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
CPD courses

Teaching the New Edexcel A Level Business

Join the tutor2u Business team for a resource-packed day designed to fast-track your lesson planning and preparation for the new Edexcel A Level Business specification. We'll look at the key changes in teaching content, explore the new challenges of teaching this linear specification and dive into some brand new teaching resources designed specifically for the new Edexcel A Level Business course from September 2015.

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