Improving motivation and engagement Financial and non-financial motivators

Learning outcomes What you need to know: Financial and non-financial methods of motivating employees and what influences the choice and assessment of the systems

Overview of key concepts Businesses have a wide choice of tools to help them motivate their workforces. A motivated workforce is happy at work, will be loyal (thereby reducing labour turnover) and will be more effective (thereby increasing labour productivity). The methods used take a short- or long-term approach.

Why is motivation important? A motivated workforce will work more effectively and will be more loyal. Effective and loyal employees can help to cut costs and maintain sales in a business.

Financial methods of motivation Businesses can motivate their employees using financial or non-financial methods. The financial methods are ‘payment by results’ or ‘performance-related pay’ and include: Piece rate Commission Salary schemes

Piece rate This was used by Taylor in his Scientific Management methods. It is based on a fixed price for each manufacturing unit. The employee is paid for every unit they produce. For example: employees will be paid £1.00 for every unit they make. Therefore if they make 200 in a week they will be paid £1.00 x 200 = £200 for that week’s work. This gives the employees some responsibility over how much they can earn (within reason). However, this can cause low morale because employees might not know how much they will get paid each week.

Commission Sales people are paid on a commission basis. Sometimes they have a lower basic salary plus commission or work on a commission-only basis. The sales person is paid on results – if they sell the goods they will get a percentage of the sale. Commission only is used frequently by cold calling businesses. The sales people can put a lot of pressure on customers to make a purchase. This payment system can put sales personnel under pressure to sell which can cause problems with sales methods. Salaries will not be guaranteed and therefore employees will not feel secure.

Salary schemes These include profit-sharing schemes or share ownership options through employee salaries. Profit-sharing allows businesses to distribute a percentage of profit to all employees when the business is performing well. All employees then benefit. The distribution can be profit (i.e. cash through employees salary) or shares (i.e. employees owning a ‘slice’ of the business). Approximately 80 per cent of businesses chose the cash option rather than the share option. The share option schemes are open to senior managers where they are given the option of buying shares on a given date. This can be used to boost their pension pots. When employees ‘own’ the business, or get a share in the profit, then motivation is high and they will work harder to achieve the objectives.

Performance-related pay Performance-related pay is a financial reward to employees whose work is considered to have reached a required standard, and/or is above average. It is a controversial method of pay in sectors because performance is difficult to measure. How do you measure the performance of a nurse or a teacher? It is difficult to quantify as there are too many variables. It requires clear measurable objectives and regular individual reviews, sometimes through appraisals, to make it a success.

Financial methods of motivation Advantages Employees become aware of how they contribute to the business Financial methods are normally linked to individual efficiency, therefore it encourages personal responsibility in employees (i.e. improving labour productivity) Management is scrutinised more closely and is accountable for their performance Having a share of the ownership of the business develops loyalty Can be used by business to overcome resistance to change in the short term Disadvantages With salary schemes even if an employee does not pull their weight then they will still get a bonus It can be difficult to arrive at the final figure to distribute and this may cause mistrust A drop in profit could be related to the market fluctuation and be out of the control of employees Poor management or processes can affect profit more than employee efforts Employees may not feel secure with piece rate or commission payments – this could affect morale and loyalty Piece rate pay can encourage employees to produce as much as possible and compromise quality, damaging customer relations and reputation in the long term

Money as a motivator Money is not the only motivator, however it is a short-term method of motivation. For long-term motivation and a satisfied workforce then non-financial methods of motivation need to be applied as well. It is more difficult to maintain and improve motivation continually through financial methods alone.

Non-financial methods of motivation Non-financial methods of motivation include designing a job to be less boring and more engaging through job rotation; job enlarging and job enrichment. (See Unit 6.3) They also include: Public praise Working in teams Autonomy over work Empowerment

Non-financial methods of motivation Advantages There are fewer boredom issues which should mean better quality products are produced Employees become multi-skilled because of job rotation and enrichment Therefore staff shortages can be filled Staff can test their leadership skills prior to taking management positions Promotions are internal so recruitment costs are cut Disadvantages There are high training costs Employees may expect more money as they become better skilled Some systems can be complicated and costly to run Employees may suffer stress from taking on too much A long-term approach which may need a change in culture (not easy to achieve)

Discussion or activity innocent smoothies use a mix of non-financial and financial methods of motivation. As an employee you can expect: Salary which is reviewed every year Performance bonus – if the business hits its targets Private health care Life assurance and critical illness cover for all employees Various tax saving schemes like ‘Ride2Work’ Involvement in company parties The ‘most amazing person of the month’ award A scholarship of £1,000 (three given out every quarter) towards a dream Free breakfast innocent foundation scholarships – every year someone gets to work with one of the foundation’s charitable projects Innocent contributes to the cost of clubs at the business – examples include cake club, cheese club, massage club Free use of gym Free smoothies!!!

Discussion or activity Write an advert for a job at innocent, explaining all the benefits available to staff and how they are designed to motivate employees. This must include financial and non-financial motivators. For more information about innocent drinks, go to http://www.innocentdrinks.co.uk/us/careers.

Summary Employees can be motivated using money with financial methods of motivation, however this is a short-term measure which may not be sustainable. Employees can also be motivated using non-financial methods, however these are linked to the culture and values of the organisation and are a long-term approach. Most modern businesses will use a mixture of the two to help motivate their staff but it will depend on the industry sector. More traditional manufacturing businesses may rely heavily on financial methods of motivation.