Essays on Performance Management Assignment

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23rd September 2009Letter of transmittalTo: From: As requested, here is a report discussing the use of financial incentives as rewards to improve employee performance in the workplace. The report is based on McGregor's XY Theory and also borrows from Maslow’s Hierarchy of needs theory. I have used the report to make several conclusions and give a number of recommendations pertaining to the use of financial incentives. Please receive it in kind. Executive summaryRewards have for a long time been considered as a crucial part in management and HRM. Various ways have been invented to reward employees.

Financial rewards have been the most controversial one. Theories and models have been developed to propose and oppose the efficacy of financial rewards on employees. Proponents of financial rewards argue from an economic point of view that every man loves money whereby money has no diminishing marginal returns. Opposers argue that money is not an efficient motivator and that intrinsic motivators are more effective. However, beyond finances, rewards can be offered in other forms such promotions, holidays and even plaques. Looking at the different methods of financial rewards, the contemporary understanding of rewards is bonuses.

The basic argument lies on whether cash incentives are as good as intrinsic incentives. Content1.0 Introduction …………………………………………. .2.0 Types of financial incentives ………………………. 3.0 Determinants of pay incentive ……………………. 4.0 McGregor's XY Theory ……………………………. .5.0 Financial rewards vs costs ……………………………6.0 Significance of pay incentives ………………………7.0 Conclusions …………………………………………. 8.0 Recommendations …………………………………. .References1.0 Introduction Employees are an integral part of an organization without whom, an organization cannot exist. Therefore, it is important that beyond the brand name of an organization, the personnel running it are well managed and their efforts duly recognized.

Armstrong (2002) says that employees are the major variable in an organization’s success. Mullich (2003) concurs with Armstrong and says that while most firms describe themselves by the products and services they offer, they are actually defined by the productivity, quality and service of their human resources, specifically the performance of their people. In order to improve the performance of the whole organization, Huselid (2006) says that employee performance management should precede organizational performance management. A number of authors (Huselid, 2006; Torrington, Taylor, & Hall, 2008; Mullins, 2007) agree that among the many ways of improving employee performance such as training, rewards, career support and performance appraisals, rewards have proved to be the most efficient.

Most organizations offer rewards in form of cash incentives on top of basic salaries depending on their performance in attaining set organizational goals and targets. However, management literature suggests that pay is not the only factor that motivates people. Rather, people expect more out of a job than a pay check. Therefore, ‘reward systems that focus on pay and other monetary rewards exclusively at the expense of non-financial rewards are basically bribing their employees and eventually will pay a high price in a lack of employee loyalty and commitment’ (Aguinis 2009, p.

261). The McGregor's XY Theory also supports these findings by stating that “commitment to organizational objectives is a function of rewards associated with their achievement. ” Employee’s commitment in this case is directed towards organizational goals and objectives leading to improved performance of the whole organization. This paper discusses how to effectively manage employee financial reward system in order to attain the commitment described by the McGregor's XY Theory that will eventually lead to improved organizational performance.

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