Monetary Rewards
Almost thirty years ago more and more companies started looking at pay for performance to increase their bottom line and gain productivity. Slowly these general pay increases gave way to merit pay and other forms of monetary incentives. These types of monetary rewards can be grouped into two categories: individual and group incentive plans (Appelbaum and Shapiro, 1992). The literature suggests that merit raises are used the most as an individual incentive and profit sharing is widely used by organizations as a group incentive. Other individual and group incentives that are also commonly used are commissioned pay, bonuses, and stock options. The goal of most companies is to use these financial incentives to motivate workers and thereby boost productivity (Hassink and Koning, 2009). Monetary rewards definitely matter to most people. This is evident when a company reduces or even eliminates the financial incentives that they had in place because of the state of the economy. The consequences of this action are often very unpleasant, resulting in decreased employee motivation, increased turnover, and lessened productivity (Martin, 2010). However; the use of monetary rewards has both its advantages and disadvantages.
Individual Incentives
According to E.A. Locke, the use of money as a means of motivation probably traces back to the origins of money itself. Merit pay systems are among the most popular vehicles for rewarding employees today (Lowery, Petty, and Thompson, 1996). The idea behind using this system is based on expectancy theory which Appelbaum and Shapiro (1992) defined as a theory holding that people want to be fairly or equitably treated by the organization that employs them. A study done by...
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When employees were asked, what factors could be changed at USAA to help maintain employee motivation levels, a couple of them answered with, “higher wages” and “more money”. This response corroborates other studies regarding pay which state surveys will more likely under emphasize the importance of pay relative to other motivational factors. (Rynes, Gerhart & Minette, 2004). “Financial incentives had by far the largest effect on productivity of all interventions. For example, pay was four times more effective than interventions designed to make work more interesting.” (Rynes, 2004). One reason for this phenomenon is social desirable responding. It should be noted, that although pay may be under reported, the results indicate other factors are also important for employee
Companies are increasingly thinking about getting rid of annual pay raises. The positive side of this could redefine reward systems which motivates employees and attract high quality workers. Being that it could also have a negative side, it could prove to be a demoralizing switch that leaves many workers not able to provide for their cost of living. There is a decision to be made throughout companies which will have an effect not only on the company, but on the employees as well.
A number of motivational theories explain how rewards affect the behavior of individuals and teams. Performance related pay can have a motivational effect. Employees are motivated to increase prod...
...r investigate what sort of rewards or fringes would their employee’s desire compared to the old method of monetary incentives for the beneficial for the company”.
Whitford explained how in the 1990’s, public management agenda had critical changes in the federal government’s merit system with limited job security and the innovation of merit-based pay systems (1). Merit-based pay systems is a part of governmental reform efforts but there is still challenges of implementing incentive systems as there are different organizational contexts (2). Choi and Whitford discuss how merit-based pay is limited in government settings by the inherent of public organizations. They also discuss how coercive control as an attempt to increase effort coercively instead of voluntarily as it measured by improved views of empowerment, task involvement and other sentimental results (4). This reading explains how employees when they are less satisfied with their workplaces and exposed to financial incentives will result in turnover and future incentives as merit-based pay is either inherently flawed or public organizations are bad places to implement it
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Incentive reward engagement offers a win-win situation for the employees and the company. Kelleher believes that incentive is a form of recognition and builds engagement through company’s and employee’s obligations towards a common goal (2014). The company has a “Growth Incentive Scheme” for the production workers. Special monetary incentives are provided should the workers achieve the monthly output target. Through the rewards, employees feel motivated towards their work and thus, contribute towards the company’s
Reward systems have been evolving and growing throughout the years, but there are many types that have always been there. Base pay is the most common, which is an employee’s base wages and salary that they are paid on hourly, weekly, monthly, or annually (Luthans, 2011, p.94). Merit based pay is another type of incentive, which rewards and motivates an individual to perform their jobs to the standards of their employers. According to the text Organizational Behaviors, by Fred Luthans, there are three other options for paying an employee for their performance: individual incentives pay plans, using of bonuses, and the use of stock options. Individual based pay plans are based on the employees output and/or quality. Some organizations use bonuses as incentives to their employees. These are offered sometimes as op...
Management spends a huge amount of time to design incentive systems and schemes to motivate their workers and to ensure they work in their best possible manner. Motivating workers by giving them decent pay helps in winning employees heart to make the work done efficiently, significantly and effectively. The most effective way to motivate people to work productively is through individual incentive compensation (Pfeffer, 1998). An attraction of getting more is a powerful incentive to people for high performance. While most people agree that money plays a major role in motivating people, in organizations there is a widespread belief that money may also have some undesirable effects on morale.
Employee compensation and reward systems have undergone a couple of paradigm shifts since inception. Reward systems were traditionally compensation based and focused on the individual or the position (Beam 1995). After a recession in the early 1980's, employers turned to performance based models in an attempt to save money while still rewarding top performers (Applebaum & Shapiro, 1992). Today, the most successful organizations are using a total reward model, a hybrid of the performance based model combined with strategic human resource management planning to create reward systems that both benefit the employee and help organizations realize their operational goals (Chen & Hsieh, 2006).
The book I have chosen for the book reflection assignment is called “Punished by Rewards”. I chose this book firstly because the title appealed to me. The name of the book is an oxymoron. This seemed like an intriguing title and thus my pick. Hence, I assigned myself to reading this book.
According to Baker, Jensen and Murphy (1988), the important organizational incentive systems include pay for performance compensations, promotion-based incentive systems and profit sharing plans. Therefore, before offering the bonuses, the organizations should conduct the job appraisal to the employees and depend on the result of performance to reward both employees and organizational performance.
There is considerable debate over merit pay and the effect it has on employees within an organization. Psychologists believe merit pay is related to the incentive theory of psychology; people respond to rewards and with the proper motivation, it increases performance (Cherry). Employers consider merit pay an effective tool and a form of competition strategy for motivating employees to achieve positive performance outcomes. Many employers ignore the fact that incentive plans may motivate some individuals while others have high work ethics and do not need motivation. The intent of this paper is to discuss merit pay used by companies, the motivational factors on employees to reach high achievement, and the challenges that employees face due
Money is an important factor in the motivation of employees, as profit acts as a