Reward Systems

According to the three-sector economies model created by Allan Fisher in the first half of the 20th century, industrial economies are split into three sub-sectors: extraction of raw materials (primary), manufacturing (secondary), and service industries (tertiary) that assist in transporting, distribution, and sale of commodities produced in the secondary industrial sector level.

The Kingdom's abundant supply of natural resources and raw materials presents major opportunities for industry, as there is a massive market for metals and petrochemical products both domestically and internationally. The industrial sector in Saudi Arabia, including all three industry activity sectors, is viewed as a pillar of the economy, one with great growth potential that assures Saudi citizens and residents of attractive job prospects in the decades ahead. The Kingdom recognizes that a formula based solely on abundant crude oil and cheap foreign labor would not be sufficient to provide distinctive exports to enhance diversification and generate abundant wealth for an expanding population. As a result, the industry is embarking on an agenda centered on a more efficient and educated workforce through internal competency development, unique talent acquisition, investment, and capitalizing on the private sector.

The success of Saudi private sector companies as well as foreign companies operating in the Kingdom is pivotal to the overall achievement of the goals outlined in the previous paragraph, increasing the private sector's contribution to the Gross Domestic Product (GDP) and increasing the Foreign direct investment (FDI) in the Kingdom. Continuity of this success will enable the achievement of the national Saudi Vision 2030 program targets and goals.

Since the success of public entities and private sector companies is dependent on their workforce, which is the most valuable form of resources a business or even a nation can possess, investment and enrichment of human capital not only improves short-term outcomes for companies and public sector entities, but also paves the way for further development and advancement. Typically, employees contribute positively and actively to the success of businesses when they reach a state of self-fulfillment as a result from individual's full engagement. This state of employee's self-fulfillment often includes ‘employee satisfaction' or ‘employee motivation'. For example, a tool to increase motivation is promotion which associates with more responsibilities that can lead to improvement and job enrichment resulting in social recognition and status. For instance, financial rewards, feedback, and social recognition have significant impact on task performance. For that, companies are required to invest in recognition, appreciation, and empowerment to achieve satisfaction.

In today's ever-changing world of business, competition from other companies in different markets increases the need for companies to invest in workforce satisfaction, and the Saudi industrial sector, the context of this study, is substantially competitive. In regard to human capabilities, the young workforce forms 67% of Saudis who are aged under 34 years old; in addition, the country enjoys a robust economy, currency stability and membership of the G20, Arab free trade Zone with low level tax which have all created competitive advantages. For instance, over the following three decades, Saudi industrial cities have grown from 3 to currently 35 industrial cities and zones. Therefore, the competition to attract and retain talented employees posed a challenge as many large petrochemical and industrial services organizations have been established.

According to recent research, the new economic transition in Saudi Arabia requires modern skills and contemporary management approaches. In addition, the study suggested that Ministry of Human Resources and Social Development should focus on two objectives: maximizing employees' performance by building the skills of the Saudi workforce and enabling the industrial sector as an engine of job creation and economic growth. However, to ensure employees' satisfaction and high performance, organizations normally rely on incentives and reward systems as a strategy to retain and encourage people to deliver their potential. Based on organizational circumstances, a combination of financial and moral incentives is required to satisfy the social needs of employees, and increase their job satisfaction and, in turn, their overall productivity.

The Reinforcement Theory which focuses on the relationship between the desired behavior (for example, performance) and the motivational tool (for example, pay for performance) is a fundamental theory in human behavior. According to this theory, a desired behavior can be promoted by using reinforcements such as rewards and incentives. Experimental studies applying reinforcement theory in the workplace have found combination of positive reinforcers are contributed to employee's performance including money, feedback and social status. Cho, Y et al. observed that feedback has more impact on performance than money does, in complex tasks. They also stated that high performance is influenced by job satisfaction.

The assumption of this theory is that once a need has been fulfilled for an employee (i.e., pay) satisfaction is accrued and a desired behavior will be produced as the outcome (i.e., performance). Satisfaction is critical for reinforcement theory. Reinforcement theory is associated with the equity and expectancy theory in current perceptions. On the other hand, these authors asserted that equity and expectancy are more effective in the case of immediate rewards. Moreover, the use of reinforcement theory techniques to understand human behavior relatively provides considerable sophistication to social science. This research also draws on the reinforcement theory to test the relationship between rewards and employees' performance with consideration of satisfaction.

Much of the greater part of the literature recognized the impact of incentives and rewards system on employees' performance including. However, two things are worth mentioning. First, most studies on incentive systems were conducted in developed countries such as the United States and China for example. Countries with a different cultural context such as Saudi Arabia suffers a dearth of studies in that matter. Second, these studies seem to neglect many of the potential factors that could mediate the relationship between rewards and performance. For that, recent researchers have directed the attention towards studying potential intervening variables to this relationship. Furthermore, such research into how rewards–employees' performance mechanism work in multi-industry with regard to another cultural context is indeed more relevant than ever. The use of multi-industry will have substantial effect and wide perspective, while acknowledging the homogenous nature of population in terms of culture and context.

The current research aims to investigate the relationship between incentives/rewards, and employee performance through the mediating role of job satisfaction. This study is important because it provides international evidence and indicators to understand the enforcements factors for motivation toward a high level of performance in the industrial sectors. The main research question is "How can companies in the Saudi industrial sector enhances job performance through incentives and rewards, and what role job satisfaction plays in this dynamic relationship?". The study attempts to further our understanding of the reward relationship with performance by testing job satisfaction as a mediator to this relationship. Moreover, examining this dynamic relationship in the Saudi context, where there is a dearth of research, might uncover the influence of cultural context when compared with results from the dominant Western-based research.

The research delves into the existing literature to develop hypotheses based on relationships established in previous research. Three variables: the independent variable (incentive and rewards), the mediating variable (job satisfaction), and the dependent variable (employee performance) are employed in this research. In this section, two hypotheses are developed based on the literature review, with a focus on defining the relationships between the three variables. Data were collected through a measurement instrument developed based on previous research and analyzed using structural equation modeling (SEM) in Section 3. Then, analysis of results and hypotheses testing were discussed in Section 4. Finally, Section 5 draws conclusions and provide recommendations for future research.