Despite our inclinations towards bonuses, however, there is now a growing body of research that shows this form of reward can cause adverse effects that are detrimental to our motivation. The psychology behind bonus payments Our belief in bonuses stems from a school of psychology known as behaviourism. First pioneered by John B. Skinner, behaviorism became hugely influential during the early and mid-twentieth century.
Learning Objectives Learn the importance of financial and nonfinancial incentives to motivate employees. Understand the benefits of different types of incentive systems, such as piece rate and merit pay. Learn why nonfinancial incentives can be effective motivators.
Understand the tradeoffs involved in rewarding individual, group, and organizational performance. Performance Incentives Perhaps the most tangible way in which companies put motivation theories into action is by instituting incentive systems.
Incentives are reward systems that tie pay to performance. There are many incentives used by companies, some tying pay to individual performance and some to companywide performance. Pay-for-performance plans are very common among organizations. Using incentives to increase performance is a very old idea.
For example, Napoleon promised 12, francs to whoever found a way to preserve food for the army. The winner of the prize was Nicolas Appert, who developed a method of canning food Vision quest, Research shows that companies using pay-for-performance systems actually achieve higher productivity, profits, and customer service.
At the same time, many downsides of incentives exist. For example, it has been argued that incentives may create a risk-averse environment that diminishes creativity. This may happen if employees are rewarded for doing things in a certain way, and taking risks may negatively affect their paycheck.
Despite their limitations, financial incentives may be considered powerful motivators if they are used properly and if they are aligned with companywide objectives. The most frequently used incentives are listed as follows. Piece Rate Systems Under piece rate incentivesemployees are paid on the basis of individual output they produce.
For example, a manufacturer may pay employees based on the number of purses sewn or number of doors installed in a day.
In the agricultural sector, fruit pickers are often paid based on the amount of fruit they pick.
These systems are suitable when employee output is easily observable or quantifiable and when output is directly correlated with employee effort. Piece rate systems are also used in white-collar jobs such as check-proofing in banks.
These plans may encourage employees to work very fast, but may also increase the number of errors made. Therefore, rewarding employee performance minus errors might be more effective. Today, increases in employee monitoring technology are making it possible to correctly measure and observe individual output.
For example, technology can track the number of tickets an employee sells or the number of customer complaints resolved, allowing a basis for employee pay incentives Conlin, Piece rate systems can be very effective in increasing worker productivity.
For example, Safelite AutoGlass, a nationwide installer of auto glass, moved to a piece rate system instead of paying workers by the hour. Individual Bonuses Bonuses are one-time rewards that follow specific accomplishments of employees. For example, an employee who reaches the quarterly goals set for her may be rewarded with a lump sum bonus.
|The psychology behind bonus payments||Using Merit Pay to Motivate Employees The essential goal of a merit pay program is to link pay to performance in a manner that is consistent with the mission of the organization.|
|Piece Rate Systems||In recognition of this fact, many businesses have capitalized on worker ambition by implementing a merit-based payment structure, tying compensation directly to the performance of individual employees.|
Employee motivation resulting from a bonus is generally related to the degree of advanced knowledge regarding bonus specifics.
Merit Pay In contrast to bonuses, merit pay involves giving employees a permanent pay raise based on past performance. One potential problem with merit pay is that employees come to expect pay increases.
In companies that give annual merit raises without a different raise for increases in cost of living, merit pay ends up serving as a cost-of-living adjustment and creates a sense of entitlement on the part of employees, with even low performers expecting them. Thus, making merit pay more effective depends on making it truly dependent on performance and designing a relatively objective appraisal system.
The blend of straight salary and commissions should be carefully balanced to achieve optimum sales volume, profitability, and customer satisfaction.incentive plans that engage many or all employees in a common effort to achieve a company's productivity objectives, with cost savings shared among employees and company.
At-risk pay plans put some portion of the employee's weekly pay at risk, subject to the firm meeting its financial goals.
Designing an Effective Pay for Performance Compensation System A Report to the President and the Congress of the United States by the U.S. Merit Systems Protection Board.
Merit pay differs from bonus programs in what way? Merit pay raises the employee's base pay permanently; bonuses do not.` A firm is offering a one-time tangible prize to the employee who receives the highest customer service evaluation in a particular month.
Pay-for-performance, merit pay, bonuses and worker productivity: Research roundup By Martin Maximino Workers have a wide range of reasons for heading to the office, factory or farm every day, but monetary compensation is generally at the top of the list.
Properly designed and maintained incentive pay program has the potential to increase employees’ productivity and work performance. There are three main types of incentive plans an organization can be practiced. Why Incentive Plans Cannot Work. American Productivity Center, ).
“Why Merit Pay The raw numbers seemed to suggest a positive relationship between financial incentives and.