Employee incentive programs: do individual differences and trust in management influence their effectiveness?

Researchers into the effectiveness of incentive programs continue to report mixed results in employee performance following the implementation of these reward systems (Jenkins, Mitra, Gupta, & Shaw, 1998). In an endeavour to account for this range of outcomes, the studies in this thesis examine relationships between incentive rewards, employee individual differences and contextual influences, such and trust in management, as possible sources of additional variance. -- The thesis begins with a review of labour and capital relationships and the history and theory of compensation systems. The background of incentive and benefit systems and their theorised roles as employee motivators and productivity enhancers are then discussed. It is argued that despite their almost universal acceptance in industry as productivity enhancers, there is conflicting evidence as to the practical usefulness of incentive systems. Many researchers report inconsistent results regarding their performance with some finding they increase employee performance and others finding that they have the opposite effect. The basic argument of this thesis is that much of the variance observed following the implementation of incentive programs is a function of employee individual differences and contextual factors, which together either augment or detract from the effectiveness of incentive programs. -- The first study reported is a replication and extension of Furnham, Forde and Ferrari's (1999) work which hypothesised that people with different personality traits will react differently to different workplace motivators. A large sample of 942 supervisors, managers and professionals completed measures based on Herzberg's two factor theory (i.e., motivator and hygiene), intrinsic and extrinsic motivation orientations (the theorised equivalents of Herzberg's two factors), and the Big-Five personality dimensions. Results supported Furnham et al's (1999) hypothesis that personality does influence motivation orientation and thus lent support to my hypothesis that individual differences affect the way incentives operate. -- The second study builds on the findings that individual differences (personality traits) influence employee preferences for rewards and analyses the preference of employees with different personality traits, working within a number of contextual settings and from a number of backgrounds, for the most commonly used incentive programs employed in industry. Results from this second study support the notion that a portion of the variance in the efficacy of an incentive programs, observed by researchers and practitioners alike, is due to employee individual differences and contextual influences. It also lends support to the concept of abandoning a 'one size fits all' approach when implementing incentive programs. Theoretically, incentives are designed to improve employee productivity; the assumption being that the consequential behaviour will be increased performance. Based on a reading of recent literature, it is hypothesised that trust in management might mediate the effects of incentive rewards. Before testing this hypothesis a third study was conducted to examine the direct effect of trust in management on self-assessed performance. The main hypothesis of this study was that low trust in management would negatively affect self-assessed performance. The results confirmed the hypothesis and supported the work of other researchers who have demonstrated trust effects on employee performance and job satisfaction (Costa, Roe, & Taillieu, 2001; Dirks, 1999, 2000; Rich, 1997). -- The objective of the fourth study was to further explore the concept of trust and test the hypothesis that trust is a two dimensional construct, comprising two distinct factors: trust and distrust, (Lewicki, McAllister, & Bies, 1998), rather than a single construct ranging from low to high trust. Lewicki et al (1998) have argued that distrust has a signature which includes scepticism, cynicism and vigilance: characteristics suggested by some researchers as implicit in the reduction of reward effectiveness (Kohn, 1993). Correlational, factor and regression analyses were conducted in order to test the multidimensionality of Lewicki et al's (1999) constructs. The results of this study confirmed that under certain circumstances Lewicki et al's (1998) two dimensions of trust (i.e., trust and distrust) do behave as orthogonal variables. -- The fifth and final study tested the hypotheses that trust in management and management style (specifically transformational and transactional management styles), mediate the effect of an incentive reward. The hypotheses were tested using 1,230 employees from a wide range of industries in Sydney, Australia. The study's hypotheses were strongly supported, indicating that the effectiveness of an incentive reward system is mediated by trust in management and transformational management style, but not by transactional management style or distrust in management. -- The first chapter presents a thesis overview and includes a summary of the topics covered in each chapter together with a justification for the research conducted in this thesis.