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
• 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