Motivation in practice

Financial motivators

1. Piece rate
 A payment to a worker for each unit produced
 The rate can be adjusted according to the difficulty of the job
 Benefits
i. Encourages greater effort and faster working
ii. The labour cost per unit can be easily calculated thus helps price setting
 Drawbacks
i. Not applicable if output is not measurable. E.g. service
ii. Fall in quality and safety of workers
iii. Workers may settle for a certain pay level and may not be motivated to
produce more
iv. Provides little security over pay
v. Workers are discouraged to accept changes at work as it may reduce
pay.
2. Time or hourly wage rate pay:
 Calculated hourly paid weekly (most often)
 Involves multiplying the hourly wage rate or time rate with number of hours
worked.
 Most common way of paying manual, clerical and non managerial workers
 This method provides some security to workers but it is not directly linked to
the level of output or effort.
3. Salary:
 Annual income that is usually paid on a monthly basis
 Common form of payment for professional, supervisory and management staff.
 It is not dependent on
i. Number of hours
ii. Number of units produced
 Salary is set on the basis of experience, type of job, progress. Thus job evaluation
is important
 Many modern firms which follows single status put both managerial and non
managerial workers under salary system
 Benefits
i. Security of income
ii. Higher status compared to piece or time rate
iii. It aids in costing as it will not vary one year
iv. Suitable for jobs where output is not measurable
v. Suitable for management jobs where employees are expected to put in
some extra effort.
 Drawbacks
i. Income is not related to effort levels or productivity
ii. Lead to complacency of the salary earner
iii. Regular appraisal may be needed to assess to determine increase in
salary. (Although the appraisal can be an advantage if the worker gets
motivated by it)
Bonus: (Along with wage and salary bonuses can be arranged. This can take many forms)
 Commission:
o A payment to a sales person for each sale made.
o This can be used as 100% of the total income but reduces security
o Has the same advantages and disadvantages of piece rate pay system except that
low quality production is replaced with a customer forming a poor image about
the business because of too much pressurized selling
o Also teamwork is not encouraged.
 Performance-related pay (PRP)
o A bonus scheme to reward staff for above average performance.
o In order to set a pay there are certain steps that need to be followed
  Regular target setting, that is establishing specific objectives for the
individual
 Annual appraisal of the worker’s performance against the pre set
targets
 Paying each worker a bonus according to completion or exceeding of
target.
o So the aim is to provide more money to encourage workers to meet targets.
o Benefits:
 Money motivated workers are motivated
 Target setting can give workers a direction and purpose
 Annual appraisal offers the opportunity for feedback on the
performance of an individual, which can motivate workers. (However
will not be effective if appraisal is done once a year only)
o Drawbacks:
 Can fail if additional financial rewards do not motivate workers
(according to Herzberg money creates movement)
 Team spirit can be damaged due to rivalry
 Manager favoritism
 Managers can exert more control, as bonuses may not be given if
workers do not conform to manager.

 Profit sharing:
o A bonus for staff based on the profits of the business- usually paid as a
proportion of basic salary.
o The idea is to motivate workers to reduce cost and achieve higher performance
to increase profit.
o Some firm’s do not offer cash rather shares in the business.
o Advantage:
 Potential conflict between owners and workers is reduced as everyone
aim for same objective
 They are designed to lead to higher worker effort levels and greater
preparedness to accept cost reduction measures
 Chance of attracting better quality workers
 As the bonuses are paid out of profit it does not add to business cost
 If the scheme is successful will bring in overall profitability.
o Disadvantage:
 The reward offered is not closely related to individual effort, so a
worker might not put in greater effort
 The scheme can be costly if there are many workers
 If the profit to be shared is small it might not motivate workers
 Profit sharing schemes will reduce dividends and retained profits
 Worker share-ownership schemes can increase the total number of
shares issued and dilute the value of existing shares.
 Fringe benefits:
o Non cash forms of reward
o E.g. company cars, free insurance, private health schemes, discounts on
company products, low interest rate loans etc.
o Used as an addition to the normal payment systems in order to give status to
higher-level employees and recruit and retain the best staff
o Some of these are taxed but others are not, which is an additional benefit to the
employees.