Employee Motivation and Financial Incentives

Financial Incentives to Improve Employee Performance

• Financial incentives are ways to motivate employees to perform better.
• The "carrot and stick" theory suggests that rewards (carrot) or punishment (stick) can motivate employees.
• Monetary incentives, like a £5 payment for a lesson, can motivate employees.
• Fairness is important in a compensation system.
• Financial incentives should encourage employees to work harder.
• Ways to motivate employees can include shouts, punishment or docking pay.

Motivation Methods

• Motivation methods can be categorized into financial and non-financial.

Financial Motivation Methods

• Piecework: Employees are paid per finished item or unit. Employers might use a minimum wage or a set "fair piece rate." For example, someone knitting gloves might be paid per pair.

  • Advantages: Experienced workers can earn more, employees are incentivized to complete their work, home workers can work around their schedule.
  • Disadvantages: Workers may cut corners to complete jobs quickly, quality may decrease, slower workers may fall below minimum wage.

• Commission: Salespeople are paid a percentage of each sale, potentially with a low base salary. OTE (on target earnings) is included to show potential earnings. Commissioned employees include estate agents, car salespeople, and financial advisors.

  • Advantages: Skilled salespeople earn well, employers do not pay for downtime. Motivates more sales.

  • Disadvantages: Income isn't steady, risk during recessions, potential to pressure customers to make higher-priced purchases.

• Bonus: Lump sums given in addition to salary, potentially related to sales goals, output, quality, or specific events (Christmas). Examples include footballers receiving bonus payments linked to league match points or appearances.

  • Advantages: An incentive to keep working toward specific goals, an acknowledgement of hard work, used to motivate or as an employee recognition method.
  • Disadvantages: Cash bonuses can be expensive for companies. Bonuses form part of taxable income.

• Profit Share: Employees receive dividends based on company profits.

  • Advantages: Motivates workers to follow company goals; creates a loyalty boost
  • Disadvantages: Salaries rise equally, not necessarily on merit or promotion. Focus may be on profit share more than customer service.

• Performance-Related Pay: Employees' pay is linked to performance evaluations. Criteria and targets will be set and monitored during the appraisals. Examples include 5% bonus for good employees or 10% for excellent employees.

  • Advantages: A strong link between performance and reward. Allows rank staff for promotions.
  • Disadvantages: May produce jealousy and unrest. Demotivate staff if targets are not met.

Non-Financial Motivation Methods

• Delegation: Managers assign tasks to more appropriate staff members. This empowers employees and increases team efficiency.

  • Advantages: Increases confidence in managers, maximizes team potential, builds trust between managers and employees.
  • Disadvantages: Managers allocate tasks too frequently when overloaded and less often when they want to motivate employees. Managers may not select the most capable staff.

• Consultation: Employees provide input regarding business issues (health & safety, employment changes, pension plans).

  • Advantages: Encourages a cooperative culture and can help to avoid disagreements, avoids conflicts, employees feel valued.
  • Disadvantages: Employees might not know how to run a business effectively, potential for grudges among themselves.

• Empowerment: Employees receive increased decision-making authority, and are held accountable for their decisions.

  • Advantages: Trust in employees, employees become closer to issues and concerns. Loyalty to the company increases.
  • Disadvantages: Possibly seen as a cost-cutting method, employees can risk making mistakes, some may feel overloaded.

• Team Working: Employees collaborate in teams for better problem-solving and outputs.

  • Advantages: Multiskilled talents, specialization, shared responsibility, innovation.
  • Disadvantages: Tensions can arise, too many meetings, individual efforts can be lost.

• Flexible Working: Employees can have a variety of hours/schedules that reflect work-life balance. Examples include part-time, work from home, term-time only.

  • Advantages: Reduced costs, more job satisfaction, and reduced sickness absence, increased efficiency.
  • Disadvantages: Difficult to fit shifts to suit everyone, staff may take advantage of flexible working.

• Job Enrichment: Employees have tasks that are more varied and challenging, with higher levels of responsibility.

  • Advantages: More interesting work, motivating, improves employee productivity, improved job loyalty.
  • Disadvantages: Some employees may find the new demands harder, the role may need new skills, not all jobs are suitable

• Job Rotation: Employees' responsibilities are changed regularly

  • Advantages: Multi-skilled staff can take on new roles easily, reduces monotony, improves staff motivation.
  • Disadvantages: Takes time to learn new skills, employees may be unwilling to move from a job they know.

• Job Enlargement: Employees' roles are broadened to include more tasks of the same level of responsibility.

  • Advantages: Less boring work, more use of the employee, may improve productivity.
  • Disadvantages: The tasks may feel repetitive, no room for progression may be felt by employees, some feel more tasks are not as motivated.

This quiz explores the various financial incentives that can motivate employees to enhance their performance. It also examines the difference between financial and non-financial methods of motivation. Test your understanding of motivational strategies in the workplace.