0264 · 2.4.2Methods of motivation

Motivation and financial rewards

0:00An employee assembling boxes may want more variety during the working day. Someone selling expensive products may welcome a payment for each successful sale. Both employers want greater effort, but the most suitable incentive depends on the job. By the end of this video, you will understand how different methods work and how to justify a suitable choice. Motivation is the reason why employees want to work hard and work effectively for the business.

0:23An incentive gives an employee a reason to make that effort, which helps a business build a well-motivated workforce. The important connection is between what the employee values and what the business needs. A reward linked to speed encourages faster working, while recognition for careful service directs attention towards customer satisfaction. Financial methods of motivation reward employees through pay or benefits with a monetary value, while non-financial methods encourage them through the work itself, recognition or opportunities for development.

0:54The distinction concerns the reward employees receive. A non-financial method still has a cost. Training, for example, costs the business money, but its motivational benefit comes through greater skills and confidence. The financial methods we will examine are time-based wage, piece-rate, salary, bonus, commission, profit sharing and fringe benefits. Each creates a different connection between work and reward. Some provide predictable income, while others increase earnings when performance improves. Choosing between them requires attention to employees’ needs, the business’s finances and how performance can be measured.

Wages, piece-rate and salary

1:28A time-based wage pays an employee a set rate for each hour worked. This suits jobs where careful attention matters and individual output is difficult to measure. Harbour Café sells drinks and snacks, and its employees serve customers and clean tables between orders. Their output is hard to count, while hourly pay gives them predictable earnings. The drawback is that working faster earns no extra money, so this method gives no reward for speed.

1:54Suppose an employee earns fifteen dollars an hour and works forty hours during the week. Assume every hour is paid at the same rate. We multiply the hourly rate by the number of hours because each hour earns another fifteen dollars. Fifteen dollars multiplied by forty gives six hundred dollars. That amount is the employee’s weekly pay. Piece-rate pays an employee for each unit produced. This suits work where individual output can be counted, such as assembling simple products.

2:21Employees can increase their earnings through greater output, so the business gains an incentive for faster production. However, customers may receive poorer products if employees rush, and the business then faces the expense of correcting defects. Vale Crafts produces woven baskets and pays three dollars for each acceptable basket completed. An employee produces thirty-two acceptable baskets during the agreed period. Multiplying three dollars by thirty-two gives earnings of ninety-six dollars.

2:48The result depends on every basket meeting the required standard, so clear quality requirements help protect customers while rewarding output. A salary is a fixed amount of pay for a year, paid monthly. It is not linked to the hours worked or the output produced. Salaries suit office and management jobs because their responsibilities extend across many different tasks. Employees gain predictable income, and the business can plan its regular pay expenses.

3:13Extra effort brings no extra salary, so it needs encouragement through other rewards or satisfaction from the role.

Bonuses, commission and benefits

3:19A bonus is an extra payment for good performance or meeting a target. For example, a hotel might reward its reception team for achieving a customer satisfaction target. Employees gain a clear reason to improve service, and the business benefits from happier guests. However, a poorly chosen target can direct attention towards measured activities while other important duties receive less care. Commission is a payment based on a percentage of the sales an employee makes.

3:45It suits sales employees because the business can record the value of each sale. Revenue is the income a business receives from selling goods or services. Commission connects an employee’s earnings to the revenue they generate, although pressure to sell can damage customer trust. Suppose an employee earns commission of five per cent on twenty thousand dollars of sales. Assume all those sales qualify for the payment. A percentage is an amount out of every hundred, so one per cent of the sales is twenty thousand dollars divided by one hundred.

4:14That gives two hundred dollars. Five per cent is five times as much, so two hundred dollars multiplied by five gives one thousand dollars of commission. The commission arrangement should make the qualifying sales clear. A business might require a completed sale before making the payment. Employees then understand which actions earn the reward, and managers can check the result. Some employers combine commission with a salary, so employees receive predictable income alongside an incentive to increase sales.

4:42Profit is total revenue minus total costs. Profit sharing gives employees a share of the business’s profit. This can encourage cooperation because the reward depends on the whole organisation’s success. Employees benefit when improved performance increases the amount available, but individual effort may have little visible effect in a large business. Profit sharing also depends on circumstances employees cannot fully control. A rise in material prices can reduce the amount available despite careful work.

5:12For the business, the method connects rewards to financial success and can encourage employees to reduce waste. Its motivational effect is weaker when the connection between personal effort and the final payment feels distant. Fringe benefits are non-cash rewards provided in addition to pay. Examples include a company car, health insurance, employee discounts, free meals and a pension. These suit employees who value the particular benefit, such as free meals for hotel employees or a company car for someone who travels to clients.

5:41Fringe benefits are financial methods because they have a monetary value. The business pays for these rewards, so managers should choose benefits that employees genuinely appreciate.

Non-financial motivation methods

5:50Non-financial methods include job enrichment, job rotation, training, opportunities for promotion, praise and employee of the month. These can make work more satisfying or help employees feel valued. Herzberg’s two-factor theory identifies achievement, recognition, responsibility and promotion as motivators. Pay and working conditions are hygiene factors, which remove dissatisfaction but do not motivate. Fair pay and conditions therefore remain important alongside meaningful work. Job enrichment gives employees more challenging tasks and greater responsibility.

6:25A repair technician might gain authority to diagnose faults and choose suitable solutions. That responsibility connects with Herzberg’s motivators because the employee can experience achievement through independent decisions. The business may gain better problem-solving, although employees need suitable skills and support to handle the additional responsibility. Job rotation moves employees between different tasks to provide variety. Someone packing products could also prepare packaging materials and check labels during different parts of the day.

6:54Each task is at a similar level, so job rotation does not make the work more challenging. Working alongside different colleagues can help meet social needs in Maslow’s hierarchy, and reduced boredom can improve job satisfaction. Employees who can cover several tasks are useful when a colleague is absent, although learning unfamiliar activities initially takes time. Training develops employees’ knowledge and skills for their jobs. A bank employee could learn how to explain a new account accurately to customers.

7:22Greater competence supports achievement, one of Herzberg’s motivators, and can make demanding work feel more manageable. Fewer mistakes follow, but the business must pay for instruction and allow time away from normal duties. Promotion means moving an employee to a higher position with greater responsibility. Opportunities for promotion give employees a reason to develop skills and demonstrate reliable performance. Herzberg lists promotion itself as a motivator, because future progress makes effort feel worthwhile.

7:50A pool of capable internal candidates develops, although limited vacancies can leave some employees disappointed. Praise is an expression of approval for an employee’s good work. A manager at a dental clinic might thank a receptionist for handling a difficult appointment accurately and politely. Specific recognition connects with Herzberg’s motivators because the employee sees that their contribution matters. The business can reinforce useful behaviour at little financial expense, provided praise is sincere and awarded fairly.

8:19Employee of the month is an award recognising an employee’s contribution during a particular month. An online shop could recognise someone who consistently resolves customer enquiries accurately. The award supplies recognition, a Herzberg motivator, and also meets esteem needs in Maslow’s hierarchy. It makes valued behaviour visible to colleagues. Clear criteria are important because an unfair selection can discourage employees who also worked hard.

Choosing suitable motivation methods

8:44A suitable recommendation begins with the business’s actual problem. Consider the job, what employees value, the available money and the outcome management wants. Then trace the connection from the chosen method to changed behaviour. A strong answer also explains why another realistic option is weaker in that particular situation. Cedar Motors sells cars through a small showroom with eight sales employees. Each completed sale can be traced to the employee who handled it.

9:11The business has three thousand dollars available each month for incentives and aims to increase completed sales. Expected commission payments are twelve hundred dollars, which leaves eighteen hundred dollars of the budget available. I recommend commission for Cedar Motors because each completed sale can be linked to an individual employee. This creates a clear connection between successful selling and personal earnings. The expected twelve hundred dollars of payments fits within its three thousand dollar monthly budget.

9:38Profit sharing provides a weaker link because the payment also depends on business costs, so commission is better suited to increasing completed sales. Willow Foods produces packaged dried fruit and has twenty employees on a small packing line. Employees report boredom because they repeat the same tasks throughout their shifts. Management has two thousand dollars available and wants to maintain packing accuracy. Training for rotation between packing, preparing materials and checking labels costs five hundred dollars, which leaves fifteen hundred dollars available.

10:09I recommend job rotation for Willow Foods because moving between its packing tasks directly addresses the employees’ reported boredom. Learning different activities also provides cover when a colleague is absent, so the line can continue operating. The five hundred dollar training cost fits within the available budget. Piece-rate would encourage speed and create a risk of rushed labels, so rotation better supports accurate packing.

Exam answers and recap

10:32Paper One Short Answer and Data Response and Paper Two Case Study build every question on business information. A question might ask you to define commission or explain how training motivates employees. Define means give precise meaning. For explain, set out purposes or reasons, say why and how, supported with relevant evidence. An explanation of training could begin with employees gaining the skills needed to complete their tasks accurately. Improved competence helps them experience achievement, which can increase their willingness to make an effort.

11:04A case question could ask you to consider information and justify a suitable method. Justify means support a case with evidence or argument, so use the business’s details to support your choice. Keep the methods distinct through their defining features. Piece-rate rewards units produced, while commission rewards sales through a percentage payment. Job enrichment adds challenge and responsibility; job rotation provides variety through movement between tasks. Fringe benefits count as financial methods because they have a monetary value, while praise is non-financial because it rewards through recognition.

11:38Your final check is whether the incentive encourages the behaviour the business actually needs. Faster output matters only when products also meet the required standard. A sales reward works best when customers receive suitable advice and completed purchases can be measured. Different employees value different rewards, so a combination of fair pay and meaningful non-financial methods can be appropriate. Remember that financial methods of motivation reward employees through pay or benefits with a monetary value.

12:06In contrast, non-financial methods encourage them through the work itself, recognition or opportunities for development. The best choice connects employees’ needs with the business’s aims and resources. A justified recommendation names one method, uses case evidence and explains why it is stronger than a realistic alternative.