People Management: Financial Benefits & Pay Schemes

Motivation are forces that reflects, directs and makes people endure in their efforts to accomplish their given targets and goals. In accordance to the foundations of motivation theory, people are demotivated by unsatisfied and unfulfilled needs, so in order to motivate a person or employee, the human resource managers of respective companies should identify what the needs of their employees are.

Financial incentives are extrinsic and tangible rewards which are dependent on the performance of the employees. Referring to the motivational theories, there are certain hierarchy of needs which are needed to be fulfilled in order to achieve high motivation in the employees’ part.

This report will briefly identify the hierarchy of needs and how financial rewards and pay schemes effectively fulfill these needs, thereby making the workforce motivated.

HIERARCHY OF NEEDS

The hierarchy of needs consists of five stages of needs proposed by Abraham Maslow in 1943. Figure (below) shows the progression of the different types of needs.

The pyramid progresses from the bottom to the top, with the very basic and primary needs on the bottom and the self-actualization needs at the top. As each need of a worker is fulfilled, it moves to the next level of needs until one has reached self-actualization. However, in the realms and nature of human behaviour, it is said that self-actualisation can never be achieved.

Financial incentives and different pay schemes obtained by organizations aid workers to satisfy their growing needs.

• PERFORMANCE-RELATED PAY (BONUSES)

Performance- related pay, also referred to as PRP, is a method of payment to workers in affiliation to the performance of the employee. Money is paid to workers with how well they work and how productive they are.

This acts as a motivation for workers to increase their level of performance and be more productive in order to acquire these financial rewards. Basic examples of these types of pay schemes are acquired for car salesmen, real estate agents and at times for production line workers.

According to Dan Ariely a behavior economist at Duke University Fuqua Florida School of Business defines bonus as a performance based pay dependent on a superior performance given by an employee compared to his/her co-workers. In accordance to his studies, Dan Ariely claims that performance based pay is effective in situations where a person performing a physical task is more likely to be motivated to produce an increased output for the company, whereas employees who have a cognitive task , such as desk jobs, does not affect output as much.

Franklin Resources Inc, a large global investment organization is a renowned example of practicing this pay scheme. They have set a base pay, which the employees receive on a monthly basis for completing their job duties. Employees are paid a competitive salary, based on the local market and individual competencies and responsibilities. In addition to this, employees who have a stellar corporate and department performance record are eligible to obtain further financial bonuses at the end of the fiscal year. This reward system acts as a catalyst for workers to keep an excellent performance record in all areas of work, thereby increasing the productivity and the success of the firm.

• FRINGE BENEFITS

Fringe benefits are assorted non-wage rewards given to the employees in addition to their basic wage or salaries. These benefits usually are objects which aids the employees in their livelihood and their common welfare. There are numerous examples of fringe benefits which include collective insurances (health, car, life etc.), paid vacations, education funding, family benefits, accommodation with amenities and many more. These benefits catered to workers plays a pivotal role in increasing the morale of the workers, as it increases the financial security of the employees and in doing so, the organizations are successful in improving employee retention within the organization.

Google, the world’s largest online search engine, are highly acclaimed for their long list of fringe benefits that they provide for their employees. From free cafeteria food, annual ski trips to Sierra to free laundry services – Google probably has the best fringe benefit program provided to employees, in the world.

• TIME –RATE PAY

Time –rate pay is a form of pay scheme where employees are paid based on the amount of time they work. This process of pay scheme is usually acquired by smaller companies. It is a common method of wage payment in companies where the workforce consists mostly of hard labor. The usual form of time rate is the weekly wage or monthly salary and usually the time rate is fixed in relation to a standard working week. The main advantage of this method is that it helps employees to budget their finances with more certainty and assurity. But this pay scheme does little to encourage greater productivity from the workers, thereby giving them little or no incentive to achieve greater output.

Examples of companies using this method of wage payment include part-time manufacturing laborers, production line workers, call service attendants and many more.

• PIECE-RATE PAY

Piece-rate pay, also referred to as  a “payment by results system”,  is a pay scheme which gives payment for each item produced by the workers, therefore it is the easiest way for a business to affirm that employees are paid according to the amount of work they do.

This payment scheme is usually acquired by firms that have assembly lines and production line workers. In these firms, it is easy to monitor the performance of the workers on how much products each worker produces and hence find it easy to calculate their wage. Workers’ productivity also increases as they work up to produce more so that they earn more. However, it is highly argued that in this form of pay scheme, workers’ productivity might get high, but the quality of their product might suffer in a negative way.

Examples of companies using this pay scheme are mostly those which have assembly lines as a main method of production. These may include car manufacture companies and various other manufacturing industries.

• EMPLOYEE STOCK PURCHASE PLAN (ESPP).

This is a financial incentive provided by large companies whose shares are traded in the stock markets. It is a corporational plan in which employees of the firm can purchase company shares at a discounted price. The employees assign to this program through payroll deductions, which build up towards the stock purchase date. At the stock purchase date, the company uses the collected funds and purchases shares of the company on account of the partaking employees. The amount of the discount depends on specific programs and can be as much as 15% lower than the market price.

This acts as a strong motivator for the employees as they have purchased shares of the company, they feel more responsible towards their given tasks and work harder to accomplish them, in order to benefit the company and get greater returns from their shares.

Franklin Resources Inc also provides this incentive to its employees. Their Employee Stock Investment Plan (ESIP) caters employees with the opportunity to purchase the company common stock (BEN) at a 15% discount off the original market value.

• RETIREMENT PLAN

Some companies offer a 401(K) retirement plan for its employees. In this program, employees are given the option of saving a little money at a time from their payroll deductions and contributions. When they reach their retirement age, they can obtain this collected sum from the company to have a better financial stability. This provides a safety net to the employees when they come of retirement age, giving them a better life when they will, most probably, remain unemployed.

 Franklin Resources Inc offers these retirement planning options to their employees. Google, on the other hand, allows its employees to contribute up to 60% of their compensation where a single employee saves approximately $2,200 per year. 

• MOTIVATION ?

How important is money as a motivator?  It is widely accepted that poor or low pay acts as a de-motivator.  Someone who feels undervalued or under-paid may soon leave to find better-paid employment.  However, it is less clear that paying people more results in better motivation. 

For most people, motivation (the will to work) comes from “within”.  More money can help us feel better about out work, but it is unlikely to encourage us to work harder or to a higher standard.

So, financial motivators cannot always be reliable in complete motivation, in my opinion. Financial motivators will only make employees hungry for more economical benefits, rather than concentrating on how to improve his work – they might just be more interested in the financial benefits.