HRM611 GDB Solution

Question/Description
Organizations use extrinsic and intrinsic rewards to motivate employees for exhibiting productive behaviors at workplaces. Discuss the positive and negative aspects of financial rewards to increase employees’ performance.
 

Idea Solution:-
 

Organizations use extrinsic and intrinsic rewards:-
Many studies in the creativity literature have shown that the firm’s reward system plays a critical role in motivating employees to perform creatively (Eisenberger, 1992; Eisenberger, Armeli and Pretz, 1998; Eisenberger and Rhoades, 2001). As an effort to stimulate employees’ creativity, many managers have used extrinsic rewards (e.g. monetary incentives and recognition) to motivate their employees (Fairbank and Williams, 2001; Van Dijk and Van den Ende, 2002). While empirical research has shown that extrinsic rewards help enhance individuals’ creative performance. The literature is still divided when it comes to its effects on individuals’ creativity (Baer et al., 2003). By Milkovich & Newman’s (2002) definition, an employee’s returns from work comprise “total compensation” and “relational returns”. The latter involves recognition status, employment security, and promotion opportunities. Total compensation includes direct pay like base, cost of living, short-term and long-term incentives and indirect pay as benefits like allowances and income protection. Numerous reward systems operate within organisations, often used as a key management tool that can contribute to a firm’s effectiveness by influencing individual and ***** behaviour (Lawler and Cohen, 1992).

Positive and negative aspects of financial rewards to increase employees’ performance:-

According to Luthans (2000), there are two basic types of rewards, financial and non financial and both can be utilised positively to enhance performance behaviours of employees. Financial rewards means pay-for-performance such as performance bonus, job promotion, commission, tips, gratuities and gifts etc. Non financial rewards are non monetary/non cash and it is a social recognition such as acknowledgment, certificate, and genuine appreciation etc. The non financial rewards is also called non material award (Neckermann and Kosfeld, 2008).

There is mix finding in the literature to determine which type of reward is more effective to increase employees’ performance. According to Perry et al (2006) financial rewards is not the most motivating factor (Perry et al, 2006) and financial results have a de-motivating effect among employees (Srivastava, 2001).

Wages and Salaries
Wages are normally paid per hour worked and workers receive money at the end of the week. Overtime is paid for any additional hours worked during the week. However salaries are annual (based on a year’s work) and are paid at the end of each month.
Advantage
Simple and easy to use for businesses

Disadvantage
Workers may resent being paid the same as a colleague who they feel is not so productive
 

Piece-rate

Piece-rate is paying a worker per item they produce in a certain period of time. It was recommended by the motivation theorist Taylor and had close links with working on production lines.
Advantages
Increases speed of work and therefore productivity
Often workers not entitled to sick pay or holiday pay which reduces cost
Disadvantages
Workers do not concentrate on quality of work as emphasis on speed of work
Workers may ignore company rules, such as Health and safety issues, in they try to speed up output
Fringe Benefits
These are often known as ‘perks’ and are items an employee receives in addition to their normal wage or salary e.g. company car, private health insurance, free meals.
Advantages
Encourages loyalty to a company so employees may stay for longer
Helps meet a workers human and social needs
Disadvantages
Widespread use to a majority of employees will increase costs sharply
Performance-related pay

This is paid to those employees who meet certain targets. The targets are often evaluated and reviewed in regular appraisals with managers. It is system that is being increasingly used in businesses in the UK.
Advantages
Easier for managers to monitor and control their staff
Reduces the amount of time spent on industrial relations (negotiations with trade unions)
Disadvantages
it can be difficult to measure the performance of employees in service based industries
It does not promote teamwork and can lead to workers feeling they are treated unfairly if colleagues are awarded more



Profit sharing

This is a system whereby employees receive a proportion of the company’s profits. This means staff are in the same position as shareholders.
Advantages
Should improve loyalty to the company and break down the “them and us” barrier if all staff given same amount
Workers are more likely to accept changes to their working practices if they can see that it may decrease costs and so increase profit
Disadvantages
The share given to employees is often too small to provide a worthwhile incentive
Workers may feel that however hard they work it will not have a noticeable effect on the company’s profit level, so therefore no incentive

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