Rewards such as financial incentives and various others are predesignated strategies that managers and owners use in order to stimulate their subordinates to maintain or rather increase their level of productivity and value added to the firm.
The purpose of such occurrences is to implement certain policies and strategies that target to distribute rewards on a fair and consistent scale to the firm's employees (Armstrong & Murlis, 2007). Various companies use different approaches when it comes to their reward distributions to their employees.
Amongst the most common ones, Mowday, Porter and Steers (1982) state that reward systems in most cases influence the following:
Job effort and performance: by closely evaluating the employee’s efforts and also subsequently rewarding them accordingly, it can be a common belief that these rewards are a result of that employee's good performance
Retention and attendance: persuading or rather influencing the employee to maintain their current job status within the organization is also backtracked to reward system since the amount of rewards that the employee receives are considered that the company sees value in its employees and uses such rewards to still keep their desirable employees
Employee commitment: this goes hand in hand with the point stated above meaning that this time employee identifies that various rewards that are provided by the employer clearly state that the employer or rather a company is determined to keep its employees stationed within their respected organizations
The upper mentioned methods above clearly indicate the most common, obvious choices firms implement to further motivate their employees. While these might seem to be common-based, others take the principle of rewarding to a much deeper level.
Davoren (2019) indicates that there are more specific aspects that are commonly used within companies to tackle these occurrences:
Ownership and the ability to profit share: Owners and top-tier management are most commonly involved within the decision-making for any specific company. However, it can be motivational and beneficial for an individual given the fact the upper management offers him rewards based on profit sharing and company stock options. The employee sees that he is considered as a valuable asset to the company which leads to increased levels of efficiency
Employee’s needs: While financial-based rewards are greatly desired by every employee, there are also such needs that go beyond the financial ones. That is perfectly described by the Maslow hierarchy of needs (McLeod, 2007)
The hierarchy shows that an individual follows a hierarchical pattern of satisfying his individual needs. Only when an individual has “achieved” his basic needs such as physiological (food and water) and safety needs and later esteem (feeling of accomplishment), belongingness (friendships) and love can he move towards the highest part of the pyramid.
Self-actualization or rather achieving full potential and also included creative activities is directly connected to the initial problem of rewarding.
A firm must nurture the individual, obviously not directly following the upper pyramid, therefore guaranteeing and guiding him to remain a part of the firm by fulfilling his needs so that the certain individual can achieve his highest levels.
2.5.1 Effects of compensation in family-owned firms
Organizations consider the rewarding principle very seriously meaning that variations of reward systems vary from firm to firm, however there are many similarities in rewards based systems in comparison to non-family-owned firms stated above.
Table below shows us how these three categories which include individuals, groups and the entire organization differentiate among each other.
Figure 1: Effects of rewarding on individual, group and organizational level
Source: Lampinen (2014, p.20).
By carefully examining the table it is seen that some characteristics can be directly connected to the theoretical background mentioned in the previous sections of this chapter:
Individuals: proper reward techniques lead to an increase in individuals personal needs and desires (in accordance with Maslow’s hierarchy) which ultimately translate to various positives outcome for both the individual and organization as a whole such as commitment, motivation and others
Groups: reward systems enhance group in such a way that the present and future goals also enhance various characteristics such as developing a motivating environment, enhancing information sharing and performing in a more efficient way
Organization as a whole: combining individuals and group systems ultimately leads to that one, common goal that firms strive to achieve. By successfully implementing reward strategies along with individuals and teams within the firm they achieve their desirable
missions and goals, leaving the company to be evaluated as highly productive, having a good employer image and also strive to achieve the highest developments of firm performance.
2.5.2 Summary of the pre selected practies
There are several differences in family-owned and non-family-owned firms concerning the pre-selected categories stated at the beginning of the chapter.
Such theoretic practices will be connected to the empirical study which will serve as a foundation to the theoretical and empirical model presented in the continuous chapters.
Table 4 shows a summary of details and differences between family-owned and non-family-owned firms as stated above.
Table 4: Key differences based on specified processes
Family-owned firms Non-family owned firms Recruitment and selection Preferential treatment,
possibility of nepotistic selection
Recruitment based on a series of test, interviews
Employee evaluation Subjective based treatment Efficiency and productivity evaluations based on performance
Employee development Loyalty and appraisals, less prioritization on training and
Compensations Group based reward systems Key performance indicators via specific policies
Source: Own work.
The summary shows us that there is a clear distinction when comparing family-owned and non-family-owned firms. Obvious differences such as objectivity within all sub-categories show us that there is a clear, distinct presence of professionalism in non-family firms while on the other hand an obvious, subjective and nepotistic pattern in family-owned firms.