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Chapter 1


Coceptual Framework

Out of the 4 M’s of Production (Men, Machine, Money and Material) men is known to
be the most dynamic factor of production. An employee is the only factor who has the
ability to think and react and, moreover, control all the other factors of production, and
therefore his presence is of utmost importance. With the fact that an employee can think
and react, comes the complications of dealing with him and managing him, since he is
the factor whose behavior is unpredictable and hence can be expected to react in any
manner in any given situation in spite of all the steps taken to impress and satisfy him.

Researchers have shown that an organization can become successful only if their
employees work efficiently, and there are hundreds of organizations who are today
successful only because of their employees. The importance of employees has a greater
importance in service industries, where the ultimate product of the company is the
service given to the customer, and hence the success of the company is solely dependent
on the performance of the employees. Therefore employees hold a valuable position in
any organization.

Given that employee retention is very important for the functioning and competitiveness
of a company, this study focuses on the organizational and personal factors that
influence employee retention. A special interest is taken in non monetary rewards,
because it is seen as a retention supporting activity. This research is completely focused
on finding whether non-monetary rewards have an impact on employee for not leaving
the organization. If so, which rewards have the most impact on retention?

The problem of low retention is faced by almost all the sectors, but this is an acute
problem majorly in the IT/ Software and Insurance Industry, and therefore this study
will focus on these two industries and the result will be obtained by comparing the
impact of non-monetary rewards in these two sectors.

The following diagram, is the conceptual framework of this research work:

Imporatnce of Employees

Why Employees Leave

Effects of High Turnover

Enployee Retention

Need And Importance of Employee Retention

Employee Retention Startegies

Role of Motivation In Employee Retention

Money as a Motivator

Introduction To Non Monetary Rewards

The Present Research

Introduction to Insurance /IT Industry

Fig 1.1: Pictorial representation of Conceptual Framework of the research

1.1. Importance of Employees

Employees are now considered as one of the greatest asset of the organization. And as a
rule an asset should add value to the balance sheet of the organization and should
appreciate with time. Employees help the business to work towards company goals or
reach new market heights.

Other than being part of the corporate team, employees are important for various
reasons, employees are constantly speaking to consumers and clients, so their opinion is
critical in helping shape the perception of the company in the market. (Jane, 2011)

Organizations talent is its prime source of competitive advantage in the business world.
Besides bringing in profits to the organization, employees provide a face to the
organization through which the outer world gets an impression about the organization.
They even provide a framework for assisting human resource persons, senior
executives, CEOs and corporate board. Although many organizations acknowledge the
importance of people but most of them do nothing to make them a source of competitive

The process of making an employee a competitive advantage and finally retaining them
starts simply with the thought of hiring people. Organizations devote a lot of efforts and
money in recruiting the right kind of employees to fit in their needs. Recruitment is not
an easy process: The HR Professional short-list few people from a large pool of people,
conducts preliminary interviews and in due course forwards it to the respective
department managers who further probes them to judge whether they are fit for the
organization or not.

It is a well known fact that people work for money. Then why it happens that in spite of
paying a handsome salary, employees leave their job. Is it just that they have been
offered another job with higher salary or there are some different reasons? If money is
the only factor, for which employees work, then there has to be some limit to it, because
even if you pay the highest salary of the industry norms to an employee, someone else
will pay a higher salary to lure the employees. An organization invests time and money
in grooming an individual and make him ready to work and understand the corporate
culture. An incumbent is completely new and the management really has to work hard
to train him for his overall development. Again training employees involves a lot of
cost. It is a complete wastage of time and money when an individual leaves an
organization all of a sudden. The HR again has to start the recruitment process all over
again. Finding a right employee for an organization is a tedious job and all efforts
simply go waste when the employee leaves. Therefore retaining the talent in the
organization is of prime importance. Yes, employers invest lot of efforts and money in
retaining the talent, but nevertheless the employees still leave the organization for the
want of different reasons including money. So, what are those aspects to which
employee will consider before even looking at the salary to leave the job.

Money is considered to be the prime motivator for all human beings, irrespective of
their designation, age marital status etc. But when it comes to employee loyalty, money
may not play the same important role. Sometimes non monetary factors can compel the
employee to show his loyalty towards the company and thus improves the retention rate.

Before understanding employee retention more deeply, it is first important to know the
reasons of the employee turnover or in different words why employees leave

1.2. Why employees leave the Organization

As (Branham, 2005) quotes the top seven reasons for employees leaving the
organization in his book ‘The 7 Hidden Reasons Employees Leave’:

· Job or Workplace below Expectation: At the root of their disenchantment, is an

expectation that was not met. In some cases, the employee’s expectations may
have been unrealistic, and in some cases, they were not. When all is said and
done, it doesn’t matter. Quite simply, unmet and unrealistic expectations both cost
a business untold millions of dollars. You may never see an exit survey with a
checklist of reasons for leaving that includes the choice ‘unmet expectations’ but
it may well be the number one reason employees leave.
· Misfit of Job and Personality: When you consider this closely, though, it’s
almost surprising that only 20 percent of the working population does get to use
their strengths daily. The key missing ingredient in so many companies is
management’s lack of passion for getting the right people in the right jobs.
· Absence of coaching and feedback: Companies need to give feedback and
coaching to make sure that employee’s efforts stay aligned with organizational
goals and the expectations of direct supervisors. This alignment is a necessary
precondition for employee engagement, which is seldom given by organizations.
· Lack of growth and advancement opportunities: A new career contract has not
materialized in most organizations particularly ones that value control over
autonomy and self-direction. Most employers of choice, however, communicate
clearly that employees must take the initiative in their own career development.
They also give their people the tools and training needed to accomplish this,
enabling them to be the best they possibly can be.

· Employees feel devalued and unrecognized: Everyone wants to feel important,
yet many organizations manage to make their people feel quite the opposite. It
could be seen as a lack of simple appreciation, or a greater focus put on making
numbers, and not valuing employees. Some employees might feel like a mere
number - that no one in any kind of position above them listens to them or even
knows they exist, much less work there. Managers who do show some
appreciation might not show it in a timely manner, or the rewards given might
have little if anything to do with what the employees truly find valuable.
· Work-Life Imbalance: Workers get stressed when they sacrifice family time to
work extra hours, when they must deal with the insensitivity of some co-workers,
and when they really need a personal day but cannot take one because their
company does not offer them. These are the people who consistently work late,
work through lunch, work through sickness, take work home and express
frustration in myriad unhealthy ways.
· Lack of trust and confidence in senior leaders: Senior leaders are challenged
with creating a culture of trust and integrity that strengthens the bonds of
employee engagement. This isn’t always easy, particularly when employees
already have a number of issues with their managers and leaders. They complain
about a basic lack of trust and integrity in leadership. They might feel
management is out of touch with day-to-day reality. or, they might feel that
leaders are concerned only with their own greed, and not with the needs and
concerns of workers.
· Managers: It is a common belief that people don’t leave jobs but they leave their
managers or bosses. If employees don’t get along with their managers, don’t like
them or don’t respect them, they will leave a company despite a high salary or
great benefits. A bad manager is a big factor in employee performance. A good
manager, no matter the salary, will inspire loyalty. Managers who don’t create the
right opportunities for their employees, don’t communicate with them, and don’t
appreciate them often find themselves dealing with a high turnover rate. Good
managers are people you keep in touch with even after you leave a position. Bad
managers are people you keep track of so you can avoid them in future.
(Sylvestre-Williams, 2012).

· Compensation: Though compensation or salary must stand first in the order of
reasons of employees leaving a job, but this is not always true. An employee starts
searching for a new job, when he is dissatisfied with the current job and not just
because he wants more money.

1.3. Effects of high turnover

Although all organizations are aware of the problems associated with high turnover, a
review of its major consequences puts retention in proper perspective:
· High Financial Cost: In addition to the elevated employee turnover rates being a
frustration for employers, they can become a financial concern as well, studies has
proposed that the cost of replacing lost talent is even higher as much as 70 to
200% of that employee’s annual salary (Kaye, 2008).
· Loss of Productivity: When a high rate of turnover exists, most of the employees
are at an entry level stage of production. A very high cost is associated with
employees who have not reached their full productivity. This cycle continues with
few employees performing at maximum productivity. Every employee who leaves
the organization leaves some kind of productivity gap. He had developed some
kind of working culture along with the peers and therefore even their productivity
is hampered.
· Exit problems and issues: Some individuals find the need to involve the legal
systems, leaving the organization with the challenge of facing an even bigger
problem. Even when an employee leaves the organization voluntarily can cost the
company time and money. (Philips & Connell, 2003)
· Employee may join the Organization’s Competitor: When an individual
resigns from his present organization, it is more likely that he would join the
competitors. In such cases, employees tend to take all the strategies, policies from
the current organization to the new one. Individuals take all the important data,
information and statistics to their new organization and in some cases even leak
the secrets of the previous organization.
· Remaining employees get overloaded with work: Till the time, the new
employee joins back; other employees of the same department may have to take
the assignment of the collogue who has left the job. This creates unnecessary
pressure on the employee, and as a result he also leaves. In some cases, it is seen
that there is no replacement hired, if the deputed employee takes up the work well.

Though, the above listed effects of high turnover does not suffice the actual harm that it
does to the organization, but it clearly shows that loosing employees at a fast pace is a
costly preposition for any organization. This give an immediate requirement to hold
employees in the organization, which gives rise to the concept of employee Retention.

1.4. Employee Retention

Employee Retention in simple words means the percentage of employees remaining in

the organization, it also means the ability of an organization to retain its employees. In
modern HR senses, Employee retention refers to the practices that are adopted by the
companies to make the employees stay for a duration which is long enough for him to
contribute effectively and efficiently. High rates of employee turnover have prompted
organizations to take steps for retaining employees. For an organization to do well and
earn profits it is essential that the high potential employees stick to it for a longer
duration and contribute effectively.

There is hardly any attachment in the beginning between employee & organization, but
with time employee and employer relationship matures and a sense of loyalty and trust
develops at both ends. In the same way, when an individual spends a good amount of
time in an organization, his bonding with the organization increases and he strives hard
for furthering the brand image of the organization. Employees who spend a considerable
amount of time with the organization, tend to be loyal and committed towards the
management. They always decide in favor of the organization.

A great workplace culture is foundational to success. Intelligent employers always

realize the importance of retaining the best talent, although in Indian scenario retaining
talent has never been so important; however, things are changing from past few years.
In prominent Indian metros there is no dearth of opportunities for the best in the
business. Retention of key employees and controlling attrition has never been so
important to companies. Failing to retain a key employee is a costly proposition for any
organization. Various analysis suggest that losing a middle manager in most
organizations, translates to a loss to business & in new hiring and training process
which estimates up to five times to the lost salary. This might be worse for outsourcing
companies where fresh talent is intensive. Retaining employees involves understanding
the intrinsic motivators of them which many organizations are unable to identify.

1.4.1. Need and Importance of Employee Retention

Organizations are accelerating their talent retention strategies, which experts believe
would increase the stickiness of employees to their jobs for longer terms. The fact that
retention is more cost effective than hiring is now being brought out strongly in research
as well. According to LBW Consulting (Leadership In Business, Worldwide), the cost
of replacing an employee ranges from 29% (non-management ) to 46% (management)
of the person's annual salary . Then there are the sunk costs such as induction, training
expenses and other administrative people costs incurred on the person. Expenses are
also incurred when someone else does the person's job in the interim, leading to a
domino effect on employee cost. (Singh, 2012)

Subsequently, there is a new hiring cost that, on average , would be 25% of the annual
salary. There's also the probability that the new employee's salary would be higher.
With such metrics, companies are increasingly mapping employee retention and hiring
costs, where retention emerges as a cost effective tool. At companies like Asian Paints,
the talent strategy is strongly tilted towards the old paradigm of 'grow from
within'."Asian Paints has grown its own talent steadily over the years by acquiring them
from campuses. People are picked up early, trained, grouped and rotated through
different functions. Therefore, we're able to develop a pipeline of leadership at mid- to
senior-levels . I don't think compensation is the only element that matters to people.
When you bet on a company, you bet on it for some time to come. We are not
necessarily a top payer in absolute terms, though we certainly are competitive in our
segment," said Ernest Louis, vice-president (HR), Asian Paints. (Singh, 2012)

At Siemens India, a reinforcement of retention is that after independent competency

assessment, more than 90% of Siemens' leadership positions are filled internally, which
serves as a recognition of loyalty within the organization. And retention plays a key
role. "The gap in business knowledge and drop in productivity while we give an
external hire, the time of learning curve is far too crucial. There is research to support
that replacement is at least three times more expensive than retention," said S Ramesh
Shankar, Executive VP (HR), Siemens India. (Singh, 2012)

Likewise Procter and Gamble, India has incorporated strategies like early
responsibilities in career, Flexible and transparent organizational culture, Global
opportunities through a variety of exposure and diverse experiences, Performance

Recognition etc . Almost in the same lines American Express (India) has introduced
strong global brand, Value-based environment, Pioneer in many people practices as
their key retaining strategy. Similarly NTPC has Learning and growth opportunities,
Competitive rewards, Opportunity to grow, learn and implement, Strong social security
and employee welfare performance- oriented culture. At Johnson & Johnson the things
are little different they believe in Strong values of trust, caring fairness, and respect
within the organization, Freedom to operate at work, Early responsibility in career,
Training and learning opportunities, Visible, transparent and accessible leaders,
Competitive rewards, Innovative HR programs and practices etc. (Singh, 2012)

Studies show that the co-relation between retention rate and an organization's
performance in customer satisfaction, productivity and profitability is more than 35% in
value terms between a low attrition company and above average retention company.
These may vary depending on the industry, business, location and the nature of
levels. As jobs become more niche and complex, we will see a shift in the attitudes of
both employers and employees in terms of changing jobs. Employers will find that on
niche skills sets, the return on investment will be after a longer lag time. As a result,
employers are likely to pay a premium for or prefer to hire people who have spent
longer periods of time with their previous employers. As jobseekers see a market
premium being offered to people who have shifted less and as their current employers
focus more on retaining them, we will see a gradual shift to people changing jobs less
often. But the problem remains the same, how do we make people to stay back in the
organization? Many of us know the answer as well- try retaining them. Andrew
Carnegie, famous industrialist of 19th century who is known for having built one of the
most powerful and influential corporations in US once commented, “Take away my
factories, my plants; takeaway my railroads, my ships, my transportation, take away my
money; strip me of all of these but leave me my key people, and in two or three years, I
will have them all again.” Even in today’s new era, these words are very true. (as cited
by Vishal Gupta; Shweta Shrivastava, 2007)

Apart for the above advantages that retaining employees offers, it is not a costly
preposition as well. As stated earlier, retaining an existing employee saves more cost
than recruiting a new one. Apart from incurring the cost on recruiting a new employee,
the cost on training him, has to be considered. The more an employee stays with an
organization, the more strong his knowledgebase becomes, since he now carries a rich

experience. The employees working for a longer period of time are more familiar with
the company’s policies, guidelines and thus they adjust better. They perform better than
individuals who change jobs frequently. Employees who spend a considerable time in
an organization know the organization in and out and thus are in a position to contribute
effectively. (managementstudyguide.com, 2011). Employee retention strategies create a
positive environment in the office and boost the morale of the employee. The employee
feels his worth and thus starts contributing in achieving the organization’s objectives.

1.4.2. Employee Retention Strategies

Now that the importance of retaining employees is well understood and with so many
advantages on the board, all the organizations should, or rather, have to retain their key
employees. In order to retain employees and reduce turnover managers must meet the
goals of employees without losing sight of the organization's goals, thereby creating a
‘win-win’ situation. But the question still remains the same-what makes people stay in
the organization. The very simple answer could be stated in terms of money. Yes,
money is the biggest motivator even today. But as Ashby and Pell (2001), puts it,
money can bring the employees in, but it is insufficient to keep them there. So what are
those specific strategies that would help organization to retain employees.

· Assigning Challenging work: An employee looks for a change when his job
becomes monotonous and does not offer anything new. It is essential for everyone
to enjoy whatever he/she does. It is the responsibility of the manager/supervisor/
team leader to assign challenging work to his team members for them to enjoy
work and do not treat it as a burden. Performance reviews are important to find
out whether the employees are really happy with their work or not.
(managementstudyguide.com, 2011).
· Recruiting the Right People: Frustration crops up whenever there is a mismatch
between personality and person. A finance professional if is hired for a marketing
profile would definitely end up being frustrated and look for a change. The right
candidate must be hired for the right profile. While recruiting a new candidate,
one should also check his track record. An individual who has changed his
previous jobs frequently would also not stick to the present one and thus should
not be hired. (Anshu, 2013) The effort to retain the best personnel begins with
recruiting. Attracting and retaining the best people are not two different things,

but are the same thing. Both require creating and maintaining a positive
reputation, internally as well as externally. Employers must be honest with the
recruit about the beliefs, expectations, organizational culture, demands, and
opportunities within the organization. By representing the organization
realistically, a department will attract those who will be content working within
the culture (Marx, 1995). Denton (1992) follows this up by stating that, “the
better the match between recruits and the organization the more likely you are to
retain them.” He believes that you must take time during the hiring process to
make wise decisions. The employer must be clear about the working conditions,
responsibilities, opportunities and other details to reduce the chances of making
hiring mistakes. (Prethen, 2013). Taylor & Cozenza (1997), strengthen this
thought by noting that it is imperative that companies give prospective employees
a true picture of the organization, if they hope to match the personality type with
the climate and culture of the organization, they will join elsewhere.
· Communication: The key to employee retention is quite simple: communicate,
communicate, communicate. Communication with the employees must begin
early on in the relationship. It is believed that the deciding period of a new
employee is probably less than two weeks. Employers must engage the employee
early on by sharing how important the job they do is. Taylor and Consenza (1997)
indicate that it is important to communicate the values of the organization to its
employees in order to increase their level of consent, participation, and
motivation. The vision of the organization must be shared with the employee as
well as the importance the employees play in helping fulfill it. Lack of
communication may result in gaps between management’s perceptions of quality
employment and the employees desired and perceived quality of employment
(Taylor & Cozenza, 1997). There must be a common purpose and trust among
employees. People want to feel as if they are a vital piece of something larger. As
Denton (1992) points out, managers must make sure employees know what they
should do and why it is important. Employers must listen to what employees have
to say. An atmosphere must be created in which employees feel comfortable
making suggestions and trying our new ideas. The literature revealed that
communication must begin early in the employer/employee relationship.
Organizational values and culture must be made clear to all employees and their

importance within the organization must be continually emphasized. (Nyamekye,
· Performance Appraisals: The salary hike should be directly tied to the hard
work put by the employees. Biasness must be avoided as it de motivates the
talented employees and urges them to look for a better opportunity.
· Employee Recognition: Appreciating the employees is an age old technique.
Their efforts and hard work must be recognized and acknowledged. Money
benefits such as sales incentives, extra perks, cash prizes also motivate the
employees to a great extent and they prefer staying in the organization. The good
performers must be rewarded and have an upper edge and should get a special
action from the management. This way the employees feel important for the
organization and strive hard to perform even better the next time.
· Incentive schemes for the top performers:. The employees who show promise
should be awarded with cash prizes, lucrative perks and certificates to make the
individual stand apart from the crowd. Send a mail wishing the employees on their
birthdays or congratulating them when they perform exceptionally well or come
out with something innovative. Arrange a small bouquet for them as a gift from
the organization’s side. This way the employees feel attached to the organization
and are reluctant to look for a change. A friendly atmosphere is essential for the
employees to feel safe and secure. Make them participate in various management
decision making. (managementstudyguide.com, 2011).
· Improve on Advancement Opportunities: Companies can ensure that all
employees have equal opportunities for advancement by creating and funding
Individual Development Plans and Career Development Programs. Companies
can include these programs in their succession plans to ensure that they identify
and develop well-qualified candidate pools (feeder pools) for their senior grade
levels. (managementstudyguide.com, 2011).
· Pay and Benefits: Compensation is the most important part of any job. Money is
what most people work for, and if money is not sufficiently given to employees,
they will not stay in the organization and will not be motivated enough to perform
better. Salary and benefits should commensurate with the industry norms and
employees should be satisfied with the salary they are getting.

1.4.3. Role of Motivation/ Job Satisfaction in Employee Retention

People don’t automatically come to work, continue to work, or work hard for an
organization. They need to be motivated to take a job with a company, to come to work
each day, to continue to work there, to learn, to perform efficiently, and to accept
change. The most widely accepted explanation for why people are motivated to work,
perform, learn and change is rooted in what psychologists call expectancy theory. That
is where organizations have to strike. People work, because they expect something from
the employer. The employer only has to find out that what is that the employee expects.
The first and the foremost thing is a reward, in compensation of the work they are

Most of the strategies discussed above and most of the researchers suggest that retention
is a function of Intrinsic factors of Job than the extrinsic ones. As described in the
Herzberg’s two factor theory there are certain factors in the workplace that cause job
satisfaction, while a different set of factors cause dissatisfaction. He concluded that
certain factors in the workplace result in job satisfaction, but if absent, they don't lead to
dissatisfaction but no satisfaction.

He distinguished between: Motivators; (e.g. challenging work, recognition,

responsibility) which give positive satisfaction, and Hygiene factors; (e.g. status, job
security, salary and fringe benefits) that do not motivate if present, but, if absent, result
in de-motivation. The name Hygiene factors is used because, like hygiene, the presence
will not make you healthier, but absence can cause health deterioration. (Sengupta,

To understand this we should focus on what an individual desires or what an employee

wants from the employers. This is very well explained by Maslow’s Need Hierarchy:

According to Maslow’s view of individual needs, an individual is motivated on a series

of human needs, which are arranged in such a way that lower, more basic needs must be
satisfied before higher-level needs become activated and these needs motivate an
individual when satisfied sequentially. He saw motivation as a constantly changing
desire to fulfill changing needs and believed that human needs occurred in a hierarchy
of importance, which he called ‘prepotency’. The hierarchy of needs focuses on five
categories of needs arranged in ascending order of importance. Physiological, safety,

and social are the lower-level needs in the hierarchy. The higher-level needs are esteem
and self-actualization. When one need is satisfied, another higher- level need emerges
and motivates the person to do something to satisfy it. A satisfied need is no longer a
motivator. Only the next level of needs in the hierarchy will act as motivators. Once a
level of needs has been satisfied they no longer act as motivators and the individual then
directs attention towards the next level of needs in the hierarchy. (as cited by Sengupta,

A very important and notable thing here is that – a satisfied need does not motivate
employees. This is where the employer has to strike. The organization has lured the
employee by satisfying his basic need. But now he has to satisfy the higher needs in the
hierarchy, so keep him motivated enough so that he stays long enough to perform.

Both the motivational theories point out one important fact i.e., the factors which would
actually help in motivating and eventually retaining employees are not be basic needs
such as money, but the non-monetary factors such as recognition.

Further, it is a well known fact that a motivated employee stays longer and thereby
performs better. Therefore the very first step in retention is to motivate employees.
Employee retention involves various steps taken to retain an employee who wishes to
move on. An employee must find his job exigent and as per his liking to perform and
excel at work and stay with the organization for a longer period of time. The top
management plays a significant role in retaining the high performers who are familiar
with the working conditions of the organization and thus perform better than the new
people who have just joined. Employee motivation plays an important role in employee
satisfaction and in due course employee retention. Money is known to be the most
important factor in motivating employees

1.4.4. Money as a Motivator

Salary, Incentives and other monetary rewards all have the capability to motivate
employees, because money only can satisfy the basic necessities or first two levels of
needs in Maslow’s hierarchy of needs. An employee will be engaged in the routine
work to earn that monthly salary, but will he be motivated enough to perform better and
till what time will he get motivation to stay in the same organization.?

It is a fact that all human beings work to earn money and hence do their regular routine
job to earn money. But, a bigger fact is that an employee will leave the job instantly, if
he is offered a higher salary by other employer. In such cases, the existing employer
may or may not be able to retain him back by offering him the similar salary. While
compensation and benefits may be a key factor in the final decision-making process, a
money shortage is usually not what causes people to look in the first place (Mendonsa,

Money may be the reason they give when they resign, but it’s like ‘white noise’. They
are conscious of it for a while but if they are bored on the job, money alone is not going
to keep them there (Branch, 1998). Although traditional benefits such as vacation and
health are still important, today’s workers are also looking for more non-traditional
benefits. Benefits such as flexible work hours, availability of childcare tuition assistance
programs and discounts on services now top the list of desired benefits (Denton, 1992).
The literature clearly indicates that the factors such as money and benefits are not as
important as job satisfaction in terms of employee retention. So what are those things
which will motivate an employee to be retained in the organization?

1.5. Introduction to Non-Monetary Rewards

Rewards play an important role in any organization to attract and retain their employees.
It is the day-to-day communications that make employees feel that their contributions
are valued and that they are acknowledged for their own unique qualities.

Organizations have the ability to reward individuals in many ways. Because they can
vary in both the kinds of rewards they give and the reasons for which they give them,
organizations can draw from an almost infinite number of approaches to reward

The concepts of ‘incentive’, ‘reward’ and ‘recognition’ are quite interrelated and
complementary in the context of employee motivation and finally retention. It is
difficult to draw a line among them. The broadest category is the ‘reward’ which refers
to something given or received in recompense for worthy behavior. It may be divided
into two categories: monetary rewards and non-monetary rewards. Monetary incentives
involve granting of reward in terms of money such as salary, commissions, bonuses etc.
Non-monetary or non-cash reward do not involve direct payment of cash and they can

be tangible or intangible. Some examples of this kind of incentives are; encouraging the
employees by providing them with autonomy in their job and participation in decision
making, assigning challenging duties, improving working conditions, recognizing good
work through small gifts, letters of appreciation, plagues, tickets to restaurant, providing
some services for the employees, organizing social activities in the work place, etc.

The difference between an incentive and reward may be noted as while incentive aims
to motivate future and encourage certain behavior, reward is the appreciation for the
accomplished behavior and it is a potential reinforcer. Recognition covers monetary and
non-monetary rewards and it refers to crediting, encouraging and appreciating
individuals and teams who contribute, through their behavior and their efforts, to the
success of the organization. It provides after-the- fact reinforcement for specific types of
performance or accomplishments and emphasizes what the organization values.
Moreover, it helps to create a sense of being a valued member of a successful
organization. Examples of recognition are giving public praise, granting monetary and
non-monetary rewards, celebrating and communicating successes etc. Entitlements are
the fringe benefits like paid vacation, health insurance, retirement benefits etc. (Yavuz,

Non-Monetary Rewards and Recognition is a means of providing immediate, non-cash

rewards to employees for contributions to the Organization. We’ve all heard the
statistics on how staff members like to be recognized and rewarded for doing a good
job. That a pat on the back or a “thank you” can mean more to a person than any amount
of money. But actually putting a system into place can be easier said than done.
Employee Reward covers how people are rewarded in accordance with their value to an
organization. It is about both financial and non-financial rewards and embraces the
strategies, policies, structures and processes used to develop and maintain reward
systems. (Pearl, 2001)

In any organization or group, there is always the need for rewards to keep members
motivated. Studies have been made about the effect of positive reinforcement especially
in the workplace. When talking about rewards, most of us think about material or
financial incentives. However, rewards can be in other forms which your employees
may highly appreciate.

Although considered an important need for survival, money and other material things
cannot fully satisfy one’s being. Everyone has their own psychological needs to fulfill
and this is a good target for employee rewards. (Anderson, 2012)

The ways in which people are valued can make a considerable impact on the
effectiveness of the organization, and is at the heart of the employment relationship. The
aim of employee reward policies and practices, if any the organization is to help attract,
retain and motivate high-quality people. Getting it wrong can have a significant
negative effect on the motivation, commitment and morale of employees. Recognition is
the most cost-effective motivators. While the high cost of other rewards forces us to
give them sparingly, recognition can be given any time, at very little cost. (Pearl, 2001)

1.6. The Present Study

The aim of this research is to find out the ‘Impact of Non-Monetary Rewards on
Employee Retention through a comparison between Insurance and IT industries’ A set
of 35 non-monetary rewards have been selected from previous researches and included
in this research. As in the final analysis both incentives and recognition are considered
as the means to induce action, they can be analyzed under the broad category of
‘Rewards’. Consequently, throughout this study, the word ‘reward’ is used to refer
to anything that motivates employees, covering rewards, incentives and recognition
and entitlements. Compensation is the monetary benefits provided to employees in
return for the work they do as part of their job definition, which is not a part of our
research. The following non-monetary rewards (as described above) were included in
the survey to find out the impact of these rewards on retention.

1. Flexible working hours

2. Help in career planning
3. Work from Home
4. Free Medical Insurance
5. Free Movie Tickets
6. Job Rotation and New Assignments
7. Recognition on Birthdays
8. On-site day care (crèche)
9. Employee of the Month award
10. Employee Suggestion Program

11. Training Opportunities
12. Free Food
13. Annual Performance Appraisal
14. Preferred Office Space
15. Gifts of Personalized Items (Shirts, jackets, Planners, Mugs etc)
16. Loan Assistance
17. Gym Membership
18. Healthcare Benefits
19. Free Cell Phone (Handset)
20. Company laptop
21. Growth / Promotion Opportunities
22. Hygienic Work Environment
23. Recognition of good work
24. Good Relationship with Supervisor
25. Redesigning of Job Profile
26. Extra Leave/Off
27. Feedback to an employee about his or her performance
28. Public Praise at a Staff Meeting
29. Publishing Good performance acts in in-house journals and in public press
30. Facilitating High performance employees on special occasions like annual day.
31. Outdoor trips with or without family.
32. Compulsory off on birthdays and Anniversaries
33. Networking with Schools, Collages, Hospitals
34. Retention Bonus
35. Elite club Membership

For analysis purpose, all the items of non-monetary rewards were grouped according to
the impact they have on the employee. There were 35 items in the questionnaire and
these were categorized in to five broad groups:

1. Advancement & Growth

It is a well known fact that companies grow when the people inside them grow first.
Good employees want to develop themselves about new knowledge and skills in order
to improve their value in the marketplace and enhance their own self-esteem. If

employees feel they aren’t learning and growing, they feel they are not remaining
competitive with their industry peers for promotion opportunities and career
advancement. Once top employees feel they are no longer growing, they begin to look
externally for new job opportunities. (Kyndt, Dochy, & Michielsen, 2009). Hytter
(2007) demonstrated that workplace factors such as rewards, leadership style, career
opportunities, the training and development of skills, physical working conditions, and
the balance between professional and personal life have an indirect influence on
retention. Items which were related to growth, learning, training, promotions and
advancement of employees were put in this category.

2. Benefits and facilities

This category included all those items which are equally available to all the employees
irrespective of their performance. These are called entitlements. Medical Insurance,
Phones, Laptops, Crèche facility etc are some examples of this category. Though these
benefits does not reinforces any behavior, but they definitely act as hygiene factors as
explained in Herzberg’s two factor theory. Their presence will not motivate employees
but their absence will surely de-motivate them.

3. Recognition

Employees not only want good pay and benefits, they also want to be valued and
appreciated for their work, treated fairly, do work that is important, have advancement
opportunities, and opportunities to be involved in the organization. Recognition is a
leadership tool that sends a message to employees about what is important to the leaders
and the behaviors that are valued. Managers can use this tool to help employees
understand how their jobs contribute to the company’s overall goals and how their
performance affects the achievement of those goals. Often people have come to accept
the notion that an employee is paid to do their job. So why should they be praised for
doing what they’re paid to do? Praise of an employee reinforces, recognizes and
motivates behaviors that you, as the manager, want to see. (Employee Recognition
Program Handbook, 2000)

4. Flexibility

Flexibility is about an employee and an employer making changes to when, where and
how a person will work to better meet individual and business needs. Flexibility enables

both individual and business needs to be met through making changes to the time
(when), location (where) and manner (how) in which an employee works. Flexibility
should be mutually beneficial to both the employer and employee and result in superior
outcomes. (ukessay.com, 2013). Flexibility here is in terms of workplace flexibility. It
refers to the freedom an employee enjoys while at work or while he comes to work.
Like the days of work, time of work, place of work etc. It has been observed that the
increase in flexibility to employee improves their work life balance, which directly
affects the work satisfaction and ultimately retention. Research shows that flexible work
arrangements may reduce stress because employees working flexibly are more satisfied
with their jobs, more satisfied with their lives, and experience better work-family
balance. (Casey & Chase, 2004).

5. Supervisor Support

Supervisor support is defined as the extent to which leaders value their employees’
contributions and care about their well-being. Supportive supervisors care about
employees’ career goals, give credit for work well done, and help employees develop
job-relevant skills and competencies. A supervisor like this can make all the difference
in employees’ everyday work experiences. (Rucha Bhate, 2013) Strong supervisor
support improves the quality of employment and is associated with increased job
satisfaction, perceptions of a better fit between the employee and the organization, and
reduced turnover. (Eisenberger et al., 2002). Evidence suggests that supervisor support
can mitigate the degree of work/family conflict that employees experience and the
consequences of such conflict. Research has shown that employees who have highly
demanding jobs and family responsibilities and who also have supportive supervisors
tend to experience greater job satisfaction, stronger job commitment, more loyalty to the
organization, and a better balance between work and family life. Supervisors act as
effective mediators as well as ‘primary implementers of work and family policies
initiated by various organizations’. Given the prominence of work/family issues among
employees today, having a supportive supervisor is a characteristic of effective family-
friendly workplaces.(www.changemanagement.com, 2013). Supervisor is the factor
which controls the above four factors. Even when the management supports these
policies and if the manager/supervisor does not implements it, the entire exercise gets
futile. The role of managers and supervisors are so vital because of the relationship they
have with the employees in the organization.
The grouping of various Non-Monetary rewards in categories in depicted in the
following diagram (Figure 1.2)

•Help in career planning

•Job Rotation and New Assignments Advancement
•Training Opportunities
•Growth / Promotion Opportunities & Growth
•Redesigning of Job Profile

•Free Medical Insurance

•Free Movie Tickets
•On-site day care (crèche)
•Free Food
•Preferred Office Space
•Gifts of Personalized Items (Shirts, jackets )
Benefits &
•Loan Assistance Facilities
•Gym Membership
•Free Cell Phone (Handset)
•Company laptop

•Employee of the Month award

•Employee Suggestion Program
•Annual Performance Appraisal
•Public Praise at a Staff Meeting
•Publishing Good performance acts in in- Recognition
house journals and in Public Press
•Facilitating High performance employees on
special occasions like annual day.
•Retention Bonus
•Recognition on Birthdays

•Flexible working hours

•Work from Home
•Extra Leave/Off Flexibility

•Good Relationship with Supervisor Supervisor

•Feedback to an employee about his or her performance
•Recognition of good work Support
Figure 1.2: Grouping of Similar Rewards in to Broad categories

Source: Questionnaire, Primary data

Now having prologue about Retention and Non-Monetary rewards, the next chapter will
present the preface to our research domain that is, the Insurance and IT Industries in
India, what is their current position, what are the challenges that they are facing and
finally where do these industries stand in Indore city of Madhya Pradesh in India.