Effects of Incentives and Rewards on Employee Productivity in Small Banks in Kenya: A Case Study of First Community Bank

A Research Project Submitted to the Chandaria School of Business in Partial Fulfillment of the Requirement for the Master’s Degree in Business Administration (MBA)The research focused on the assessment of the effects of incentives and rewards; and how they affect employee productivity. The project examined how financial, non-financial and rewards systems affect the performance of employees and also tried to establish which type of incentive or reward was more valued by the employees to enhance productivity. The study was guided by the research questions that included; to assess the effects of financial incentives on employee productivity in small banks, effects of non-financial incentives on employee productivity in small banks and to assess the effects of reward system on employees’ productivity. The research was conducted at a period when the banking industry was undergoing some difficulties especially when CBK had introduced a regulation on the interest rate capping. With this regulations on the interest rates, identifying the motivators is becoming more challenging for the HR Management. Perceived value that can motivate employees to be more productive should be identified and enhanced. Based on a critical review of published journal articles, it is well demonstrated on how crucial incentives and reward systems are to the performance of any organization. Employees are a company's livelihood. How they feel about the work they are doing and the results received from that work directly effects an organization's performance. The study adopted descriptive survey design. The population of interest was the staff of First Community Bank but limited to the Nairobi branches only. Stratified sampling was used to determine the sample size of 164 employees from the total population. Data was collected using structured questionnaires that were based on the research questions and coding was done for ease of analysis through SPSS. Descriptive statistics was used to analyze data. The first research question looked at the effects of financial incentives on employee productivity in small banks. According to the findings, there was a positive relationship between financial incentives and employee productivity. The second research question discussed the non-financial incentives on employee productivity in small banks. Majority of the respondents indicated that there was a significant relationship between non-financial incentives and employee productivity. The final question tested how effective reward system positively affects employee productivity. After the research, it was evident that there was a positive significant relationship with between reward systems and employee productivity. In conclusion, the study revealed that all the incentives and reward systems are important though they have a different meaning to different categories of employees working for First Community Bank. The study therefore showed that different incentives and rewards have different effects on employee productivity. The study further revealed that there is a need for First Community Bank to come up with a comprehensive reward systems that can motivate employee to increase their productivity. Recommendations for improvement at First Community Bank includes coming up with a well-structured and monitored reward system which includes a profit sharing mechanism, promotions and career growth for all the employees; that is well known and understood by all employees, employee participation in decision making process, recognition of employee’s outstanding performance, organize at least four social events to enhance team spirit, well structure talent management addressing the development needs, succession planning and growth of all employees. This will enhance healthy competition among employees, retention, royalty and increase employee productivity.