Financial Methods of Motivation (Cambridge (CIE) IGCSE Business)

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Danielle Maguire

Written by: Danielle Maguire

Reviewed by: Steve Vorster

Financial Methods of Motivation

  • Financial incentives are rewards or payments given to employees in return for their labour - or improved performance

  • The different theories of human motivation offer varying perspectives on the role of money in motivating staff

    • Herzberg's Two Factor Theory says that money is not generally a motivator, but the lack of it leads to dissatisfaction

    • Maslow's Hierarchy of Needs argues that people move through levels of needs that motivate them - their lower-order needs are closely linked to financial rewards whilst higher-order needs are rarely linked to pay

      • Physiological and safety needs can be partially met by providing adequate pay 

      • Love and Belonging needs are often met by encouraging aspects such as team working

Diagram showing financial methods of motivation

Diagram of examples of financial methods of motivation
Financial incentives motivate some employees, depending upon the importance that they place on monetary items/money as a reward

An Explanation of the Financial Incentives Available to Businesses

Incentive Type

Explanation

Remuneration

  • This refers to the basic wage or salary that a worker receives for their labour

  • Employees who work on an hourly rate are paid wages and accrue benefits such as annual leave according to the hours they work

  • Salaries are paid to full time staff and usually accompanied by benefits such as a fixed number of days of annual leave

Commission

  • A percentage of sales revenue is paid to workers who sell products or services

  • Commonly used in sales roles and motivates staff to sell more and upsell

Bonus

  • An additional payment given to staff awarded for achieving specific goals, completing projects on time or exceeding performance expectations

  • The opportunity to earn more money may motivate staff to work harder and achieve better results

Promotion

  • Promotion usually demands a higher level of responsibility from an employee in the job role

    • Higher pay is usually offered to reflect the increased responsibility

  • A clear promotion pathway can act as a motivator to improve productivity and staff performance

Fringe Benefits

  • These are additional benefits usually offered to salaried employees

    • Fringe befits could include the use of a company car, private healthcare or gym membership

  • Employees can be motivated to work hard in order to keep their job and the associated fringe benefits

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Danielle Maguire

Author: Danielle Maguire

Expertise: Business Content Creator

Danielle is an experienced Business and Economics teacher who has taught GCSE, A-Level, BTEC and IB for 15 years. Danielle's career has taken her from across various parts of the UK including Liverpool and Yorkshire, along with teaching at a renowned international school in Dubai for 3 years. Danielle loves to engage students with real life examples and creative resources which allow students to put topics in a context they understand.

Steve Vorster

Author: Steve Vorster

Expertise: Economics & Business Subject Lead

Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.