Rewards Used To Motivate People To Work Harder Commerce Essay


Reward is frequently used as payment systems, especially, since many reward system try to motivate people to work harder and then reward them for their extra effort. Reward could be monetary or non monetary award. Money is certainly a motivation. Success of companies like Microsoft, IBM & other company a result of such motivation. Financially rewarded employees do improve level of motivation, which is improving productivity.

Employee Stock Ownership Plan (ESOP): To increase productivity, profitability and improve employee dedication employee's ownership appears. Employee ownership happen when a business whole or part owned by its employee. An employee stock ownership plan (ESOP) is an arrangement in which employees are given various amounts, up to 100 percent, of company ownership through the issuance of stock. There are two types of gain sharing involved in an ESOP. The first type of sharing is in the form of profits that employees receive, not as employees in the company (such as through a profit-sharing plan), but as owners of the business who receive dividends on their investment in a business. The second form of gain sharing that employees receive through an ESOP is in the appreciation of a stock's value Public companies are moving towards greater employee ownership through stock option plan. In a tight labour market it is very tough to get a good employee. For attracting and keeping good people, stock option could be a key incentive.

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Examples: BURBANK, Calif. -- Entertainment Partners, a 100 percent employee owned company and the leading provider of payroll and production management solutions for the entertainment industry

OJSC "Magnit" announces the initiation of the ESOP

Krasnodar, January 12, 2010: OJSC «Magnit» (the "Company"; RTS, MICEX and LSE: MGNT) announces the initiation of the Employee Stock Option Plan. Based in Krasnodar, in the Southern region of Russia, Open Joint Stock Company "Magnit" is the holding company for a group of entities that operate in the retail trade under the "Magnit" brand. The chain of "Magnit" stores is one of the leading food retail networks in Russia. As of December 31, 2009 the chain consisted of 3,204 convenience stores and 24 hypermarkets in 1,048 locations in the Russian Federation .In accordance with the unaudited IFRS consolidated financial statements for the six months ended June 30, 2009, the Company recorded consolidated revenue of approximately US$2,378 million and consolidated EBITDA of around US$224 million.

BENEFITS: A research carried out in the end of the year 1998, research showed that three out of four managements believe that ESOPs have a positive effect on motivation and productivity of employees. Its not only financial incentive and higher profit but also about generating happier and more involved workforce. Workers are less likely to leave the firm.

DISADVANTAGE: Often available to senior managers so can cause bitterness among other staff.

PROFIT SHARING (Introducing Human Resource Management) [5th Edition]

Profit sharing is the process where company distribute a portion of their profit to their employee. This is a form of payment scheme where the focus is on the group rather than the individual. Profit sharing is an example of variable pay plan. Generally profit sharing payments made only if the company made profit in a certain period of time. However, company management designates a portion of annual profit to share with employee. Sometimes, bonus payments are made in shares rather than cash. It is also intended to give employees an interest in the company, but can result in a risk to both shares and job if the organisation does not do well in the future. When distributed as a percentage of annual pay generally results in less amount shared with less paid employee and higher amount shared with the highly paid employees.

EXAMPLES: South Central Mental Health, Bloomington, Indiana has introduced profit sharing plan in the year 1987 covering 180 employees (80 of whom are hourly) at one non union site. Everyone from top management through office staff and production worker is eligible for the bonus, which is paid quarterly on the basis of total earning for the period. The plan paid bonus its first quarter and has paid 80% of the time since then. In the UK Marks & Spencer, ASDA, Morrisons, Sainsburys introduced the profit sharing plan.


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Profit sharing gives a message to all employees that they are working in the same team and for same goal. And they are rewarded by their responsibility and status. It improves loyalty to the company. Two principal types of profit sharing plans one is immediate and other is differed. In immediate plan employee gets on semi annual or annual basis, in differed is on the order of a pension plan and under certain conditions employee receives special tax concessions.


Advocates of Scanlon, Rucker, Improshare and other types of gain sharing plans believe management should make monthly calculations of savings and immediately distribute them to employee. Employee cannot see or know any impact of their own work on the profitability of the company. Employees receive profit sharing is often too small to provide a worthwhile incentives. Sometime employee got the money regardless of their own performance or contribution.

SCANLON PLAN: It is a method/system of bonus payment to employees for incremental improvements. It was developed by Joseph N Scanlon, a local union president in an Ohio steel company in the year 1930. In a typical Scanlon Plan exist employee suggestion programme, committee system and a formula based bonus system. We can distinguish a Scanlon organisation by teamwork and employee participation.

Examples: Assume over 5 years base period that labour costs have averaged £600,000 and the sales value of production averaged £1,000,000. The Scanlon ration would be:

£600,000÷1,000,000= 0.60

Applying the ratio: Assume the Scanlon ration for a firm is 0.60, as computed above. This means labour is entitled to 60 penny for each £1 pound of the sales value of production. Now assume in a given month the sales value of production was £100,000 and labour costs were £50,000, so that labour costs were only 50 percent or .50 of the sales value of production. This is an improvement in the Scanlon Ratio (because .50 is lower than the Scanlon Ratio of .60) labour was entitled to £60,000 (60x£100,000), but the actual labour costs were lower (£50,000), so that savings resulted. Usually, 75% of the savings is distributed to employees.

Example: ABC Company has a Scanlon plan with a Scanlon ration of labour cost to sales value of production of 0.70, meaning that labour is entitled to 70 penny for every £1 of sales value of production that produce by the employees. At the end of the month of November assume the sales value of production was £500,000 and labour costs were £300,000. Labour was entitled to £350,000(£500,000x0.70= £350,000). Therefore, the savings were £50,000(£350,000-£300,000). The company shares 0.75 (75%) of the savings with employees. The amount to be shared was £37,500(0.75x£50,000).


The advantage of the Scanlon Plan is that the company must go through an exacting analysis of profit and loss in order to derive the ratio, hence encouraging a focus on financial results. The increased transparency, so that all employees know the financial situation of the company.

Performance improvements can be made in an open atmosphere free of denial and politics, and finally all staff receives the same bonus in order to recognise the contribution of both staff and management. It also makes administration easier.


The disadvantage of Scanlon plan is that the very advantages can also be disadvantages. The equal bonus may not reflect the actual work or contribution performed by all staff, because education and specific skill sets may have a major effect on what savings were the most cost effective. Further, the Scanlon plan can take some time to introduce in to large companies, even though it was originally set up as a crisis measure because few multinationals (if any) existed when the plan was invented. This can mean that by the time the system is implemented financial ruin may be inevitable, especially if management were in denial about the firm's problems (Castrogiovanni, Baliga, & Kidwell, 1992, 26).

Finally, the Scanlon plan relies on the presupposition that the firm itself is inefficient in its operations; but as the turnaround of British Steel in the 1980's shows (Beauman, 1996, 16), the timing of the recovery is equally important, because market, currency and interest fluctuations still effects underlying profitability.

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There has been considerable debate as to whether the Scanlon Plan actually works due to a both a lack of empirical research, and a surplus of partially biased research. The inclusion for the Scanlon Plan however, is included for historical purposes in relation to the next methodology created sixty-six years later.

ANNUAL BONUS: The employees of an organisation have the opportunity to get the annual bonus depends on achievement of financial and no financial performance targets. Generally this target set at the beginning of the each financial year and told to the staffs. This target varies for different department and categories of the employees. The level of benefit recommended by CEO at the end of the year based on financial performance and customer satisfaction targets.

EXAMPLES: Most of the small and medium size company as well as big companies pays annual bonus like retail shop M & S, Tesco, Morrisons etc.

ADVANTAGES: Annual bonus plays important role to motivating employee. It stimulates the productivity and help to keeping the skilled and experienced employee of the company. Annual bonus is the most common financial terms of motivation used by maximum company.


An incentive plan which employees receive benefits directly as a result of cost saving measure that they initiate or participate in. Gain sharing involves regular financial payment to employees for improvement of organisation and performance of employees. It is not a new idea.

For example- any cost reduction by the physicians in patient care should attributable to the physician. Gain sharing motivates employees through financial rewards.

One of the earliest uses of the word "gain sharing" was in conjunction with the Halsey Premium incentive pay plan which was introduced in 1891 and was the first such plan in North America. The Halsey plan guarantees employees an hourly wage and gives them the option of earning a premium. Few more examples of gain sharing-

The Super Sack Manufacturing Corporation in Fannin County, Texas, which has improved productivity by 88.5 percent over five years, according to manufacturing vice president David Kellenberger.

General Tire's 1,950-employee plant in Mount Vernon, Illinois, where the plan has generated $30 million in savings over a five-year period-$20 million of which was paid out to workers in the form of bonuses, while the company profited by $10 million, said Floyd Brookman, coordinator of the program.

Timken's Faircrest Steel Plant, where gainsharing targeted plantwide improvements and replaced old incentive systems that paid only for individual piece-work operations, said Tim Chapin, senior human resources executive.

ADVANTAGES: Paid for performance improvement and payouts are self funded by the plan. Bear a culture of continuous improvement and increase the feeling of ownership and accountability. Gain sharing increase the level of involvement, teamwork and cooperation.

DRAWBACK: Management should be participative and share information regarding performance measures. Gains may be paid even profit is down.

MERIT PAY: (Introducing Human Resource Management) [5th edition] Merit pay is a performance related pay in the context of educational reform often regarded as a key feature of performance management. Who works effectively and according to measurable criteria they are eligible for merit pay. It is widely used as an individual based compensation plan for employees, typically is based on information given by the supervisor after evaluation of annual performance. While motivational theorists have doubt on the value of money as a motivation, may managers instinctively feel that money will motivate employee. Some organisations, even if they do not feel that it will have strong motivational effect, introduce performance related pay as a way of being fair and rewarding high performers past performance and that equity is the rationale for the introduction of such scheme.

EXAMPLES: Most of the Schools in the UK introduced merit based pay plan. Research shows that after introducing merit pay plan teachers absenteeism reduced remarkably.

ADVANTAGES: Rewards the individual by linking systematic assessment of their performance to their level of pay or to a bonus and factors taken to be weighted to reflect their relative importance to the company. It can be used where an incentive is needed but the actual work rate is difficult to measure.

DISADVANTAGE: There may be disagreements about the performance factors to be assessed and it great care is not taken in the choice of the factors there may be claims that they are too subjective or even of sex bias.

I think its good idea to award employees with merit issues. Heneman in 1992 defines merit awards as incentive pay that is based upon past performance and is designed to motivate future performance. Where individual employees are responsible for complete tasks with measurable effects on the total output of the firm, the links between rewards for past performance and future effort are strengthened; conversely, where teamwork is an important component of the productions process, it is not only more difficult to evaluate individual performance, but financial rewards may not elicit the appropriate cooperative behaviour among employees. Moreover, financial rewards may diminish the intrinsic value individuals place upon their work; they may decrease the employees self esteem if they deem merit awards to be too infrequent or if they hold an inflated self evaluation of their performance; or may generate the "Matthew effect" where the motivation of under performers declines and over performer experience a sense of guilt (Heneman 1992: 49-56). However, merit pay has some more advantage. Allows the employer to differentiate pay given to high performer. Give a differentiation between company and individual. Employer to satisfactorily reward an employee for accomplishing a task that might not be repeated.

There is some non monetary award to motivate employee. This kind of no financial reward help to retain skilled employee to the company. We are giving a brief description of those no monetary reward.

Overseas travel: (Introducing human resource management): this type of reward used to be used primarily to reward sales staff for improvements in sales, but in recent years it has become an incentives on offer to many other individuals. Sometimes overseas travel is used as incentives for team effort, with the whole team being rewarded with a trip abroad.

GIFTS: Gifts awarded to people who have made significant improvements in their performance include consumer items such as cameras, household luxuries or jewellery.

GIFT VOUCHER: Gift vouchers are perhaps the most flexible form of incentives payment and are also very popular with individuals, as they offer real choice. Many high street stores promote the use of their gift vouchers to organisations that are thinking of establishing this type of scheme.

GREEN/ ENVIRONMENTAL REWARDS: this a new type of award which recognises worker' concern about environmental issues or about individuals' carbon footprints and which aims to provide rewards which address in a positive way their environmental concerns.

CONCLUSION: In a competitive business climate, more business owners are looking at improvements in quality while reducing costs. Meanwhile, a strong economy has resulted in a tight job market. So while small businesses need to get more from their employees, their employees are looking for more out of them. Employee reward and recognition programs are one method of motivating employees to change work habits and key behaviours to benefit a small business. Reward and recognition systems should be considered separately. Employee reward systems refer to programs set up by a company to reward performance and motivate employees on individual and/or group levels. They are normally considered separate from salary but may be monetary in nature or otherwise have a cost to the company. While previously considered the domain of large companies, small businesses have also begun employing them as a tool to lure top employees in a competitive job market as well as to increase employee performance.


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