CHAPTER TWO

1. LITERATURE REVIEW
1.1 Introduction:
 This chapter discusses the literature review on the study which is based on the study the
effective of intrinsic and extrinsic rewards on employee performance that can be used as a
tool of motivation for the better performance in the organization. First, the employee
performance is defined in details followed by intrinsic rewards and their effects on
employee performance. Secondly, extrinsic rewards are defined along with their impacts on
employee performance. In addition, it discloses other key factors that influence the
employee performance. Finally, it summaries the literature review with overall effects of
intrinsic and extrinsic rewards for the motivation of employee performance in the
organizations.

1.2 Performance:
 According to Aguinis (2009), performance is about behavior or what employees do and
not what employees produce or the outcomes of their work. Performance may be used to
describe what an organization’s accomplishments with respect to processes, relevance,
results, and success (UNDP 1995). Performance is an effort along with the ability to put
efforts supported with the organizational policies in order to achieve certain objectives.
Campbell (1990) also defines performance as behavior. It is something done by the
employee. This concept differentiates performance from outcomes. Outcomes are the
result of an individual's performance, but they are also the result of other influences.
Authors agree that when conceptualizing performance one has to differentiate between an
action (i.e., behavioral) aspect and an outcome aspect of performance (Campbell 1993;
Kanfer, 1990; Roe, 1999). The behavioral aspect refers to what an individual does in the
work situation. It encompasses behaviors such as assembling parts of a car engine, selling
personal computers, teaching basic reading skills to elementary school children, or
performing heart surgery. Not every behavior is subsumed under the performance
concept, but only behavior which is relevant for the organizational goals: “Performance is
what the organization hires one to do, and do well” (Campbell et al., 1993, p. 40). Thus,
performance is not defined by the action itself but by judgmental and evaluative
processes (cf. Ilgen & Schneider, 1991, Schmit, 1997). Moreover, only actions which can
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 be scaled, i.e., measured, are considered to constitute performance (Campbell et al.,
1993). The outcome aspect refers to the consequence or result of the individual’s
behavior. The above described behaviors may result in outcomes such as numbers of
engines assembled, pupils’ reading proficiency, sales figures, or number of successful
heart operations. In many situations, the behavioral and outcome aspects are related
empirically, but they do not overlap completely. Outcome aspects of performance depend
also on factors other than the individual’s behavior. For example, imagine a teacher who
delivers a perfect reading lesson (behavioral aspect of performance), but one or two of his
pupils nevertheless do not improve their reading skills because of their intellectual
deficits (outcome aspect of performance). Or imagine a sales employee in the
telecommunication business who shows only mediocre performance in the direct
interaction with potential clients (behavioral aspect of performance), but nevertheless
achieves high sales figure for mobile phones (outcome aspect of performance) because of
a general high demand for mobile phone equipment. In practice, it might be difficult to
describe the action aspect of performance without any reference to the outcome aspect.
Because not any action but only actions relevant for organizational goals constitute
performance, one needs criteria for evaluating the degree to which an individual’s
performance meets the organizational goals. It is difficult to imagine how to
conceptualize such criteria without simultaneously considering the outcome aspect of
performance at the same time. Thus, the emphasis on performance being an action does
not really solve all the problems. Moreover, despite the general agreement that the
behavioral and the outcome aspect of performance have to be differentiated, authors do
not completely agree about which of these two aspects should be labeled ‘performance’.
In the remainder of this chapter we follow the suggestion of Campbell et al. (1993) and
refer to the behavioral aspect when we speak about performance.

1.3 Employee Performance:

 Employees’ performance can be defined as the employees’ contribution or involvement
with respect to the accomplishment of set of goals or objectives (Herbert, John & Lee
2000). In other words, employee performance is defined as the employees’ fulfillment or
accomplishment of a contract, promise and other obligations according to its terms
((Rukhmani et al., 2010). Employee performance is the value that an individual adds to an
organization in a period of time (John Spacey, 2018). Performance can be used to
define what an organization’s achievements in relation to processes, relevance, results,

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 and success (UNDP 1995). Employee performance may defined as the achievement of
cluster of standards in terms of accurateness, and completeness over a specific period of
time (Afshan et al., 2012).

 The level of employees’ performance is dependent not just on their actual skills but also
on the level of motivation exhibited by the individuals. Motivation is an inner drive or an
external inducement to behave in a particular way. In typical situations, this is a way that
will lead to rewards (Barney, 1991). Overachieving and talented employees are the
driving force of all organizations so it is essential that, organizations strive to motivate
and hold on to the best employees. The quality of human resources management is a
critical influence on the performance of the institution (Dessler, 2003).

 Motivation is an inner drive or an external inducement to behave in a particular way. In

typical situations, this is a way that will lead to rewards (Barney, 1991). Overachieving
and talented employees are the driving force of all organizations so it is essential that,

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organizations strive to motivate and hold on to the best employees. The quality of human
resources management is a critical influence on the performance of the institution
(Dessler, 2003). Effective employees use their knowledge and skills to do their jobs in the
correct way. All the activities performed by employees in an organization regardless of
their departments are interrelated and affect the overall performance of the organization.
It is important therefore, that all section heads understand that the ineffectiveness of
employees under their supervision adversely affects the performance of the organization
as a whole. This poor performance lowers the organization’s competitive advantage in
the market (Chei et al, 2014).