Motivation and Rewards in Organization - Term Paper Example

?Topic: Motivation and Rewards Assignment Brief Motivation Motivation refers to the internal and external factors within and outside an organization that stimulate desire and energy among employees to make them committed to the attainment of organizational goals (Kontodimopoulos, Paleologou & Niakas, 2009, p. 159). The factors ensure that employee remain interested in their job roles and the attainment of their targets towards the overall goals of the organization. Based on the definition of the motivation, it is evident that motivation is a result of the interaction of both conscious and unconscious factors including desire and the rewards of achievement. The other factor is the expectations of the employee or the management of the organization. Motivation is an essential element in human learning. In the context of an organization, motivation ensures the success of the organization because humans are a central component of the organization. It is difficult for employees to carry out their jobs in effective manner without an element of motivation. This is supported by the fact that the failure of an organization to motivate employees hinders its potential to use knowledge in an efficient manner. It is thus important for organizations to identify different approaches of motivating employees or else the organization faces the risk of having difficulties with maintaining its workforce and achieving its goal. A good number of organizations are faced with a number of questions such as how do we motivate employees? Is money the best motivating factor? Given a choice between money and work enjoyment, what motivating factor will be preferred by most of the employees? These are some of the questions that guide organizations whenever they make decisions to pursue particular motivation programmes. In the current economic conditions, organizations are facing hard economic times that have seen them take different approaches to address the situation. Some of the organizations are even taking steps towards cutting employee pay or even dismissing their employees. This is given the fact that most of the organizations have been implementing reward programmes for their employees. They spend a lot of money on such programmes because of the reason that such rewards have the effect of increasing motivation among employees and also retain employees by making them stay longer. However, there is the question of whether money is the only motivating factor that can make things happen. Pay-for-performance has been a long established management practice that has been used to boost employee morale in addition to performance. According to the expectancy theory developed by Victor Vroom in 1964, employees are expected to increase their efforts whenever there is offering of rewards. The discovery of the expectancy theory has led to a number of criticisms with a number of researchers refuting claims that money is not the absolute motivating factor among employees of an organization. According to Hawthorne studies conducted by Elton Mayo, employees are more motivated by human relations and the understanding of attitudes than money. The studies concluded that employees always seek the attention of managers and this makes them become loyal to the organization. It is therefore important to understand financial and non-financial rewards used by organizations in response to the prevailing difficult economic conditions. This is to enhance the understanding of how organizations utilize different forms of motivation in enhancing the performance of employees towards achieving organizational goals. Defining financial and non-financial rewards Financial Incentives Research studies indicate that money is considered to be the most powerful and influential incentive (Islam & Ismail, 2008, p. 349). Money is commonly used in motivating employees in organization. According to Islam and Ismail (2008, p. 100), financial incentives may take the form of direct monetary gain such as personal income. Fagbenle, Adeyemi and Adesanya (2004, p. 900) note that financial incentives involve the transfer of monetary values or equivalents including allowances, bonuses and increases in salaries. Other financial incentives include basic salary, health insurance premiums, house allowance and allowance scheme. Non-financial Incentives Non-financial incentives are the opposite of financial incentives in the sense that they do not involve the direct transfer of monetary value or equivalents. Common examples of non-financial incentives include holidays, token awards and recognition from higher levels of management (Fagbenle, Adeyemi & Adesanya, 2004, p. 900). Research studies on incentives within the healthcare industry led to the definition of non-financial incentives as professional incentives and they include career progression, status and congeniality of work (Kontodimopoulos, Paleologou & Niakas, 2009, p. 199). According to Lanchance (2000, p. 307), there are two categories of non-financial incentives that influence employee motivation and they include extrinsic and intrinsic incentives. Intrinsic incentives do not involve the use of money and they relate to the job itself and its effect on motivating employees. Intrinsic incentives include factors such as opportunities for creativity and the perception of work (Islam & Ismail, 2008, p. 350). Managing employees during tough times Organizations are currently facing hard economic times in form of economic downturn. In order to remain competitive, organizations have been forced to streamline their operations and make creative responses to external threats. Organizations have been very critical in encouraging innovation and making changes that are necessary in ensuring that they succeed in the current business environment as well as the future. During such tough times, organizations often resort to laying off employees in efforts to save on costs. However, laying off workers has proven to be damaging to most of the organizations because it has impaired the ability of such organizations to remain successful in the long run. Laying off employees has led to organizations incurring direct costs such as administration costs, legal fees and severance pay. This definitely undermines the bottom line of such organizations. Other costs associated with laying off employees include skills, knowledge and experience lost as a result of employees leaving the organization (Fagbenle, Adeyemi & Adesanya, 2004, p. 900). Whenever there is laying off of employees, members of staff often record low working morale, low productivity, high levels of absenteeism, loss of faith in the organization and job stress (Kontodimopoulos, Paleologou & Niakas, 2009, p. 199). Most of the best performing employees start searching for other opportunities where they can get maximum satisfaction. The consequence of such happenings is that whenever organizations begin recording improvements, I will be costly to hire and train new employees. Given the current economic conditions, cutting down on costs may have get an organization through the crisis in the short term, but this will not make the business successful in the future. Applying the use of financial incentives during economic recession In light of the current economic downturn, majority of the companies have adopted the concept of variable compensation in their efforts to enhance employee focus on achieving the objectives of the business. This strategy involves the companies setting certain percentages of remuneration at risk in the sense that it occurs when employees are able to meet set targets. A significant number of organizations have adopted the strategy because of the simple reason that it is very clear hence easy to implement. The strategy directs employees of an organization to modify their level of performance by rewarding their actions that improve revenues for the company. Employees are equally rewarded for enhancing customer satisfaction as well as achieving other positive outcomes. Research studies indicate that 63 percent of companies using variable compensation believe that the plan has more benefits than its costs. A survey conducted by Hewitt Associates in 2011 indicated that 57 percent of the companies using the variable compensation plan recorded unexpected favorable results in form of improved employee morale and increased productivity (Kontodimopoulos, Paleologou & Niakas, 2009, p. 186). Employees are able to take home large sums of money when they meet targets or even exceed the targets. Currently, companies have different sizes of variable compensation with some organizations offering awards as high as 300 percent. However, research studies indicate the average payout stands at 10 percent which is a substantial amount of a typical plan. Companies implement the use of variable pay because it has the condition of being reearned at the end of the year. It is on the basis of such a condition that many companies are establishing variable compensation plans in lieu of merit. This has the advantage of lessening the cost of organization compensation plan during hard economic times. When the organization offers variable pay in addition to the basic pay, then the incremental cost is funded through the achievement of organizational goals Islam & Ismail, 2008, p. 345In most cases, financial incentives are offered in form of stock options. The use of stock options as a financial incentive during difficult economic times dates back to the 1990s. In the late 1990s, there was a bull market that made it desirable for a majority of companies to use stock options in rewarding both executive and nonexecutive employees. Since that time, organizations have adopted the use of stock options as financial incentives to motivate employee performance. Research studies indicate that the number of companies using stock options to motivate employees has increased from 43 percent in 2002 to 59 percent in 2011 (Islam & Ismail, 2008, p. 347). This is attributed to the fact that organizations are seeking to foster a feeling of ownership among employees. The other reason is that companies are aiming at increasing the competitiveness of compensation programs and reward excellence at individual levels. Companies use different approaches in granting stock options to its employees. Some companies grant a nominal number of stock options in recognizing particular milestones like for instance granting 50 shares to employees marking a 50th anniversary working with the company. On the other hand, some companies consider stock options as a critical incentive making them grant substantial amounts of stock to best performing employees. The recent decline of the stock market led to speculations that many companies would be abandoning the use of stock option incentives. However, research studies indicate that 59 percent of the companies maintained the use of stock options. Financial analysts note that this was only in the short run and they predict that a good number of companies may abandon the use of stock options and seek alternative options such as stock restrictions. This clearly illustrates that organizations are keen on maintaining the use of financial incentives such as stock options despite the prevailing economic conditions. The use of stock options is convenient to start up companies and those that have limited cash. In this case, employees sacrifice part of their cash compensation in exchange for stock options (Kontodimopoulos, Paleologou & Niakas, 2009, p. 187). Stock options are accounted for in a different manner in the company financial statements. In most cases, companies record stock options at their intrinsic value when the company grants them to employees. The intrinsic value of stock options is commonly zero because they are usually granted at an exercise price that is equal to the fair value of the stock. This translates to no charge against income. Applying the use of non-financial incentives during economic recession Companies across the world are making plans of reducing their financial incentive plans and adopting the use of non-financial programs in an effort to inspire employee performance. A significant number of human resource professional are encouraging such a move on the basis that it will ensure long term success. Numerous research studies on employee motivation conclude that employees having satisfactory salaries are highly motivated by nonfinancial factors more than extra cash or its equivalent. This is attributed to the fact that majority of the financial rewards mainly boosts employee performance in the short term. The studies note that this may have damaging consequences to the company. Indeed, an economic crisis creates opportunities for employers to consider the use of nonfinancial incentives in achieving long term success. Some of the common nonfinancial incentives used by organizations include: a. Personal recognition The management of an organization has the responsibility of recognizing good performance and rewarding them. However, during times of economic recession or meltdown majority of the employees record low morale and stress related to the job. This makes it difficult for managers to identify appropriate motivating factors. In response to such situations, managers decide to give employees the freedom to select a reward of their choice. This has the advantage of making employees enjoy the reward more and enhance their motivation to work towards achieving organizational goals and getting more rewards (Lanchance, 2000, p. 308). For instance, an employee who likes movies will select a movie premiere ticket and one who likes reading is likely to select a discount voucher from a bookstore. b. Encouraging leadership qualities Every employee of an organization harbors the dream of becoming a leader at one point in time. They work hard to get the opportunity of becoming a leader and this is evident in cases where they gladly take duties that have to do with delegation. They do their best by delivering excellent results for the organization. It is therefore wise for managers to present employees with the opportunity of becoming leaders. This can be achieved by the manager selecting one member of the team to lead others for a fixed period of time say for one week. The selected individual should be assigned the duties of a manager including delegation, arranging for meetings and preparing plans. This boosts the confidence of the employee hence improving his or her productivity. c. Optimizing the working environment Daily working schedules have the effect of draining the energy of employees regardless of some of them loving their jobs. Employees may get tired and this has the effect of reducing their productivity. It is thus important that organizations introduce some form of fun despite the fact that the organization is experiencing harsh economic conditions. The organization may introduce “casual Fridays” where employees report to work dressing in casual ware on Fridays. An alternative to “casual Fridays” is the complete change of the dress code to casual during all working days including Fridays. This creates a relaxed working environment and also saves employees the costs of dry cleaning (Kontodimopoulos, Paleologou & Niakas, 2009, p. 200). Employees may also be dismissed earlier on Fridays so as to give them adequate time to have fun after a long week of working. d. Encouraging the formation of informal groups An informal organization arises as a result of personal relationships between employees. For instance, employees may form informal groups with the aim of going to bowl, discussing work challenges or even to have lunch together. There is also the concept of grapevine where employees form informal communication networks within a formal organization. Informal groups have the advantage of assisting formal leaders in enhancing their performance by cutting through formal policies and regulations (Fagbenle, Adeyemi & Adesanya, 2004, p. 902). Manager should embrace such groups and work with them because they encourage a sense of belonging and identity. Employees end up being happy when working in an informal group or share fun. During times of harsh economic conditions, managers have to be very careful when it comes to motivating employees. They should identify the needs of the employees and align them with organizational goals. The goals can be achieved through a perfect combination of both financial and nonfinancial incentives. Organizations should avoid overelying on one incentive because they are equally important in improving organizational performance. Some of the incentives include stock options, supporting informal groups, optimizing the working environment, recognizing personal efforts and encouraging leadership qualities (Islam & Ismail, 2008, p. 350). References Fagbenle, O. I., Adeyemi, A.Y. and Adesanya, D. A., 2004, The impact of non-financial incentives on bricklayers’ productivity in Nigeria, Construction Management and Economics, Vol. 22, pp. 899- 911. Islam, R. and Ismail, A. Z., 2008, Employee motivation: a Malaysian perspective, International Journal of Commerce and Management, Vol. 18, pp. 344-362. Kontodimopoulos, N., Paleologou, V. and Niakas, D., 2009, Identifying important motivational factors for professionals in Greek hospitals, BMC Health Services Research, Vol. 9. Lanchance, J. R., 2000, International Symposium of the International Personnel Management Association, Public Personnel Management, Vol. 29, pp. 305-13. Read More