Motivation at work: Financial - CCEA

Key facts about financial motivation at work

Motivation benefits: Increases productivity, reduces costs, and boosts profits

Performance pay: Extra pay for good performance (bonuses, commissions).

Fringe benefits: Perks like discounts and company cars.

Profit sharing: Employees get a share of company profits.

Why bother motivating staff?

A well-motivated workforce is more likely to work hard and thus keep costs down and hence increase profits.

Look at the worked example showing the output and labour cost per unit of 2 employees working in a factory.

If Pete makes more consoles in the same number of hours as Dave, his wages are spread over more units of output. So the labour cost per item is reduced, meaning that the business he works for can:

• sell consoles at the same price as before and make more profit per unit

• reduce the price below that of the competitor’s products, but maintain the same profit margin.

A well-motivated workforce leads to:

• lower labour turnover (fewer staff leaving and needing to be replaced)

• higher quality work

• fewer accidents

• less absenteeism

As a result:

• happy staff are more productive staff

• more productive staff help boost profits

• happy staff are less likely to leave, reducing recruitment costs

Therefore employers want to find out what makes staff happy.

Businesses can use a range of methods to motivate their employees. Financial motivation involves motivating employees with money and things associated with money. The main methods of financial motivation used in business are performance related pay (bonuses and commission), profit sharing, and financial fringe benefits.

What is performance-related pay?

Performance-related pay is payment that is based on the performance of employees - the better an employee performs, the more they are paid.

A bonus is a form of additional remuneration, this is money paid to an employee for excellent performance. For example, in an electronics shop, a salesperson might be awarded a £500 bonus at the end of the year for selling a large number of TVs, or a customer services operator may get a bonus for having high customer satisfaction ratings.

Commission is money paid in addition to a normal wage or salary to help motivate employees, or for hitting targets. Commission is usually given as a percentage of a sale or a specified amount of money per sale. For example, if a salesperson sells a car, they might receive 25 to 30 per cent of the profit as commission.

What are fringe benefits?

Many businesses use fringe benefits as a form of financial motivation. Fringe benefits are additional employment perks awarded to employees, such as staff discounts, a company car, a company mobile phone, free holidays, additional holiday allowance, free parking or transport, or free food and drink. Fringe benefits are often ways of saving employees money rather than providing them with additional money.

What is profit sharing?

Profit sharing is where a business gives employees a share of the business profits. This means that employees are likely to work harder - if the business makes more profit then each employee will gain more money.

Advantages and disadvantages of financial methods of motivation

Bonus

Extra payment paid as a lump sum, usually at Christmas or summer.

Commission

A percentage of the sales that the employee makes is earned on top of salary

Fringe benefits

Perks of the job eg: free gym membership, private medical insurance, company car

Profit sharing

A share of profits is paid in addition to basic salary

Final check