‘financial Rewards and Incentives Should Be Used to Motivate Employees’. Critically Evaluate.

University of Bath & Pre-sessional Management 5

HAO, Jiaxing 159109751

FORD

Stephen D

11 September 2015

‘Financial rewards and incentives should be used to motivate employees’. Critically evaluate.

Word count: 1341

Financial rewards and incentives are generally considered to be the most effective means of stimulating motivation and human resource managers tend to favor monetary incentives. However, with the growing limitation of company budget, managers are assessing the feasibility of financial rewards and incentives. This essay argues that financial incentives and rewards should be used to motivate employee. The arguments will be presented by firstly, analyzing the three advantages of financial rewards and incentives including: achieving upper level needs, motivating team’s performance, and satisfying employees’ preference; secondly, illustrating two merits of non-financial incentives, such as increasing employees’ intrinsic motivation and reducing company’s expenditure; Finally, it will give some suggestions on how to use financial and non-financial incentives and conclude that contemporary human resource managers should use both financial and non-financial incentives and rewards to motivate employees.

Firstly, （Maslow， date） financial incentives help employees achieve upper level needs after the basic demands are satisfied. Base pay meets the fundamental life needs, such as, the overhead and the rent, while bonus that is financial incentives can improve their life quality by granting them more disposable money. Generally, financial incentives exert influence on encouraging workers to achieve better performance. Financial incentives are usually in the form of money, with which people can buy luxury goods they want and leverage their social status with it (Sara et al., 2004). In this way, financial incentives are no longer a simple way of satisfying workers’ fundamental needs (Sara et al., 2004). Instead, it can assist people in realizing every level of needs mentioned in Maslow’s hierarchy of needs: physiological needs, safety and security needs, love and belonging needs, self-esteem needs, and self-actualization needs (Kendra, n.d.). In that case, financial incentives have a broader meaning for employees. After the fundamental needs are satisfied, people tend to pursue the upper level needs and money is a tool to help them, which presents the value of financial incentives.

Secondly, financial incentives motivate group members and increase their performances. Agency theory emphasizes that the correlative dependence of each member in a group leads to a higher performance because all members want to gain financial rewards (Yvonne & Udo, 2014). Moreover, according to goal-setting theory, team members will be more tolerant and committed to goals. The goal, in return, reinforces and motivates individuals’ performances. And finally a desired team result is fulfilled. Usually, two ways of financial incentives are used to motivate a team: equally distributed and equitably distributed. Equally distributed rewards mean that everyone of the team has the same reward without any differences while equitably distributed rewards differ in terms of individual contribution and performance (Yvonne & Udo, 2014). Both of them function in the motivation process. However, statistics show that equitably distributed financial incentives are more effective than equally distributed ones (Yvonne & Udo, 2014). Even in the same group, people perform and contribute differently. So managers should differentiate incentives according to personal performance. In that case participants tend to be more encouraged and eager to make contribution in the team. The positive and competitive atmosphere in the group also stimulates generation of ideas and performance improvement. So financial incentives can increase cooperation and create positive competition in a team, which is effective in motivating employees and improving their performance.