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Motivation and pay plans

In the recent past, human resource management has been taken seriously by the management of most organizations due to the realization that human resource determines the productivity and profitability of an organization. Motivation is one of the key components of ensuring workers or employees are productive, creative, loyal and committed to the overall organizational goals. There are different means of motivating employees which ranges from good leadership to good pay plans.

While financial incentives or salary and wages may not be the only motivating factor, it contributes greatly to motivation and job satisfaction of the employees. Different organizations employ different pay plans based on different theories of motivation with an aim of improving the performance of the employees and hence ensure organizational growth and profitability. Some of the most commonly used pay plans are skill based pay plan and performance based pay plan (Williams, McDaniel & Ford, 2007). Skilled based versus performance based pay plans employed by organizations

Pay for performance or performance based pay plan is the traditional method whereby workers are paid according to the work they perform. Under this pay plan, an employee is paid depending on the current tasks performed. This form of pay plan is uses where

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tasks are highly specialized and are characterized by repetitiveness and rigidity. This form of pay plan is used in organizations which are more bureaucratic and have many hierarchies and where job rotation is not vital. Pay for performance is usually based on theory X of motivation which states that the best motivating factor is financial rewards.

Under this form of pay plan, emphasis is placed on formal feedback structures and career advancement opportunities are minimal. Since workers are paid on tasks performed, they are more likely to work harder so as to earn extra money. This was a traditional approach although it is still widely employed in some industries (Baker, 2005). Skill based pay plan is the most recent form of pay plan which most industries are adopting. Under this pay plan, employees are paid based on the skills a person has acquired and which are successfully demonstrated during performance of tasks.

Unlike in pay for performance pay plan where an employee is paid according to the work they perform, in skilled based pay plan employees are paid based on the skills they acquire and demonstrate within an organization. This pay plan is usually employed by organizations which have fewer hierarchies and are more integrative. This form of motivation strategy is based on the theory Y of management which states that workers like to work and that they are motivated by career growth opportunities. This form of payment plan is based on innovation and it helps in promoting flexibility within an organization.

Feedback is provided on a continuous basis and it uses both formal and informal reporting structures. Job rotation is practiced by companies employing this form of reward system and job classifications are minimal. This type of pay plan is highly applicable in manufacturing industries (Boning, Ichniowski & Shaw, 2007). Innovation and creativity are the core growth factors for any organization. As such, an organization should adopt a pay plan strategy which would enhance innovation. From the above discussion, skilled based pay plan is the best form of motivation strategy.

This is because this strategy realizes the other motivational needs of the employees. According to human relations theory of motivation, employees are not only motivated by financial rewards. Career growth opportunities, innovation and creativity opportunities as well as delegation of responsibility and authority are also motivating factors. Unlike in the pay for performance motivation plan, skilled based pay plan offers career growth opportunities through constant job rotation. Career growth opportunities would translate to higher productivity and thus higher profitability for the organization (Shaw, Gupta, Mitra & Ledford, 2005).

Skill based pay plan is also preferable to pay performance plan in that it creates an environment for innovation and creativity thus may lead to improvement of the products of a company. Companies today are being faced by tight competition thus calling for innovation and improvement of products as well as manufacturing methods. The flexibility offered by skill based pay plan creates an environment where employees can be innovative and creative. Also, as noted above, employees are paid based on the skill they obtain and manifest in the performance of tasks.

Employees are thus motivated to implement new manufacturing technologies as well as improve the company’s products so as to gain the extra pay. Improved technology and company’s products would translate to greater competitive powers thus higher sales. This is not so in case of pay performance plan where jobs are characterized by a repetitive routine and no job rotation is offered (Boning, Ichniowski & Shaw, 2007). Self actualization is one of the needs which a person seeks in any job as identified in the Maslow’s hierarchy of needs theory of motivation.

The skilled pay plan fulfills this need since it allows the employees to exercise their skills while performing their tasks. Unlike in pay for performance plan where an organization is characterized by rigidity and bureaucracy, a company employing skill based pay is more flexible and has few hierarchies thus ensuring that an employee is allowed to exercise his full potential. This in turn helps in soliciting commitment to organizational goals thus reducing labor turnover for employees. Apart from satisfying the self actualization needs, this approach also helps in meeting the social, psychological and esteems needs.

A company employing skill based pay plan is characterized by formal and informal setting and a flat organizational structure thus reducing the gap between the employees and the managers. This is vital in ensuring that the psychological needs of workers are met unlike in pay for performance organization which is characterized by a hierarchical form of organization. Also, in skill based pay plan workers usually work in a team thus encouraging team spirit and meeting social needs of the workers. Demonstration of skills by worker also helps in meeting the ego and self esteem needs which are key motivating factors (Akdere & Yilmaz, 2006).

Skill based pay plan is also advantages in that it helps in quicker implementation of changes in an organization and improves participation especially in problem solving within an organization. Since workers usually work in groups, shorter periods of time are used if ensuring a cover up for absent workers thus ensuring continuous production. Appreciating and including workers in the management functions is also a great motivation factors as outlined by Douglas McGregor in his theory Y of motivation.

Communication and consulting workers while making decisions concerning their tasks is vital in ensuring high levels of motivation are acquired. Companies using skill based pay plans usually integrate the employees in the decision making process thus enhancing employees’ motivation. This approach of motivation also ensures that employees are charged with higher much responsibility as they are in charge of their work. Giving employees responsibilities helps in ensuring job satisfaction thus motivation and commitment to the long term objectives of an organization (Shaw, Gupta, Mitra & Ledford, 2005).

Conclusion While choosing a pay plan, the management of an organization should ensure that such a plan should not only be based on financial motivation but that it should encourage innovation, creativity and flexibility within an organization. Most organizations have adopted a skill based pay plan due to the additional motivational effects it has. Reference: Akdere, M. & Yilmaz, T. (2006): Team performance based compensation plans: implications for human resources and quality improvement from agency theory perspective. International Journal of Human Resources Development and Management vol, 6

Baker, G. P. (2005): Pay-for-performance for middle managers: causes and consequences. Journal of Applied Corporate Finance Boning, B. , Ichniowski, C. & Shaw, K. (2007): Opportunity counts: Teams and the effectiveness of production incentives. Journal of Labor Economics Shaw, J. D. , Gupta, N. , Mitra A. & Ledford, G. E. (2005): Success and survival of skill-based pay plans. Journal of Management Williams, M. L. , McDaniel, M. A. & Ford, L. R. (2007): Understanding multiple dimensions of compensation satisfaction. Journal of Business and Psychology

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