Business Studies

Financial and non-Financial Rewards

Learning Objectives:

To understand the various ways that workers that workers can be financially and non-financially rewarded

To discuss, compare and evaluate different reward systems in different business contexts

Business Studies

Financial and non-Financial Rewards

Make a list of the different ways that people can be financially rewarded (paid) for the work that they do?

Is one method of financially rewarding (paying) for the work an employee does better than another?Why?

What are the different ways that workers can be financially rewarded for their work?

WAGES

Reward for a regular amount of time a worker spends at work – for example weekly wages

Wages are not linked to the level of productivity

Wages guarantee the income for the worker but do not offer a financial incentive to work harder.

Extra hours worked can be paid as overtime

Business Studies

Financial and non-Financial Rewards

Business Studies

Financial and non-Financial Rewards

What are the different ways that workers can be financially rewarded for their work?

1. TIME RATES

Reward for the amount of time a worker spends at work – eg. an hourly rate

Time rates are not linked to the level of productivity. Used where ir is difficult to measure the output of a worker

Time rates guarantee the income for the worker but do not offer a financial incentive to work harder.

Business Studies

Financial and non-Financial Rewards

What are the different ways that workers can be financially rewarded for their work?

2. PIECE RATES

Workers are paid an agreed rate for every item produced (this is payment by results system)

Piece rates are linked to productivity and provide a financial incentive to worker harder and produce more.

Targets are often set for workers to try to achieve.

Business Studies

Financial and non-Financial Rewards

What are the different ways that workers can be financially rewarded for their work?

SALARIES

Normally paid monthly, based on an annual amount divided into 12 payments

Usually a standard rate and no extra is paid for overtime.

Can be linked to rewards such as commission, bonus and profit-sharing

Business Studies

Financial and non-Financial Rewards

What are the different ways that workers can be financially rewarded for their work?

COMMISSION

Workers are paid a percentage of the value of the goods or service provided

Some workers on commission also receive a guaranteed base salary. The commission then becomes an incentive earn more money.

Eg. Real estate salesperson

Business Studies

Financial and non-Financial Rewards

Business Studies

Financial and non-Financial Rewards

What are the different ways that workers can be financially rewarded for their work?

PROFIT-SHARING

In addition to a basic salary, workers receive a share of the annual profits of the company

Business Studies

Financial and non-Financial Rewards

BONUS

A lump sum paid to workers if they have done a good job

Business Studies

Financial and non-Financial Rewards

What are the different ways that workers can be financially rewarded for their work?

FEES

Fees are a payment made to person for a specific task – the amount of the fee may depend on the time taken or the level of difficulty

Fees are usually paid to “service” providers.

Eg. Solicitors

Business Studies

Financial and non-Financial Rewards

Should one employee be paid more than another if they are doing a similar job?

PERFORMANCE RELATED PAY

This is an incentive scheme that links the annual salary of an employee to their performance in the job.

The “best” employees receive the highest financial reward – salary, bonus, profit-share…

Business Studies

Financial and non-Financial Rewards

PERFORMANCE RELATED PAY:

A method of payment where an individual employee receives an increase in pay based wholly or partly on the regular and systematic assessment of individual performance. The payment of salary increments, bonus and other incentives is determined by a process of systematic performance appraisal . The performance measures may concern inputs or outputs but generally focus on the achievement of specific individual objectives. There has been a growth of interest in such schemes.

How do you accurately “measure” performance?What could be some of the problems with this type of financial incentive scheme?

Business Studies

Financial and non-Financial Rewards

Business Studies

Financial and non-Financial Rewards

PERFORMANCE RELATED PAY:

A number of organizations have experienced difficulties in setting performance criteria, assessing performance objectively and in linking pay to performance, particularly where budget constraints limit the potential size of any reward. Individual performance related pay systems have also been found to undermine team working . Some organizations have abandoned or modified their PRP systems but others are still moving towards this approach to pay .

Business Studies

Financial and non-Financial Rewards

In 2005, the average CEO of a Standard & Poor's 500 company received $13.51 million in total compensation, according to an analysis by The Corporate Library. This represents a 16.14 percent increase in CEO pay over 2004. 

A reasonable and fair compensation system for executives and workers is fundamental to the creation of long-term corporate value. However, the past two decades have seen an unprecedented growth in compensation only for top executives and a dramatic increase in the ratio between the compensation of executives and their employees.

Business Studies

Financial and non-Financial Rewards

Business Studies

Financial and non-Financial Rewards CEO Pay Up 298%, Average Worker's? 4.3% (1995-2005)

Business Studies

Financial and non-Financial Rewards

Business Studies

Financial and non-Financial Rewards

METHODS OF PAYMENT

Performance related pay

Bonus

Wages

• Time rate

• Piece rate Profit-sharing

Salaries

Commission

Business Studies

Financial and non-Financial Rewards

Brainstorm a list of the different ways that a worker may be rewarded that does directly involve paying them money directly such as in the form of wages or salaries

What makes a difference to an employee’s satisfaction at work?

An employee is happy and is satisfied with their work if…

Business Studies

Financial and non-Financial Rewards

JOB SATISFACTION

can be increased by…

Job Rotation

Job Enlargement

Job Enrichment

What do we understand by:

• Job Rotation

• Job Enlargement

• Job Enrichment