Pay On Performance Compensation Is Considered Commerce Essay


Extrinsic factors are not the only motivators but Intrinsic factors also have more importance towards motivating employees which means that employees are not only motivated by the monetary factors like money they also need non monetary factors to enhance their motivation level which than would lead to job satisfaction. As we know that money motivate employees but a stage comes when non monetary factors, simply just giving a tap on the back or saying thank you, would play a vital role to motivate employees. Now there are different tools and techniques which can be used to motivate employees under the non monetary factors like friendly work environment, organizing training and development programs, giving awards to employee of the year, promotions, employee's performance appraisal etc. Lawler (1973) in the study says that money act as a motivator, but some other studies have shown that money may not be a motivator in some cases. So this is clear from these studies that money is not always the only factor to motivate employees, some other organizational factors also do provide motivation to the employees, and job satisfaction is one which is studied and found to influence employee's behavior and work outcomes. When people are motivated by monetary factors like their pay or any other bonuses offered by the organization they are said to be motivated by extrinsic factors. On the other hand intrinsic motivators include (autonomy, competence and relatedness) these positively affect work attitudes and motivation level of the employees.

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It is clear that pay on performance compensation is considered as a motivation tool. From an organizational point of view, compensation is used to attract, motivate, and retain employees which encourage effective employees to stay longer in the organization. Organization's provide benefit to employees who are effective, committed and loyal. A good and effective compensation design has always attracted, motivated, and retained employees which has helped to increase their efforts and outputs for the achievement of organizational goals. Thus, designing a reward system is very beneficial for the organization, as it helps to motivate people and at the same time it also contributes to the organizational effectiveness. Employees preferred some other kind of rewards such as recognition more than their pay, 'they behave as if they value money highly' (Opsahl and Dunnet (1996). According to the researches that has been conducted, it is observed that intrinsic compensation affect intrinsic need satisfaction and recent studies have found that intrinsic rewards such as verbal words of interest, use of words like thanks, pleasures, you are welcome, appreciation of work and approval from supervisor. These appreciations positively affect motivation and intrinsic need satisfaction of the employees. In the psychology literature, intrinsically motivated behavior is stated to arise from innate psychological needs, such as needs for competence and autonomy (Deci & Ryan, 1985; Kasser & Ryan, 1996). Maslow's theory also says that a person first of all go for the basic needs which are at the bottom, later these are followed by security needs, social needs, esteem needs and self actualization needs. Up to the level of esteem needs, employee motivation or satisfaction can be fulfilled by factors such as salary, benefits, job security, and company policy etc while on other hand when the level of a person comes to the level of self actualization than the factors known as motivators would be needed. These motivators would include employee achievement, employee recognition and employee growth.

There are number of tools to compensate people and compensation management leads to develop a positive employment relationship which means a healthy relation between employer and employee it also focus on psychological contract (Armstrong) Intrinsic rewards focuses more on the process of learning and development of employees with regard to their work experience. There are number of examples of rewarding an employee in companies. One of which is known as Land's End, in which the rewarding system include whole of the employment relationship from financial rewards to pride, appreciation, challenging work and fun, leader relations and involvement. Some other Intrinsic rewards such as job allocation are used, like one by the name of 'job and knock' - a common practice that allows the employee to leave early if their job is complete, flexibility is given around meal breaks and job security is provided. Another reward usually offered in the organizations is that employees are given the reward of time (which means that employees can work from home or have some time away from normal duties), access to training, and recognition, this would help develop a sense of job security. Some other small-scale rewards which are mainly symbolic in value but are also provided by the employer for the line managers to use, these include mini awards such as a team lunch or picnic with the group of employees, or a bottle of champagne or a gift box is given to them. An organization's strategy can be discussed here as an example, the organization used a variety of incentives to encourage the attendance of their employees during the Football World Cup 2006, as many football fans miss their work to support their team. The incentives include spot prizes, raffles, money, and TV screens to watch the matches. After implementation of this practice it was noted that absence dropped to its lowest level. Managers can also show recognition to their staff just by listening to staff and praising their good work; they can do this by giving verbal praise such as 'well done' or 'thank you', or just a simple pat on the back. On the other hand, International compensation systems are becoming more and more challenging issues for HR managers as MNCs become increasingly global. Intrinsic rewards come to the worker directly from the work they perform. People who are motivated intrinsically will never quit their job easily. People feel motivated when they find interest, satisfaction, and challenge of the work themselves and not because of external pressures or incentives. Intrinsic rewards are internal to the individual and are in many ways less tangible. In fact they are highly subjective, in that they represent how the individual perceives and feels about work and its value. Five types of intrinsic rewards that have been summarized includes healthy relationship, meaningful work, competence, choice and progress (Manion (2005)

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Psychological states help employees to enhance high work motivation and work satisfaction, they depend upon job characteristics. Employees have a sense of achievement when performing a task that is recognized by others to be a contribution to the goals or mission of the organization. The perception of fairness has significant weight in this type of reward. According to job characteristic theory if there is lack of skill, task, autonomy, and feedback than they will not provide intrinsic compensation which in return, would harm the desired work behaviors such as attendance of employees and their desire to remain in the organization which means low turnover. Pay-for-knowledge strategies can help organizations to design some motivating works like skill variety, task identity, task significance, autonomy, and feedback. To manage successful intrinsic reward plans the performance of employees is checked with performance appraisals which also lead to appropriate compensation. Job characteristic has an impact on individual's attitudes. So far the studies suggest that pay-for-knowledge program lead to increased affective organizational commitment and enhanced work motivation, these result are probably due to pay- for-knowledge plans which promote skill variety and autonomy.


The term motivation is basically derived from a word "motive" which gives a sense of reason for action. It has been defined by so many scholars and professionals that motivation has an instant and long lasting effect on the behaviors and actions of an individual. Motivation is an internal drive which satisfies the desired need (Baron, 1983). Another author defines motivation as a process that directs an individual decision making among different forms of activities (Jones, 1955).The definitions mentioned above tell us about some specific behaviors of human beings regarding motivation. It is all about internal drivers which compel an individual to behave in a specific way and it varies from person to person. Every individual has some personal interests and some specific goals which compel them to behave in a certain manner. Motivation basically is a process which starts with a need and that need creates a goal oriented behavior and this kind of behavior lead towards satisfaction. In simple words we can say that motivation is a very important factor which creates a sense of achieving something more than ordinary. Employee motivation is deeply connected through incentives, rewards and recognition. It is very difficult to draw differentiation between these things and to tell which thing creates more motivation among the employees. These are usually separated into two categories monetary rewards and non-monetary rewards. Monetary rewards include the rewards which are given by the employer to his employees in terms of money. While non-monetary rewards do not include direct payment of money and this is the core area which we are focusing in this report. These types of incentives include so many things like, employee encouragement through giving them autonomy in their job, through giving them challenging tasks, providing the employees with best working conditions, recognition at the time of completion of a task, appreciating employees through written recognition(certificates), encouraging socialization at the work place, etc. These kinds of intrinsic rewards create a sense of responsibility and encourage the employees to work hard and boast the employee's commitment towards work. Recognition is very important in this regard because it creates sense of satisfaction and enhances their spirits to give more effort. Especially in some kind of tasks this type of high motivation is specially needed such as in case of expatriates. Through these intrinsic rewards a sense of ownership in the mind of employees is created and this helps the organization to realize that the employees are an asset of any institution and are a valuable part of their team.There are basically three types of characteristics which affect the motivation of the employees at the work place. It includes individual characteristics, job characteristics and work environment characteristics. Individual characteristics include interests, attitudes and needs. Attitudes include attitude towards self, attitude towards job and attitude towards work situation. Job characteristics basically include the intrinsic rewards such as degree of autonomy, direct feedback of the performance, variety of tasks, etc. Work environment characteristics include the behaviors of the supervisors and the behavior of the peers and the actions taken by the organization in terms of rewards given to the employees. If the top management of the organization really wants to see their employees working in a better way for the development of an organization then they would have to adopt several strategies in terms of intrinsic compensation to boost up the motivational level of their employee's. Basically we are making this report to understand and emphasize how intrinsic compensation can be helpful to enhance the level of motivation of the employees, for this we have to look from individual to individual perspective. And these variations depend on the values, beliefs, family background, education and work experience. Some people do their job to earn money but some do for enhancing their creativity and professional skills. Non monetary incentives directly hit the behaviors which are more effective in creating motivation among the employees. Non monetary rewards are directly related to job characteristic theory that includes giving the employees autonomy; some challenging work to get recognition and such things creates a sense of responsibility which also creates motivation. Working environment can be a source of providing non monetary rewards through different ways, such as providing the employees direct feedback, by appreciating the employees, by involving the employees in decision making, encourages good social activities among the employees at work place and helping them in this regard. All these things which are given in the form of non monetary rewards are closely related to the factors which create motivation among the employees so we should focus on these intrinsic compensating factors. Intrinsic motivation basically comes from inside and it compels a person to go in a specific way to achieve something more than ordinary. This type of motivation creates more sense of responsibility give them sense of realization of their work and its importance. For example, if an employee is putting more extra effort in a task which he/she feels is very challenging and wants to complete it to see the output.These kinds of behaviors are inherited among the people and these kinds of people can be motivated easily by non monetary incentives as compare to monetary incentives.

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For example, the variable we have mentioned in the start were related to individual's different needs and interest, it was because of the fact that every individual have different approaches regarding recognition. Intrinsic compensation can be given in the form of good working conditions, socialization at the work place, by giving challenging tasks to the employees etc. By focusing on these types of non monetary rewards we can enhance the level of motivation among the individuals and can fulfill their needs.

Increasing Job Performance through Intrinsic Motivation

Performance management is regarded as a systematic process of improving organizational performance by improving individual performance in a team framework through goal setting, coaching, feedback, rewards or praise and positive reinforcement Kreitner and Kinicki (2007). Motivation is an essential tool through which job performance could be accelerated. It is very important to retain efficient and experienced workforce to enhance the overall performance of an organization. Employees who are continuously motivated are able to help the organization in gaining value added and competitive position in the market.

There are various dimensions of motivation and satisfaction which are inter-related with the reward and recognition and hence have a great impact on employee's motivation.

It is clear that motivation is a set of systematic processes that influences and gives direction to an individual in order to attain the organizational objectives. Highly motivated employees are satisfied employees and hence they prove to be the most productive employees' as well which is beneficial for any organization/institution in terms of Organizational Development. Motivation is dependent on two main factors that are intrinsic and extrinsic, Praise, Incentives, bonuses, autonomy, rewards and recognitions, are the prime factors that has a significant impact on the motivation of employees. The most contingent factor for maintaining employee's self-esteem and efficiency are reward and recognition programs. It is observed that employee's performance at workplace is an outcome of his/her ability to work and motivation provided to them. Ability has an effect on performance directly that comes from knowledge/education and motivation also has an effect on employee's performance which is the outcome of compensation that is provided to the employees working in the organization (La Motta 1995).The process of performance management is one among the key elements of total reward system (Wilson 1994).Performance management is a tool that helps in rewarding the employees of the organization in the form of feedback. Employee commitment or employee engagement can be increased by providing employees with various rewards and recognition programs. The level of productivity and motivation can be raised by providing recognition which built confidence in employees that ultimately add to their contribution at workplace (Deeprose 1994).There is a primary component of the Job Characteristics Theory which further consists of five job characteristics (skill variety, task identity, task significance, autonomy, job feedback) that can help to determine the satisfaction level of employees with their jobs. The job characteristics model is designed by Hackman and Oldham, and gives the concept that the task itself provides motivation to the employees. For instance, a boring and monotonous job decreases the level of motivation which in turn results in the decrease of performance level of employees as compared to a challenging job that enhances the motivational level of employees and hence increasing the performance level. The factors that make a job more challenging are variety, autonomy, decision authority, job rotation, job enrichment. As noted, Herzberg's theory suggests that opportunities for promotions and actual promotions are more likely to motivate higher performance than regular pay structures. According to the above statement pay structures do not have a significant impact on motivation as compared to other promotional activities that may include appreciation, job rotation, job enlargement, employee recognition, certifications or awards and regular feedback (praise). It is seen that promotions usually results in increased pay, but motivation rises from increased responsibility, recognition, challenging work and a sense of achievement and above mentioned factors are the motivating factors for employees. Herzberg even notes "opportunities for advancement" specifically as a motivator. Today's employees are more career conscious than ever so they are demanding more in terms of personal growth and development therefore organizations that emphasizes career development are more likely to retain employees with valuable knowledge and skills which is beneficial for the growth and development of the organization as well. Thus by defining their career paths and providing them with career opportunities organizations can help in raising the motivational level of employees. It is very important to retain efficient and experienced workforce to enhance the overall performance of an organization. Employees who are continuously motivated are able to help the organization in gaining value added and competitive position in the market. There are various dimensions of motivation and satisfaction which are inter-related with the reward and recognition and hence have a great impact on employee's motivation. Workplace performance can be accelerated by providing employees with a good work environment and this would make employees feel happy and satisfied. At workplace the manager's job is to get the things done through employees and in order to get things done his way a manager must be able to motivate employees more often. The level of motivation can be measured by observing what he/she says or does in a particular situation. Motivation is a driving force that enables an individual to select the desired outcomes according to what he/she thinks is appropriate to them. Motivation is basically an intrinsic desire that exists within a person to attain the goals, objectives, and aims by performing certain activities. According the model by Herzberg we have derived that the two main factors that influence motivation are maintenance and motivation factors. Motivation factors such as the achievement, responsibility, development, advancement, growth, work itself and recognition. These are the primary motivators that are listed above. Employee motivation has become a great challenge for organizations these days. The organizations are facing such challenges because of the continuous changes in the operating environment. Employees are more attracted to those workplaces where they provide them with good motivational packages. Motivation and competition has compelled the managers to think of new ideas to motivate employees so that their employees become more productive. In short motivation is mandatory if the organization wants to excel in this global era.


A stage of psychological contract is created between employees and employers due to good employee relations. This is all due to the healthy relations between both the employee and employer; it can be created by many different ways like informal meetings between them and better understandings with each other. The more the person is social, the better the relationship is amongst the employee and the employer. The level of job satisfaction can be enhanced by creating an effective psychological contract which in return would help reduce the turnover rate and gain retention. Through retention the organization can keep their best people close to the organization's core competencies, the organization must identify and retain people who are essential for the achievement of the organizations goal. The organizations believe that they must retain the employees who can perform well and have skills that match their business's core needs whether in good economic conditions or bad economic conditions.

The relationships between employees can be harmed because of scramble of rewards. This is one of an issue faced in the organizations these days as everyone is only focusing on the system of individual gains whereas no one is focusing and improving the system of collective gains. As there is only one person who wins on the other hand it de-motivates the rest of employees and no one focuses on them, these employees carry the feeling of lost with them. Like when employees compete for a reward 'employee of the month' there is only one winner. So to avoid these situations the managers must understand what caused them and these issues should be sorted out to create healthy employee relations. If the organizations goal is excellence than no other incentive can compete with the power of intrinsic motivation. Employees who do marvelous work may be glad to be paid and even more glad to be paid well, these kind of employees do not work to get a handsome cash but they work because they love what they do. The higher the manager get stressed for what an employee can earn for his work, the less interested the employee would be regarding his work.

Impact of Intrinsic compensation on employee retention

Employees would love to stay in the organization when they will have high job satisfaction. Employee satisfaction has been found to be positively related to the intent to remain with the company (Light, 2004)

Along with other factors related to job context, working conditions in an organization, communication (which can be with employees and some sharing of information within organization) and social relations at the workplace also enhance job satisfaction. Different studies have shown that overall satisfaction, tenure, age, job content and willingness to stay on the job all are negatively related to turnover. As an employee with a long time spent in the organization is less likely to leave the organization because of his emotional attachment with the workplace. Many organizations before focus on the employee turnover but now a days they are focusing more on employee retention.

Employee development plan that is one of the most effective tools of intrinsic compensation can help organizations to retain competent workforce. The intrinsic forms of compensation depict how important employee performance is for the growth and development of an organization. Intrinsic rewards like employee of the year award, spot rewards, security, trust, freedom at workplace provides employees with frequent recognition when leaders of the company observes their employees performing at their best. The key to employee performance and retention is appreciation. Therefore intrinsic compensation has a drastic impact on employee's retention.