How reward satisfaction affects employees’ turnover intentions and performance: an individual differences approach

• Date: 01 April 2015
• Author: Joeri Hofmans,Sara De Gieter
• Published date: 01 April 2015
• DOI: http://doi.org/10.1111/1748-8583.12072

How reward satisfaction affects employees’

turnover intentions and performance: an individual

differences approach

Sara De Gieter and Joeri Hofmans, Department of Work and Organizational

Psychology, Vrije Universiteit Brussel

Human Resource Management Journal, Vol 25, no 2, 2015, pages 200–216

We challenge the assumption that satisfaction with rewards has the same effect on the behaviour and

attitudes of every employee, and hypothesise that there are individual differences in the effects of

(satisfaction with) financial, material and psychological rewards on turnover intentions and task

performance. Survey data from 179 employees are combined with supervisor-rated task performance data

and analysed with cluster-wise regression analysis. As for task performance, no employee types or

individual differences were found. However, we identified three different employee types revealing a

unique relationship pattern between satisfaction with financial, material and psychological rewards and

turnover intentions. These employee types also differed in socio-demographic characteristics and work

values. Our findings illustrate that to be able to fully understand the underlying relationship between

rewards and employee outcomes, scholars need to adopt an individual difference perspective and

methodology. Implications for practice, limitations and opportunities for future studies are discussed.

Contact: Assistant Professor Sara De Gieter, Department of Work and Organizational

Psychology, Vrije Universiteit Brussel, Pleinlaan 2, 1050 Brussel, Belgium. Email:

Sara.De.Gieter@vub.ac.be

Keywords: rewards; pay satisfaction; turnover intention; performance; individual differences

INTRODUCTION

Rewarding employees is a key component of organisations’ human resource management

(Dulebohn and Werling, 2007). Drawing on seminal motivation theories such as Vroom’s

Expectancy Theory (1964), Adams’s Equity Theory (1965), and Lawler’s Discrepancy

Theory (1971), it has often been demonstrated that rewards – and in particular satisfaction with

these rewards – stimulate desirable employee behaviours and attitudes (e.g. performance,

commitment) and discourage unfavourable ones (e.g. turnover, absenteeism; Williams etal.,

2006). Nevertheless, research on reward outcomes has two major shortcomings. First, the focus

has traditionally been on financial rewards, whereas recently both scholars and practitioners

have highlighted the added value of focusing on non-financial rewards (e.g. Chiang and Birtch,

2011; Hofmans et al., 2013). Second, scholars have traditionally attempted to unravel the

relationship between rewards, reward satisfaction and employee outcomes for the ‘average’

employee, thereby disregarding potential individual or between-employee differences in this

relationship. As a result, important questions such as ‘Do financial rewards have the same effect

on the turnover intentions of all employees?’ remained unanswered.

This study addresses both shortcomings by examining individual differences in the

relationship between satisfaction with different reward types and two important employee

outcomes: turnover intentions and supervisor-rated task performance. In doing so, we

contribute to research on rewards by providing a fuller understanding of the relationship

between reward satisfaction and employee behaviours and attitudes. From a practical point of

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doi: 10.1111/1748-8583.12072

HUMAN RESOURCE MANAGEMENT JOURNAL, VOL 25 NO 2, 2015200

© 2015 John Wiley & Sons Ltd.

Please cite this article in press as: De Gieter, S. and Hofmans, J. (2015) ‘How reward satisfaction affects employees’ turnover intentions and

performance: an individual differences approach’. Human Resource Management Journal 25: 2, 200–216.

view, our study reveals that it is important for organisations to gain a better understanding of

individual differences in the way in which different rewards affect employees’ turnover

intentions and performance; especially in light of the increasing economic pressure for

efficiency and the war for talented employees (McDonnell, 2011).

THEORETICAL FRAMEWORK

Reward types and reward satisfaction

Reward management is the process of designing and implementing strategies to reward

employees fairly with the goal to attract, motivate and retain those employees that are believed

to help facilitate the realisation of organisational goals (Dulebohn and Werling, 2007). In the

past, both HR practitioners and reward scholars focused almost exclusively on financial

rewards. Yet, many organisations are experiencing difficulties in attracting and retaining

talented employees due to a combination of demographic, economic and societal changes (e.g.

ageing workforce, budget restrictions, war for talent; McDonnell, 2011). This caused managers

to rethink their reward policies and stimulated the trend towards ‘total reward management’:

considering a reward as any valued outcome an employee receives from the employer in

exchange for his/her performance. Hence, total reward management acknowledges that it is

important to provide the appropriate financial rewards, but stresses the necessity of

complementing these with other reward types (Chiang and Birtch, 2011).

To date, there are several categorisations of rewards available (e.g. De Gieter et al., 2008;

Chiang and Birtch, 2011), applying similar categorisation principles. In the present article, we

differentiate between three reward types. First, financial rewards (e.g. base pay, bonuses) derive

their motivating potential from their instrumental value: money can be exchanged for desired

goods and services. Second, material rewards or benefits (e.g. training opportunity, health

insurance) are considered as tangible rewards without necessarily benefiting the employees in

a monetary way, although having a monetary value. Third, psychological rewards (e.g.

recognition from supervisor, compliment from a colleague) do not imply a monetary cost for

the organisation; instead, they are positively evaluated outcomes of the exchange relationship

between an employee and his/her supervisor, colleagues or clients (De Gieter et al., 2008).

Although the key premise of reward management is that rewards drive employee

behaviours and attitudes, this relationship is not a direct one. Instead, it is the value that

employees attach to those rewards (e.g. Vroom, 1964), or even more, the satisfaction with these

rewards (Lawler, 1971) that influences their behaviours and attitudes. Within reward research,

‘pay satisfaction’ is defined as the degree to which an employee is satisfied with his/her pay

(Williams et al., 2006) – similar definitions apply to satisfaction with material and psychological

rewards – and this is typically measured by using a bipolar scale ranging from ‘totally

dissatisfied’ to ‘totally satisfied’. In the present article, we set out to examine the effect of

satisfaction with financial, material and psychological rewards on employees’ turnover

intentions and performance. In doing so, we contribute to the recent shift from satisfaction with

financial rewards (Williams et al., 2006) towards multidimensional ‘reward satisfaction’

(Williams et al., 2008).

Relating reward satisfaction to turnover intentions and performance

Many studies have shown that the more employees feel dissatisfied with their financial

rewards, the higher the risk they leave the organisation (e.g. DeConinck and Stilwell, 2004;

Currall et al., 2005; Williams et al., 2006). This negative relationship has been found for a variety

Sara De Gieter and Joeri Hofmans

HUMAN RESOURCE MANAGEMENT JOURNAL, VOL 25 NO 2, 2015 201

© 2015 John Wiley & Sons Ltd.