Managing Human Capital In A Business Commerce Essay

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Motivation is a set of dynamic forces that create within as well as beyond an individual's will or wishes. It is a psychological process resulting from the reciprocal interaction between the individual and the environment that affects a person's choices, effort, and persistence. Within organizational psychology, the study of employee motivation represents one of the most important topics in the discipline, and there are several reasons for this. First, motivation is a key to understanding many forms of behaviour in organizations. Understanding what motivates employees' helps us to understand the dynamics underlying such important behaviours as job performance, absenteeism, turnover, and even counterproductive behaviours.

Second, an understanding of the dynamics underlying various forms of behaviour enhances our ability to predict these same behaviours. For example, if an organization's leaders understand the motivation underlying performance, they can predict their employees' future performance. This is important when organizations are initially selecting new employees, but it may also be helpful when current employees are being considered for promotional opportunities. All organizations, in one way or another, attempt to influence employees' behaviours. Organizations that are armed with a clear understanding of motivation are in a better position to influence employee behaviour than are organizations that lack this knowledge.


According to Kanfer (1990), motivation is a hypothetical construct-we cannot see it or feel it. However, we can observe the effects or by-products that are indicative of differing levels of motivation. Pinder (1998) argued that motivation determines the form, direction, intensity, and duration of work-related behavior. For example, some employees may choose to focus on task-based performance, whereas other employees choose to invest their efforts on building interpersonal relationships and facilitating group cohesion. The direction of motivation refers to the specific path employees take in accomplishing the goals they set for themselves. In a related definition, Steers, Mowday, and Shapiro (2004) recently defined motivation as ''factors or events that energize, channel, and sustain human behavior over time'' (p. 379).

Maslow's Need Hierarchy

Building on the work of Murray (1938), Maslow (1943) proposed his well-known Need Hierarchy as an explanation of the forces driving human behavior. It is important to consider that Maslow developed his Need Hierarchy based largely on clinical observations rather than systematic empirical research. Despite these caveats, Maslow's theory has become quite influential in a variety of areas of psychology, including organizational psychology.

Figure: 1 presents the five need levels that comprise Maslow's Need Hierarchy.

At the bottom of the hierarchy are physiological needs. This level represents the needs for food, oxygen, and water-attributes that are physiologically necessary to sustain life. These needs are at the lowest level because they will motivate behavior only if they are unsatisfied. Thus, a person who lacks such basic necessities will be motivated primarily to obtain them. When physiological needs are satisfied, a person then ''moves on'' to the next level in the hierarchy: safety needs, which include things such as shelter from the elements and protection from predators. For example, work may allow a person to provide his or her family with adequate housing in a safe neighborhood, as well as the security of having a guaranteed retirement income. If safety needs are satisfied, the next level that becomes salient is social needs. This level represents the need to form meaningful social relationships with others and the desire to feel a sense of belonging.

After social needs are met, the next level that becomes important in motivating behavior is esteem needs. Esteem needs are linked to a desire to feel a sense of competence and mastery. As with social/belongingness needs, esteem needs may potentially be satisfied in a variety of ways. For example, one may feel a sense of esteem or competence by being a good parent, cultivating a productive garden, or having a neat and clean house. The highest need level that can be reached in Maslow's hierarchy is self actualization. According to Maslow (1943), to self-actualize is to realize one's potential and fulfill one's capacities.

ERG Theory

The most direct descendant of Maslow's Need Hierarchy was Alderfer's (1969) ERG Theory of motivation. The acronym ERG stands for existence, relatedness, and growth. Essentially, Alderfer collapsed Maslow's five need levels into three. Existence encompasses both the physiological and the safety/security needs from Maslow's theory. ERG theory also deviates from the Need Hierarchy in other important ways. Unlike Maslow's theory, ERG Theory allows for the possibility that needs do not have to operate in a strict hierarchical fashion (Alderfer, 1969). For example, an artist may be trying to scratch out a living and, at the same time, to achieve his or her artistic potential.

When it was first proposed, ERG Theory was seen as an improvement to Maslow's theory, but it has fared only slightly better in terms of empirical support. Alderfer's (1969) original work supported the theory, but subsequent tests have offered only mixed support (e.g., Wanous & Zwany, 1977). However, like Maslow's theory, ERG Theory has served as a foundation for future theories in which need satisfaction is proposed to be a central component.

Need for Achievement Theory

A third need-based theory of motivation, Need for Achievement Theory (Atkinson,

1964; McClelland, 1965), has proven to be somewhat more useful than the two previously discussed. Need for Achievement draws its historical roots from the early work of Murray (1938). However, rather than focusing on multiple needs, the emphasis has been primarily on the Need for Achievement in explaining differences between people in goal-directed behavior. The work of McClelland and others has identified some consistent distinguishing characteristics of those who have a high need for achievement. For example, they tend to choose moderate levels of risk, have a strong desire for knowledge of results or feedback, and have a tendency to become very absorbed in their work.

Equity Theory

Equity Theory is a type of social exchange theory that focuses on how people determine the fairness of social exchanges (Adams, 1965). Although Equity Theory can really be applied to any form of social exchange, in describing this theory we focus on the work context. A basic assumption of Equity Theory is that employees bring to the workplace what they perceive to be a number of inputs.

According to Equity Theory, the most common form of inequity is referred to as underpayment. This occurs when the ratio of inputs to outcomes is perceived as less favourable than the comparative standard. According to Adams (1965), an employee can use a number of strategies in an attempt to restore equity when feelings of underpayment exist. These strategies are summarized in Table: 2

A Summary of the Mechanisms That Can Be Used to Restore Equity

Mechanism Example

Increasing outcomes Asking one's supervisor for an increase in salary

Reducing inputs Decreasing the level of effort devoted to work tasks

Cognitive adjustments Changing the perception of the value of one's inputs or outcomes, to restore equity

Changing the

''comparative standard''

Choosing a different person to compare the ratio of inputs to outcomes

Leaving the field Obtaining a job that provides a more favourable ratio of inputs to outcomes

Figure: 2 Equity Theory

One way for an employee to restore equity would be to attempt to increase his or her outcomes. In the previous example given, the employee could go to his or her supervisor and ask for a raise in order to compensate for his or her higher level of work effort. This may have the effect of restoring equity if the employee is successful, but it may also be risky. If the employee's request for a raise is denied, he or she may feel worse than before. This is especially true if the employee regards the effort required to request the raise as an additional input.

In a second strategy to restore equity, the employee may reduce inputs so that the ratio becomes equal to that of other workers, and the underpayment is rectified. For example, an employee may reduce effort to a level that is perceived as commensurate with outcomes. This strategy also carries some degree of risk. Reduced effort on the part of an employee may be perceived negatively by a supervisor or co-workers. This may, in turn, result in even fewer outcomes for the employee.

A third strategy is to cognitively adjust one's perceptions of inputs and outcomes in a way that restores equity. For example, employees may cognitively reevaluate their outcomes and decide that they are more favorable than was first thought.

The fourth possibility listed in figure 2 is that an employee who perceives underpayment may change his or her comparative standard so that the ratio is perceived more favorably. For example, if the authors were to use a professional baseball player as a comparative standard in making equity judgments, this would undoubtedly lead to strong feelings of inequity, at least with regard to salary. On the other hand, changing the comparative standard to ''associate professors in psychology departments'' would provide a greater chance of restoring equity.

In general, research has supported Equity Theory very well, particularly with respect to the underpayment condition. It has been shown, for example, that perceptions of underpayment inequity are unpleasant and will motivate employees to do something about the inequity (e.g., Greenberg, 1990; Lord & Hohenfeld, 1979). In recent years, equity theorists have distinguished between equity with respect to the outcomes employees receive, and the procedures used to determine those outcomes.

Expectancy Theory

One of the things that is unique about humans, at least with respect to cognition, is their ability to anticipate the future and adjust their behavior accordingly. Expectancy Theory is based on this uniquely human characteristic, and is focused on the cognitive processes that drive employees' decisions regarding where they will direct their efforts (Vroom, 1964, 1995). The basic premise of Expectancy Theory is that employees will generally direct their efforts toward behaviours or courses of action when:

1. There is a high probability that they will be able to perform the behaviour if they try.

2. There is a high probability that the behaviour or course of action will lead to some outcome.

3. The outcome that will result from the behaviour or course of action has value to the person.

If any of these three conditions is lacking, a person is unlikely to direct his or her efforts toward that particular course of action.

According to Vroom (1964, 1995), the belief that one's efforts will allow one to perform a given behaviour is referred to as expectancy and is typically denoted as effort-to-performance (E Ǿ P). Because expectancy is a belief about the future,

Vroom proposed that this is a probability function and, as such, may range from 0 to 1. An expectancy of zero essentially means there is no way that a person's efforts will result in a given level of performance.

Goal-Setting Theory

The idea that human behaviour is motivated and regulated by goals and aspirations has long been recognized by psychologists (Austin & Vancouver, 1996). Thus, like Expectancy Theory, the conceptual underpinnings of Goal-Setting Theory can be traced back many years. Organizational psychologists, most notably Edwin Locke, have elaborated on the basic notion of goal-setting and have described how this drives behaviour in organizations.

In terms of research support, goal setting is one of the well-validated theories in all of organizational psychology. Over 30 years of research has supported the motivational value of goals in both laboratory and field settings (e.g., Locke & Latham, 1990a, 1990b). Because of this wide support, the focus in the past 15 years has largely been on explaining the mechanisms underlying goal setting, as well as identifying boundary conditions of the theory and moderators of some of the key relationships predicted by the theory.

Control Theory

Control theory represents a very general theory that attempts to explain self-regulation processes underlying motivation (Carver & Scheier, 1981; Powers, 1973a, 1973b, 1978b). Control theory is typically discussed within the organizational psychological literature in the context of goal setting, where individuals attempt to reduce the discrepancy between a desired end state (i.e., goal) and their current level of progress toward that end state (e.g., Klein, 1989; Latham & Pinder, 2004).

According to Klein (1989), control theory augments goal setting in many ways.

For example, control theory provides a more elegant description of the process by which feedback influences goal-setting processes.

Social Cognitive Theory (SCT)

Albert Bandura was one of the main pioneers of the cognitive revolution in psychology, and his SCT emphasized that cognitive variables mediate the relationships between environmental events and behavioral consequences (Bandura, 2001). A central component of Bandura's model is the construct of self-efficacy, which he initially defined as ''beliefs in one's capabilities to organize and execute the courses of action required to produce given attainments'' (1997, p. 3). This definition emphasizes the confidence the individual has to complete his or her task. Stajkovic and Luthans (1998) expanded on Bandura's original definition and defined self-efficacy as, ''an individual's confidence about his or her abilities to mobilize the motivation, cognitive resources, and courses of action needed to successfully execute a specific task within a given context'' (p. 63). These authors argue that self-efficacy affects several aspects of motivation, including behavior initiation, effort, persistence, and success. In measuring self-efficacy, it is important to remember that the construct is domain-specific, and therefore should be assessed with reference to performance on a specific task (Latham & Pinder, 2005).


Discussing the above theories many companies understand the importance of their employee motivation is an important factor for company's growth and performance. To retain skill worker various company's offers attractive employee packages to deliver outstanding performance to gain competitive advantages. Different company got different type of reward packages are discussed below with related company example and benefits:

Employee Annual Bonus

It's one of the widely used motivation plan by most of the company. It depends on companies or employees previous performance or part of company's performance. Bonus not only set on the basis of performance it's often offered occasionally to motivate employee to improve performance. Bonus can be cash, gift or something valuable that could motivate employees.

Example 1: Marks and Spencer given £60m cash bonus this 09/10 financial year to its 78000 employees. Company Chairman Sir Stuart Rose said, "This bonus relates to the whole company performance of 09/10 and we felt to share with all of our employees"- source

Example-2: The finance and risk management director of Lloyds TSB has declared retention focused scheme to retain 700 strong staff. As an example on £2.5 billion Company profit would give 12.5% of their yearly salary - source

Example-3: Despite the operating problem of RBS, the problem still managed to give thousands of middle ranking management bonuses as minimum of 5% of their salary in 2009.

Share Save Scheme

There is different way to use this plan. It gives employee to buy share in future value in a discounted price where employee can save £5 to £250 over a 3 , 5 or 7 years period of time. At the end of the period of time employee can either sale the share or hold them to increase in value in future.

Example-4: A new sharesave plan is launched by SSL International recently for its 900 UK employees to renew the existing five-year plan which about to expires at this month.

Example-5: Retailer giant ASDA re-launches their share save plan this year to the eligible staff that completed their 6 months provision period within the company. Last year 25000 staff took part within this scheme and saved £5 to £250 a month over a three year period. Source-

Example-6: After bought by Australian Insurance group in January 2010 - The equity Insurance group for the first time launched share Incentive Plan (SIP) for its 1100 UK employees. This scheme allows employees to contribute £10 to £125 a month up to £1500 in a tax year which are taken from the employee salary before tax to buy company partnership share. Source-

Employee Stock Ownership Plan (ESOP)

In various ways employees can be awarded ESOP. It's an opportunity employee to buy stock directly, can be awarded as a bonus, can receive stock options, or gain stock through a profit sharing plan. Sometimes employee can buy stock cooperatively. In US around 13 million employees in 11000 companies are covering this plan. Source- The National Centre For Employee Ownership.

Example-7: Suzlone Energy has declared a stock option for its permanent staff that has completed six moths within the company. In a recent press release the company declared around 9400 staff in 21 operation countries in five continents would get his benefit. Source-

Example-8: Proctor & Gamble is one of the largest ESOP participants companies of the world. The company has around 40000 thousand employees participated within this scheme. The company declared a quarterly dividend of 44 cent for all series B ESOP participants. Source-

Example-9: Publix is the world largest employee owned supermarket chain gives company stock to its permanent employee each year without cost. Source-

Profit Sharing Plan

Profit sharing is widely used employee motivation program which often described as gain sharing plan. This plan used to motivates employees attitude and performance toward organization. It integrates employee more with organisation to develop a sense of partnership.

Example-10: John Lewis Partnership has given 14% bonus which is equal to seven weeks pay as profit sharing last year comparing to 12% from 2004. The company PR manager says, "The profit sharing bonus is a big event as it's seen as a fundamental benefit of working in the company." Source-

Example-11: Tesco has established a discretionary trust for employee benefit known as The Tesco Employee Trust. The main job of this trust is to distribute company profit equally to all staff. Source-

Example-12: N Brown group has distributed its profit to 3000 staff after the company hit its profit target in 2008. Employee was awarded 10% of their monthly salary before tax. Source-

Employee Car Ownership Scheme

This scheme allows employee to offer car in various form. Some company offer staff cash to purchase or lease car of their choice. This form of offer gives flexibility to staff which motivates employee more than traditional form of this scheme.

Example-13: Comet Group launches new car scheme to its 10000 staffs and managers. The scheme helps staffs to buy their own car using company support. Employees can buy or lease their own car at competitive and discounted rate. Source-

Example-14: Defense, transport and energy electronics group Ultra Electronics has launched a flexible car ownership scheme to its 1800 UK staffs. The company designed this benefit package to make it attractive by conducting employee survey among the staffs. Source-

Example-15: BBC launched employee car scheme for its 20000 employees who are not entitled for company car. The scheme called 'My Car' allows employees to lease or purchase their own car by company finance which are deducted in installment from employee monthly salary.

Discussions whether merit issues or not

From the above discussion we can easily say for any organization employee motivation is an important factor for growth and company development. Many companies are keen to develop their motivational strategy to engage their employees in the process of company development to gain competitive advantages within the industry. Modern Human Resource Departments are also determine to find the standard and attractive employee benefit scheme to offer their employee to retain the merit and strong personnel in the organisation. In today's organisation using different ways to motivate their staff even some company conduct employee survey to know what and their staff wants to evaluate and reward their performance. Motivation is also is a psychological factor that involves with employee performance.

Many companies reward their employees on the basis of their merit and there are some companies who determine their employee reward on the basis of personal or group performance. It's always important to evaluate employee performance by using appropriate appraisal methods which gives a neutral result of employee performance for their reward. Sometimes biased or inappropriate appraisal method can de-motivate or select wrong person for the reward. Therefore it's always right to motivate right employee on the basis of employee merit. These bases can be a combination of performance and knowledge of their related task. Many employees can work hard but they are not knowledgeable about what they are doing as result they can not solve any unexpected problem accept their core activities. But there are some employees who are competent in both knowledge and performance should entitle for employee reward. So, it's important to organization locate the stars for reward and motivate to retain in the organization.


Discussing the above issues and evaluating the theories we can easily say motivation is an important factor for every organization. To promote staff interest in to developing performance motivation is an essential weapon for any organization. Also it's always important to use appropriate appraisal method to evaluate employees' performance to determine the organisation service star on the basis of their knowledge and performance. In many organisations they follow their own customised reward management strategy and some company conduct performance supervision on basis of performance and knowledge grading to select the right personnel for the reward. So employee motivation can be critical successes factor any organisation to gain competitive advantage.