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
  • Commission
  • Other performance-related pay (including bonuses)
  • Shares and options
  • Benefits in kind ("fringe benefits")
  • Pensions

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
Exam coaching workshops

AQA BUSS4 Exam Coaching & Revision Workshops

Join Jim Riley and the tutor2u BUSS4 team for an intensive day designed to prepare students for the challenges of BUSS4 in June 2015. Each of the five workshop sessions introduces and builds effective essay planning and writing technique. We do this in the context of looking at both Manufacturing in the UK (Section A) and core topics for Section B including leadership, change management, technology, strategic choice and globalisation.

Learn more ›

Teaching & learning products

AQA GCSE Business Studies Worked Answers - Unit 1 (2013-2014)

Worked A Grade answers to recent AQA GCSE Business Studies Unit 1 exam papers together with detailed examiner commentary


AQA BUSS2 Revision Guide

The essential 20 page quick revision guide for AQA AS Business Studies BUSS2. All the key topics covered to enable you to focus your exam preparation on crucial BUSS2 exam technique.