Rewards

The offering of rewards to employees is a key motivational issue for most organisations. This page looks at different types of reward and whether or not money motivates. The design of incentive schemes is covered here.

Types of reward

A reward is something given, to an individual or a group, in recognition of their services, efforts or acheivements.

Rewards offered to the individual at work may be of two basic types:

Total reward packages

Characteristics of a total reward package (TRP)

 A total reward package (TRP) draws together all of the financial and non-financial benefits available to employees.  It is characterised as follows:

• Holistic: It focuses on how employers attract, retain and engage employees to contribute to organisational success using an array of financial and non-financial rewards.  The TRP should differentiate the organisation from its rivals.
•  Best fit: A TRP adopts a contingency approach – total reward programmes need to be tailored to the organisation’s own particular culture, structure and business objectives.  It aligns all aspects of reward to business strategy.
•  People centred: A TRP recognises that people are a key source of sustainable competitive advantage and begins by focusing on what employees value in the total work environment.
•  Evolutionary: A TRP is a long-term approach based on incremental rather than radical change.

What are the perceived advantages of a TRP?

• Recruitment: an attractive TRP should result in easier recruitment and retention of high quality staff.
• Performance: Business performance should improve as a result of better motivation amongst staff.  The TRP should allow flexibility in that employees can choose a selection of benefits that will suit their own individual needs.
• Reputation: The TRP should result in an enhanced reputation for the organisation as an employer of choice.

What are the perceived disadvantages of a TRP?

• Costly and time consuming: To develop an appropriate programme would be enormously complex and would not be without risks of implementation.
• May not recognise all employee needs: All employees will have different needs and it will be difficult to design a TRP that will meet all of these needs.
• Competitor’s actions: There is a risk that  competitors may introduce a much better package of benefits.  The business must therefore keep constantly up to date with competitors’ actions and modify the TRP as required.

Does money motivate?

Maslow

Money does not feature explicitly in Maslow’s hierarchy of needs – i.e. it is not a “first order” factor, so one could argue that money doesn’t motivate. Instead people are motivated by social needs, for example.

However, Maslow argued that money is a “second order” factor – i.e. money could motivate in as much as it helps people meet the first order needs that do appear on the hierarchy, for example:

• Basic physiological needs - people need money to pay their rent, food bills, utility bills, etc. Some employees might work harder to earn more money if they cannot pay their bills otherwise.
• Safety / security needs could be met by being able to afford insurance (e.g. PPI on loans) and paying into a pension fund.
• Social needs - someone might seek more money to afford the clothing / holidays needed to be part of the social group they aspire to belong to.
• Status / ego needs might be linked to earning a high salary and being able to afford status symbols such as expensive cars. Similarly a bonus may make an employee feel more valued by their boss.
• Self-achievement needs are less likely to be satisfied by salary although some people may have  a life goal such as “becoming a millionaire before they are 30”, in which case one could argue that money will be an intrinsic part of seeking self-achievement needs.

Herzberg

With Herzberg's model salary is a "hygiene factor" - this means that someone may become dissatisfied and demotivated if they feel their salary is too low. However, if they are paid a good salary then this merely prevents dissatisfaction but will not motivate the individual concerned.

However, a bonus could be classified as a "motivator" so would motivate staff.

Vroom

Vroom linked motivation to the perceived reward ("valence") and the probability of success. The impact of a bonus on motivation would thus depend on how

• how likely the person felt it was that they would hit the target and
• the size of the bonus

So neither a small bonus nor one linked to an unrealistic target would motivate someone to work harder to get the bonus.

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