Employee Motivation: Impact of Compensation on Employee Performance

On to our second article regarding employee motivation. Today’s discussion tackles the impact of compensation on employee performance through highlighting the concept of financial compensation, and whatever relates to it from salary to any monetary rewards.

One cannot stress enough the importance of money in relevance to employees, as essentially, no employee can sustain a life without a paying job. Financial compensation might be the first and last item agreed upon with a job candidate before he becomes an actual employee, to stress the importance of such an item for an employee. And as the employee grows and spends further time with the company, one of the expectations he builds is related to this financial compensation, that it would grow with him as his value increases to the company. And he is right.

In fact, several studies do go along these lines; As mentioned in this article, and i quote: “Surveys conducted by many compensation experts validate research findings and establish pay for performance as a major way of attracting, motivating, and retaining employees. A May 2009 report on employee morale by Watson Wyatt reveals that 41 percent of employees believe that pay and benefit changes made by their employer in the past year have a negative effect on work quality and customer service.”

Even though you can argue it is really not the top motivator for employees, and I agree, we cannot neglect the importance of financial compensation. Following are several ways for proper financial compensation that helps keep up the employee motivation:

1. Fair Salary: this being the essence of any financial compensation, make sure that what you are paying your employee is a fair salary. Do constantly review your salary scale in comparison to the market. Yearly increases based on performance reviews, of course depending on the position, as something you need to keep your eye for.

2. Commission: especially in the case of positions low in salary and that highly rely on performance and goals, or even positions that bring key financial profit to the organization. This would be a key motivator for employees to keep on bringing you this income.

3. Benefits: benefits do play an important role in employee motivation. When you give out lunch coupons, discounts of any sort, movie passes, fund out some service for employees, insurance and social security, all of this would be seen by the employee as a motivational value and adds up to their perception of their financial compensation and hence way and quality of life!

4. Rewards and Bonuses: come up with “Employee of the Month” award, with some small financial value. Create competitions at work that would yield you a great financial result as a company, and the employee would benefit from that as a financial reward as well. Bonuses especially related to performance and sometimes to events will surely have a great impact on employees. How many times I’ve heard my friends speaking of this company or that company that gives away so and so bonuses.

5. Shares and Options: not as common as the prior compensation types, but this might be one of the most motivational ones as it stresses the fact that the employee’s profit on this end will rely on the company’s success, and hence push employees on performing better so as the company performs better … a win win situation!

This is our take on financial compensation as an employee motivation tool. It does play a role in employee motivation, studies say it, employees feel good about it, what do you think?

Photo Credit: AMagill

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1. Employee Motivation: Praise and Recognition
2. Motivating Employees in 2012, a New Perception
3. Why Employees Leave?
4. Are you ready for your performance appraisal?