The Effect of Rewards on Employee Performance with Employee Engagement as an Intervening Variable in Indonesian Pharmaceutical Companies

Abstract

Employee performance has a major contribution to organizational effectiveness. There are several factors that possibly improve employee performance including rewards and employee engagement. The purpose of this study is to determine the effect of financial and non-financial rewards on employee performance with employee engagement as an intervening variable. This study conducted on leading pharmaceutical companies in Indonesia. Data collection using questionnaires, the distribution using disproportionate stratified random sampling technique. Data analysis uses path analysis. The results show that both forms of rewards and employee engagement significantly influence employee performance simultaneously and partially. There is an influence of employee engagement in mediating the relationship of financial rewards on employee performance as well as the relationship between non-financial reward on employee performance. Introduction Human resources are one of key factors to the survival of an organization. Nowdays, human resources are better known as Human Capital which must be guarded and taken care of so that the company has a long time or survival. Therefor beneficial mutually relationship is needed for both employees and the company. The relationship will have an impact on improving the performance of employees which the end result will affect the performance of the company. Gibson et al. (2012) stated that organizational performance depends on the performance of its employees, or in other words employee performance will contribute to organizational performance. According to Akhyadi & Kaswan (2015, pp 5), human resource management has a great contribution for the succesness of an organization. The increasing number of organizations in Indonesia in particular, makes the competition between companies increasingly tight. So, the greater company performances are needed in order to compete with other companies. This makes the company requires employees in the company to have high performance. Improved performance is done through various ways among others by providing feedback or appreciation from the company. Qureshi et al (2010) argued that rewards are more effective for improving employee performance. This argument was supported by the results of research by Sajuyigbe et al. (2013) which stated that reward dimensions have a significant effect on employees' performance. The forms of Reward are varied, including financial rewards and non-financial rewards. Based on previous studies, Ryan in Qureshi et al. (2010) indicated that non-monetary types of rewards can be meaningful to employees and can improve employee's performance. On the other hands, Luthans (2000) highlights two types of rewards which are financial (extrinsic) and non-financial (intrinsic) rewards and both can be utilized positively to enhance employee performance. Aside from being done with giving employee the feedback through rewards, improving employee performance can also be done through improving relations between employees and company which is known as employee engagement. Study conducted by Anitha (2014) has shown that there is a strong significant relationship between employee engagement and employee performance, so that if employee engagement is high, then employee performance in the company will also be high. This is supported by Demerouti & Cropanzano (2010) in their study which concluded that engagement can lead to enhanced performance as a result of a number of mechanisms. Their conclusions are supported by a growing number of studies demonstrating a positive relationship between engagement and individual performance. Xanthopoulou et al. (2008) and Berdakar & Pandita (2014) also argued that organizations must actively meet employee expectations to build engagement with employees in the organization, which has an effect on