Financial methods of motivation
Although some theorists like Herzberg believe that money is not a positive motivator (although lack of it can de-motivate), pay systems are designed to motivate employees.
The scientific / Theory X approach, in particular, argues that workers respond to financial rewards.
Getting employee pay right (often referred to as the "remuneration package") is a crucial task for a business.
Why is pay important?
- It is an important cost for a business (in some "labour-intensive" businesses, payroll costs are over 50% of total costs)
- People feel strongly about it
- Pay is the subject of important business legislation (e.g. national minimum wage; equal opportunities)
- It helps attract reliable employees with the skills the business needs for success
- Pay also helps retain employees – rather than them leave and perhaps join a competitor
- For most employees, the remuneration package is the most important part of a job – and certainly the most visible part of any job offer
There are many methods of financial reward:
- Time-rate pay
- Piece-rate pay
- Other performance-related pay (including bonuses)
- Shares and options
- Benefits in kind ("fringe benefits")
Because pay is a complex issue, there are several ways in which businesses determine how much to pay:
- Job evaluation / content; this is usually the most important factor. What is involved in the job being paid? How does it compare with similar jobs?
- Fairness – pay needs to be perceived and be seen to match the level of work
- Negotiated pay rates – the rate of pay may have been determined elsewhere and the business needs to ensure that it complies with these rates.
- Market rates – another important influence – particularly where there is a standard pattern of supply and demand in the relevant labour market. If a business tries to pay below the "market rate" then it will probably have difficulty in recruiting and retaining suitable staff
- Individual performance – increasingly, businesses include an element of "performance-related" reward in their pay structures.
However, it is important to remember that pay is only one element of motivation and will work best where management also give attention to:
- Developing good management and supervision
- Designing jobs and organising work groups to make them as satisfying as possible
- Providing feedback to staff about their performance and training and development
- Making effective arrangements for communications and consultation
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