Impact of contingent rewards and punishments on employee performance: the interplay of employee engagement

Transactional leadership

The concept of transactional leadership, as initially formulated by (Burns & MacGregor, 1978) centers on a dynamic where subordinates willingly engage in a reciprocal relationship with their leaders, anticipating various forms of rewards, whether monetary or non-monetary (Burns & MacGregor, 1978). This agreed interconnection does not elicit a shift in the roles of the subordinates; rather, it hinges on the transactional leader’s reliance on conventional rewards and punishments to ensure compliance with organizational directives and the attainment of its objectives (Pathak, Madan, & Srivastava, 2023). This notion, as posited by Bass (1985) posits the existence of an exchange-based association between leaders and their followers. The exchange theory underpinning transactional leadership is pragmatically oriented, emphasizing mutual goal achievement for both parties involved (Abdelwahed, Soomro, & Shah, 2022). Bass (1985) contends that transactional leaders motivate their followers by establishing clear objectives, outlining direct pathways to goal attainment, providing lucid performance evaluations and feedback, and guaranteeing rewards upon target realization. In this role, these leaders assume the position of evaluators, elucidating the responsibilities of their followers in pursuit of predetermined objectives and administering rewards and punishments based on performance outcomes. Thus, the exchange of interests emerges as a pivotal facet that mutually benefits both leaders and followers (Politis, 2002).

Employee engagement

In Blau (1968) the Social Exchange Theory (SET) is explained as a conceptual framework elucidating the dynamics of reciprocity among individuals within various contextual settings. This theoretical construct posits a comprehensive interpretation of the impact of employees’ levels of engagement on their workplace performance (Saks, 2006). The level of engagement is intricately developed through the lens of exchange theory. Kahn (1990) is credited with pioneering the terminology of ‘employee engagement,’ characterizing it as the extent to which employees manifest tangible involvement, cognitive capability, and emotional attachment to their job responsibilities. Engaged employees are filled with a sense of skill in strategic planning, and decision-making processes. Such motivated individuals exhibit an inclination to channel their utmost efforts and leverage their exceptional abilities to transcend the minimal requisites for organizational advancement (Breevaart et al., 2014; Kalia & Verma, 2017). In addition to this conceptualization, Schaufeli et al. (2002) define engagement as a positive and enriching cognitive state in the occupational context, characterized by three fundamental dimensions. Vigor, the first dimension, manifests through heightened levels of physical and mental energy, coupled with a robust capacity for resilience while engaged in work-related tasks. Dedication, the second dimension, encompasses an emotional landscape characterized by a profound sense of significance, enthusiasm, inspiration, pride, and a constant thirst for challenges associated with one’s professional endeavors. The third dimension, absorption, reflects a state of complete immersion and contented absorption in the execution of one’s occupational responsibilities, signifying a holistic and harmonious alignment between the individual and their work environment (Schaufeli, Salanova, Roma, & Bakker, 2002).

Employee performance

Performance is a complex construct encompassing various facets, such as task performance and the contextual roles assumed by employees (Chaudhary, 2020). It signifies the actions and behaviors exhibited by employees concerning their job-related responsibilities, as well as non-job-related aspects pertinent to the organizational objectives. Furthermore, performance is characterized by the capacity of employees to adapt their conduct in order to meet the requirements of their work (Park, Lim, Kim, & Kang, 2020). This adaptability contributes to the generation and implementation of innovative and valuable ideas that align with the formal requisites of the job and the proficient fulfillment of assigned duties (Abdurachman et al., 2023).

Transactional leadership and employee engagement

Leaders who employ a contingent reward system demonstrate a tendency for establishing explicit objectives and effectively communicating the anticipated outcomes to their followers, thereby eliciting motivation among their subordinates (Bass & Avolio, 1994). This aligns with the findings of a comprehensive meta-analysis conducted by Judge and Piccolo (2004), which validates the notion that contingent rewards play a pivotal role in enhancing the motivation levels of individuals engaged in the workforce. In contrast, the concept of contingent punishment revolves around an employee’s perception of a leader who meticulously delineates behavioral and performance standards, and subsequently administers various forms of negative feedback, such as criticism or expressions of displeasure, when the employee fails to follow to these established standards (MacKenzie, Podsakoff, & Rich, Transformational and Transactional Leadership and Salesperson Performance, 2001). This approach underscores the significance of apparent negative reinforcement cues exhibited by leaders, wherein employees face warnings and social disapproval for straying from established regulations and expectations (Podsakoff, Bommer, Podsakoff, & MacKenzie, 2006). This suggests the extent of an employee’s commitment to their work hinges significantly on the prospect of receiving either rewards or punishments. Consequently, organizations may encounter challenges in fostering change since their leaders are predominantly preoccupied with procedural aspects, tend to focus on identifying faults for punitive measures, and prioritize acknowledging achievements for reward purposes rather than actively cultivating engaged employees (Thanh & Quang, 2022).

Employee engagement and employee performances

Considerable attention has been directed towards examining the connection between employee engagement and the evaluation of employee performance. The engagement of employees within the organizational framework yields advantages not only for the employer but also for the employees themselves (Demerouti, Cropanzano, Bakker, & Leiter, 2010). An establishment of a meaningful connection between employees and the organization invariably promotes a desire for heightened effectiveness among the employees. In contrast, engaged employees consistently outperform their non-engaged counterparts (Demerouti, Cropanzano, Bakker, & Leiter, 2010). This underscores the intrinsic connection between engagement and employee performance. Studies validate that the initial consequence of employee engagement manifests as augmented employee performance, thereby culminating in amplified organizational performance (Robbins, Judge, & Vohra, 2019). Engagement offers employees the opportunity to invest themselves in their work and fosters a sense of self-efficacy. Research exploring the ramifications of employee engagement suggests that it can yield positive outcomes in terms of employee well-being and cultivate favourable attitudes towards work and the organization (Nguyen & Nguyen, 2022). Employee engagement, in essence, denotes the extent to which individuals exhibit identification with their work, actively participate therein, and ascribe importance to their performance as a reflection of their self-worth (Yandi & Havidz, 2022). A comprehensive synthesis of these findings leads to the inference that work involvement comprises employee participation, marked by a profound dedication to their tasks, transcending personal interests, and emphasizing the overarching importance of the organization. When employees demonstrate a heightened degree of engagement with their employer, their focus extends beyond mere work-related goals, encompassing positive perceptions and emotions, thereby motivating them to exert greater effort in their professional endeavours (Anitha, 2014). Consequently, a detailed examination of the factors underpinning engagement becomes imperative, as they serve as crucial determinants for predicting employee performance.

Transactional leadership and employee performance

Transactional leadership can be conceptualized as a form of consensual arrangement between leaders and their subordinates aimed at attaining organizational objectives (Northouse, 2021). In this leadership paradigm, leaders incentivize employees through the provision of rewards contingent upon the successful execution of tasks that contribute to the maintenance or enhancement of overall employee performance. Transactional leadership model revolves around the fundamental notion of exchanges wherein rewards, both psychological and material, are offered by leaders to their followers in return for their labour (Donkor & Zhou, 2020). Furthermore, the efficacy of this leadership style is fortified through the implicit or explicit threat of punishments. This theoretical framework operates under the assumption that effective leadership necessitates the cultivation of desired follower behaviours while concurrently mitigating undesirable ones, achieved through the withholding of rewards and the imposition of tangible or psychological penalties (Alrowwad, Abualoush, & Masa’deh, 2020). In practice, it is typically immediate supervisors who are endowed with the authority to delineate performance objectives for employees, deliver constructive feedback, extend support in exchange for employee efforts, appraise individual performance, and extend recommendations for rewards based on performance evaluations (Han, Bartol, & Kim, 2015). Leaders who exhibit a propensity for contingent punishment are positively associated with enhanced employee performance (Podsakoff, Podsakoff, & Kuskova, 2010). They posit that negative feedback, when merited, can exert more constructive effects on employee performance than unwarranted positive feedback. The accountability imposed by leaders upon employees for subpar performance is typically met with greater employee satisfaction concerning their superiors, colleagues, and prospects for career progression (Podsakoff, Podsakoff, & Kuskova, 2010).

Hypothesis:

H1: Contingent rewards (CR) have a positive effect on employee performance (EP) of non-clinical healthcare professionals in the healthcare sector.

H2: Employee Engagement (vigor, absorption, and dedication) positively mediates the relationship between contingent rewards (CR) and employee performance (EP) of non-clinical healthcare professionals in the healthcare sector.

H2a: CR ➔ Vigor ➔ EP

H2b: CR ➔ Absorption ➔ EP

H2c: CR ➔ Dedication ➔ EP

H3: Contingent punishments (CP) have a positive effect on employee performance (EP) of non-clinical healthcare professionals in the healthcare sector.

H4: Employee Engagement (vigor, absorption, and dedication) positively mediates the relationship between contingent punishments (CP) and employee performance (EP) of non-clinical healthcare professionals in the healthcare sector.

H4a: CP ➔ Vigor ➔ EP

H4b: CP ➔ Absorption ➔ EP

H4c: CP ➔ Dedication ➔ EP

Ethical statement

This research has been carried out in strict adherence to established ethical guidelines, having received the requisite ethical clearance from the Institutional Ethics Committee at Kasturba Medical College and Kasturba Hospital, Manipal, Karnataka, India as documented under Reference Number IEC1:171/2022. In conducting this non-experimental, survey-based research, we obtained written informed consent from all participants, which was included within the questionnaire document. Participants were granted the option to discontinue their participation in the survey at any juncture, with the assurance that their personal information would be treated with utmost confidentiality.

Sample and data collection

To examine the hypotheses, we undertook an empirical study with non-clinical healthcare professionals. This study focuses on non-clinical healthcare professionals who play a vital role in supporting patient care alongside clinical staff. These individuals contribute significantly to delivering high-quality healthcare by managing administrative duties, coordinating care activities, overseeing technology, and performing various other essential tasks. By prioritizing the performance of non-clinical healthcare professionals, medical practices can enhance their overall quality of care. The population was composed of all the National Accreditation Board for Hospitals & Healthcare Providers (NABH) -accredited private hospitals located in Jharkhand, India. The data collection process involved obtaining online informed consent from the participants, and an online web-based Microsoft form was prepared and circulated through email. The purpose of the research was explained to the respondents. The present study employed a purposive sampling methodology to gather responses from employees within distinct departments, such as operations, general administration, patient care services, medical insurance, and quality assurance. This approach was chosen due to constraints in the number of available respondents. The primary emphasis of participant selection centered on nonclinical healthcare professionals who are not directly engaged in patient treatment and care services. This targeted sampling strategy was implemented to ensure the acquisition of the most relevant and insightful information for the research.

The final sample consisted of 273 employees. The questionnaire consisted of information on demographic factors, details on the respondent’s gender, age, current organizational designation, total working experience (Layek & Koodamara, 2023b). The questionnaire consisted of information on demographic factors, details on the respondent’s gender, age, current organizational designation, and total working experience. Data collection took place over a one-month period, commencing on February 10, 2023, and concluding on March 12, 2023. Participants were drawn from five distinct functional departments—operations, general administration, patient care services, medical insurance, and quality assurance. Purposive sampling was adopted for this study as it allows for the intentional selection of participants with specific characteristics relevant to the research focus. By targeting non-clinical healthcare professionals involved in administrative, operational, and support roles, the study ensures that the findings are designed for this group, whose experiences and challenges differ from those of clinical staff. This method enables the collection of focused and relevant insights, enhancing the specificity and relevance of the findings. Exclusion criteria encompassed individuals encountering difficulties comprehending the English language. The dataset (Layek & Koodamara, 2023a) underwent analysis utilizing Partial Least Squares-Structural Equation Modeling (PLS-SEM), and the entire dataset exhibited an absence of missing values which enhances its integrity, contributing to a thorough and precise portrayal of inter-variable relationships and, consequently, facilitates the explanation of findings derived from the PLS analysis. Data were analysed using PLS-SEM. This statistical tool is endorsed for suitability in contexts characterized by limited sample sizes (Wong, 2013).

Measurement scales

We used well-established scales to measure the study variables. Contingent rewards and punishments of transactional leadership style were measured using eight items proposed by Podsakoff et al. (1990) and MacKenzie, Podsakoff, and Rich (2001). Employee engagement was measured using the 17 items scale proposed by Schaufeli et al. (2002). Employee performance was assessed with 18 items scale proposed by Villagrasaa et al. (2019). The respondents assessed all items on a five-point Likert scale (5 = Strongly agree; 4 = Agree, 3 = Neutral, 2 = Disagree, 1 = Strongly disagree) to enhance the functionality and clarity of the questionnaire.

Common method bias correction

Common method variance bias was effectively assessed Since the data was collected from the respondents in a one-time survey. We used procedural and statistical methods to control for potential common method bias (Podsakoff, MacKenzie, Podsakoff, & Lee, 2003). Regarding the procedural techniques employed, we took measures to guarantee the confidentiality of the information furnished by the respondents. Furthermore, the study constructs were arranged randomly into the questionnaire to prevent respondents from inferring cause-effect relationships among the constructs. Regarding the statistical procedures, we implemented a full collinearity test based on variance inflation factors (VIFs), following (Kock & Lynn, 2012). It specifies when a VIF value is greater than 3.3, it indicates collinearity suggesting the existence of common method bias. Our estimations demonstrated that the VIF values fall below the designated threshold, indicating that the issue of common method bias is not of significant concern in this study.

Assessment of measurement model

Table 1 reports the results of the measurement model. To evaluate the adequacy of the measures of the construct model, we assessed the indicator’s individual reliability by examining the loadings of the measures on their corresponding latent constructs. All the construct composite reliability ratios exceeded 0.7, which confirms an adequate correlation between indicators and their respective variables. Convergent validity was assessed which is defined byHenseler, Ringle, & Sinkovics (2009) as a collection of indicators that represent the same mentioned constructs. The latent variables also prove convergent validity as the AVE extracted by the variables is above 0.5 (Hair Jr. et al., 2021). The discriminant validity of the constructs was assessed and Fornell- Larcker Criterion was employed. Table 1 shows the values for all constructs were less than 0.90, confirming the discriminant validity of the study model. Table 1 indicates that there were no collinearity issues as all the inner VIF (collinearity statistics) values were less than five (Hair Jr. et al., 2021) and even less than three (Hair, Risher, Sarstedt, & Ringle, 2019).

Assessment of structural model

Furthermore, prior to assessment, the structural model was assessed the bootstrap method was used to evaluate the path coefficients of the structural model. Table 2 shows the t-values, and p-values (95% bias-corrected confidence intervals were evaluated to determine the sign and significance of the path coefficients (Hair, Risher, Sarstedt, & Ringle, 2019). The value of the structural model offers no support for hypothesis H1 (Contingent Rewards ➔ Employee Performance: β = -0.026, t = 0.529, p = 0.597) and hypothesis H3 (Contingent Punishment ➔ Employee Performance: β = 0.052, t = 1.259, p = 0.208) i.e., there is no significant relationship of the direct effects of contingent rewards and punishments with employee performance.

Mediation effect

In order to establish the presence of a mediation effect, three criteria should be met (Preacher & Hayes, 2008). Firstly, it is important to have a statistically significant association between the independent variable and the mediator. Secondly, the mediator must exhibit a statistically significant relationship with the dependent variable, even after accounting for the influence of the independent variable. Lastly, the indirect effect must attain statistical significance when subjected to rigorous assessment through a bootstrapping procedure.

Table 3 shows the results of the mediation analysis estimations. Aligning with our expectations, all the subdimensions of employee engagement i.e., vigor, absorption, and dedication fully mediate the influence of contingent rewards on employee performance. One of the important conditions for any intervening variable is, that when indirect paths are controlled, the relationship between the predictor variable and outcome variable is no longer significant (Baron & Kenny, 1986). As shown in Table 3, the direct path between contingent rewards and employee performance is no longer significant (β = -0.026, t = 0.529, p = 0.597). When the path between an independent variable and a dependent variable is reduced to zero, there is a piece of strong evidence for a dominant intervening variable (Baron & Kenny, 1986). It means the perfect mediating holds when contingent rewards do not affect the employee performance of the employees when their engagement is controlled. Table 3 shows employees’ vigor (V), absorption (A), and dedication (D) as significant mediators in the relationship between contingent rewards and employee performance. In line with these results, hypotheses H2a, H2b, and H2c are accepted.

Furthermore, Table 4 exhibits the full mediation effect of employee vigor, absorption, and dedication in the relationship between contingent punishments and employee performance, where the direct path between contingent punishments and employee performance is no longer significant (β = 0.052, t = 1.259, p = 0.208). but the total effect between contingent punishments and employee performance is significant (β = 0.335, t = 5.550, p = 0.000). The result leads us to accept hypotheses H4a, H4b, H4c which are supported.

Theoretical implications

This research makes several noteworthy contributions to the existing scholarly literature. First and foremost, it responds to the growing demand for a deeper investigation into the various influence mechanisms inherent to transactional leadership (Zheng, Wu, Xie, & Li, 2019). This study investigates the intricate pathways connecting contingent rewards and punishments with the performance of non-clinical healthcare professionals within the hospital and healthcare sector. Prior research has demonstrated that transactional leadership behaviours are predictive of both task performance and the contextual performance of employees, mediated by constructs such as leader-member exchange (Kim & Park, 2015), and organizational commitment (Donkor & Zhou, 2020). Building upon the tenets of social exchange theory, this study extends the existing literature by examining the significance of three distinct sub-dimensions of employee engagement—namely, employee vigor, absorption, and dedication—among healthcare professionals and their consequential impact on performance within the healthcare sector.

Secondly, it is worth noting that there is a limited body of research that has separately probed into the mediating roles of vigor, absorption, and dedication concerning the association between transactional leadership style and employee performance, with a specific emphasis on the contingent rewards and punishment approach (Deng et al., 2019; Yozgat & Kamanli, 2016). To the best of our knowledge, within the Indian context, there appears to be a dearth of investigations into how two distinct contingent aspects of transactional leadership style function to enhance employee job performance when employee engagement is taken into consideration. Our findings affirm the presence of full mediation effects of employee engagement in augmenting the influence of contingent rewards and punishments on employee performance within the hospital sector.

Managerial implications

This study presents a range of managerial implications, furnishing professionals in the healthcare industry with a comprehensive framework for comprehending how non-clinical healthcare professionals perceive leadership styles and their consequent influence on job performance.

Firstly, considering our research findings, it is evident that the contingent rewards and punishments approach inherent to transactional leadership does not directly yield improvements in employee performance. Transactional leadership is fundamentally structured around a system of rewards and punishments, and while it can be efficacious in certain contexts, it may not consistently translate into heightened employee performance. In response, managers are advised to consider supplementing transactional leadership with alternative leadership styles that emphasize inspiration and motivation, rather than exclusively relying on the mechanism of rewards and punishments.

Secondly, it is imperative for managers to engage in a critical examination of the performance metrics employed within the context of a transactional leadership model. This assessment should encompass an alignment of these metrics with the organizational objectives, ensuring that they authentically capture the contributions made by employees. The extensive use of transactional leadership, particularly when taken to an excessive degree, can culminate in employee disengagement. Our research reveals a full mediation effect concerning employee engagement, implying that employees may become primarily engaged by external rewards while concurrently experiencing a diminishment in their intrinsic interest in their work or the overarching mission of the organization. Consequently, managers must undertake proactive measures to reignite employee engagement. In cases where employees exhibit dissatisfaction with a transactional leadership style that does not directly foster performance improvement, there is an elevated susceptibility to disengagement among the employees. Addressing this difficulty may necessitate a managerial reassessment of leadership approaches and the overall work environment.

Thirdly, in instances where transactional leadership fails to yield direct improvements in employee performance, it befits managers to exhibit readiness for leadership adaptation. Such adaptation should encompass the exploration of supplementary leadership styles, with a deliberate emphasis on employee engagement. Within the horizon of transactional leadership, rewards are frequently contingent upon specific, tangible outcomes. Consequently, managers may find it advantageous to broaden their range by incorporating diverse modes of recognition and appreciation, aimed at acknowledging and motivating employees, even when the immediate, direct influence on performance remains less obvious.

Limitations and suggestions for future research

While the present study exhibits robust research design, it is essential to admit certain limitations. Primarily, it is important to recognize that the research employs a cross-sectional design, which, while advantageous in elucidating associations, does not establish causal relationships with certainty. Employing longitudinal research methodologies could provide a more thorough examination of the underlying causal dynamics. Secondly, it is pertinent to note that this study predominantly focuses on analyzing the impact of transactional leadership on the performance of non-clinical healthcare professionals. Future inquiries may opt to delve into the ramifications of transformational leadership on work outcomes or performance within the healthcare domain. This broader perspective would furnish a more comprehensive and comparative understanding of leadership dynamics within healthcare contexts. Despite these acknowledged constraints, this study augments our comprehension of the determinants influencing the performance of non-clinical healthcare professionals, particularly through its emphasis on employee engagement. It underscores the pivotal role played by engaged employees within organizational contexts, thereby offering valuable insights for organizational management and leadership practices.