Financial Motivation (AQA A Level Business): Revision Note

Introduction to financial motivation

• Financial motivation is the use of monetary rewards to influence employee behaviour and effort

  • It is one of the most widely used approaches to motivation in business

How motivation theorists view financial rewards

Theorist	View of financial rewards
Taylor	Taylor believed workers are motivated primarily by money He called this the 'economic man' theory He favoured pay systems that directly link earnings to output
Maslow	Maslow argued that financial rewards satisfy lower-level needs (physiological and safety) Once these are met, money becomes less motivating Higher needs require non-financial rewards
Herzberg	Herzberg classified pay as a hygiene factor Its absence causes dissatisfaction, but its presence alone does not motivate He argued that intrinsic factors (such as achievement and recognition) are the true motivators

Wages, piece rates and salaries

Wages

• A wage is a payment calculated on an hourly basis

  • Employees are paid for the number of hours they work

  • E.g. A supermarket checkout operator paid £12 per hour

Advantages and disadvantages of wages

Links to motivation theory

• As wages do not link pay to output, they would not be Taylor's preferred system

  • He argued workers should be rewarded for what they produce, not simply the time they spend at work

• According to Maslow, wages satisfy physiological needs as they pay for food and housing and, to some extent, safety needs as they provide a regular income

• For Herzberg, wages are a hygiene factor

  • If pay is seen as fair, it prevents dissatisfaction, but it does not encourage greater effort

Piece rates

• Piece rate pay means employees are paid a fixed amount for each unit of output they produce

  • E.g Delivery drivers are paid per parcel delivered

Advantages and disadvantages of piece rates

Links to motivation theory

• Taylor strongly favoured piece rates, as they directly reflect his economic man theory

  • Workers will produce more if paid more for each unit

• For Maslow, piece rates can satisfy physiological needs

  • However, they may undermine safety needs if earnings fluctuate significantly

• For Herzberg, piece rates are a hygiene factor, but they provide a clearer link between effort and reward

Salaries

• A salary is a fixed annual payment, usually divided into equal monthly instalments, regardless of hours worked or output produced

  • E.g. A marketing manager earning £42,000 per year, paid in monthly instalments of £3,500

Advantages and disadvantages of salaries

Links to motivation theory

• For Taylor, salaries do not link pay to output so he would not favour them as a motivational tool

• According to Maslow, salaries satisfy physiological and safety needs

  • The stability and predictability of a salary addresses the need for financial security

• For Herzberg, a salary is a hygiene factor

  • An adequate salary prevents dissatisfaction but does not in itself motivate employees to perform at a higher level

Commission and performance-related pay

Commission

• Commission is a payment based on the value or volume of sales an employee generates, usually expressed as a percentage of sales revenue

  • E.g. An estate agent earning 1.5% commission on each property sold

• Commission is often paid alongside a basic salary

  • The combined package is sometimes referred to as OTE (on-target earnings)

Advantages and disadvantages of commission

Links to motivation theory

• Commission aligns with Taylor's view that financial incentives improve performance

  • It directly rewards output (sales) and is consistent with the economic man theory

• For Maslow, commission satisfies physiological needs but can undermine safety needs due to income variability

  • High earners may also satisfy esteem needs through the status associated with top sales performance

• For Herzberg, commission is largely a hygiene factor

  • However, the recognition that often accompanies high sales performance (e.g. sales awards, public acknowledgement) could be considered one of Herzberg's motivator factors of achievement and recognition

Performance-related pay (PRP)

• Performance-related pay is additional financial reward given to employees who meet or exceed agreed performance targets, usually assessed through an appraisal process

  • E.g. A bank employee receiving a year-end bonus for achieving their sales and customer satisfaction targets

Advantages and disadvantages of PRP

Links to motivation theory

• PRP broadly aligns with Taylor's economic man theory

  • It rewards output and uses financial incentives to improve performance

• For Maslow, PRP can begin to satisfy esteem needs, particularly when combined with public recognition of high performance

  • Physiological and safety needs are dependent on the base salary

• For Herzberg, PRP is, overall, a hygiene factor

  • However, the recognition for an employee that they have performed well and being rewarded for it means PRP can be considered a motivator

Shares and fringe benefits

• Share ownership schemes give employees shares in the business, making them part-owners and entitling them to a share of profits and any increase in share value over time

  • E.g. The John Lewis Partnership gives all employees (called partners) a share of annual profits

• Share options give employees the right to buy shares at a fixed price in the future

  • If the share price rises, the employee benefits

Advantages and disadvantages of shares

Links to motivation theory

• For Taylor, shares represent a form of financial incentive and align with the economic man theory

  • However, Taylor focused more on output-linked pay

• For Maslow, shares can satisfy esteem needs (status, sense of ownership and belonging)

  • Where they generate significant wealth, they may contribute to self-actualisation

  • They also reinforce safety needs if they grow in value over time

• For Herzberg, share ownership has the potential to move beyond simply being a hygiene factor

  • The sense of ownership, achievement and recognition it creates may be a genuine motivator, particularly in businesses where employees have a meaningful stake in the company's direction

Fringe benefits

• Fringe benefits (also known as perks or benefits in kind) are non-cash rewards provided to employees in addition to their salary

  • Examples include company cars, private health insurance, gym membership, pension contributions, free meals, staff discounts, childcare support and flexible working

Advantages and disadvantages of fringe benefits

Links to motivation theory

• Taylor did not specifically address fringe benefits

  • His focus was on direct financial output-linked pay

• For Maslow, fringe benefits can satisfy multiple levels of the hierarchy depending on the specific benefit

  • Private health insurance satisfies safety needs

  • Social events and team lunches satisfy social and belonging needs

  • Prestigious benefits such as a company car satisfy esteem needs

  • A training budget or flexible working may contribute to self-actualisation

• For Herzberg, fringe benefits are generally hygiene factors

  • Their absence can cause dissatisfaction (especially if competitors offer them) but their presence alone does not motivate

  • However, benefits that enable personal growth and development (e.g. a learning budget or mentoring) may be considered motivators