The Impact of Incentive and Reward Systems on Employee Performance in the Saudi Primary, Secondary, and Tertiary Industrial Sectors: A Mediating Influence of Employee Job Satisfaction

Abstract

The three levels of the industrial sector in Saudi Arabia (primary, secondary, and tertiary sectors) are collectively regarded as a pillar of the economy, with great potential that offers attractive job prospects. Therefore, the success of Saudi private sector companies and foreign companies operating in the Kingdom is pivotal. The purpose of this research is to investigate the effect of incentives and rewards on the performance of employees in the Saudi industrial sectors, and the role of job satisfaction in this relationship. The research population consisted of employees working with the industrial sectors in Eastern Region in Saudi Arabia, and the sample comprised 216 full-time employees. Structural equation modeling (SEM) was used as a statistical method for testing the hypotheses. The results demonstrated that there is an insignificant direct effect between incentives and rewards, and employees’ performance. However, evidence shows a significant direct effect between incentives and rewards, and job satisfaction, as well as a significant direct effect between the mediating variable, job satisfaction, and performance. Furthermore, when job satisfaction acts as a mediator, the influence of incentives and rewards on employees’ performance is significant. The research findings have notable theoretical and practical implications for incentive and rewards systems. The present study seeks to further our understanding of the incentive and reward effect on employees’ performance by examining job satisfaction as a mediating variable to the relationship. Additionally, the study attempts to explain how the relationship between proposed variables works in Saudi cultural context, which differs than Western contexts where most of the previous studies have been conducted. Analyzing employee job satisfaction as a mediator facilitates a better understanding of how and why different forms of incentives and rewards enhance employees’ behavior at work.

1. Introduction

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 [1].

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 [2].

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 [3]. 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 [4]. This state of employee’s self-fulfillment often includes ‘employee satisfaction’ or ‘employee motivation’ [5]. 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, [6] found that 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 [7].

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. According to [8,9], 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 [10]. 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 [11], 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 [12,13].

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 [6,14,15]. According to this theory, a desired behavior can be promoted by using reinforcements such as rewards and incentives [16]. 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 [17,18]. Cho, Y et al. [16] 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) [19]. This is in line with [16,17] who state that satisfaction is critical for reinforcement theory. Reinforcement theory is associated with the equity and expectancy theory in current perceptions [19]. 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 [20]. 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 [21,22,23,24,25,26]. 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 [27,28]. 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.

2. Literature Review

This research paper seeks to investigate the relationship between incentives/rewards, in their different forms, and employee performance through the mediating role of job satisfaction. The focus of the research is on employees working in the Saudi Arabian industrial sector. Thus, it examines the literature of the three variables employed in this research: the independent variable (incentive systems), the mediating variable (employee job satisfaction), and the dependent variable (employee performance). Each main variable is defined, and relationships between the main variables are derived. Finally, based on these relationships, research hypotheses are developed and presented at the end of each subsection.

2.1. Incentives and Rewards and Employee Performance

Several studies have analyzed employee performance and the role incentives play in that dynamic relationship [25,29]. Much of the previous research indicated that organizations rely heavily on reward systems to retain and encourage people and to achieve high levels of performance. However, diverse theories exist in the literature regarding these variables which have been constructively developed and empirically tested. For example, agency Theory is a crucial concept in this field. With regard to monetary incentives, one of the influential theories is performance-related pay (PRP) which is a tool designed to raise employee motivation and performance [30,31]. Other additional main theories have contributed to the understanding of the relationship between incentives and motivation. One is Expectancy Theory, which is the most widely used analytical framework for determining whether a pay system influences motivation [32]. It demonstrates how tying pay to individual performance might inspire employees to exert a high level of effort. This is however contingent upon meeting three conditions: the individual must feel that s/he can perform at the necessary level; that her/his performance will result in the intended outcomes; and that the reward has a positive worth [33]. The other is the Reinforcement Theory which focuses on the relationship between the desired behavior (for example, performance) and the motivational tool (for example, pay for performance) [6,14,15]. According to this theory, a desired behavior can be promoted by using reinforcements such as rewards and incentives [16]. Prior research utilizing reinforcement theory [15,19], conducted a reward–performance relationship and argued that the availability of rewards will affect a person’s willingness to perform a task. According to [15], the external environment must be designed positively to motivate employees and direct them to the desired behavior through positive enforcement.

However, [34] examined the effect of financial incentives on the effort exerted by public managers and the ways in which different types of work motivation (i.e., intrinsic, extrinsic, and public service motivation) can moderate these effects. They showed that financial incentives have no significant effect on managers’ efforts. Furthermore, the link between financial incentives and managers’ effort, which was statistically insignificant overall, is negatively influenced by participants’ intrinsic motivation, positively by extrinsic drive, and not influenced by public service motivation.

On the other hand, [35] illustrated that intrinsic rewards, moral incentives, have a positive and significant influence on the performance of the employee in an organization. Their results further indicate that extrinsic rewards such as pay, bonuses, promotion, and benefits have more effect on the job performance of an employee than moral incentives such as career development, responsibility, recognition, and learning opportunities. Incentives were found to be positively correlated with employee performance [36].

In today’s business environment, which is characterized by volatility, a firm’s success is determined by the capabilities of their management to reshape its business environment (freedom to perform independently), adopting bright approach of strategic capabilities and ultimately the potential success of an organization is dependent upon its organizational performance [37]. Moreover, the rapid changes in business environment in terms of technology, consumers’ behavior and market requirements require quick response, high productivity from employees which can be altered to discovering new opportunities in order achieve organizational performance. In this context, the concept of employees’ performance defines the idea of the result, achieved the objective and the economic aspect of efficiency and effectiveness [38]. In this regard, core competencies that refer to firm’s distinctive resources and capabilities including employees Know-How capability are critical sources of sustained competitive advantage [39]. Studies have proven that motivated employees perform their job more effectively as reflecting their work environment, rewards and incentives have a positive influence in performance [24,25]. That is, maintaining highly skilled individuals who are motivated, hence rewarded, by professional human resources systems are a vital component in achieving superior performance. On other hand, weak system causing employees not finishing their tasks and job in an appropriate manner or required standard, this capability issue is outside the control of an employees. Recent studies indicated that employees who perceived compensation system are positively contributing to organizational performance [40] and increasing their productivity [41]. A study conducted in non-western context using a single industry [42] indicated that incentives and rewards system have a positive impact on employees’ performance.

Hypothesis (H1).

Incentives and rewards have a positive influence on employee performance.

2.2. Incentives & Rewards and Job Satisfaction

Incentives are defined as the utilized tools by organization leadership to recognize and provide structured compensation for their respective teams. Incentives can be moral or financial and can be performance based, or time based. Flat bonuses (additional incentives) based on achievements are another type of incentive that is widely used in professional organizational settings [13].

The first type of incentive is monetary. Financial incentives, which are defined as tangibles which provide support in satisfying human needs, encourage employees to do their best, and increase the level of their competencies such as through prompt payment of salaries, bonuses, allowances, profit-sharing and one-time rewards [34]. Financial incentives may take the form of a lump sum payment, monthly installments, or any other form of compensation that generates more revenue for employees, such as bonuses [12,13]. Financial incentives are distinguished by their rapid and immediate effect, which gives employees direct feedback on their efforts and performance [13,34]. A contrary perspective on financial incentives is that they may not be applicable to a variety of professional, service-based tasks that are not quantifiable in terms of output but rather on the basis of services such as library services, supervision, security, and scientific research [43,44,45,46].

The second type of incentive is non-financial, moral incentives. A moral incentive is defined as a collection of motivations aimed at achieving emotional and psychological balance and meeting the humanitarian needs of employees through proper treatment and resolution of issues that may cause complaints, the application of reward and punishment rules, the provision of systemic and entertainment services to employees, and spiritual enhancement in the workplace [12,47]. This form of incentive creates a favorable emotional response from employees and serves to push them to continue improving as well as making necessary behavioral modifications [48]. Moral motivation may influence an employee’s behavior if the employee has been educated to believe that doing so is the right, decent, or admirable thing to do. Moral incentives are related to psychological requirements; interest in this area has grown with the emergence of human relations theories [13]. These intangible benefits are contingent upon companies respecting their employees’ feelings, dreams, and aspirations [17,18]. Moral incentives may take the form of participatory decision-making, recognition awards, training and development, and celebrations for notable personnel, among other things. Additionally, they could take the form of a letter of appreciation to an employee or designating them as an honorary employee in the company [49]. Increasing an employee’s satisfaction and loyalty to their work results in increased cooperation with their colleagues, which includes the opportunity for promotion, recognition and appreciation of job efforts, taking on a position, career impact, participation in decision-making, opportunities for growth and innovation, and the freedom to articulate their opinion [50].

It is argued that moral motivations are just as essential to job satisfaction as financial motivations [16]. Moral incentives consequently elevate the spirit of individuals through job enrichment, vacations, health insurance, appropriate post, nature of supervision, sense of belonging, stability, job security, participation in decision-making, promotion, trust in the firm’s objectives, system proposals, inclusion in a panel of honor, social harmony, literarily and morally differentiating [13].

Many studies have examined the relationship between job satisfaction and incentives and rewards in a variety of contexts [51]. The main finding of their study is that intrinsic rewards have a positive and significant impact on employees’ job satisfaction. For example, studies found that intrinsic motivation and appreciation, moral incentives, play a vital role in the satisfaction of employees rather than financial incentives [17,18,52]. However, [35] illustrated those intrinsic rewards and moral incentives, have a positive and significant influence on the performance of the employee in an organization. Their results further indicate that moral incentives such as career development, responsibility, recognition, and learning opportunities have less effect on the job performance of an employee than extrinsic rewards such as pay, bonuses, promotion, and benefits. Employees prefer to receive immediate monetary benefits than recognition of their work. To examine this relationship in the Saudi industrial sectors, the researchers developed the following hypothesis:

Hypothesis (H2a).

Incentives and rewards have a positive influence on job satisfaction.

2.3. Job Satisfaction and Employee Performance

Job satisfaction is an important quality in the labor market and is a useful collective indicator of efficiency in the workplace [53]. Hoppock first proposed the concept of job satisfaction in his book titled ‘Job Satisfaction’ in 1935. He established that job satisfaction is a combination of psychological, physiological, and environmental factors that makes a person arrive at the conclusion that they are happy in their job. He considered job satisfaction to be the worker’s mental and physical feelings of contentment with their circumstances, that is to say, the objective reaction of the worker to the work situation, and this subjective reaction is a consequence of interpreting the operating characteristics based on his or her reference system [54]. Incentives and rewards are considered the most important determents of job satisfaction [55], because its link with a wide-range of organizational outcomes including performance [56].

The literature on job satisfaction and its expected outcomes is widespread [53]. It has been found that job satisfaction has a beneficial effect on performance, as it enhances efforts by minimizing employees’ shirking and wasteful job tasks. Additionally, job satisfaction is positively correlated with performance. Job satisfaction is related to people’s views toward their work; positive attitudes toward work increase job satisfaction, whilst negative attitudes decrease it [57]. The concept of job satisfaction may be understood in two ways: through the lens of facet satisfaction and overall satisfaction. Facet or factor satisfaction can be derived from a range of employment characteristics (e.g., compensation, supervisors, or work challenges), while overall satisfaction can be derived from an individual’s internal state [58]. Working with friendly coworkers, receiving generous compensation, and having forgiving managers all contribute to the formation of a positive internal state [59]. It has been indicated that intrinsic motivators connected to job content, such as Hackman and Oldham’s job characteristics model, are critical for job satisfaction development [57]. Moreover, Economic Theory demonstrates that salary, working hours, and work patterns all have a significant impact on job satisfaction [60].

A plethora of researchers cite factors as causes of job satisfaction in their work. According to [61,62], job satisfaction has several components such as satisfaction with work, pay, supervision, quality of work life, participation, organizational commitment, and organizational climate. Despite the popular belief amongst researchers that these facets are correlated, the fact remains that each of these facets can be thought of as an independent construct [63]. Satisfaction with one facet does not guarantee satisfaction with all other satisfaction facets. Despite this independence, a relationship between demographic variables with diverse satisfaction facets has been found in a number of studies [64,65,66]. Demographic factors such as age, education, tenure, and experience have a significant influence on job satisfaction, making demographics an important consideration when evaluating satisfaction.

In a study by [67], the majority of respondents believe compensation to be the most important factor of job satisfaction. Numerous other studies including [68,69,70,71] show a strong correlation between salary level and job satisfaction, despite the fact that these research were mainly conducted in the hospitality industry. Through mixed methods approach, [68] indicate that pay has a significant impact on job attitudes and satisfaction in Hong Kong. [70] evaluate 2524 valid questionnaire responses from Spain and Portugal and conclude that compensation is a highly significant predictor of job satisfaction in both countries. Esen et al. [72] examine a variety of job satisfaction dimensions and sub-variables. Their model includes prospects for job advancement, benefits, the ability to balance personal and professional life, and well-being.

Most of the existing research concentrates on the relationship between job satisfaction and employee performance with their results demonstrating that job satisfaction has a large positive relationship with contextual performance, supporting individuals in promoting their performance. Other researches provide a mixed bag of results, namely, both negative and positive associations between these two factors. According to a study conducted by Sousa-Poza, workforce performance increased because of increased job satisfaction practically in women [73], employees’ satisfaction has a positive influence on performance and employees’ well-being among frontline staff [74], it results in increasing productivity, organizational responsibility, and physical and mental health, all of which contribute to increase employees’ performance and overall organizational success [75]. Another study examined the relationship between individual characteristics and frontline staff performance and job satisfaction and reveals that these two variables have a favorable correlation [76]. The relationship between employees’ job satisfaction and customer-oriented behavior has been examined [77,78]. These studies report that employee job satisfaction has a significant effect on employee customer-oriented behavior (job performance).

On the other hand, according to [79], who conduct their research in the banking industry, a relationship exists between specific job features, sociodemographic parameters, and employee job performance and there is insignificant effect of job satisfaction on employees’ performance. Researchers [80] report that there is less evidence of a strong association between satisfaction and output.

Despite the findings from these studies, the majority of researchers support the premise that satisfaction results in employee performance and confirm that job satisfaction has a positive effect on performance and substantiate the claim that understanding how to improve employee satisfaction is just as critical for an organization as understanding how to improve employee performance. Therefore, the proposed hypothesis is:

Hypothesis (H2b).

Employee’s job satisfaction has a positive influence on employee’s performance.

2.4. Employee Performance

Employee performance is catalyzed by the type of reward system in place within organizations [81]. A study proposes that employee performance is a measure of an employee’s financial or other outcomes that is directly related to the organization’s success and achievement [82]. Employee performance is defined in an organizational setting as the extent to which an organizational member contributes to the achievement of the organization’s goals [83]. Organizations that do not have an effective incentives and rewards system will be faced with challenges such as low staff morale, ineffective employee performance, or a high employee turnover rate [84]. Organizations can assess employee performance by analyzing the quantity and quality of output, as well as the timeliness and productivity of work [85]. Employees’ level of motivation, behaviors, and attitudes toward their organization are factors that influence their perception about the organization, as such, their actions are critical to the society, management and overall organizational success [86]. That is, employees’ actions and behavior have an effect on the organization’s reputation. Successful supervision, training & development, and empowerment of employees are critical components of an organization’s performance, Consequently, the employee’s results can be quantified using indicators that describe their performance pattern over time [87].

One way that employee performance can be measured is by productivity, which is defined as the duration over which goods or services can be produced. It can also be quantified; in which case it is treated as a variable [88]. Employees’ productivity is a measure of an organization’s overall success in employing its labor, equipment, and capital to convert employees’ efforts into usable output [89]. It has been proven that the contextual performance and task performance behavior referring to job description independently contribute to an organization’s performance as a whole [90], affecting employees’ rewards over the time [91]. Performance has a critical input in the incentives and rewards system, because when employees perform at a high level, they expect adequate payment in return. If employees are unable to accomplish their goals and exhibit poor performance within an organization, and at the same time are not incentivized to perform, they will experience dissatisfaction [92].

Previous research have indicated a positive influence of incentives and rewards on performance [21,22,23,24,25]. Thus, the rewards system performs a motivational role in increasing productivity and employees’ job performance in order to achieve organizational goals. In the same line, [17,18,52] postulated that a developed reward and incentives system is inevitable to be implemented for achieving job satisfaction and subsequently high performance.

Researchers, therefore, have directed the attention towards studying potential intervening variables to this relationship. Many factors could potentially add to the understanding of the relationship between incentives and performance. Such potential factors may include for example: motivation. In [93], motivation as a mediating factor was examined and they found that employee’s motivation significantly mediates the association between intrinsic rewards and the employees’ performance. Several researchers advocated the impact of rewards on job performance through the employees’ behavior such as job satisfaction. For instance, [94] examined the mediating effect of job satisfaction between motivation, rewards, and job performance. Their findings indicate that the relationship between rewards, motivation, and employees’ job performance is more powerful through job satisfaction.

Hence, it can be predicted that the relationship between incentive and rewards system and employees’ performance would be mediated through job satisfaction. Hence, this research aims to investigate the mediating role of job satisfaction on the relationship between incentives and rewards systems and employees’ performance in Saudi Arabia. To facilitate this investigation, it was hypothesized:

Hypothesis (H3).

Job satisfaction mediates the relationship between incentives/rewards systems and employee’s performance.

3. Methods and Materials

The current research aims to explore the relationship between incentive/rewards and employee’s performance through the mediating role of job satisfaction in the Saudi context. Using a quantitative method is suitable for research purposes. The sample was selected from full-time employees working in the largest region of the Kingdom, the Eastern Region, where the diversity of the industry provides a good representation of the whole country. Data were collected from January to March 2022 via a questionnaire developed for this study using online Google Forms.

Previous research investigated a relevant relationship through the quantitative approach and supported the credibility and validity of the instrument used to measure the relevant constructs [95,96]. Data for this research was gathered using four instruments and compiled into one survey questionnaire (Supplementary Materials). The first section was devoted to collecting data on subjects’ personal characteristics, while the other sections were used to measure the research variables: incentive/rewards, employee’s performance, and job satisfaction. The researchers ensured the confidentiality and clarity of the survey questions and how appropriate it was for use in the targeted space, the Saudi industrial sector. The length of the survey was also carefully maintained to ensure that participants’ interest would be preserved. Distribution techniques used to facilitate data collection were social networking and the snowballing amongst employees. The Saudi convenience sampling technique was adopted for cultural homogeneity and accessibility purposes. More than 300 questionnaires were distributed, 216 were returned and eligible for data analysis. The researchers therefore concluded that the data was adequate for Statistical analysis due to the large sample size and normality, through two-step Structural Equation Modeling—the measurement model or confirmatory factor analysis and structural model through SPSS AM`OS.

Each construct was measured through a set of instruments recorded on a five-point Likert type scale (see Section 3.1 and Appendix A for details). Reliability, factor loadings, and goodness-of-fit for each scale of the study were conducted, and quantitative analysis of the empirical data was carried out to diagnose the relationships among the variables. Moreover, SEM allows to concurrently test the mediating hypothesis, rather than separate regression analyses for testing them [97].

3.1. Research Model and Instrument

Following the discussion of the theoretical background and related literature, this research proposes an integrated model by using incentive/rewards as independent constructs which are predicted to influence employees’ performance (dependent construct), also job satisfaction was predicted to facilitate the relationship between the independent and dependent constructs (see Figure 1).

The data for this study were gathered from one survey with four sections. The first section, which established the characteristics of the respondents, was created by this research’ authors. The other sections of the survey required participants to rate their levels of incentives and rewards systems (IR), employee performance measures (PM), and job satisfaction (JS) preferences with regard to differing dimensions of their experiences of working in the industry. The questionnaire was designed using a five-point Likert scale (1 = strongly disagree; 2 = disagree, 3 = Neither agree nor disagree, 4 = agree, and 5 = strongly agree). The instruments used in the current study mostly showed good reliability scores of more than 0.8.

The second section, concerning incentives and rewards (IR), contains 10 questions adopted from several reliable studies [47,98,99]. An example question was (Financial incentives are important to me and to my desire to excel at my job).

Section three, the employee performance measures (PM) section, was dedicated to measuring respondents’ impressions of their employers’ performance and the effect of incentives on performance from their perspective. It was adopted from research conducted by [95,99]. This section contains four questions about the perception of employee performance. An example question was (I have a drive to achieve more when I am motivated morally).

Lastly, section four, the job satisfaction (JS) section, measures the degree of satisfaction of employees with the job itself, their position and independence within their work environment, and with incentives provided in their company. The measurements were conducted through the short form of the Minnesota Satisfaction Questionnaire proposed by [100,101]. This is in line with many researchers who use this well-established and highly reliable questionnaire to measure job satisfaction in their respective studies. This section measures the degree of satisfaction of participants through five questions answered in Likert scale format. An example question was (What is your level of satisfaction with regard to financial incentives provided by your company).

3.2. Data Analysis Procedure

A two-step modelling technique which is recommended for conducting structural equation modeling (SEM) was developed by [102]. Thus, the following steps were followed to carry out the data analysis: In the first stage, each latent construct and its respective indicators were identified. Items’ reliability and their respective loadings on their appropriate latent constructs were assessed independently to test the reliability, factor loadings, confirmatory factor analysis, constructs correlations covariances and significance, and goodness-of-fit for each scale of the study.

In the second stage, the structural model, the overall relationships between constructs were focused on by specifying how each construct appears in the model. The logic behind this two-step approach is to attain an accurate representation of the reliability of the measurements whilst avoiding the interactions between measurements and the structural model [103].

4. Analysis of Results and Hypotheses Testing

In this fourth section of the current study, descriptive statistics will be explained, and Construct reliability is assessed using Cronbach’s Alpha. The dynamic between the three main variables in this research and the four developed hypotheses are analyzed and tested using established statistical analysis tools such as SEM, Confirmatory Factor Analysis (CFA) using IBM SPSS AMOS 22.0.

4.1. Descriptive Statistics

Descriptive statistics presented in the first section of the questionnaire (Table 1), show that the respondents, was dominated (>50%) by those in the 30–39 years age group, which is representative of the Kingdom’s population’s median age (GASTAT, 2021). The majority of respondents have 6–15 years of professional experience, which provides a considerable and meaningful perspective of employment within the industry. In addition, >67% of respondents hold undergraduate degrees or higher. In terms of concentration within the industry, oil and gas (primary and secondary industrial sectors) dominate the sample population with >61% representation, followed by general industrial services and manufacturing with 13% and 10%, respectively. Other subsectors, tertiary industrial sectors’ representation varied between 1–3% such as the banking & finance, construction, science and tech, health, hospitality industries.

4.2. Reliability of Constructs and Correlation Test

Correlation coefficients and Cronbach’s Alpha (Table 2) for all study variables and latent constructs were derived and tabulated (including the modified latent constructs). Construct reliability was assessed using Cronbach’s Alpha, which was found to be above 0.6—an accepted cutoff point—for each construct in our study [104]. Pearson’s correlation coefficient magnitude revealed that there is a strong correlation between the three constructs “IR”, “PM”, and “JS”. No weak or moderate correlation was found between latent constructs at the 0.000 significant levels.

4.3. Measurement Model

Confirmatory Factor Analysis (CFA) was computed using AMOS 22.0 to test the measurement models. As part of confirmatory factor analysis, factor loadings were assessed for each item. The indicators of all three constructs, Performance Measure (PM), Job Satisfaction (JS), and Incentives and Rewards (IR) loaded adequately on their respective factors with no loading below the 0.6 cutoff point [105] (Table 3, Table 4, Table 5 and Table 6).

Pertaining to the Incentives and Rewards construct, three items loaded relatively inadequately, and after reevaluating the survey and looking at the literature to reconcile these low loadings (below 0.5, see Table 5 and Table 6), it was decided to drop them. The new factor loadings with the total variance explained (the latent construct IR captured variance of the seven remaining IR items) were tabulated, demonstrating how much the parameters and fit were enhanced.

The model-fit measures were used to assess the model’s overall goodness of fit (Chi-Square, CMIN/df, GFI, CFI, TLI, SRMR, and RMSEA) and all of the values were within the appropriate acceptance levels [106,107]. The three factors of the modified model, Figure 2, (Performance Measure, Incentives and Rewards, and Job Satisfaction) all yielded an adequate fit with the following parameter values: Chi-Square = 147.93, p = 0.000, CMIN/df = 1.59, GFI = 0.93, CFI = 0.96, TLI = 0.95, SRMR = 0.0447, and RMSEA = 0.052.

The Scale fit indices show that Performance Measure is an adequate fit (Chi-Square = 177. 31, CMIN/df = 4.15, GFI = 0.91, CFI = 0.92, TLI = 0.90, SRMR = 0.032, and RMSEA = 0.071), the scale fit indices show that Incentives and Rewards is an adequate fit (Chi-Square = 254.32, CMIN/df = 5.54, GFI = 0.92, CFI = 0.94, TLI = 0.91, SRMR = 0.07, and RMSEA = 0.064) and the scale fit indices show that Job Satisfaction is an adequate fit (Chi-Square = 148.46, CMIN/df = 4.52, GFI = 0.9, CFI = 0.91, TLI = 0.92, SRMR = 0.04, and RMSEA = 0.048).

4.4. Hypotheses Testing Results

The model was run using bootstrapping procedure in AMOS (performing 5000 resamples). Additionally, statistical significance for the indirect effect was determined at 95 per cent bias and accelerated confidence intervals which is a standard in social sciences [97]. According to our data and the calculation parameters applied, our results demonstrated the following: (see Table 7).

Hypothesis 1 is not supported. There is an insignificant direct effect between our independent variable Incentive Reward and our dependent variable Performance Measures. The standardized coefficient for direct effect (H1) of IR on PM (excluding the effect of the mediator JS) is insignificant with (β = 0.1; p > 0.05 = 0.77), a finding that indicates that hypothesis 1 is not supported, and the IR → PM relationship is insignificant.

Hypothesis 2a is supported. There is a significant direct effect between our independent variable of focus, Incentives and Rewards, and our mediating variable of interest, Job Satisfaction. The standardized coefficient for the direct effect (H2a) of IR on JS is significant with (β = 0.91; p < 0.05 = 0.00). This means that hypothesis 2a is supported, and the IR → JS relationship is indeed significant.

Hypothesis 2b is supported. There is a significant direct effect between our mediating variable, Job Satisfaction, and our dependent variable, Performance Measures. The standardized coefficient for the direct effect (H2b) of JS on PM is significant with (β = 0.74; p < 0.05 = 0.04). This means that hypothesis 2b is supported, and the JS → PM relationship is indeed significant.

Hypothesis 3 is supported. There is a significant indirect effect (mediation effect by Job Satisfaction) between IR and PM (β = 0. 67; p < 0.05 = 0.04). We can say that incentives and rewards have a significant indirect effect on performance measure through the mediator job satisfaction. So, the mediation effect here is said to be a full-mediation effect because the direct effect IR → PM is insignificant, nevertheless, the indirect effect IR → JS → PM is significant.

5. Discussion and Conclusions

The present study investigated whether incentive and rewards have a positive effect on employees’ performance through the enhancement of job satisfaction. An interesting result was that an insignificant direct effect has been found between incentive and rewards and employees’ performance; therefore, this hypothesis (H1) did not receive statistical support from our data. Although this result is in line with some previous research [35] while contradicting others [52], a possible explanation for this might be related to gender differences as most of the participants in this study were males (94%). This could have influenced the outcome since the Saudi collectivistic culture dictates that each gender has distinctive roles, and that males are the primary financial supporters of their families; hence they tend to be more concerned and motivated with financial well-being rather than intangible or moral incentives. This finding was also reported in [108], where the performance of males was significantly improved by monetary and mixed incentives.

The results support a positive relationship between incentives and rewards and job satisfaction (H2a) and a significant direct effect between job satisfaction and employees’ performance (H2b). More importantly, the mediating role of job satisfaction in the relationship between incentive and rewards, and employees’ performance was significant (H3). This means that incentives and rewards have an indirect effect on employee’s performance through job satisfaction. In other words, an increase in incentives and rewards increases job satisfaction thus increasing employee’s performance. The reason behind the existence of this facilitation is that when employees are properly incentivized on a regular and systematic basis, their level of job satisfaction increases (H2a). This was the highest direct effect found for a relationship with a standardized coefficient of 0.91. Consequently, when employees are satisfied with their jobs, they tend to perform better because they believe in what they do (H3), which was the second highest direct effect relationship with a standardized coefficient of 0.74.

The present study makes three important contributions: First, the added value of the present study is that it avoids the traditional linkage in the Incentives and Rewards–Employees’ Performance relationship by highlighting the critical mediation effect of job satisfaction. The findings of this research are in agreement with a number of previous published research work, and in partial disagreement with other research findings in the literature. The findings of this study are in agreement with [13] who found that incentives and rewards in themselves do not influence performance. However, a mediating variable such as job satisfaction or job motivation is needed [94].

The current study significantly demonstrated the importance of non-financial, moral incentives in achieving job satisfaction. This finding was supported by [109] in that intrinsic reward being positively related to employee satisfaction, where the latter is serving as a mediator between intrinsic reward and employee performance. On the other hand, [110] investigated the relationship between reward systems, employee motivation and employee performance in car dealers in Bahrain and found that both direct and indirect (financial and non-financial) incentives and rewards had a significant direct relationship on employee performance notwithstanding a mediating variable. His findings are not supported by this research findings on Saudi industrial sector employees. Nonetheless, support was found in the existence of a relationship between employee job satisfaction and performance, a common conclusion between this research and that of [110].

Under the Incentives and Rewards variable, the three highest relevant measurement instruments were found to be IR5, IR6, and IR10. IR5 had the highest relevance evident by a factor loading of 0.78, where ~64% of employees within the sample testified through their responses that sufficient monetary incentives were provided, and 67% agreed that performance-based incentives were paid (IR6, factor loading of 0.76. However, only 42% indicated that they were further incentivized through additional bonuses for professional, distinguished performance (IR10, factor loading of 0.78). According to the results, this research finds that organizations within the Saudi industrial sector invest in basic, performance-based incentives and rewards systems that are acceptable by their employees. The findings show that reward systems providing basic needs as well as performance-based incentives are established within major corporations in the industrial sector, indicating a high degree of satisfaction with employment conditions related to compensation enhancement measures (incentives and rewards). However, the area where Saudi industrial sector companies are lacking is in providing additional monetary rewards for professionalism.

Moreover, under the performance construct, the highest relevant measurement instruments were found to be PM1 with a factor loading of 0.74. However, employee performance effects with respect to incentivization were measured by two instruments, one for financial incentives (PM3, factor loading of 0.64), and the other for moral, non-financial incentives (PM4, factor loading of 0.60). Both results showed that nearly 89% of respondents, a dominant majority, agreed that their performance was influenced by being incentivized or motivated. The results from these two instruments do not contradict the unsupported H1, the hypothesized significant positive relationship between incentive system and performance measures, rather they reflect the emotionally influenced perceptions of employees to financial and moral incentives as isolated dimensional responses, irrespective of the low significance level of the overall relationship between Incentives and rewards and Performance Measures variables. The statistical analysis realized and successfully eliminated the possibility of a Type-I error due to the skewed results of PM3 and PM4, which were extremely skewed to the left side of the Likert scale, towards strong agreement.

The survey expanded to measure satisfaction with forms of moral incentives, other measurement instruments included in the survey section tested factors of relevance to the dependent variable, incentives and rewards, including deserved promotions, respect of opinions and aspirations, and provision of transportation allowance, all of which were >55% in agreement, which further establishes that companies in the industrial sector in Saudi Arabia provide competitive benefits to employees but that there is a need for further enhancement to remain competitive against the rapidly increasing competition leading in the sector.

Second, the added value in this study is in the context, source and the size of the data. The study explores the research model in Saudi Arabia, a country with a cultural profile different than the Western context where most previous studies were conducted. This study responded to the scarcity of research in such context, hoping that it provides theoretical and practical insights for scholars and practitioners. Moreover, it could be an advantage that the data was collected from a big and wide sector (i.e., industrial sector) where many local and global talents have landed. Therefore, the study sample representation and implications are better compared to other sectors with narrow employment size and less effect to the overall economy.

Third, it is interesting that when job satisfaction acts as a mediator, the influence of incentives and rewards system on employees’ performance is significant. Job satisfaction seems to be an important mediator that contributes to employees’ performance. That is, employees’ productivity becomes visible and enhanced when their levels of job satisfaction are high and supported by managers’ good incentives and reward systems. This finding suggests that the relationship between reward and performance is complex and encourage researchers to further examine potential intervening variables in future studies.

6. Limitations and Suggestions for Future Research

This study has important findings which provided scientific contributions and practical insights. However, akin to any other study, this study has a number of limitations which need to be addressed. First, making any generalizations based on a sample of 216 participants is difficult. Although this number of responses was due to difficult accessibility and obtaining answers from full-time employees.

Second, the majority of the research sample were males (94%). Although this reflects the nature of employment in the industrial sector in Saudi Arabia which is male dominated, the results may not apply to women workers. As mentioned earlier, this also might explain why respondents in this study tend to be overly concerned, hence motivated, with financial well-being rather than intangible, moral incentives. The culture of an Arab society is that a man is mainly responsible for the financial security of his family, which in comparison, might leave working women more concerned, and motivated with non-monetary incentives.

There were similarities between the attitudes expressed by the participants in this study and those described by [108]. These authors found that men performed 12.86% better with monetary incentives than nonmonetary, which was statistically significant at the 10% level. In comparison, when a female sample was used, financial incentives had little-to-no effect on women’s performance, while non-monetary incentives resulted in a 15.95% increase in performance. However, a larger sample size including other economic cities in the country may provide more definitive and wide-ranging results in order to confirm these findings, validate and extend our model used in this study. Moreover, using a qualitative approach in future studies may provide deeper understanding of this matter.

Another limitation is the concentration of survey respondents in private and semi-private companies in the Saudi industrial sector, future studies including governmental entities are encouraged. Future researchers are also encouraged to test other mediating variables such as employee self-motivation and drive, tenure, and loyalty. Moreover, job nature-based incentives such as proximity to family, i.e., the geographic location of the job, and applicability of the post being fully or partially virtual are intriguing variables to be considered in future research.

7. Theoretical and Practical Implications

The outcomes of this research have theoretical and practical significance, suggesting critical theoretical implications for incentive management systems. Firstly, this study advances our knowledge of the mechanism by which incentive and reward systems affect employee performance by examining the mediating role of employee job satisfaction as a link between incentive and reward systems and employee performance. By doing so, the current study avoids the traditional linkage in the relationship of these variables by highlighting the critical mediation effect of job satisfaction in causal explanation. According to the findings of this study, firms can increase employee job satisfaction through the use of incentives and rewards, which subsequently enhances employee performance. Analyzing employee job satisfaction as a mediator allows for a better understanding of how and why different forms of incentives and rewards enhance employee behavior at work.

Secondly, this study was conducted in a country with a thriving economy, the Kingdom of Saudi Arabia, that has scarcity of research in this context. Thus far, little research has been conducted on incentive and reward management systems and their impact on employee performance in the Saudi industrial sector. Nevertheless, the study was able to find applicable relationships between different reward forms and employee performance through a mediating variable. This finding encourages more research to find the appropriate employee retention and acquisition tools that suit the Saudi market.

The practical implications of our study include: First, the verification that incentive and reward systems are positively viewed as beneficial in improving employee performance. Second, the research affirms that incentives and rewards are critical in motivating employees. Additionally, because this study demonstrates that incentives and awards have a considerable, indirect influence on employee performance, it is proposing that firms lay the foundations for conditions conducive to improving employee performance and strive to improve employee job satisfaction. Moreover, because incentives and rewards have a favorable effect on job satisfaction, employers are encouraged to implement a rewards management system (financial and non-financial) that incentivizes employees to achieve their goals and fosters maximum job satisfaction. Another technique to motivate employees is to establish challenging yet achievable goals which gives an intrinsic incentive (intangible award, i.e., appreciation, promotion, and authority). Firms should require all employees to set personal growth goals for work, education, and project completion and provide training to employees on how to develop quantifiable goals and encourage them to do so on a short- and long-term basis. Allowing employees to contribute to corporate goals helps them feel connected to a broader purpose. Employees earning incentives and rewards for meeting goals, and setting new ones, aids in boosting their job satisfaction.

Author Contributions

Conceptualization, I.G.A., M.A.K., M.F., A.A., S.A. and J.A.; supervision, I.G.A. and M.A.K.; methodology, I.G.A., M.A.K. and J.A.; software, M.F. and S.A.; validation, I.G.A., M.A.K., M.F., A.A., S.A. and J.A.; formal analysis, I.G.A., M.F., A.A and J.A.; investigation, I.G.A., M.A.K., M.F., A.A., S.A. and J.A.; resources, I.G.A., M.A.K., M.F., A.A., S.A. and J.A.; data curation, I.G.A., M.A.K., M.F., A.A., S.A. and J.A.; writing—original draft preparation, I.G.A., M.A.K., M.F., A.A., S.A. and J.A.; writing—review and editing, I.G.A., M.A.K., M.F., A.A., S.A. and J.A.; visualization, I.G.A., M.A.K., M.F., A.A., S.A. and J.A. All authors have read and agreed to the published version of the manuscript.

Institutional Review Board Statement

Not applicable.

Informed Consent Statement

Not applicable.

Data Availability Statement

Not applicable.

Conflicts of Interest

The authors declare no conflict of interest.

Footnotes

Disclaimer/Publisher’s Note: The statements, opinions and data contained in all publications are solely those of the individual author(s) and contributor(s) and not of MDPI and/or the editor(s). MDPI and/or the editor(s) disclaim responsibility for any injury to people or property resulting from any ideas, methods, instructions or products referred to in the content.

Figures and Tables

Figure 1. Hypothesized Model Proposing the Direct and Mediating Relationships.

Figure 2. The Model of the Study.

Table 1

Socio-demographic characteristics.

Variable (n = 216)	Frequency	%
Age (years)
<30	31	14.4
30–39	110	50.9
40–49	27	12.5
50+	48	22.2
Education
High school	38	17.6
Diploma	33	15.3
Undergraduate	97	44.9
Masters	44	20.4
Doctorate	4	1.9
Gender
Male	203	94.0
Female	13	6.0
Industry
Banking & Finance	3	1.46
Construction	1	0.46
Science and tech	6	2.74
Health	8	3.74
Hospitality	1	0.46
Industrial services	29	13.4
Manufacturing	23	10.6
Mining	2	0.92
Oil & Gas	133	61.5
Project management	3	1.46
Other	7	3.26
Experience
1–5 years	27	12.5
6–10 years	62	28.7
11–15 years	102	47.2
16+ years	25	11.6

Table 2

Reliability of constructs & correlation coef.

Latent Variables	Mean	SD	Cronbach’s Alpha (α)	EJS	PM
Incentive Rewards (10-items)	3.81	0.63	0.81	0.87 ***	0.76 ***
Incentive Rewards-modified (7-items)	3.60	0.78	0.84	0.89 ***	0.85 ***
Performance Measures (4-items)	4.05	0.56	0.60	0.84 ***
Employee Job Satisfaction (5-items)	3.49	0.82	0.85

Note: *** p < 0.001.

Table 3

Dimensionality of Performance Measure.

Items (Total Variance Explained 47.63%)	Factor Loadings
PM 1	0.74
PM 2	0.72
PM 3	0.64
PM 4	0.60

Table 4

Dimensionality of Employee Job Satisfaction.

Items (Total Variance Explained 61.31%)	Factor Loadings
JS 1	0.80
JS 2	0.77
JS 3	0.84
JS 4	0.74
JS 5	0.79

Table 5

Dimensionality of Incentives/Rewards.

Items (Total Variance Explained 39.60%)	Factor Loadings
IR 1	0.23
IR 2	0.24
IR 3	0.65
IR 4	0.60
IR 5	0.76
IR 6	0.76
IR 7	0.75
IR 8	0.52
IR 9	0.67
IR 10	0.74

Table 6

Dimensionality of Incentives/Rewards (adjusted for modified model).

Items (Total Variance Explained 52.24%)	Factor Loadings
IR 3	0.65
IR 4	0.63
IR 5	0.78
IR 6	0.76
IR 7	0.74
IR 9	0.68
IR 10	0.78

Table 7

Mediation Analysis.

Latent Variables	Direct Effect	Indirect Effect	p
(H1) IR → PM	0.10		0.77
(H3) IR → JS → PM		0.67	0.04
(H2b) JS → PM	0.74		0.04
(H2a) IR → JS	0.91		0.00

Supplementary Materials

The following supporting information can be downloaded at https://www.mdpi.com/article/10.3390/su15043415/s1, File S1: The Research Survey.

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