1.4.4 financial methods of motivation

Question 1

Name the 5 types of financial motivation:

Answer 1

piece rate pay, performance related pay, profit share, commission, bonus

Question 2

Piece rate pay definition:

Answer 2

employees are paid according to the number of units or pieces they produce

Question 3

Piece rate pay advantages:

Answer 3

productivity should increase because by linking earnings to output, workers have an incentive to increase productivity

Question 4

Piece rate pay disadvantages:

Answer 4

output is emphasised at the expense of quality therefore there are high levels of scrap,
workers work harder when they want high earnings such as around Christmas time but they will not always work so hard,
workers are reluctant to produce different things because they are worried that they will not be able to earn as much so introducing change can be hard

Question 5

Performance related pay definition:

Answer 5

a bonus or salary increase is awarded in line with an employee’s achievements over a range of criteria

Question 6

Performance related pay advantages:

Answer 6

by linking earnings to performance, there should be an incentive for staff to increase productivity and sales,
staff are encouraged to work towards company objectives because their individual targets can be derived from overall company objectives

Question 7

Performance related pay disadvantages:

Answer 7

rewarding individuals does not encourage team work,
bonuses may not be high enough to motivate,
jealousy and favouritism can cause problems and may damage working relationships between staff

Question 8

Profit share definition:

Answer 8

a bonus that is paid on top of employees’ salaries to ensure that a proportion of the firm’s profits are shared out among staff

Question 9

Profit share advantages:

Answer 9

worker performance is linked to performance of the business so staff have a personal incentive to keep productivity up,
staff may be more accepting of change if they think it will cut costs

Question 10

Profit share disadvantages:

Answer 10

employees share of profits may be so small that it is insulting,
workers may feel that their individual performance will not have much influence on company performance so profit sharing may not be that motivational

Question 11

Commission definition:

Answer 11

a percentage of sales revenue paid to workers who sell products or services

Question 12

Commission advantages:

Answer 12

enables high performing sales people to earn huge amounts,
payroll cost is related to the value of business achieved rather than just the amount produced

Question 13

Commission disadvantages:

Answer 13

no incentive to build relations with customers so may lose customers if employees are using aggressive sales techniques in order to secure commission,
high commission earnings enjoyed by some of the sales team may be resented elsewhere in the business – particularly if the sales actually depend on a team effort

Question 14

Bonus definition:

Answer 14

an additional payment is given to staff as a reward for achieving specific goals, completing projects on time, or exceeding performance expectations

Question 15

Bonus advantages:

Answer 15

receiving a bonus payment will not only show the employee they were appreciated for their hard work, but it will motivate them to continue to work hard for further rewards

Question 16

Bonus disadvantages:

Answer 16

employees may neglect other goals to concentrate on bonus targets