networking with big people at work (7.14%) disagreed with the view

4.3 Research questions two: what are the factors that influence rewarding of employees

in local banks

4.3.1 Employer’s compensation policy is the most common factor based to reward

employees

Table12: Responses indicating whether Employer’s compensation factor most

common policy based to reward employees

Response Frequency Percentage

Strongly agree 45 64.28%
Agree 10 14.28%
Disagree 15 21.42%
Strongly disagree 0 0%
Total 70 100%
Source: primary data

Finding form table 12 above , majority 55(78.57%) of the respondents agreed that

Employer’s compensation policy most common factor based to reward employees this

implies that it is an important factor that influences rewarding of employees because

companies have different policies but it must be favorable to employees 15(21.42%)

disagreed with the view

33
4.3.2 Ability of the employer to pay increase the productivity of employees at agency for

technical cooperation and development

Table 13: Responses indicating Ability of the employer to pay increase the

productivity of employees at agency for technical cooperation and development

Response Frequency Percentage

Strongly agree 64 91.42%
Agree 6 8.57%
Disagree 0 0%
Strongly disagree 0 0%
Total 70 100%
Source: primary data

Finding from table 4.13above, show that 70(100%) of the respondents agreed that Ability

of the employer to pay increase productivity this implies the ability of the employer to

pay wages is very vital it can based by employee to increase the productivity levels hence

it very crucial for employer to have the ability to reward his employees .However 0% of

the respondents disagreed with the view.

4.3.3 Labor market conditions will entice workers to demand for more rewards

Table14: Responses indicating Labor market conditions will entice workers to demand for

more rewards

Response Frequency Percentage

Strongly agree 60 85.71%
Agree 5 7.14%
Disagree 5 7.15%

34
 Strongly disagree 0 0%
Total 70 100%
Source: primary data

Findings from the table 4.14above, Labor market conditions will entice workers to

demand for more rewards65(92.85) of the respondents strongly agreed this implies that

workers will need more money to have a good living plus solving the need hence

demanding for more wages .However5(7.14) disagreed with the view

4.3.4 Favorable wage rates increases labor retention of employees at agency for technical

cooperation and development

Table15: Responses indicating that Favorable wage rates increases labor retention

of employees at agency for technical cooperation and development

Response Frequency Percentage

Strongly agree 60 85.71%
Agree 5 7.14%
Disagree 5 7.15%
Strongly disagree 0 0%
Total 70 100%

Source: primary data

35
 Findings from the table 4.15above, Favorable wage rates increases labor retention

65(92.85) of the respondents strongly agreed this implies that wage rate in the lobor

market for this company are enticing workers to stay because the psychological needs are

cared for .However5(7.14) disagreed with the view

4.4 Research question three what are the impacts of reward on performance of

employees at agency for technical cooperation and development

36
4.4.1 Does reward help in Achieving organization objectives of the organization

Table 16: Responses indicating that reward helps in Achieving organization

objectives of the organization

Response Frequency Percentage

Strongly agree 46 65.71%
Agree 5 7.14%
Disagree 10 14.28%
Strongly disagree 9 12.85%
Total 70 100%
Source: primary data

Finding from the table 4.16 above, shows that majority of the respondents 51(72.85%)

agreed that reward help Achieving organization objectives this implies that workers are

productive enough and are competent to achieve organizational objectives .However

some 19(27.14%) of the respondents disagreed with the view

4.4.2 Does reward Increase productivity of employees

Table17: Responses indicating that reward Increase productivity of employees .

Response Frequency Percentage

Strongly agree 50 71.42%
Agree 0 0%
Disagree 20 28.57%
Strongly disagree 0 0%
Total 70 100%
Source: primary data

37
 Findings from the table 4.17 above shows that majority of respondents 50(71.42%)

agreed with the view that Does reward Increase productivity of employees this implies

workers are motivated to worker harder thus increase in productivity. However

20(28.57%) disagreed with the view

4.4.3 It Increase labor retention of employees

Table18: Responses for the view that reward Increase labor retention of employees

Response Frequency Percentage

Strongly agree 1 1.14%
Agree 0 0%
Disagree 63 90%
Strongly disagree 6 8.57%
Total 70 100%
Source: primary data

From the table 4.18 above indicates that majority of the respondents 69(98.57%)

disagreed with the view that It Increase labor retention this implies that workers are

contented of the job and are secure of the job .However ,1(1.14%) of the respondents

agreed with the view .

4.4.4 It improves the company image of the organization

Table19: Responses indicating that improves the company image of the organization

Response Frequency Percentage

Strongly agree 4 5.71%
Agree 4 5.71%

38
 Disagree 10 14.28%
Strongly disagree 52 74.28%
Total 70 100%
Source: primary data

From the table 4.19 above , majority of the respondents 62(88.58%) disagreed with the

view that Improves the company image this implies that if you reward the employees

they will talk good about your company .However some of the respondents 8(11.42%)

agreed with the view.

4.4.5 It Reduces stress at work

Table20: responses indicating Reduces stress at work

Response Frequency Percentage

Strongly agree 15 21.42%
Agree 0 0%
Disagree 55 78.57%
Strongly disagree 0 0%
Total 70 100%
Source: primary data

From the table 4.20 above , majority of the respondents 55(78.57%) disagreed with the

view that It Reduces stress at work this implies that it workers need are cratered for like

basic need hence reducing stress 15(21.42%) agreed with the view .

39
40
 CHAPTER FIVE

SUMMARY OF FINDINGS

5.0 Introduction

This chapter summarizes the findings of study in relation to the objectives stated .The

summary of the objectives is presented under each objectives namely;

51. Summary of findings

5.1.1 The different examples of examples of financial and non-financial rewards

The summary of findings reveal out that the different examples of financial and non-

financial improve the performance of employees and the most common financial reward

is wages , they increase the productivity reduces labor turnover , reduces stress as

illustrated in the tables above in 6,7,8,10,11

5.1.2 The factors that influence rewarding of employees

The findings actually reveal that there are factors which influence rewarding of

employees and they are very vital to consider them like ability of the employer to reward

or pay his employees, employers compensation policy labor market , wage rates, and

many others as illustrated in above tables in 12,13,14,15

5.1.3 The impacts of reward on employee performance

The findings revealed that the main effect of reward to increase productivity and

achieving organizational objectives, reduce stress ,promotes labor retention as illustrated

in the tables above 16,17,18,19,20

41
5.2 Conclusion

Though rewarding of employees has been undermined by numerous organizations it has

been discovered that on top of cost reduction and customer satisfaction, rewarding

increases the productivity of employee in different assignments. This in turn creates

occupation latitudes of commitment, involvement and satisfaction among the

organizations human resources

Employee performance should not be attributed to other factors outside rewarding.

Before management evaluates the employees, it should ensure that the appraisers are well

trained and knowledgeable in the area of rewarding and are familiar with the system and

the rewarding system should be simple and easy to understand in other wards it should be

collective.

However, the effect of reward on employee performance at local banks since they lead to

efficiency in operation

5.3 Recommendation

The researcher recommends the following issues, which should be put into consideration

in order to improve on the effectiveness of the rewards in agency for technical

cooperation and development

The organization should explain more the kinds of rewards they give to the employees in

detail form so that employees understand them

The organization should also explain the reward policy clearly to the employees and

should be favorable to employees

42
The organization should increase the wages and salaries of workers which also improves

productivity

The organizations should not consider wages and salary also to use career development

as a way of motivating employees to improve their career

There should be equity systems of rewarding employees.

There should be a pay for performance system of the rewarding staff.

There should be a system of rewarding employees according to their level of education

that will spur the employees towards achieving the organizational goals.

Job evaluation should be done first before the pay structure is determined.

The management of local banks should consider the level of skills when determining

their pay systems

The management should also reward according to the profitability of the organization.

There should be promotion of work force after they have attained new skills that will

improve on the employee satisfaction. The Researcher finally identified areas of further

research about reward management.

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www.ccsenet.org/ijbm International Journal of Business and Management Vol. 8, No. 21;

2013

48
 APPENDIX 1:QUESTIONNAIRE

TOPIC: THE EFFECT OF REWARDSON EMPLOYEE PERFORMANCE

Dear respondent I am Namuyomba Leila (BHRM) from Islamic university in Somalia

Mogadishu campus. This statement design to facilitate collection of data on the effect

rewards on employee performance; a case study of agency for technical cooperation and

development. This is an academic study and all information collected shall be utilized

purely for this purpose. You have been carefully selected to participate in this study

because of your wealth experience in this area and your response will be handled with

utmost confidentiality. Thank you for taking time to record your insight on the subject

(Please you are kindly requested to put a tick where appropriate)

Back ground information

1 GENDER

Male Female

2 Age

Below 20 20-35 35-45 45-55 50 and above

3marital status

Single Married Divorced

49
4 Educational levels

O/A level Diploma and Degree Post graduate Masters and

certificate above

KEY FOR SELECTION B, C AND D

SA A D SD NS
Strongly agree Agree Disagree Strongly disagree
Part b the different examples of financial and non SA A D SD NS

financial rewards
1 Does wages payment of wages in time reduce labor turnover

of employees in agency for technical cooperation and

development
2 Is salary the most common method used to reward the

employees at agency for technical cooperation and

development
3 Profit sharing increase belongingness of employees at

agency for technical cooperation and development

4 Commission increase efficiency of employees at agency for

technical cooperation and development

5 Employee recognition increases productivity of employees
6 Promotion increase career development
Part c factors that influence rewarding
1 Employers compensation factor most common policy based

to reward employees
2 Ability of the employer to pay increase productivity
3 Labor market conditions will entice workers to demand for

50
 more rewards
4 Favorable wage rates increases labor retention
Part d the impact of reward on performance of employees

atagency for technical cooperation and development

1 Does reward help Achieving organization objectives
2 Does reward Increase productivity of employees in agency

for technical cooperation and development

3 It Increase labor retention
4 It Improves the company image
5 It Reduces stress at work

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