The Effects of Non-Financial and Financial Incentives - Essay Example

Motivation of Employees Outline Introduction Financial Incentives Nonfinancial Incentives Conclusion Introduction The competitive world today has brought the companies to plan strategies not only to sustain a position in the market but also to improve the company’s performance by motivating their employees. Companies use the strongest and the most effective measures to keep their employees motivated so that they perform well despite the competitive environment. There are several ways used to motivate employees and they can be divided into two groups; financial incentives and nonfinancial incentives. However both the types of incentives have different affects on the employees. This paper will analyze how the financial and nonfinancial incentives work to motivate the employees within the organization. Financial Incentives: Of all the ways to motivate employees, the financial incentives are the most commonly used in companies and also considered as the most effective ones. These incentives are some form of monetary rewards based on the performance of the employees. Companies motivate the employees and use financial incentives to increase the productivity and efficiency of the employees. Usually the technique works in this way; the better the performance of the employee, the higher the incentive would be. This was basically meant to keep the employees motivated towards performing better and better in order to earn more rewards (Arat, 2012, p. 136). The main logic behind this way of motivating employees is the theory of reinforcement. There is a specific relationship between the performance of the employees and the motivational tool which may vary according to each employee. The more the value of the motivational tool, the higher the performance behavior will be. BF Skinner had introduced in reinforcement theory according to which the behavior of an individual is influenced by the consequences. The contemporary theories of motivation point out that the employees will be motivated with the thing that they need the most. Theories also suggest that a majority of the people work to earn money thus financial incentives tend to motivate employees as monetary rewards and bonuses would fulfill their basic needs because of which they work. The main objectives due to which financial incentives are used are firstly because they give the employees a sense of control over their salary as they can control it by their performance. Secondly, they create a higher sense of responsibility on the employees as they would be working to improve their performance and increase their efficiency in order to gain a better reward. Thirdly, they stimulate the employees to work harder and increase the productivity which thus affects the overall business productivity and growth (Abdullah, 2013, p. 1086). The financial incentives have very deep effects on the employee motivation levels and productivity. Basically, it is a psychological impact on the employees as they have to work in a task where there are rewards and punishments. Ever since childhood, we are psychologically trained to face rewards and punishments. In organizations as well, individuals are said to be more sensitive towards the rewards and positive feedbacks of the managers. High cash rewards, bonuses, and other financial benefits tend to excite and motivate the employees to perform better. It affects their psychology as well as their emotional state of mind (Bruce, 1999, p. 76). Financial incentives are not only used to improve the performance of the employees but also to impact the perspectives of the employees about their achievement and job. PT. Telkom is the largest telecommunication company in Indonesia. It uses several different ways to motivate the employees and change their attitude towards their job. They use individual employee premiums, employee bonuses, and group incentives like excellent achievers, disciplined units, and many others that include monetary value. Through these ways, PT. Telkom has been successful in motivating their employees and has also successfully changed their perceptions about their jobs. During a questionnaire, most of the employees answered that they were happy and satisfied with their job. It has also been researched that Merit Pay Programs have a positive impact on the absenteeism and tardiness of employees (Rudani, 2013, p. 587). At times, it can be observed that financial incentives need specific requirements to be effective. In public sector organizations, however, this technique can’t be effective always. For public sector, there are three propositions which are: firstly the financial incentives do improve the performance but in addition the effectiveness is dependent on the conditions of the organization and corporate culture which can be a barrier in public sector organizations. Secondly, in the public sector, there are lack of funds from the government and an absence of managerial characteristics because of which the financial rewards offered are very limited and less significant for employees to be motivated. Thirdly, financial incentives’ effectiveness will only be measured when the organizational performance is efficiently measured. In public organizations, such performances are often inefficiently measured (Murugan, 2007, p. 300). There are also cases when the financial incentives will be ineffective in organizations. These cases are when the employees do not tend to have the capacity or capability to fulfill the assigned tasks, or the employee lacks the skill to perform the tasks, or the employee does not have the needed resources and materials to complete the task, or the task is so complicated that the employee chooses to leave it rather take the reward. Thus, this shows that financial incentives can boost up the performance of the employees and motivate them to a great extent if there are proper measures used and conditions are applied. Hence, when managers are applying these techniques, they must also ensure other behaviors and measures of the organization (Herzberg, 2008, p. 34). Nonfinancial Incentives: Nonfinancial incentives in an organization are used to motivate employees by showing care towards them and appreciating their efforts. Employees feel that their needs are being fulfilled directly except of just giving financial rewards. Nonfinancial incentives include medical benefits, life insurance premiums, and education for children, appreciation, family vacations, and many other incentives which tend to offer services directly instead of financial rewards. Many employees see these benefits as a greater source for motivation than the financial incentives. Organizations use these creative techniques to fulfill the needs of the employees (Lauby, 2005, p. 54). These rewards are important and effective as they motivate employees by caring for them and building their job satisfaction. When employees get these rewards, they start to develop a relationship of trust with the organization. Employees believe that the organization cares for them and fulfills not just their needs but also their family’s needs. Such perks and benefits motivate them towards working better and increasing productivity (Doyle, 2005, p. 98). Every employee has a different psychology and need which should be observed and known by the human resources manager of the organization. According to the individual needs, motivational techniques are formed and planned. However, some employees need financial incentives which act as their motivational tool while for others recognition and appreciation would be the most important. Some employees need motivation through recognition and promotion. These are nonfinancial incentives to motivate employees such as promising employees a promotion if they worked efficiently or achieved certain targets (Griffin, 2010, p. 530). However, when using such incentives like promotion and recognition, the managers should know that they will be effective when used properly. Recognition must be done timely, specifically, and immediately after the task has been performed. Frequent recognition allows employees to focus on their operational activities and short-term goals. Recognition must be specified to the individual mentioning the name or presenting him in front of all other employees. Such techniques motivate the employees greatly even if financial incentives are not provided (Koontz, 1959, p. 217). Other nonfinancial incentives effectively motivate employees as they include facilities and services such as life insurance, medical benefits, and education funds for children, and family vacations. For some these incentives hold greater value in their lives because of which they work harder and more efficiently. These incentives are given in the beginning of the job or after a certain time period. They are not regular but they intend to keep the employees motivated and satisfied with what the organization is providing them. Medical insurance and educational benefits tend to attract employees as these are two of the basic civil needs. A good working environment and good working conditions are also nonfinancial incentives which motivate employees to work efficiently and increase productivity. A lenient manager and a friendly atmosphere, free lunch, and in-duty breaks are also factors that motivate employees towards working better. They believe that the organization is caring for them so they must return it back (Koontz, 1959, p. 217). Conclusion Motivation is an important thing in any organization as if the employees won’t be motivated; they would not work efficiently or won’t increase their productivity. At all levels, humans need a boost to work or perform their tasks and responsibilities. Thus, financial and nonfinancial incentives are both important for the employees but with the growing need for money in this era, financial incentives tend to be more important. Researches show that financial incentives have increased the productivity of the employees by a greater extent than the nonfinancial incentives. This also depends more on the psychology and the needs of the employees working in the organization. References Abdullah, A. 2013. Relationships of Non-Monetary Incentives, Job Satisfaction, and Employee Job Performance. Malaysia: International Review of Management and Business Research Arat, T. 2012. The Effect of Financial and Nonfinancial Incentives on Job Satisfaction: An Examination of Food Chain Premises in Turkey. USA: International Business Research Bruce, A. 1999. Motivating Employees. NY: McGraw-Hill Professional Doyle, S. 2005. The Manager’s Pocket Guide to Motivating Employees. USA: HRD Products Griffin, R. 2010. Management. USA: Cengage Learning Herzberg, F. 2008. One More Time: How Do You Motivate Employees. India: Harvard Business School Publishing India Koontz, H. 1959. Principles of Management. USA: McGraw-Hill Professional Lauby, S. 2005. Motivating Employees. USA: ASTD Murugan, M. 2007. Management Principles and Practices. India: New Age International Rudani, R. 2013. Principles of Management. USA: McGraw-Hill Education Read More