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Motivation in practice - importance of pay

Author: Jim Riley  Last updated: Sunday 23 September, 2012

Motivation in practice - financial incentives

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 helps to satisfy many needs (e.g. security, esteem needs, resources to pursue self-actualisation)

• Pay is the subject of much important business legislation (e.g. national minimum wage; equal opportunities legislation)

• 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 (these are covered in separate revision notes)

• Time-rate pay
• Piece-rate pay
• Commission
• Performance-related pay
• 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, and which methods to use:

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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