Motivation has an unquestionable impact on the productivity and efficiency of modern businesses. It can be defined as, ‘those physiological processes that cause the arousal, direction, and persistence of voluntary actions that are goal directed' (Mitchell, T.R. 1982). Over the years many theories have developed regarding how to stimulate motivation. The subject of pay in particular has been a factor that has been greatly contested. Some including the founder of scientific management F.W Taylor, believed pay to be the only motivator. Since then this has been widely challenged and new theories such as Herzberg's dual-factor theory, have demoted pay to a mere necessity to prevent de-motivation.
It is apparent that pay can and does motivate in some instances, for example triple pay on new years eve will provoke employee's to work these unsociable hours. However there are also other factors that need to be considered by management if motivation is to be achieved. The extent to which pay alone can motivate also needs to be addressed and whether in some situations it is enough.
Firstly it is important to consider the different types of pay when determining its motivational impact. The number of ways pay can be used and manipulated by management are almost endless. However it is imperative to establish the different effects each method has on motivation. Payment schemes may include wages, piece rates, profit sharing plans, commission, bonuses, or perhaps the most common of all salaries. Potentially the most famed incentive pay plan is the piece rate. A study on motivation (Locke, E. A., et al. 1980) discovered that the introduction of individual pay incentives enhanced performance by an average of 30%. Further research compiled by Guzzo, R.A., et al (1985) also supported the effectiveness of pay incentives, deeming the results four times more favorable than attempts at job enrichment. These studies clearly highlight the motivational qualities enhanced pay schemes can provoke. Nevertheless some pay schemes do generate further problems to management. For instance the piece rate may increase productivity but is commonly associated with poor quality, something management needs to control by implementing processes such as TQM. Also the conclusions drawn from the research are not necessarily applicable to all industries they may be specific. For instance the piece rate is very easy to apply in trades which produce goods, but less transferable to the likes of the banking industry. Financial incentives such as commission and profit sharing are potential techniques to increase output without compromising quality. In addition they are far more relevant to a greater proportion of industries, profit sharing in particular is a great way to motivate staff towards the same goal for mutual benefit. In this sense management can motivate employee's buy simply offering payment schemes that appeal to them.
A salary is the most standard method of payment. It is difficult to justify how a salary alone arouses motivation, as additional financial gain from increased productivity is not as instantly provided, as with other payment schemes. Meaning if one month the work produced is of a higher standard than the next, payment received for each will still be the same. Thus it is challenging to see how the basic salary can generate further motivation to go beyond the standard work output required to prevent dismissal. This concept links directly to equity theory, ‘The idea that motivation is moderated by perceived fairness or discrepancies between contributions and rewards' (Roberts, A. and Corbett, M. 2009, p.262). For example, people who have felt underpaid have been found to decrease the quantity or quality of their work, while those who are over paid often do the opposite (Mowday, R.T., 1987). It is human nature to compare our earnings to others in similar sectors or against the national average. The outcome of which can of cause both motivation and de-motivation. If we perceive ourselves to be earning more than someone of a similar profession, we will be motivated to work harder to justify this equity gap. The consequences of these equity gaps are more pronounced with extrinsic inequities (particularly monetary factors like salaries) than intrinsic inequities (Tyagi, 1990). To sustain motivation management must monitor average salaries in the industry and act accordingly to avoid equity gaps formulating. In this case pay is more of a tool to sustain motivation rather than stimulate but nevertheless if implemented wrongly it can cause de-motivation.
The extent to which pay can motivate is largely dependant on the individual characteristics of the workforce. McGregor believed, ‘Behind every managerial decision or action there are assumptions about human nature and human behavior', the distinct assumption he made was there are two types of worker, Theory X and Theory Y. Theory X workers are assumed to have an inherent dislike for work, because of this they prefer to be directed, avoid responsibility and lack ambition (McGregor, 1960). The absence of passion of this stereotype indicates that the only purpose of work is financial gain. Therefore in industries where workers of this nature exist pay is hugely influential motivational tool. Industries that this may apply to are likely to be involved in the mass production of goods. In these industries it is clear the introduction of financial incentives such as piece rate are likely to significantly increase efficiency. Linked closely to McGregor's (1960) Theory X and Theory Y, is Schein's (1965) classification of motivation assumptions. Schein (1965) also believed workers could be divided into categories depending on the factors and conditions that could motivate people at work. He developed a theory that there are four types of man: Rational economic man, Social man, Self-actualizing man, and the complex man. The Rational economic man is primarily motivated buy economic needs, hence can be easily motivated by pay. Theory X worker's and the Rational economic man are both examples where motivation can be stimulated by financial incentives. However, it is the responsibility of management to provide these incentives. An effective system that rewards increased productivity or quality needs to be in place. If not the system of pay as a motivator will be flawed, as improved performance will not meet the correct financial gain. This will only de-motivate workers of this nature making it even more essential for manages to correctly implement these pay structures.
Research from Jurgensen (1978) also indicated that pay is less important to women. After compiling the rankings from 50,000 he determined that pay ranked fifth for men and seventh for women in terms of importance. This research is interesting in highlighting the extent to which pay will motivate each gender. These results could connected to women having higher social needs or men more concerned by the status and power linked with pay This is significant to management when utilizing pay as a motivator effectively. Using this information managers may focus pay incentives on men, whilst addressing women with other factors linked to motivation like social needs. These results are however highly inconclusive as when Jurgensen (1978) asked the same men and women to rank the importance of the same ten attributes to “someone just like yourselfsame age, education, and gender,” pay jumped to first place among both men and women. Much of this research is inconclusive as it is subject to socially desirable responding: “the tendency to choose items that reflect societal approved behaviors” (Nunnally & Bernstein, 1994, p. 382).
It is also apparent that external factors such as Government monitory policy and the economic climate may affect the power of pay as a motivator. If the Government increases income tax for instance, due to borrowing culture of Great Britain loans and mortgages will increase, reducing disposable income. The importance of money as a result will increase as will its ability to motivate. Particularly workers who work on direct financial incentives will increase their efforts to compensate for the increased interest payments. During periods of recession, for instance the last few years' unemployment rates rise as companies make redundancies to reduce costs. Threat of redundancy induces employee's to increase productivity in the hope to gain job security. In times of economic lull it is much more likely that motivation is derived from the competition for jobs rather than pay. However the extent of this effect is dependant on the business sector in question. These factors are beyond the control of businesses, but can nevertheless influence the power of money as a motivator.
In different scenarios there is a limit to the extent which pay can motivate. It is suggested that some employee's who correspond with McGregor's (1960) Theory Y and Schein's (1965) ‘social man', require more than just pay alone to motivate. Maslow (1943) constructed a five-tiered hierarchy of needs consisting of physical needs, safety needs, love or belonging needs, esteem needs and self-actualisation needs. Maslow (1943) believed each level has a different source of motivating behaviour. His theory indicates once a lower level need has been satisfied it no longer acts as a source of motivation, the next higher level need is activated (Roberts, A. Corbett, M. 2009). The hypothesis fails to mention pay as a motivator, however, pay can be linked to satisfying some of the needs within the hierarchy. Lawler (1971) contested that whilst pay is able to satisfy the lower level needs such as thirst and hunger, it also provides the resources to satisfy high order needs too, for instance esteem needs. The significance of pay after all is in attaining the things we both need and desire. But according to Maslow (1943) the higher level needs are only triggered once the lower needs have been fulfilled. Consequently for pay to have an impact on motivational factors like self-esteem, other motivators like love and belonging needs must have already been satisfied. These needs or more difficult to link to pay and instead require the formation of good relationships and respect from management for satisfaction. In addition workers who are motivated by self-actualisation needs are more likely to be motivated by rewards that are intrinsic, rather than extrinsic (e.g. financial incentives). Maslow's (1943) theory therefore highlights other forms of motivation, and if followed strictly periods where pay may cease to motivate. Alderfer (1969) created a similar premise known as ERG theory. He rejected the concept that we are motivated by one factor at a time, replacing this theory with the idea that we are stimulated by a combination of existence needs, relatedness needs, and growth needs. Alderfer (1969) went on to state that we can be motivated by a variety of these at the same time despite the fact lower needs may not have yet been adequately met. This highlights the complexity of humans suggesting that the motivation will be derived from a number of things at one time.
The motivational properties of pay were totally discounted by Herzberg (1966). When asked how to motivate he responded, ‘not with pay, because pay is actually a de-motivator' (Herzberg 1987).
Herzberg's Two Factor theory - Pay doesn't motivate but it is not by all means un-important. Lack of pay or in-sufficient pay will cause de-motivation. Instead other factors such as promotional opportunities, and responsibility are relied on for motivation. Therefore the responsibility falls upon management to determine the individual needs of the employee and offer the chance for the staff to progress in the way they want thus generating motivation.
Type of profession - obviously charity workers don't require pay to motivate them (more personal morales).
Type of management, type of worker, type of job