Using profit related pay to increase employee motivation and productivity

“Intrinsic” (Vecchio 2006: 92) rewards such as job satisfaction and “extrinsic” (ibid) or external rewards such as financial benefits are just two of the factors which motivate people. It motivates individuals, it motivates groups and it motivates whole organisations to get up each weekday morning to go to work. If these motivational factors did not exist, then there would not be a reason to do so. With this view or “perception” (Vecchio 2006) in mind, organisations are not only reinventing old methods but also thinking up new ways of motivating its work force.

Industry
Regardless of the type of business you are in, most organisations will typically have the following teams; Sales, Service, Finance, Customer Services, Technical Support, Training, Marketing, Product Management, Human Resources and Operations. With such a diverse work force, each team whether in the same department or function must operate in a way that gives the customer a perception that their query or issue is being dealt with rather than being passed from one person to the next. We have all been there haven’t we – to the point where we wonder whether these people work for the same company at all.

Motivation
Stephen Robbins (2005: 170) defines motivation as “the process that accounts for an individual’s intensity, direction, and persistence of effort towards attaining a goal”. There are several motivational schemes and incentives that are used to encourage a work force to be more productive. Schemes such as yearly profit related pay bonuses; yearly incremental pay rises; career progression plans (goals) and commission based pay schemes. For the purpose of this article I will focus on the yearly bonus as a key motivator.

Analysis of the annual profit related pay bonus

Organisational Strategy
With a focused view on team effort, organisational strategy should be set in such a way that a “gain sharing” (Vecchio 2006: 94) or annual group profit related pay bonus; will be paid if the set goal is met at the end of each financial year. This message of “gain sharing” (ibid) portrays a strong message of 'we not me' teamwork throughout the company resulting in “more cooperation among group members” (Vecchio 2006: 93). A realistic enough goal should be set each year with the view that when met, all members of staff will be rewarded with a bonus. However, if the goal is not met, then no reward will be given. This is a good example of putting Hetzberg’s “Two Factor Theory” (Vecchio 2006: 77) into practice. This organisational goal is most likely accepted by members of staff; although they have no active part in setting this goal (Vecchio 2006: 96). Nonetheless, while in the process of setting this goal, it can be perceived by senior managers, that employees will agree. This perception is based on previous trends and achievements, yet the difficulty of the goal should be realistic enough to achieve, with an increase in performance expected (Vecchio 2006: 95).

The downside
As with all well-intentioned plans, there are always areas, which must be taken into consideration. With a motivational scheme such as this, management need to be aware that employees have different “personality traits” (Vecchio 2006: 39). Some will increase effort and productivity with the knowledge that a annual profit related pay bonus is only assured if the agreed goal is met. However there will be those who will not really be concerned and are happy to plod along as usual - or at least, this is the perception of others towards these plodders. These so called plodders are also aware that they will be rewarded as a result of someone else’s efforts (Vecchio 2006: 93). This lack of effort could potentially de-motivate those around them resulting in further organisational challenges.

Perception
My personal experience has confirmed that those in sales roles generally have the perception that they are putting in the most effort - almost bordering on arrogance. They perceive the situation as they see it; placing themselves at the heart of success and almost holding the company at ransom. This perception of ‘we make the sales, therefore we are the main contributors to meeting the projected budget’ needs to be eliminated. The use of a “pay for performance” (Vecchio 2006: 95) on an individual basis for sales team’s by way of commission, is more than likely to be a conflicting factor with a “pay for performance” (ibid) on a group and organisational basis, and may be a contributor to their perception. This could also be perceived by sales teams in general as a reward which belongs only to them.

Conclusion
Using profit related pay or as Vecchio calls it “gain sharing” (2006: 94) as a method of motivation; the individual, group, and organisational goal is met (Vecchio 2006: 93). The annual bonus is the norm within some company cultures and is perceived as a fair system (Vecchio 2006: 95). “Classical Conditioning” (Vecchio 2006: 53) of a workforce is achieved by associating meeting the yearly budget with a just reward. Further still, any new employee that joins the company will soon learn by “observation” that good work ethic and high productivity results in reward whether intrinsic (satisfaction) or extrinsic (monetary).

References

Robbins, S.P. (2005) Organisational Behavior. 11th ed. New Jersey: Pearson Education Inc

Vecchio, R. P. (2006) Organizational Behavior: Core Concepts. 6th de. Mason, OH: Thomas South-Western