Non-Monetary Incentives are More Effective in Motivating Employees than Monetary Incentives - Essay Example

RUNNING HEAD: MOTIVATION AND HUMAN RESOURCE MANAGEMENT: NON-MONETARY INCENTIVES ARE MORE EFFECTIVE IN MOTIVATING EMPLOYEES THAN MONETARY INCENTIVES. Motivation and Human Resource Management: Non-Monetary Incentives are more effective in Motivating Employees than Monetary Incentives. Name: Course: Institution: Date: Introduction One of the most important and fundamental roles of human resource managers in organizations is the motivation of the organizations’ workforce to be able to meet organizational goals. Employee motivation is often correlated to organizational performance as it may ultimately determine the success or failure of an organization itself in relation to achieving its goals and by extension the effectiveness of its human resource management practices (Wiley 1997). The implication for human resource managers is that a more motivated workforce is more likely to contribute positively to organizational performance through realization of organizational goals. Therefore, it important for an organization’s human resource management team to put in place effective motivation plans or strategies to propel its workforce towards the achievement of organizational goals. There have been several employee or workforce motivation strategies which have been used by human resource managers to motivate their organization’s employees towards the realization of organizational goals. These motivational strategies basically entail provision of certain incentives to employees by mainly providing extrinsic (external) rewards. Intrinsic or internal rewards are rooted in the self and motivate employees by providing satisfaction and enjoyment simply by completing the task itself- the activity is the reward in itself (Deci 1971:1975). However, organizations mainly use extrinsic rewards- other forms of reward outside the self- to motivate their employees. Extrinsic rewards can be categorized into monetary and non-monetary rewards (Deci 1971:1975, Morell 2011). Monetary compensation-based rewards include performance based pay schemes (bonuses), employee benefits such as free health and dental insurance or profit sharing agreements (Morell 2011, Peterson and Luthans 2006). On the other hand, non-monetary incentives include providing employment security, training, learning and development opportunities for employees, praise, recognition or what Ciulla (2000) summarizes as providing a “meaningful workplace.” This essay will argue the proposition that non-monetary incentives through providing meaningful work (as conceptualized by Ciulla) are more effective in motivating employees than monetary incentives such as performance based pay. First, the essay will briefly outline the propositions of several theories of motivation and their implications for this proposition. The essay will then examine the motivational effect of monetary and non-monetary incentives on organizational performance based on a review of empirical literature. In conclusion, the essay will reiterate the proposition that non-monetary incentives have proven to be more effective motivators for employees in organizations across various industries and markets. Human Resource Management and Employee Motivation Employee motivation refers to the process through which human resource managers stimulate, energize or activate goal oriented behavior in the workplace of an organization (Reiss 2004). Therefore, motivation influences behavior or performance either directly or indirectly by giving purpose and desire towards the achievement of goals. For employees to be effectively motivated, management or leadership must put in place strategies which appeal to the personalities of different employees (Wiley 1997). However, before this is done, human resource managers must understand what it is that motivates their employees. Various theories have been put forward in an effort to explain what it is that motivates employees. Employee Motivation: Motivation Theories One of the earliest motivation theorists was Frederick Winslow Taylor who pioneered the scientific management theory of motivation. Taylor proposed that what primarily motivates employees is monetary remuneration or compensation for their efforts. This theory proposes that the most effective motivation strategies are monetary or performance based since better pay motivates employees to commit to their jobs and work harder to reap the financial benefits of better performance (Wiley 1997). In contrast to Taylor’s scientific management, Elton Mayo (1880 – 1949) of the Human Relations School of motivation identified a different set of motivational factors as a result of the outcome of experiments at the Hawthorne Electric factory in Chicago. Mayo’s concluded were that employees would be better motivated if their social needs in the workplace were met by their employers (Reiss 2004). The implication was that to effectively motivate their employees and improve their productivity, employers should treat them with more respect, take their opinions into consideration and enhance the quality of interaction in the workplace. These practices are effective as they raise employees’ self esteem (Kovach 1999). While the Human Relations School emphasized on the social needs of employees, Abraham Maslow’s theory of motivation focused on their psychological needs. In Motivation and Personality (published in 1954), Maslow proposed that there are five levels of human needs which each employee needs to have fulfilled at work represented in a pyramid. At the self actualization stage, the highest level, an individual needs to have mastered all other four levels of needs-one cannot fulfill a higher need before fulfilling a lower one. Therefore, an employee can only be motivated when their lower level needs are first met such as material benefits and pay which guarantee them housing, food, transport, healthcare, education and training. The implication for human resource managers is that employee should be provided with opportunities to ascend the hierarchy by providing different incentives to different employees (Wiley 1997). Monetary incentives may be initially sufficient but after basic needs are fulfilled, only non-monetary incentives such as employment security, career advancement opportunities, professional self esteem and interpersonal relationships in the workplace would fulfill their higher order emotional and social needs (Wiley 1997). Herzberg also proposed a two factor theory of motivation or the Motivation Hygiene theory. this theory argues that employees work principally in their own enlightened self interest and thus introduction of certain factors into the workplace (human needs or motivators) motivate employees while the absence of some factors (hygiene factors) which if otherwise present would motivate employees de-motivates employees (Herzberg et al 1959). Herzberg classifies salary or monetary incentives as a hygiene factor since an employee would be more motivated to turn up to work if pay is adequate alongside other hygiene factors such as safe working conditions and insurance cover. Therefore, for an employee to be motivated, the organization must try to enhance the nature and content of the employee’s job through strategies such as job enrichment- making the job more interesting or challenging to foster a sense of achievement for employees who eventually complete them- and job enlargement- giving them a wider range of tasks to complete (Herzberg et al 1959). Therefore, there is a basic dichotomy of monetary versus non-monetary incentives in employee motivation. Monetary Incentives versus Non-Monetary Incentives As earlier outlined monetary incentives include performance based pay schemes (bonuses), employee benefits such as free health and dental insurance or profit sharing agreements. On the other hand, Ciulla (2000) captures non-monetary incentives through the concept of providing “meaningful work” which has both objective and subjective elements. The objectivity of meaningful work is derived from the moral conditions of the work itself. The employees should feel that they are treated with dignity and respect and that the HR manager engages with them on a basis of honesty and fairness. On the other hand, the subjective element is made up of the perspectives or attitudes that workers bring into the workplace (Ciulla 2000). The workers should be able to express their personalities, values and life experiences through the output of their work. The employees should be trained and their skills refined to enhance their confidence and competency and to open up possibilities for career development. the essay will now consider the arguments for monetary incentives and for non-monetary incentives in turn. Argument for Monetary Incentives Monetary incentives are always a powerful motivator for employees in many organizations. The use of monetary incentives as a motivation strategy is supported both in theory and empirically. Theoretically, as earlier discussed, scientific management theory supports monetary incentives as the most effective employee motivation strategy. This view is supported in a review of several studies by Rynes et al (2004) which reveal that despite claiming that non-monetary incentives were more important, a large number of employees actually cite monetary incentives such as pay as the most significant incentive for them to remain in their jobs. The reason why employee do not overtly declare monetary incentives as the most important can be explained by the fact that this is not as socially desirable as for non-monetary incentives, hence people may say one thing but do the other (Rynes et al 2004). Consistent with scientific management theory Li (2011) also concludes that incentive or performance based pay significantly reduces exit behavior or promotes employee retention in organizations demonstrating that monetary incentives still rank as a significant employee motivation strategy. The strength of the argument for monetary incentives is that they are often used as the motivational anchor by human resource managers in employee recruitment and retention (Rynes et al 1985). Any organization that does not offer competitive remuneration packages is unlikely to attract talent or even retain its employees even if it does offer non-monetary incentives. Peterson and Luthans (2006) conclude that monetary of financial incentives had a significantly greater impact than non-financial or non-monetary incentives on employee turnover in fast food organizations over time. These findings are consistent with efficiency wage theory which argues that organizations that pay higher than their competitors are likely to experience increases in productivity and efficiency at both individual and organizational level since they will be able to retain their best performing employees and simultaneously reduce employee’s unproductive behavior as similarly posited by Li (2006). Therefore, it can be argued that monetary incentives still remain the most significant motivator for employees in many organizations. Argument for Non-Monetary Incentives Non-monetary or non-financial incentive motivators such as social recognition can be a powerful motivator for performance improvement by employees if applied on a contingent basis in managing employee behavior. Therefore, despite the validity of the argument for monetary incentives, there is sufficient evidence both theoretically and empirically in support of the effectiveness of non-monetary incentives as opposed to monetary incentives. Theoretically, Maslow’s, Mayo’s and Herzberg’s motivation theories all support non-monetary incentives as more sustainable employee motivators. Providing meaningful work also contributes to higher organizational commitment by employees as compared to performance based pay (Ciulla 2000). Non-monetary incentives are more effective as employee retention strategies. Lachance (2000) argues that the rewards which bind an employee to an organization have little to do with any pay scheme but are contingent on how the employee is treated in the organization. While monetary incentives may improve extrinsic motivation, they have been demonstrated to be detrimental to intrinsic motivation while non-monetary incentives have been shown to improve intrinsic motivation (Deci and Ryan 1985, Powell 1998, Morell 2011). By increasing intrinsic motivation, non-monetary incentives enable employees to derive satisfaction from the job itself and they are more likely to persist towards achieving organizational goals even in the absence of monetary rewards (Deci 1975). Therefore, another advantage of non-monetary incentives over monetary incentives is that even in times of economic recession, employees would still be intrinsically motivated to remain at the organization (Morell 2011). This also reduces costs while simultaneously increasing motivation as compared to monetary incentive schemes which would be unsustainable in times of economic hardship and actually contribute to neglect or even prompt employees to leave the organization (Morell 2011). This reinforces the argument that monetary incentives are not the most effective motivation strategy. There is also empirical evidence to support the effectiveness of non-monetary incentives as compared to monetary incentives. As Ducharme and Podolsky (2006), Powell (1998) and Jenkins et al (1998) demonstrate, incentive pay plans have generally not resulted in the anticipated individual performance results for employees. A study based on experimental literature by Cameron and Pierce (2000) also concluded that verbal rewards (non-monetary) such as praising people for their work led to greater task interest and performance than tangible rewards (monetary). Conclusion While the significance of monetary incentives in employee motivation cannot be underestimated, there are several advantages that non-monetary incentives have over monetary incentives that make them more effective employee motivators. Non-monetary incentives such as providing employment security, training, learning and development opportunities for employees, praise, recognition or provision of meaningful work increase employees’ intrinsic motivation which drives them to improve their individual performance which translates to the attainment of organizational goals. While monetary incentives still remain of fundamental importance in terms of employee retention, non-monetary incentives have the advantage of being less costly while simultaneously increasing employee motivation. 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