Financial And Non Financial Rewards Commerce Essay


This essay is written to understand, argue and evaluate if financial rewards is the one best way to motivate employees within an organization. Motivation can be defined as "the goal directed behavior that is initiated, directed and sustained by enabling a cognitive decision making process." (Buchanan and Huczynski, 2010, P.267). Motivation is very important to boost job performance. Employee in the organization can be motivated through financial as well as non-financial rewards or motives. Motive can be defined as "a socially acquired need activated by a desire for fulfillment." (Buchanan and Huczynski, 2010, P.266). Motivation pushes the employees in the organization to their fullest and in turn even helps them in personal development. During tough times, employees are the only ones to boost up the level of the organization, thus, motivated employees help in achieving the desired goals of the organization and making motivation a key factor. Financial incentives or motives " refer to incentives which are in direct monetary form or measurable in monetary term and serve to motivate people for better performance."(NCERT, 2007, P.190). Non-financial incentives or motives are required as "all the needs of individuals are not satisfied by money alone. Psychological, social and emotional factors also play an important role in providing motivation. Non-financial incentives mainly focus on these needs." (NCERT, 2007, P.191). The question here is that if financial rewards, motives or incentives are the best way to increase work motivation?

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In order to thoroughly understand this question, evaluations of both financial and non-financial rewards have to be conducted. To begin, financial rewards have been studied at large by numerous theorists. Some theorists support financial rewards at large. According to Frederick W. Taylor(2011), the most important motivator for employees are salaries and extra benefits such as cash rewards , travel allowances , housing, etc. He also stated that when employees get the same wage regardless of their goals they have to achieve, they tend to work less which may lead the company to an unstable situation Likewise Henry Gantt believed money rewards are a better way for reimbursing the hard work of an employee added to the normal salary. The two methods treat workers as 'laborers' who toiled only for money and has been discouraged by the current form of management system.

One theory was by Douglas McGregor, better known as theory X and theory Y, which differentiated between leadership styles/skills and management. Firstly he presumed that motivation and skills are different for all the members of a firm and also that all employees look at the same motivation in a different manner. Theory Y focuses on employees who are able to practice self-control and are able to direct themselves along with a liking towards their job. These employees are not just responsible but are also challenge seekers. New challenges and opportunities motivate these employees. These employees do not require much of supervision as they are self-motivated and show a great morale at work. These employees are not needed to be controlled or punished and help achieve goals and objectives more efficiently. Now when looking at the employees of theory X, one realizes that these employees do not enjoy their job or have a certain amount of disliking towards it. They are high irresponsible and need to guided, supervised and directed from time to time when given a certain task or responsibility. These employees burden the managers from time to time as they needed to be forced to work and when behaving not according to the code of conduct, they have to be punished. So people with needs such as self-actualization and more, work better with managers of theory Y as compared to theory X. But a certain amount of balance is needed between theory X and Y so all employees can grow and make progress in their careers.

"The financial incentives generally used in an organization are listed below:

Pay and allowances: For every employee, salary is the basic monetary incentive. It includes basic pay, dearness allowance and other allowances.

Productivity linked wage incentives: Several wage incentive plans aims at linking payment of wages to increase in productivity at individual or group level.

Bonus: Bonus is an incentive offered over and above the wages/salary to the employees.

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Profit sharing: Profit sharing is meant to provide a share to employees in the profits of the organization.

Co-partnership/stock: Under these incentive schemes, employees are offered company shares at a set price lower than market price.

Retirement Benefits: Several retirement benefits such as provident fund, pension and gratuity provide financial security to employees after their retirement.

Perquisites: In many companies perquisites and fringe benefits are offered such as car allowance, housing, medical aid, and education to the children etc., over and above the salary. " (NCERT,2007,P.190-191)

However, "if our biological and safety needs are not satisfied, we die. If our needs of love and esteem are not satisfied, we can feel inferior and helpless, but if these needs are satisfied, we feel self-confident. Self-actualization and transcendence, Maslow argued, are our ultimate goals. While the implications if self-actualization have been widely explored, the meta-physical concept of transcendence has been largely ignored by management writers and researchers." (Buchanan and Huczynski,2010,P.268).

"Maslow argued that self-actualized people are rare, and that creating conditions for us to develop our capabilities to this extent was challenging task. He also argued that these needs are organized in a hierarchy, with lower order biological and safety needs at the bottom, and higher order self-actualization and transcendence needs at the top." (Buchanan and Huczynski,2010,P.268).

"Abraham Maslow's needs hierarchy:

Self-actualization: Need to develop our full potential

Freedom of equity and expression: Need that is a prerequisite for the satisfaction of other needs

Transcendence: A spiritual need, 'to be at one with the universe'

Aesthetics: Need for order and beauty

To know and to understand: Need to gain and to systematize knowledge, the need for curiosity, learning, philosophizing, experimenting and exploring

Esteem: Need for strength, confidence, achievement, self-esteem, independence, and for reputation, prestige, recognition, attention and appreciation, and respect of others

Affiliation: need for attachment, belongingness, affection, love, relationship

Safety: Need for security, comfort, tranquility, freedom from fear and threat from environment, for shelter, order, predictability, an organized world

Biological: need for sunlight, sexual expression, food, water, rest and oxygen-need basic to our survival."(Buchanan and Huczynski,2010,P.268).

People working in companies have certain expectations from the environment around them. It is not always the financial incentives but also the people, the manager, the family time and all the given to an employee that motivates them. The needs are not satisfied by money only, emotional, psychological and social factors play a key role in providing motivation. (NCERT,2007,P.190-191). Here is an example," In 2008, The Sunday times newspaper, surveyed over 500 companies and 180,000 employees to identify the best company to work for' in the UK the award was won by heat, a central heating installation based in Belfast. W.L. Gore & Associates, who won the prize in the previous four years, came eleventh. Companies were rated on eight factors:

Leadership: how employees feel about the of the company and senior managers

Wellbeing: how staffs feel about stress, pressure and the balance between work and home life

My manager: people's feelings towards their immediate boss and their day-to-day managers

My team: people's feelings about their immediate colleagues

Fair deal: how happy the workforce is with their pay and benefits

Giving something back: how much companies are thought by their staff to put back into society, and the local community

My company: feelings about the company as opposed to the people they work with

Personal growth: to what extent the staffs feel they are stretched and challenged by their job

Heat's managing director said that their success was based on the company's approach communication; 'we work hard to make it simple. If you make it simple everybody understands and that makes it more likely to last'. "(Buchanan and Huczynski,2010,P.271).

The company in the above example isn't a high paid company, but the working environment around them motivates the employees to work hard and give their best. Yes, financial incentives are important, but without a friendly work force and enough time given by a company to their employees for their family and social ethics, it's practically no use. There are disadvantages of financial or monetary motivation, employees in the company might take things for granted. They will expect bonuses even at times when they don't end up working towards organizational goal. But if there aren't any monetary incentives given, what will the employee work for. Monetary or financial incentives also help in guiding and moving the employees towards the goal of the organization.

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Apart from the advantage and disadvantage of financial motive, non-financial incentives also have their own advantages, keeping the employee happy in the company with the friendly environment, companies providing fair amount of break time and activity rooms such as Google. The work timings are at most important as the employees get time with their families and friends and also maintain a great social life along with their work.

"Some of the important non-financial incentives are discussed below:

Status: in the organizational context, status means ranking of positions in the organization.

Organizational climate: organizational climate indicates the characteristics which describe an organization and distinguish one organization from others.

Career advancement opportunity: every individual wants to grow to the higher level in the recognition. They feel that what they do should be recognized by others concerned.

Job security: employees want their job to be secure. They want stability about their future work and income.

Employee participation: it means involving employees in decision making of issues related to the company.

Employee empowerment: empowerment means, giving more autonomy and powers to subordinates." (NCERT,2007,P.192-193)

According to the 2011 Hays Salary Guide, 78 per cent of employers give their employees benefits, or non-financial rewards, in addition to salaries and bonuses. Health is the number one benefit in Hong Kong, offered by 71 per cent of employers. Life assurance is offered by 63 per cent, a pension by 60 per cent, and a housing allowance by 37 per cent.

Other benefits include tax equalisation, club or gym membership, a car or car allowance, and private expenses. Typically, benefits increase with experience and the seniority of the position. They are used to motivate and reward top performers, with employers recognising that a motivated employee will achieve the best results. Thus, there is little room to negotiate as your performance and value are the determining factors.

There are also countless cases of employers using benefits to reward top performers when they are unable to increase salaries beyond a certain level.  But again, the awarding of additional benefits is based on the employee's past performance and is also a tool to motivate future performance. If planning on negotiating benefits package, tread carefully. Employers will only extend their offers so far. So speaking with recruiter to ensure expectations are realistic for the role and industry, or this could leave the employer with doubts over commitment to the role. 

As a final note, expatriate packages that include extensive non-financial rewards are a thing of the past. Traditionally, expats brought a wealth of experience and excellent education from abroad to a company, and as such were rewarded accordingly. But today local candidates are viewed on an equal footing since they also possess excellent overseas education and exposure to worldwide markets.(Charnock, 2011)

Thus, analysis reveals that nonfinancial factors play a prominent role in influencing employee motivation and engagement worldwide-a finding that could prove useful to employers facing budget constraints. organization. Managers should provide employees with opportunity to improve their skills

Job enrichment: is concerned with designing jobs that include greater variety of work content, require higher level of knowledge and skills.

Employee recognition: most people have a need for evaluation of their work and due

Workers say that being treated with respect is the most important nonfinancial factor, followed by work/life balance, type of work, quality of co-workers and quality of leadership. Among financial factors, base pay ranks highest. Benefits and incentive pay can be important to other aspects of the employment deal-such as attracting, retaining and rewarding employees-but they are considered less important by employees when it comes to their day-to-day motivation and engagement at work.

"Employee engagement reflects the total work experience, and a big part of it is how you are treated, what kind of work you do and how you feel about your co-workers, bosses and the general work environment," said Colleen O'Neill, a senior partner at Mercer and the firm's talent leader in the U.S. and Canada.

"Without a doubt, financial factors like pay and benefits are a vital part of the employment deal, especially in the U.S., but employers need to consider and manage the full range of factors to ensure that their workforce is engaged," O'Neill explained. "When financial resources are limited, organizations can leverage these nonfinancial factors to effectively boost employee commitment and productivity." (Miller, 2011) And therefore, this proves that both financial and non-financial rewards are important for increasing the work motivation of an organization.