💰 Financial Rewards
Big Idea: Financial rewards are monetary payments or benefits given to employees. They include wages, salaries, bonuses, commission, profit sharing and fringe benefits.
Common financial rewards
- Salary -- a fixed annual amount paid monthly, regardless of hours worked. Provides certainty and security
- Wages -- payment based on hours worked or units produced. Hourly rate x hours = weekly wage
- Commission -- payment based on the value of sales made. Common in sales roles. Motivates selling but may encourage aggressive tactics
- Bonus -- a one-off payment for achieving targets or exceptional performance. Can be individual or team-based
- Profit sharing -- employees receive a share of the business's profits. Aligns employee interests with business success
- Performance-related pay (PRP) -- pay linked to meeting specific performance targets set during appraisal
- Fringe benefits -- non-cash benefits with financial value: company car, private healthcare, pension contributions, gym membership, subsidised housing
DA's Decision 1 proposed changing from annual salary (fixed, secure) to low basic wages with profit-related bonuses (variable, uncertain). For employees used to stability and generous benefits at Ville d'Ablet, this change threatens their sense of security (Maslow Level 2) and removes hygiene factors (Herzberg), likely causing significant dissatisfaction and increased staff turnover.
Factors to consider
- Nature of the work -- commission suits sales roles; salary suits consistent, quality-focused work
- Employee preferences -- some prefer security (salary); others prefer earning potential (commission/bonus)
- Business objectives -- profit sharing aligns employees with business goals; PRP focuses on individual targets
- Cost to the business -- variable pay (bonuses, commission) can reduce fixed costs but may increase total costs in good years
- Impact on motivation -- financial rewards address Herzberg's hygiene factors; true motivation needs more (recognition, meaningful work)
- Culture -- businesses with strong social values (like DA) may find aggressive bonus schemes clash with their culture
In exam answers about pay systems, always consider BOTH sides: the financial impact on the business AND the motivational impact on employees. The best answers link to motivation theories (Maslow, Herzberg, Taylor).