Financial methods of motivating and empowering employees

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Andrew Sinnott – Unit 20 – task 3

Financial methods of motivating and empowering employees

Financial motivation consists of motivating and empowering employees with methods that require a cost to the business. Most businesses see the need for financial motivation. The main methods are explained below.

Performance related pay

Performance-related pay is a financial reward to employees whose work is either considered to have reached a required standard, and/or is above average.

Performance related pay is used in two different ways in business. Either, individual performance is reviewed regularly (usually once per year) against agreed objectives or performance standards.

Or at the end of the appraisal, employees are categorised into performance groups – which determine what the reward will be (if any).

The method of reward will change, but usually it involves a cash bonus and/or an increase in wage rate or salary.

“Performance-related pay has grown widely in recent years – particularly in the public sector. This is part of a movement towards rewarding individual performance which reflects individual circumstances.” - http://tutor2u.net/business/motivation_financial

The advantages of performance related pay to the business are that it provides an incentive for employees to achieve defined work targets, as employees are more likely to focus on what they need to do to improve if this is directly linked to pay. This method is also good at dealing with poor performance employees and can push them to work harder.

The advantages of performance related pay to the employees are that the contribution that the employees make is recognised and is rewarded usually with a cash bonus. This gives the high achievers to benefit from their hard work.

The disadvantages of performance related pay to the business are that the reward system can be detrimental to the business because employees may only be focusing on the financial reward rather than development needs. Because of this, co-operation and teamwork can be hindered. There is the danger that employees may expect a pay-out year on year regardless of rising requirements on performance related pay. Finally, this method is only short-term and wouldn’t motivate workers long term; it does not encourage employee loyalty.

The disadvantages of performance related pay to the employees are that it reduces equality between workers which could cause conflicts and differences of opinion on what is classed ‘high performance’. Much of the performance related pay is based on the judgement of a manager etc. Finally, employees may be demotivated is the goals set are too difficult to reach.

I believe that performance related pay is okay as a financial method of motivation. This is because I believe that many employees do not work towards the bonus, but only appreciate it if they got it. Besides, it’s usually only a small percentage of total pay.

Piece rate

Piece rate is the method of pay that an employee receives. The employee basically does tasks that an employer sets to finish for a set fee, no matter how long it takes them to do it.

Frederick Winslow Taylor put forward the idea that workers are motivated mainly by pay. This theory is linked into piece rate and goes on the assumption that his theory is correct and pay does motivate employees.

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Piece rate often occurs within a factory workplace, where workers get paid a certain amount for meeting a quota, no matter how many hours it took them to meet.

An advantage of piece rate is that a faster worker will benefit from it. If you are a fast worker, then you can earn a lot of money through piece work as it will probably take you less than the average time, meaning you can get more jobs done within a day and potentially earn more money.

In some cases piece rate jobs can be performed at home. If you work ...

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