The Role of Employee Reward System

ABSTRACT
The study is set to investigate the role of employee reward system in an organization at MTRH. The objectives of the study are to examine various employee reward system used by MTRH, to establish the ways of managing employee reward system at MTRH, to determine how MTRH employee reward system has affected employees’ performance and to determine the challenges faced by MTRH in the management of its employee reward system.

The target population will constitute of the director, 7heads of department and 1622 employees. To select sample from the target population stratified and simple random sampling technique will be applied. The data will be collected through questionnaire and be analyzed through both quantitative and qualitative methods.

TABLE OF CONTENTS Page
DECLARATION………………………………………………………………………………i
DEDICATION………………………………………………………………………………...ii
LIST OF TABLES…………………………………………………………………………….v
LIST OF FIGURES…………………………………………………………………………..vi
LIST OF ABBREVIATIONS ……………………………………………………………….vii
DEFINITION OF TERMS………………………………………………………………….viii
ABSTRACT………………………………………………………………………………….ix

CHAPTER ONE
I.0 Introduction……………………………………………………………………………..…1
1.1 Background of the Study………………………………………………………………...10
1.2 Statement Of The Problem……………………………………………………………….15
1.3 Objectives of the Study…………………………………………………………………..16
1.4 Research Questions………………………………………………………………………16
1.5 Assumptions of Study……………………………………………………………………16
1.6 Significance of the Study……………………………………………………………..…...6
1.8 Limitations of the Study………………………………………………………………….17

CHAPTER TWO
2.0 Literature Review……………………………………………………………………...…19
2.1 Introduction……………………………………………………………………………....19
2.2 Past Studies done in the irea……………………………………………………………..19
2.2.1 The Modern Approach to Human Resource Manageme………………………………19
2.2.2 Compensating Employees……………………………………………………………...21
2.2.3 Calculation of Salaries and Wages…………………………………………………….26
2.2.6 Managing the Reward System of an Organization.........................................................28
2.2.7 Reward System and Employees Motivation………………………………………….29
2.2.9 Aims of Reward Management…………………………………………………………31
2.2.9 Types of Rewards Systems.............................................................................................31
2.2.10 Performance Appraisal and the Reward System……………………………………...34
2.2.11 Reward Strategy………………………………………………………………………35
2.2.12 Performance and Reward System…………………………………………………….38
2.2 10 Reward System and Corporate Strategy…………….………………………………..40
2.2.11 Characteristics of Good Reward Strategy…………………………….………………41
2,.2.12 Developing A Reward Strategy……………………………………………………...42
2.2.13 Factors that influence the Reward System……………………………………………47
2.5 Conceptual Frame Work…………………………………………………………………48

CHAPTER THREE 50
3.0 RESEARCH DESIGN AND METHODOLOGY 50
3.1 INTRODUCTION 50
3.2 THE RESEARCH DESIGN 50
3.3 TARGET POPULATION 50
3.4.1 SAMPLE SIZE 50
3.5 DATA COLLECTION INSTRUMENTS 52
3.5.1 QUESTIONNAIRE 53
3.5.2 INTERVIEWS SCHEDULES 53
3.5.3 DOCUMENT ANALYSIS 53
3.6 DATA COLLECTION PROCEDURE 53
3.7 VALIDITY AND RELIABILITY OF RESEARCH INSTRUMENTS 54
3.7.1 RELIABILITY OF THE RESEARCH INSTRUMENTS 54
3.7.2 RELIABILITY OF THE RESEARCH INSTRUMENTS 54
3.8 DATA ANALYSIS 54
REFERENCE 55
APPENDIX IQUESTIONNAIRE FOR KENYA PIPELINE COMPANY (KPC) EMPLOYEES I
APPENDIX III INTERVIEW SCHEDULE FOR KPC (ELDORET DEPORT) MANAGER XIX
APPENDIX IV DATA ANALYSIS FOR KPC XXI

LIST OF TABLES
3.4 SAMPLE SIZE AND SAMPLING TECHNIQUES 50
3.1: SAMPLING FRAME 52

LIST OF FIGURES
FIGURE 2.1 MASLOW HIERARCHY OF NEEDS 30
FIGURE 2.2 THE COMPONENTS OF TOTAL REWARD 30
FIGURE 2.3 REWARD SYSTEM AND PERFORMANCE 49 LIST OF ABBREVIATIONS
KPC Kenya Pipeline Company
HRM Human Resource Management

OPERATIONAL DEFINITION OF TERMS

Performance:

Reward system:

CHAPTER ONE I.0 INTRODUCTION
This chapter provides the basis of this study. It specifically covers the background of the study, statement of the problem, objectives of the study, research questions and significance of the study.

1.1 Background of the Study
The Moi Teaching & Referral Hospital started as a cottage hospital in 1920’s and has since evolved into a fully fledged referral facility with a bed capacity of 550. It incorporates the Academic Model for the Prevention and Treatment of HIV/Aids (AMPATH) and the Regional Blood Transfusion Centre (RBTC), Moi University School of Medicine and the school of Public Health. The Hospital has vision and mission statement that enable it to serve its clients with integrity and professionalism. The vision statements states that, to be an excellent referral centre in the provision of specialized quality healthcares, training, teaching and research. The mission statement states that, to provide accessible, specialized quality healthcare services and teaching facilities through research, training, capacity building, innovation and participation in national health planning, the study is set to investigate challenges of multi-direction communication at MTRH.
According to Okungu (2004) the company’s strategic objectives are:-maintaining of the pipeline integrity, enhancing the pipeline capacity, enhancing financial performance, utilize emerging technology to enhance performance, maintaining high operating standards .Develop and maintain motivated, skilled and competent staff and business diversification
To achieve the short and long term objectives the author mentioned maintenance of industry/ market competitive packages, as one of the strategies to be adopted by the company.

The Hospital has a well developed human resource department that is concerned with the attraction and retention of skilled committed and well- motivated workforce that an organization needs to realize its objectives. The departments other responsibility is maintenance of harmonious industrial and employees relations, a disciplined workforce and the development of sound human resource policies. According to Aswthappa (2002), over the last forty years or so, new techniques and styles of managing the human resources have been developed as a result of the researches and experiences in the field. The task of the HRM manger is not confined only to the recruitment of workers, but also to looking after their welfare and handling their grievances. This is on the basis of realization that the human capital is central in the development and implementation of the company’s strategy

Under the influence of technological development, organizational complexities are growing. The impact on the work, working methods, work rules, tools, equipment, etc. is inevitable. Jobs have become more complex and need a wider and specialized skills and professions.
There has been an increasing realization that the organization’s success is dependent on the synergy created by its human resources. Growth can only be ensured through appropriate collaboration and amalgamation of various personnel around organizational goals/tasks. It is, therefore, essential to create an appropriate work culture and ethos which would provide the impetus for achievement. This is one major tasks of any management. The concern for employees has given rise to the concept of Human Resource Development (HRD)

According to Graham, and Bennett (1998) the Human Resource Development (HRD) in the organization context refers to the process whereby the employees are continuously helped in a planned way to: acquire or sharpen capabilities required to perform various tasks and functions associated with their present or future expected roles; develop their general enabling capabilities as individuals so that they are able to discover and exploit their own and/or organizational development purposes; and develop an organizational culture where superior-subordinate relationships, team-work and collaboration among different sub-units are strong and contribute to the professional well-being, motivation and pride of employees.

According to Chhabra (2002) the cause of improvement in performance of employees is not a single factor like changing working hours rest or pauses, but a combination of these and other factors such as an effective reward system ,less restrictive methods of supervision ,giving autonomy to employees ,allowing formation of small cohesive groups of workers ,creating conditions that encourage and support growth of these groups ,and cooperation between workers and management . All these factors should be of major concern of the human resource management department

The key feature of behavioral science philosophy is that performance is directly related to workers individual and group feelings of morale and motivation and job satisfaction Graham et al (1998).

According to Armstrong (2005) employee reward system consists of an organization’s integrated policies, processes and practices for the rewarding it’s employee in accordance with their contribution, skills and their market worth. He further observed that it consists of financial rewards and employee benefit, which together comprise total remuneration. The system also incorporates non – financial rewards and in many cases, performance management process.

Reward management is concerned with the formulation and implementation of strategies and policies that aim to reward people fairly, equitably and consistently in accordance with their value to the organization. It deals with design, implementation and maintenance of reward practices that regard to the improvement of organizational, team and individual performance (Dessler, 2000).

According to Armstrong (2005) Reward management is an integral part of Human Resource Management approaches to managing people, and as such it: Supports the achievement of the business strategy, is strategic in the sense that it addresses long term issues relating to how employees should be valued for what they do and what they achieve, is integrated with other HRM strategies especially those concerning human resource development, aims at developing positive employees relationship and psychological contract, adopts a ‘total reward’ approach which recognizes that there are a number of ways in which people can be rewarded ,which embrace both the financial and none financial rewards and that all these need to be taken into account and integrated in order to maximize the effectiveness of the reward policies and practices, is based on a well articulated philosophy a set of beliefs and guiding principles that are consistent with the values of the organization and help to enact them, Recognizes that if HRM is about investing in human capital ,from which a reasonable return is required , then its proper to reward people differently according to their contribution (the return on investment they generate ), focus on the development of the skills and competencies of the employees in order to increase the resource based capability of the firm, it is an integrated process which can operate flexibly, supports other key HRM initiatives in the fields of resource development and employees relations
It is evident that there exist a link between compensation systems and employee’s performance and productivity. Prudent human resource mangers have to therefore address compensation from a perspective of ensuring performance and competitiveness of the organization.
1.2 Statement of the problem
Every organization has an obligation to offer reasonable wages and fringe benefits to attract and retain its employees. A company that offers less competitive compensation system is likely to suffer high labor turn over and low morale among the workforce Cchabra (2005).

Since the new government took power in 2003 public institution have gone through a lot of changes. With emphasis on performance especially for poor performing public organizations such as KPC new approaches are being applied in the management of the public institutions. A new policy where the top management is required to sign performance contract has to a great extent driven management to apply strategies that are geared to minimize costs and increase productivity.

Apparently complaints have been raised among employees, specifically over delay in review of their salaries and stagnation in the same job group. Besides the annual increment among employees it has been argued that the system of compensation has remained stagnant.
Armstrong (2005) defines the human capital as the most critical asset of any organization that cannot be ignored as it determines its success or failure. The complaints that have been raised by employees cannot be ignored as it may have a profound effect on their performance. To achieve its short, medium and long term objectives articulated in the strategic plan KPC need employees who are highly motivated. So far no investigation or study has been undertaken to asses how the reward system has affected employees’ performance. This study therefore investigated how the reward system in place is affecting employees.
1.3 Objectives of the study
The main objective of the study is to establish the role of employee reward system in an organization. The specific objectives of the study were:-
i) To determine various employee reward system used by MTRH ii) To establish the ways of managing employee reward system at MTRH iii) To determine how MTRH employee reward system has affected employees’ performance iv) To find out the challenges faced by MTRH in the management of its employee reward system.

1.4 Research Questions
The questions that the study seeks to answer are:-
Which reward policies and procedures are applied by KPC in the management of reward system? i) Which employee reward system is used by MTRH? ii) What are the ways of managing employee reward system at MTRH? iii) How has the employee reward system affected MTRH employee employees’ performance? iv) What are challenges faced by MTRH in the management of its employee reward system?
1.5 Significance of the study
This study is of great significance to MTRH management as it provides some insights on the shortcomings of the current employee reward systems as a basis of improvement.

It also provides decision makers and policy formulators in both public and private organizations with some key guidelines and tenets of what should constitute an effective reward system n any given organization.

The study also provides employees with some understanding of what should constitute an ideal rewards system, thus facilitate the championing of their rights.

It provides the Trade unions officials with information of the reward system areas that need to be improved to improve performance and industrial peace. This will also culminate to better services to MTRH clients and the country at large.

The study provides organizations with new strategies and policies of employee reward system, which may improve the organization image hence higher profitably.
The researcher hopes that the study will form a basis for further research on the management of the reward systems in both the private and public sectors. This should lead to the generation of new ideas for more innovative and productive reward systems.
1.6 Assumptions of study
This study will be based on the following assumptions
The researcher assumes that the questions posted to the respective respondents will be answered as according to the questionnaire and that the questions will be correctly answered.
The researcher assumes that the study will be carried out within the stipulated time period to prevent any inconveniences’.
The researcher also assumes that the resources allocated for the research study will be available and enough to carry out the research till completion.
There exits a relationship between employee reward system in an organization and eployeee performance. 1.7 The Scope of the Study
This study basically investigated how reward system in place has affected employees performance at the KPC Eldoret deport of Rift Valley Province. The study was undertaken between August 2007 and December 2007 using a case study research design and a sample of 45 that included 35 employees of KPC , 9 Heads of department and the deport manager. The sample was selected from a target population of 80 respondents. Questionnaire and interview schedule research tools were used to collect data.
1.8 Conceptual frame work
According to Armstrong (2006) the efficiency wage states that firms will pay more than the market rate because they believe that high levels of pay will contribute to increases in productivity by motivating superior performance, attracting better candidates, reducing labour turnover and persuading workers that they are being treated fairly.
As far as the organization is concerned, employee compensation programs are designed to attract capable employees to the organization, motivate them toward superior performance and to retain their service over an extended period of time. In many cases, organization prefer that their employees perform at a rate higher than average, Flippo (1984).
Reward system consists of financial rewards both fixed and variable pay and employee benefits that together comprise total remuneration. It also incorporates non – financial rewards that are recognition, praise, achievement, responsibility and personal growth and in many cases performance management processes, Armstrong (2001).

Financial rewards include base pay, individual performance – related pay, bonuses, commission allowances and incentives. These contribute to work performance of an organization, Armstrong (2001).
Employee’s benefits include pensions, sick pay, insurance cover and company cars, comprise elements of remuneration given in addition to the various forms of cash pay. Non - financial rewards focused on the needs people have to varying degrees for achievement, recognitions, responsibility, influence and personal growth. The relationship between reward system and performance is shown in figure 2.1 below

Figure 1.1 Reward system and performance Reward system Performance

Source :( Author 2009)

As indicated by figure 1.1 the reward system entails financial rewards such as the basic pay ,contingence pay, cash bonuses, long term incentives, shares, profitability, allowances, commission and incentives. The Non Financial rewards cover recognition, training and development, achievement and personal growth. Some of the benefits are sick pay, insurance and company cars.
By addressing the financial and non financial needs of employees may mean reduced conflicts, improved employees commitment, realisation of corporate, organisation, Business, Functional and Individual objectives. May also culminate to improved quality of the outputs and commitment

CHAPTER TWO
2.0 LITERATURE REVIEW
2.1 Introduction
This chapter covers previous studies undertaken on the subject of the study by various researchers and scholars across the globe. The review highlights reward systems prevailing practices policies and procedures, this provides a clear picture of the subject of the study and the gap that shall be filled by the study .It also provides the basis for study conceptual framework. It covers the past studies done in the area, critical review and lastly the conceptual framework that will be applied in this study. The main sources of the literature were textbooks, publications. Newsletters, thesis and the Internet search engines among others.
2.2 Past studies
2.2.1 The modern approach to Human Resource Management
The scope of Human Resource Management has expanded considerably throughout the world. Over the last forty ears or so, new techniques and styles of managing the human resources have been developed as a result of the researches and experiences in the field. The task of the HR manger is not confined only to the recruitment of workers, but also to looking after their welfare and handling their grievances Armstrong (2007)

According to Chhabra (2000) due to influence of technological development, organizational complexities are growing. The impact on the work, working methods, work rules, tools, equipment, etc. is inevitable. Jobs have become more complex and need specialized skills and professions. As a result of this, emphasis is being given to the training and development aspects. In order to meet the growing needs of such personnel, management institutes, universities and other bodies have started training and executive development programmes

As noted by Graham (1998) there has also been an increasing realization that the organization’s success is dependent on the synergy created by its human resources and growth can only be ensured through appropriate collaboration and amalgamation of various personnel around organizational goals/tasks. It is, therefore, essential to create an appropriate work culture and ethos which would provide the impetus for achievement. This is one major tasks of any management. This concern has given rise to the concept of Human Resource Development. The Human Resource Development (HRD) is the core of a larger system known as Human Resource System, wherein HRD is mainly concerned with providing learning experiences for the people associated with an organization through behavioral processes. The individual is provided with learning experiences not in isolation but he shares others’ learning experiences also. Such learning experiences are provided with the main objective of developing human beings for their advantage and harnessing their physical, mental and intellectual endowments and abilities for the growth of an organization. In a broader sense, the term HRD means those learning experiences which are organized for a specific time and designed to bring about the possibility of behavioral change

Armstrong, (2006) noted that Human Resource Development (HRD) in the organization context refers to the process whereby employees are continuously helped in a planned way to
Acquire or sharpen capabilities required to perform various tasks and functions associated with their present or future expected roles develop their general enabling capabilities as individuals so that they are able to discover and exploit their own and/or organizational development purposes, and develop an organizational culture where superior-subordinate relationships, team-work and collaboration among different sub-units are strong and contribute to the professional well-being, motivation and pride of employees.
2.2.2 Compensating Employees
According to Saleemi and Njoroge (1997) Compensation is about how people are rewarded in accordance with their value to an organization. It is concerned with financial rewards, and embraces the philosophies strategies, policies, plans and processes used by an organization to develop and maintain a system. In addition the writers noted that compensation management process deal with the design implementation and maintenance of compensation system geared to the improvement of organizational, team and individual performance.
Key issues of an effective compensation program are:-
That the system should support the achievement of the organization goals and objectives, it is not an isolated issue; it has to be integrated with other development programmes, that it is proper to compensate people differently according to their contribution i.e. Positive return on investment they generate.
2.2.3 Managing the reward system of an organization
Reward management is about how people are rewarded in accordance with their value to an organization. It is concerned with financial and non- financial rewards and embraces the philosophies, strategies, policies, plans and processes used by organization to develop and maintain reward system. According Armstrong (2001) the system should strive to achiever following: -
Capable employees are attracted towards the organization, motivate employees for better performance, maintain a stable workforce Cchabra (2005)
Reward management processes deal with the design, implementation and maintenance of reward system geared to the improvement of organization team and individual performance (Armstrong 2001).
According to Mamoria (1995) he is concerned with securing adequate and equitable remuneration to performance for their contribution to the attainment of organizational objectives. Functions related to wages surveys, established of job classification, job descriptions and job analysis, merit ratings, the establishment of wage rates and wage structure, wage plans and police, wages system incentives and profit sharing system.
He further indicates that after employee has been procured, his skill and ability developed and monetary compensation determined.
Ed Lawler (1990) stated that the starting point for any reward system design is the strategic agenda of the organization. This first step in designing reward system for an organization is to focus on the individual and organizational behaviors that are needed in order for the organization to be successful. 2.2.74 Reward system and employees motivation
According to Cchabra (2005) states that Abraham Maslow saw human needs in the form of hierarchy starting in an ascending order from the lowest to the highest needs and concluded that when one set of needs is satisfied it ceases to be a motivator. Thereafter the next set of needs in the hierarchy takes place.
Physiological needs are the basic needs for sustaining human life like foods, clothing, shelter, sleep and sexual satisfaction until these needs are satisfied to the required extent other needs can not motivate an employee
Security or safety needs are the needs to be free from physical danger and fear of loss of job, property, food, clothing and shelter.
Affiliation or acceptance need since human beings are social animals, they desire to belong to others and to be accepted by others.
Esteem needs is about how one feels about himself and how others feel about him or her. Need for self – actualization the highest level need in Maslow’s hierarchy. It is the desire to be becomes what one is capable of becoming to maximize one’s potential and to accomplish something in the life as a cherished goal. Figure 2.1 Maslow Hierarchy of needs

Self Actualization Self-fulfillment Esteem needs (Prestige, status, Self- belonging)

Social Needs

(Protection, order, stability) Security needs Physiological needs

Source: Cchabra (2005)
2.2.5 Aims of reward Management
According to Armstrong (2001), a reward system expresses what the organization values and is prepared to pay for. It is governed by need to reward the right things to get the right message across about what is important. The overall aim is to support the attainment of the organization’s strategic and shorter term objectives by helping to ensure that it has skilled, competent, committed and well – motivated workforce it needs.
According to Armstrong (2001), the specific aims are to pay a significant part in the communication of the organization’s value, performance, standard and expectations, to encourage behaviors, underpin organization change programmes concerned with culture, process and structure.
It also supports the organization of the value of the organization in such area as quality, customer care, teamwork, innovation, flexibility and speed of response.
Finally, Armstrong (2001) still says that it provide value for money – no reward initiative should be undertaken unless it has been established that it will add value, and no reward practice should be retained if it does not result in added value.
The reward system should treat them as stakeholders who have the right to be involved in the development of the reward policies that affect them should meet their exceptions that they will be treated equitably, fairly and consistently in relation to the work they do and their contribution, should be transparent – they should know what the reward policies of the organization are and how they are affected by them, Armstrong (2001).
2.2.6Types of rewards systems Mamoria (1995), classified rewards into two that is direct and indirect compensation. Whereby direct compensation include the basic salary or wages that the individual is entitled to for his job, overtime work and holiday premium, bonuses based on performance, profit sharing and opportunities to purchases stock options.
Indirect compensation includes protection programmes pay for time not worked service and perquisites. But these are maintenance factors rather than reward components. Since they are made available to all employees irrespective of performance, they will tend to retain people in the organization but not stimulate them to greater effort and higher performance, Mamoria (1995).
Wage Incentives
According to Mamoria (1995), the term wage incentives has been used both in the restricted sense of participation and in the widest sense of financial motivation. “It is a term which refers to objectives in the external situation whose functions is to increase or maintain, some already initiated activity either in duration or in intensity”.
According to Mamoria (1995) Hummel extra pay for extra performance in addition to regular wages for job.
Florence observed in Mamoria (1995) increased willingness as distinguished from capacity. Incentives do not create but only aim to increase the national momentum towards productivity. In the words of Scott, it is any formal and announced programme under which the income of an individual, a small group, a plant workforce or all the employees of a firm are partially or wholly related to some measure of productivity output.
Mamoria (1995) still defines wages incentive as a system of payment under which the amount payable to a person is linked with his output. The term incentive has gradually acquired a wide connotation and includes all the possible factors, besides economic grains, which can possibly motive human beings towards better and greater performance.
According to Gupta (2004) the main factors influencing wages or salary levels are as follows:
Demand for and supply of labour: - wages or salary is the price for the services rendered by a worker. Force of demand and supply of labour determine the going wage – rate.
He also stated the ability of the organization to pay employees as an important determinant of wage level.
The cost of living further indicated as another factor since due to inflation, the real wages decline affecting the purchasing power of workers.
Gupta (2004) stated labor unions as an important determinant for well – organization trade unions exert pressure for higher wages and allowances. Prevailing wage rates in the particular industry/ region are taken into account, this is necessary to retain and attract qualified workers.
He indicated job requirements as another factor, because basic wages depend largely on the difficulty level and physical and mental effort required in a particular job.
Gupta (2004) further indicated productivity since when there is an increasing trend towards linking wage increases to gains in productivity or performance of workers.
He concluded that state regulation also contributes, since wage policy and laws of government exercise a significant influence on wages levels. Government has enacted laws to protect the interest of the working class.

Non- financial incentives
According to Nzuve (1997), Non – financial incentives psychologically influence the behavior and attitude of workers towards their work, colleagues and the organization. Here, no cash is involved rather they are given in the form of amenities and facilities. These provide uncreative conditions and terms of employment.

2.2.7 Performance appraisal and the reward system
It is human nature for people to build hopes or to have higher expectations. This is the same in work; employees build hopes, have expectations and want to know they are doing in their jobs. According to Nzuve (1997) performance appraisal means systematic evaluation of the personality and performance of each employee by his supervisor or some person trained in the techniques of merit rating Cchabra (2005). Dale Yoder in Cchabra (2005) as all formal procedures used to evaluate personalities and conditions and potentials of groups members in a working organization. It is continuous process to secure information necessary for making correct and objective decisions on employees.
He further says that performance appraisal is concerned with determining the difference among the employees working.
2.2.7.1 Significance of performance appraisal
The important reasons or benefits that justify the existence of a system of performance appraisal in an enterprise are: -
A good of performance appraisal helps the supervisor to evaluate the performance of his employees systematically and periodically. Performance rating helps in guiding and correction of employees. The ability of the staff is recognized and can be adequately reward by giving them special increments. Can be used as a basis of sound personnel policy relation to transfers and promotions. Rating can be used to evaluate the effectiveness training programmes. It provides an incentive to the employees to better their performance in a bid to improve their rating over others. Systematic appraisals will prevent grievances and develop confidence amongst the employees if they are convinced of the impartial basis of evaluation (Cchabra 2005)
2.2.8 Reward Strategy
Armstrong (2006) strongly advocates for a reward strategy as a tool of managing the reward system of an organization. He noted that a reward system would provide specific directions on how the organization will develop and design programmes that will ensure that it rewards the behaviors and performance outcomes supporting the achievement of its business goals, thus the author felt that the reward system should be performance based . He defined a reward strategy as the deliberate utilization of the pay system as an essential integrating mechanism through which the efforts of various sub-units and individuals are directed toward the achievement of an organization’s strategic objectives.

Reward strategy should be founded on the proposition that, the ultimate source of value is people. This means that reward processes must respond creatively to their needs as well as to those of the organization. The basis of the strategy will be the organization’s requirements for performance in the short and longer term as expressed in its corporate strategy. Reward strategy can support change, reinforcing and validating the thrust of the business (Armstrong 2006)

Leslie (2004) explained that a reward strategy can make an important contribution to the achievement of corporate goals if it
Provides for the integration of reward policies and processes with key strategies for growth and improved performance. Underpins the organization’s values, especially those concerned with innovation, teamwork, flexibility, customer service and quality. Fits the culture and management style of the organization as it is or as it is planned to be. Drives and supports desired behaviour at all levels by indicating to employees what types of behaviour will be rewarded, how this will take place and how their expectations will be satisfied. Provides the competitive edge required to attract and retain the level of skills the organization needs. Enables the organization to obtain value for money from its reward practices

As Muslins (2005) points out, a reward strategy should be characterized by diversity and conditioned both by the legacy of the past and the realities of the present. Reward strategy will mainly be concerned with the direction the organization should follow in developing the right mix and levels of financial and non-financial rewards in order to support the business strategy. It should deal with
The demands of the business strategy, including cost constraints, how business performance can be driven by influencing important individual and organizational behaviors, helping to achieve culture change, meeting objectives for ensuring the organization gets and keeps high quality employees, aligning organizational core competences and individual competence, underpinning organizational changes, for example, introducing broad-banding following a delivering exercise, the development of competitive structures, ensuring that reward policies are used to convey messages about the expectations and values of the organization, achieving the right balance between rewards for individual, team and organizational performance, evolving total reward processes that incorporate the best mix of financial and non-financial rewards and employee benefits, achieving the flexibility required when administering reward processes within fast-changing organizations existing in highly competitive or turbulent environment, fitting reward processes to the individual needs and expectations of employees
The reward strategy should be backed up by a realistic action plan and should incorporate an assessment of risks and contingency plans if things go wrong. Arrangements should also be made to ensure that the results of implementing a reward strategy are evaluated against its objectives and cost budgets.
According to Saleemi et al (1997) an organization should develop a reward strategy that ensure that reward policies and processes are aligned to business and human resources goals , point in the same direction and work in practice. The basic questions that should be asked are
Where is the organization going? How can reward programmes help it to get there and sustain success? What sort of behaviour does it want? How can reward processes promote recognition for that behaviour?

The foundation for the strategy will be the business and human resource strategies, the culture, climate and management practices of the organization, the type of people employed, and the history and present arrangements for rewards. Market considerations and government regulations (including taxation) will influence the reward strategy. It leads on to the development of reward policies and practices.

According to Graham (1998) two of the major factors affecting the development of reward strategy are contingency needs and the achievement of strategic integration.

Contingency needs
Contingency theory states that to be effective, policies and practices should be appropriate to the organization’s unique characteristics, including its culture, management style and technology and it environmental conditions. It suggests that diverse organizational strategies and cultures require different reward and HR strategies; the usefulness of different reward and HR strategies, policies and practices varies according to the context, business strategies may drive HR and reward strategies, but within an organizational context there will be, reciprocal effects because managers and employees will influence emergent (ad hoc) strategies at different levels in the organization
2.2.9 Performance and Reward system
Performance management can be defined as a systematic process for improving organizational performance by developing the performance of individuals and teams. It is a means of getting better results by understanding and managing performance within an agreed framework of planned goals, standards and competency requirements. Process exists for establishing shared understanding about what is to be achieved, and for managing and developing people in a way that increases the probability that it will be achieved in the short and longer term. It focuses people on doing the right by clarifying their goals Armstrong (2006)
The overall aim of performance management is to establish a high performance culture in which individuals and teams take responsibility for the continuous improvement of business processes and for their own skills and contributions within a framework provided by effective leadership.

Specifically, performance management is about aligning individual objectives to organizational objectives and ensuring that individuals uphold corporate core values. It provides for expectations to be defined and agreed in terms of role responsibilities and accountabilities (expected to do), skills (expected to have) and behaviours (expected to be).

Mikovich (2003) stated that performance management aim is to ensure that employees achieve their full potential to the benefit of themselves and the organization. Importantly, performance management is concerned with ensuring that the support and guidance people need to develop and improve are readily available. The following are the aims of performance management as expressed by Armstrong (2006), Empowering, motivating and rewarding employees to do their best. Focusing employee’s tasks on the right things, aligning everyone’s individual goals with those of organization. Proactively managing and resource performance against agreed accountabilities and objectives. The process and behaviours by which managers manage the performance of their people to deliver a high-achieving organization. Maximizing the potential of individuals and teams of benefit themselves and the organization, focusing on achievement of their objectives.
2.2 10 Reward system and corporate strategy
According to Armstrong (2005) a reward strategy defines the intentions of the organization and how its reward policies and process should be developed to meet business requirements. The fact that payroll costs comprise 70 % or more of the total costs incurred by an organization explains the need to adopt a strategic approach to reward which ensure that added value is obtained from any investment in pay.
Reward strategy provides specific directions on how the organization will develop and design programs that will ensure that it rewards the behaviour and performance outcomes supporting the achievement of its business goals (Byars et al 1997)

A reward strategy constitutes a deliberate utilization of the pay system as an essential integrating mechanism through which the efforts of various sub-units and individuals are directed toward the achievement of an organization’s strategic objectives.(Armstrong 2005)

Reward strategy should be founded on the proposition that the ultimate source of value is people. This means that reward processes must respond creatively to their needs as well as to those of the organization. The basis of the strategy will be the organization’s requirements for performance in the short and long term as expressed in its corporate strategy. Reward strategy can support change, reinforcing and validating the thrust of the business.

For a reward strategy to make an important contribution to the achievement of corporate goals Byars et al (1997) felt it should: provides for the integration of reward policies and processes with key strategies for growth and improved performance; underpins the organization’s values, especially those concerned with innovation, teamwork, flexibility, customer service and quality; fits the culture and management style of the organization as it is or as it is planned to be; drives and supports desired behaviour at all levels by indicating to employees what types of behaviour will be rewarded, how this will take place and how their expectations will be satisfied; provides the competitive edge required to attract and retain the level of skills the organization needs;
Enables the organization to obtain value for money from its reward practices.

2.2.11 Characteristics of a good reward strategy
As Saleemi et al (1996) points out, reward strategy is characterized by diversity and conditions both by the legacy of the past and the realities of the present’. Reward strategy will mainly be concerned with the direction the organization should follow in developing the right mix and levels of financial and non-financial rewards in order to support the business strategy.
The reward strategy should deal with
The demands of the business strategy, including cost constraints; how business performance can be driven by influencing important individual and organizational behaviour helping to achieve culture change; meeting objectives for ensuring the organization gets and keeps high quality employees; aligning organizational core competences and individual competence; underpinning organizational changes, for example, introducing broad-banding the development of competitive structures; ensuring that reward policies are used to convey messages about the expectations and values of the organization; achieving the right balance between rewards for individual, team and organizational performance; evolving total reward processes that incorporate the best mix of financial and non-financial rewards and employee benefits; achieving the flexibility required when administering reward processes within fast-changing organizations existing in highly competitive or turbulent environment; Fitting reward processes to the individual needs and expectations of employees.

In addition the writer noted that the reward strategy should be backed up by a realistic action plan and should incorporate an assessment of risks and contingency plans if things go wrong. Arrangements should also be made to ensure that the results of implementing a reward strategy are evaluated against it objectives and cost budgets.

2.2.12 Developing a reward strategy
Armstrong (2005) noted that the main is to develop a reward strategy that ensure that reward policies and processes are aligned to business and HR goals, point in the same direction and will work in practice. The basic questions to be asked are: Where is this organization going? How can reward programmes help it to get there and sustain success? What sort of behaviour do we want? How can reward processes promote recognition for that behaviour?

He continued to explain that the foundation for the strategy should be the business and human resource strategies, the culture, climate and management practices of the organization, the type of people employed, and the history and present arrangements for rewards. Market considerations and government regulations (including taxation) will influence the reward strategy. It leads on to the development of reward policies and practices.

The major factors that affect development of reward strategy are contingency needs and the achievement of strategic integration. (Milovich et al 1998)

Contingency needs

Contingency theory states that to be effective, policies and practices should be appropriate to the organization’s unique characteristics, including its culture, management style and technology and its environmental conditions. It suggests that: - diverse organizational strategies and cultures require different reward and HR strategies; the usefulness of different reward and HR strategies, policies and practices varies according to the context; Business strategies may drive HR and reward strategies, but within an organizational context there will be, in ‘reciprocal effects because managers and employees will influence emergent (ad hoc) strategies at different levels in the organization’.

Integrating business and reward strategy

According to Chhabra, et al (1995) points out that the business strategy in particular serves, as a critical guide in designing organization systems because it specifies what the company wants to accomplish, how it wants to behave, and the kinds of performance and performance levels it must demonstrate to be effective. The strategy should strongly influence an organization’s design and management style, both of which should drive the design of reward systems. These reward systems, in turn, help to drive performance by influencing important individual and organizational behaviors.
The need to link business and reward strategy to achieve strategic integration or fit may seem obvious. Reward strategy, so it is said, should be led by business needs. But recognizing this requirement is one thing; putting it into effect is another.

Of all the ‘holy grails’ that HR professionals seek, the one that aligns reward strategy with business strategy offers the greatest prize. But in many ways it is also the most elusive. By aligning reward and business strategies, elements of the pay bill be targeted at the employees who add most value. And it allows reward to exert leverage over employees’ behaviour and performance by sending a clear message about what outputs or skills attract most financial recognition and pay progression. As long as the leverage is on aspects of employee performance that lead directly and unambiguously to improved business performance, everyone (except door performers) is bound to win. (Saleemi et al ,1997)

The problem with the concept of integration is one of defining exactly what it means. Does it imply the existence of a well-articulated and detailed business strategy from which flows an equally well-articulated and detailed reward strategy? Or, more simply and possibly more realistically, does integrating mean no more than linking broad statements or understandings of the strategic intentions of the business with equally broad statements or understandings of the supporting reward strategy?

The latter alternative is probably more in line with the reality of the strategy formulation process. But broad business strategies can only generate broad reward strategies in these areas. The reward strategy may be no more than a declaration of intent expressed in fairly generalizes terms. (Armstrong, 2005)

However, strategic intentions may be auctioned by means of strategic plans that specify programmes and actions, and these should provide more specific guidance on reward plans. The business plans and programmes may cover such initiatives as: restructuring; business process re-engineering; product/market development; technological development rationalization or diversification; Implementation of value-based approaches.

All of these will have implications for reward strategies and plans, especially if a ‘resource-based’ approach to strategic planning is adopted that views the firm as a collection of capabilities to be matched to the market it serves.

Chhabra (2002) articulated the following as examples of how different aspects of business strategy, programmes and plans can influence reward strategies and policies: globalization – the need to attract and retain the highest quality of ‘global’ managers; restructuring – the need to develop pay structures that fit and support delivered and process-based organizations and to introduce methods of payment that support and reward effective teamwork; culture change- the use of reward processes to influence and reinforce desired changes in culture, values and management style; flexibility – the development of flexible reward policies and practices that fit the flexible firm (e.g. rewards for core and peripheral workers); behaviour – the development of reward processes ;that drive and support desired behaviour in order to promote ‘value-added performance’; product/market and technological development – the need for reward policies and practices that will provide people with the skills and competences required to match the organization’s human resource requirements; Cost management – developing affordable reward packages that will provide value for money.

When developing reward strategies and plans in each of these areas, there are three key questions to be answered: - How will they fit the business strategy and support the achievement of business goals? How can the impact of reward strategies be maximized by integrating reward processes with other HR processes so that they are mutually supportive? How can we be certain that the reward strategy will enhance the organization’s strategic capability?

2.2.13 Factors that influence the reward system
According to Mamoria (1995) pay rates and salary levels are influenced by many factors which may include the following, Organization's ability and willingness to pay, Organizations profitability, cash flows, future investments, the economic conditions are some of the factors the employer will consider, Comparability, The company will look at the Industry and consider what other comparable jobs are paying. The bargaining strength of trade unions, the ability of the trade union to influence the pay of employees depends on their ability to bargain.
The labor Market condition, certain skills are always in short supply even when general labor is plenty. The rule of supply and demand will rule. The cost living, when the cost of living escalates then the employers is under pressure to increase salaries and wages, Government Policy, The government policy is crucial in pay determination. Productivity, some organizations will pay their employees with respect to their productivity. Some companies will pay more than the market rates to promote productivity.

CHAPTER THREE
3.0 RESEARCH DESIGN AND METHODOLOGY
3.1 Introduction
This chapter discusses the research design and data collection techniques that will be used in light of research objectives and the questions that the study sets to address. It is organized in the following sections; research design, target population, sample size and sampling procedure, instruments of data collection, reliability and validity of research instruments and data analysis. 3.2 The Research Design
The study will apply a case study research design; as such it is an intensive descriptive and holistic analysis of MTRH as a single entity. A case study design gives intensive and detailed description of existing phenomenon with intent of employing data to justify and make more intelligent plans. It is an investigation of a single entity in order to gain insight into the larger cases. The study investigates employee reward systems and its role in an organization.
3.3 Target Population

The research will target the Director, 7 HODS from administration, pharmacy, nutrition, house keeping, nursing, supplies, Public Health, 40 supervisors and 1622 employees of MTRH. The target population is organized as top management (Director), middle management (7 HODS) Lower management (40 supervisors) and the employees as shown in table 3.1 below.
Table 3.1 Target population
Strata Target population
Top management 1
Middle management 7
Lower management 40
Employees 1622
Total 1670 Source (MTRH 2009

3.4 Sample size and Sampling Techniques
a) The Director and HODS
The Director and all the HODS of the hospital will be included in the sample.

b) Employees
The researcher will use stratified sampling technique to divide employees into different categories. Stratified sampling technique is a technique that identifies subgroups in the population and their proportions and select from each subgroup to form a sample. It groups a population into separate homogenous subsets that share similar characteristics so as to ensure equitable representation of the population in the sample. The differences in this case are the departments. A sample size of 30% of the target population of employees will be used. This is according to Mugenda and Mugenda (1999) who states that 30% and above for sample size is enough in case of a case study research design. To arrive at specific employees’ respondents’ simple random sampling technique will be used, where employees will be assigned to specific numbers which will be picked at random.
3.5 Data collection instruments
The researcher will use questionnaires and interviews schedules to collect data.
3.5.1 Questionnaire
The overall aim of this study is to investigate the effect of employee reward system in an organization. The researcher is mainly being concerned with views, opinions, perception, feelings and attitudes. Such information can best be collected through the use of a questionnaire. The researcher will use questionnaire to collect information from employees
3.5.2 Interviews schedules
The researcher will administer an interview schedule to the director and seven HODS this is appropriate since the respondent are very busy and may not have time to respond to a questionnaire. The interviews provided information that could not be gathered from the questions.
3.6 Data collection procedure
The researcher will administer the questionnaires and interview schedule personally to all respondents after requesting permission to be granted by Kenya institute of management and the MTRH management. The researcher prefers to administer the research tools personally to ensure the right data is collected from respondents in time. Doubts that the respondents will be clarified on the spot, the researcher also will have an opportunity to motivate respondents to respond to the research tools.
3.6 Reliability and validity of research instruments
Reliability is the measure or the degree to which a research instrument yields same results after repeated trials. The researcher will prepare questionnaires interview schedule and presented them to the supervisor for scrutiny, comments and suggestions on the relevance of its information and validity. The supervisor then will compare the questionnaires and the make suggestions which will be incorporated in the final draft.

3.8 Data analysis
The data to be obtained from the questionnaires will be coded, organized analyzed and presented using descriptive statistics including frequency tables, and percentages. The methods ensure easy understanding of presented data and information.

BUDGET
Item Unit Cost per unit Total cost (shs)
Stationary 1 rim of printing papers - 300
Flash disk 1 GB 700 700
Typing cost 50 pages 20 1000
Printing 50 10 500
Food 4000
Fare 1200
Miscellaneous 1000
Total 8700

TIME TABLE Time of the year
Activity May June July
Preparation of research proposal
Research schedule administration. and data collection
Data analysis and interpretation.
Report writing

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