Payment system in improving motivation and performance

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This paper focuses on the payment system of P&G Company and the effects on the improvement of motivation and performance management. There are three main sections. The relative definition and the main theories will be given at the very beginning. The next section is concentrate on an analysis about how the payment system works in P&G, and indicates the deficiency. Then an evaluation and prospect will be in the last section.

Related definitions and theories

Payment system which will be discussed in this paper is an essential part of human resource management. It means the scheme offering employees rewards and benefits according to their working performance and the policy motivating them to dedicate to their jobs. So that we can consider it as the employees' benefit and reward. "It always includes basic pay, variable pay, housing, insurance, pension, vacation, funding of training, profit sharing, working environment and employee shareholding plan, etc(online source)." However, all of them are intend to offer the life security to staffs and motivate them to show better performance at work. As Murphy stated, "payment systems are much more than just bonus plans and stock options. While they often include both of these incentives, they can also include awards and other recognition, promotions, reassignment, non-monetary bonuses (e.g., vacations), or a simple thank-you (Murphy, 2003)."

Psychological contract

"A psychological contract represents the mutual beliefs, perceptions, and informal obligations between an employer and an employee. It sets the dynamics for the relationship and defines the detailed practicality of the work to be done. It is distinguishable from the formal written contract of employment which, for the most part, only identifies mutual duties and responsibilities in a generalized form (Wikipedia, online)."

Motivating theories

Maslow's hierarchy of needs theory, Herzberg's two-factor theory, Adams' equity theory and Locke's goal-setting theory will be used in the case study. They are the basis of analysing the motivation issues and offering guidance on how to motivate people at work.

Hierarchy of needs theory

In Maslow's opinion (Maslow, 1943), human's requirements are divided into five orders. They are physiological needs, safety needs, social needs, esteem needs and self-actualisation needs. When the first demand of employees is satisfied, the demand for the next level will become the dominant one, which impacts people's wishes and behaviours.

Two-factor theory

Herzberg classified the factor of motivation into two categories, which are hygiene factors and motivators (Herzberg et al, 1959). The satisfactions of hygiene factors avoid the complaint from employees. If they are not present it will lead to sever dissatisfaction and ultimately de-motivation. On the other hand, although the lack on motivators will not dissatisfy the employees, it can motivate the employees to increase the efficiency.

Equity theory

Adams' theory (Adams, 1965) is largely based on the concept of social comparison. This is a process we engage in a good deal at work in order to judge the fairness of what happened to us. People will be satisfied with their working conditions only after they believe that these are comparable with those of other people in similar situations.

Goal-setting theory

Locke's goal-setting theory showed the relationship between the difficulty and definition of a goal and the performance of the employee. He found that the performance would be achieved better when the goal is difficult and clear than it is vague or easy (as cited in Dick & Ellis, 2005).

Payment system works in practice

Company information

The company we are going to analyse is Procter & Gamble, P&G for abbreviation. "Founded in 1837, Procter & Gamble is one of the largest consumer products companies in the world. In fiscal year 2007, it had annual revenue of US$ 68.2 billion, and ranked 74th on Fortune 500 list of the world's largest corporations. P&G has operations in more than 80 countries, with more than 300 brands on market in 160 countries. These include beauty care, household care and Gillette products. Three billions times a day, P&G brands touch the lives of people around the world (online source)." "Companies like P&G are a force in the world. Their market capitalization is greater than the GDP of many countries (online source)."

Payment system analysis

For recruiting and maintaining the excellent talents, P&G offers employees the competitive rewards. P&G have a survey every year to get the idea about the average rewards level of the same industry with the purpose of decides its level of employee rewards. P&G adjust its payment system according the result of rewards market survey to make sure its staffs could get a relevant benefit and be promoted to set up a better life. We will discuss them in the following paragraphs. (The information about the payment system of P&G is from the website of P&G)

Basic wage

Basic wage is the fixed part of whole wage. It is base on the position of the employees. Employees could get certain quantity of money every month to ensure their living needs whether they perform well or as normal. The only requirement is zero mistakes. It is fixed but not unchangeable. P&G will change it to match the prices of commodities to make sure it is enough for living. This kind of wage satisfies the physiological needs of personnel and makes staffs to avoid making error at work (Maslow, 1943). If we think about it by using Herzberg's two-factor theory (Herzberg, 1959), we can get that the basic wage is involved in the hygiene factors which could avoid the complaint from employees.

Variable wage

P&G define it as contribution-related pay which Armstrong claim that, "combines performance and competence related pay by rewarding people for both their performance and their competence. It focuses on what people in organisations are there to do- that is, contributed by their skills and efforts to the achievement of the purpose of their organisation or team (Armstrong and Baron, 2005)." How much the employees can earn depends on how much their achievement. Staffs could be promoted by variable wage to show better performances at work to gain more salary and to prove their abilities. It can be related to the motivators of Herzberg's two-factor theory (Herzberg, 1959) which could enhance people's passion of working. Variable wage is regarded as the recognition of work and satisfying people both in finance and psychology.

When people get rewards they will compare with others. In their opinion, distribution according to work is definite. Payment on contribution will depend on produced quantity and served quality. When they put themselves into a job they will evaluate their gain. As Dick points out, only in the situation that the staff feels the inputs exceed their outputs, they will be motivated (Dick et al, 2005). According to Adams' theory (Adams, 1965), in assessing the fairness of working conditions, they will estimate an input/output ratio. Higher salary should be offered to staffs that has put more contribution in the work. This will be the best response to the staff who works hard.


Insurances benefits are the essential field of payment system. It meets the safety needs of people (Maslow, 1943). When they get ill or have some accidents, they do not need to be concerned about the expensive medical service. Even when they are retired they would be offered pension to support their lives. Herzberg's work showed that (as cited in Dick, 2005, p.130), in order to motivate employees, managers must use motivation factors and not simply remove dissatisfies. The level of job security is included in the hygiene factors which could lead to dissatisfaction while it is not achieved. As a result, P&G provide a completed system of insurance to satisfy their personnel and avoid the dissatisfaction of unsafe feeling.


P&G have a paid-vacation plan to the employees who work for this company over two years. It is helpful to increase the loyalty of employees and obviously a good chance to develop their social intercourse. Social needs is the third level of hierarchy of needs theory (Maslow, 1943).when people's physiological needs and safety needs have been satisfied they will move to the pursuit of social intercourse. An opportunity of communicating and being friends with others would attract them to make an effort to get the chance.


"1887 P&G institutes a pioneering profit-sharing program that gives employees an ownership stock in the Company. This significant innovation helps employees connect their vital roles with the Company's success (online source)." This reward is usually shared with the one who have an outstanding contribution to the company. It makes the staff get a consanguineous connection with the company such as his own company. The employee who is given this prise will feel being respected and recognised as the excellent one in the group. It could bring a strong power to motivate people to work hard for satisfying their esteem needs (Maslow, 1943). Turning to Mullins, one finds that when the personnel are offered a high prospect, they will be motivated to give a better performance in order to get the reward (Mullins, 1985). Moreover, to be a share holder means they should shoulder responsibilities and risks of the prosperous of the company. This matches the motivator of the two-factor theory (Herzberg, 1959). It could encourage people to perform as well as they can.

Training and promoting opportunities

As Cortes has indicated, nowadays, in many workplaces having training means that the staff has the value which the company regards, enough for providing an opportunity to polish the staff that will make sure he shine (Cortes, J). Training is always accompanied with promotion. All of them mean that the one who get them should take more responsibilities of the business and his ability and talent is enough to handle the issue which is more complicated. These are in the field of self-actualisation needs (Maslow, 1943) which could motivate people to dedicate more performance to work.

The deficiency of the payment system of P&G

There is a kind of rewards could not be found in P&G payment system - working environment (Car, private secretary, etc.)

Private-secretary and car is not only making the work easer, but also proving the status of the owner. Through these benefits the esteem needs could be satisfied (Maslow, 1943). It is not necessary for work while it could motivate staffs to work hard to acquire the position which could have the benefits of such comfortable working environment.

Evaluation and prospect

To sum up, firstly, the payment system of P&G throughout the whole hierarchy of needs theory (Maslow, 1943). It has the wage-factors for physiological needs, insurance for safety needs, vacation for social needs, profit-sharing for esteem needs and training and promoting opportunities for self-actualisation needs. Each level of needs has the specific method to be satisfied in P&G scheme. It could display the maximum utility of motivation by offering employees the basic need at first, then move to the need which is higher level. Secondly, in P&G program, there are different rewards to different situations. They use the motivators to promote staffs' performance while utilise the hygiene factors to avoid complaint (Herzberg, 1959). For common employees, focus on the economic benefits; and for mangers, it is a good choice that mix the economic benefits and non-financial compensation together and emphasis the developing aspect. Moreover, during the process of motivation, fairness could affect the final achievement of performance. If people feel unfair, the motivating plan will fail and to carry out dissatisfaction instead. Adams' equity theory is also be well used in the program to motivate performance. Finally, the published outline of payment system makes employees clear about what they can gain in the next step. It is such as the goal-setting theory; to set a target to employees to promote them to perform well in order to get the reward. "Dr Edwin Locke's pioneering research stated that employees were motivated by clear goals and appropriate feedback. Working toward a goal provided a major source of motivation to actually reach the goal - which, in turn, improved performance (online source)".

The most fantastic situation is that setting a psychological contract with the employees through the process of motivation and obtaining the loyalty of employees. As Su points out, a psychological contract does not have a fixed form or be presented in papers. It is not legally binding, but it could bring a strong effect on human behaviours (Su, 2007). If employees have the informal contract with the company, they will pour their whole capabilities into work, shoulder the responsibilities of the company's success and to show their best performance to help the company to progress. It benefits both the company and employees. The company could gain the maximum profit and promote its prosperity; and employees could get the financial rewards and develop their own careers at meanwhile.