Motivating employees is about providing staff empowerment. This week Gary Kleyn considers the effectiveness of using payments and bonuses to staff to achieve this aim.
IN ORDER to use wages and bonuses as an effective tool to get the best out of a firm’s employees, a manager must first begin by trying to understand why pay is important to people before he is able to use it effectively as a reward.
Organisational behaviour scientists have put together various theories about the meaning of pay to employees.
First, equity theory teaches that pay is an object of social comparison. People like to compare their pay and pay rises with those of others.
Secondly, expectancy theory teaches that people are motivated if they feel hard work will eventually result in higher pays or bonuses.
Thirdly, reinforcement theory teaches that pay is just one of several extrinsic rewards that a manager may use to influence the work behaviour of staff.
According to Managing Organisational Behaviour published by John Wiley & Sons, for pay to prove successful as a reward that is truly motivational to the recipient it must be given both contingent on the occurrence of specific and desirable work behaviours; and equitably.
Although employment laws provide some barrier to creativity in paying staff, there are a number of pay practices that can be applied which can provide different incentives.
Managing Organisational Behaviour states that one practice is termed merit pay.
Merit pay is defined as a compensation system that bases an individual salary or wage increase on the measure of the person’s performance accomplished during a specified time period.
To work well, it should be: based on realistic and accurate measures of performance; clearly discriminate between high and low performers; and avoid confusing merit aspects of a pay increase with cost of living adjustments.
Besides the traditional merit pay, other innovative practices are being adopted by organisations such as skill-based pay, gain-sharing plans, lump-sum pay increases and flexible benefit plans.
Skill-based pay rewards people for acquiring and developing job-relevant skills.
Gains-sharing plans link pay and performance by giving workers the opportunity to share in productivity gains through increased earnings such as a cash bonus. These plans are normally different from profit sharing.
Profit sharing allows employees to earn a portion of any profits, whereas gain-sharing is normally designed to focus on productivity gains.
Another alternative is to provide a lump-sum pay increase rather than being spread over the year. This provides employees with the ability to make high-ticket price purchases or can be used as a down-payment for a car or house.
Flexible benefit plans are pay systems that allow workers to select benefits according to their individual needs through salary packaging, which also comes with tax benefits.
Workers may want insurance, superannuation contributions or a private vehicle paid for by the company, in exchange for money.
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