Motivation is an extension of the word ‘motive’ we can define ‘motive’ as – ‘which makes person active in a particular way.’ It is an inner impulse causing man to action.

A person works to satisfy his needs. So the human needs are the causes of action and motivation is processes of causing the man realize these needs.

The success or failure of a business concern depends basically upon the performance given by the people working in it. Therefore, it is necessary for management to inspire and stimulate or encourage the people with a lead to do work for the accomplishment of organisational objectives.

In simple words, it is necessary to motivate the employees for the attainment of predetermined objectives of the business organisation. To do so, a manager must see that his subordinates work efficiently and enthusiastically and give results that are beneficial to the organisation.


There are different ways through which employees can be motivated. These ways are categorised as follows-

A: Motivating employees by setting goals:-

1. Goal-Setting Theory and 2. Self-Efficacy Theory

B: Motivating employees by being fair:-


1. Distributive Justice 2. Procedural Justice  and Interactional Justice

C: Motivating employees by structuring jobs:-

1. Job Rotation, Job Enlargement, and Job Enrichment & 2. Alternative Work Arrangements

D: Motivating employees by enhancing employees’ involvement:-


1. Participative Management 2. Representative Participation and 3. Quality Circles

E: Motivating employees by using rewards:-

1. What to Pay – Establishing a Pay Structure 2. How to Pay – Variable Pay Plans and Skill-Based Pay Plans 3. Flexible Benefits and 4. Intrinsic Rewards.

Additionally, learn about few useful tips for motivating managers:-

1. Avoid Underpayment 2. Avoid Overpayment 3. Give People a Voice in Decisions Affecting them and 4. Explain Outcomes thoroughly Using a Socially Sensitive Manner.

How to Motivate Employees: By Setting Goals, By Being Fair, By Altering Expectations, By Structuring Jobs and a Few Others

How to Motivate Employees – By Setting Goals: Goal Setting and Self-Efficacy Theory

Just as people are motivated to satisfy their needs on the job, they also are motivated to strive for and to attain goals. In fact, the process of setting performance goals is one of the most important motivational forces operating on people in Organizations.

With this in mind, goal-setting theory and self-efficacy theory have been described below:

1. Goal-Setting Theory:

Some insight into the question of how people respond to assigned goals is provided by a model known as goal-setting theory. This theory claims that an assigned goal influences people’s beliefs about being able to perform the task in question (i.e., the personality variable of self-efficacy) and their personal goals. Both of these factors, in turn, influence performance.

The basic idea behind goal-setting theory is that a goal serves as a motivator because it causes people to compare their present capacity to perform with that required to succeed at the goal. To the extent that people believe they will fall short of a goal, they will feel dissatisfied and will work harder to attain it so long as they believe it is possible for them to do so.


When they succeed at meeting a goal, they feel competent and successful. Having a goal enhances performance in large part because the goal makes clear exactly what type and level of performance are expected.

But why are people motivated by difficult goals? First, difficult goals direct our attention to the task at hand and away from irrelevant distractions. Challenging goals get our attention and thus tend to help us focus. Second, difficult goals energise us because we have to work harder to attain then.

Third, when goals are difficult, people persist in trying to attain them. Finally, difficult goals lead us to discover strategies that help us perform the job/task more effectively. If we have to struggle for a way to solve a difficult problem, we often think of a better way to go about it.

The model also claims that assigned goals will lead to the acceptance of those goals as personal goals. This is the idea of goal commitment – the extent to which people invest themselves in meeting a goal. The more strongly people believe they are capable of meeting a goal, the more strongly they will accept it as their own.


Finally, the model claims that beliefs about both self – efficacy and goal commitment influence task performance.

2. Self-Efficacy Theory:

Also known as social cognitive theory or social learning theory refers to an individual’s belief that he/she is capable of performing a lack. The higher your self-efficacy, the more confidence you have in your ability to succeed in a task. The goal-setting theory and self-efficacy theory complement each other.

When a manager sets difficult goals for employees, this lead employees to have a higher level of self-efficacy and also leads them to set higher goals for their own performance. Research has shown that setting difficult goals for people communicates confidence. For e.g., imagine that your boss sets a high goals for you, and you learn it is higher than the goals she has set for your co-workers.

As long as you did not feel you were being picked on, you would probably think, “Well, I guess my boss thinks I am capable of performing better than others”. This then sets into motion a psychological process in which you are more confident about yourself and you set higher personal goals, causing you to perform better both in the workplace and outside it.


Managers’ Guidelines for Setting Effective Performance Goals and Improving Self-Efficacy:

The practical suggestions that managers can use to enhance motivation are as follows:

i. Assign Specific Goals:

Research suggests that people perform at higher-levels when asked to meet a specific high performance goal than when simply asked to “do their best”, or when no goal at all is assigned. People tend to find specific goals quite challenging, and they are motivated to try to meet them – not only to fulfil management’s expectations but also to convince themselves that they have performed well.

Other research has found that specific goals also are helpful in bringing about other desirable Organizational goals, such as reducing absenteeism and industrial accidents. Naturally, to reap such beneficial effects, goals must not only be highly specific but challenging as well.

ii. Assign Difficult, but Acceptable Goals:


One obvious way of enhancing goal acceptance is to involve employees in the goal – setting process.

iii. Provide Feedback Concerning Goal Attainment:

Provide feedback concerning goal attainment because feedback helps to identify discrepancies between what they have done and what they want to do – i.e., feedback acts to guide behaviour. Self-generated feedback – for which employees are able to monitor their own progress – has been shown to be a more powerful motivator.

iv. Management by Objectives (MBO) Program:

Emphasises participatively set goals that are tangible, verifiable, and measurable. Organization’s overall objectives are translated into specific objectives for each succeeding level (i.e., divisional, departmental, individual) in the Organization.

Four ingredients are common to MBO programs – goal specificity, participation in decision-making (including participation in the setting of goals or objectives), an explicit time period, and performance feedback.


v. Bandura (1997) argues that there are four ways to increase self-efficacy, viz., enactive mastery, vicarious modelling, verbal persuasion, and arousal. Training programs often make use of enactive mastery by having employees practice and build their skills.

The best way for a manager to use verbal prevention is though the Pygmalion effect or the Galatea effect – i.e., a form of a self-fulfilling prophecy in which believing something to be true can make it true. It occurs when high performance expectations are communicated directly to an employee.

How to Motivate Employees – By Being Fair: 3 Main Approaches to Organizational Justice

Organizational justice, is also an individual – based theory but one that adds a social component. Specifically, various conceptualisations of Organizational justice view motivation from the perspective of the social comparisons people make — i.e., what people see when they compare themselves to others and prevailing standards.

The three major approaches to Organizational justice are – distributive justice, which focuses on the way Organizational resources are distributed; procedural justice, which focuses on the processes used to make those resource – allocation decisions; and interactional justice, which focuses on the quality of the interpersonal treatment accorded to people.

1. Distributive Justice – Equity Theory:

Matters of distributive justice concern people’s perceptions of the fairness of the distribution of resources between people. The major approach to distributive justice, equity theory, proposes that individuals are motivated to maintain fair, or equitable, relationships between themselves and others with respect to the distribution of reward and to avoid those relationships that are unfair, or inequitable.

Specifically, equity theory proposes that people comparing themselves to others focus on two variables, outcomes and inputs. Outcomes are what we get out of our jobs, including pay, fringe benefits, and prestige. Inputs refer to the contributions made, such as – the amount of time worked, the amount of effort expended, the number of units produced, and the qualifications brought to the job.


Equity theory is concerned with outcomes and inputs as they are perceived by the people involved, and are not necessarily based on any objective standards. Not surprisingly, therefore, people sometimes disagree about what constitutes equitable treatment on the job.

Equity theory states that people compare their outcomes and inputs to those of others and judge the equitableness of these relationships in the form of a ratio. Specifically, they compare the ratios of their own outcomes/ inputs to the ratios of others’ outcomes/inputs.

These “others” who serve as the basis of comparison may be other employees in a work group, other employees in the Organization, individuals working in the same field, or even the employees themselves at earlier points in time – in short, almost anyone against whom employees compare themselves. These comparisons can result in any of three different states – overpayment inequity, underpayment inequity, or equitable payment.

To illustrate this, let us consider an example. Imagine that Vivek and Suraj work along wide each other on an assembly line doing the same job. Both men have equal numbers of experience, training and education and work equally long and hard at their jobs – in other words, their inputs are equivalent.

But suppose Vivek is paid a salary of Rs. 6,000 per week whereas Suraj is paid only Rs. 3,000 per week. In this case, Vivek’s ratio of outcome/inputs is higher than Suraj’s, creating a state of overpayment inequity for Vivek and underpayment inequity for Suraj (since the ratio of his outcome/input is lower).

According to equity theory, Vivek, realising that he is paid more than an equally qualified person doing the same work, will feel guilty in response to his overpayment. By contrast, Suraj, realising that he is paid less than an equally qualified person for doing the same work, will feel angry in response to his underpayment.


Feeling guilty or angry is a negative emotional state that people are motivated to change. Specifically, they will seek to create a state of equitable payment in which their outcome/input ratios are equal, leading then to feel satisfied.

How can people change inequitable states to equitable ones? Equity theory suggests several possible courses of action.

Hence, there are specific behavioural reactions to inequitable conditions to change such states to equitable ones. Also by changing the way they see things, people can come to perceive inequitable situations as equitable, thereby effectively reducing their inequity distress.

2. Procedural Justice – Making Decisions Fairly:

People in Organizations are greatly concerned about making decisions fairly and are motivated to get others to accept their decisions as fair. The reason is that both individual employees and entire Organizations benefit when it is believed that the Organization follows fair procedures.

We are interested in determining how decisions have to be made for them to be considered fair. Research has revealed several things that can be done to make Organizational decisions seem fair.

i. Give people a say in how decisions are made – It has been well established that voices – that is, a say in decision- making procedures- is key to procedural justice. For example, people believe their performance appraisals are made more fairly when they are given an opportunity to provide information regarding their performance.

ii. Provide an opportunity for errors to be corrected.

iii. Apply rules and policies consistently.

iv. Make decisions in an unbiased manner – suppose, for e.g., a human resource manager holds prejudicial attitudes against members of a certain group, leading him/her to systematically reject potential hires belonging to that group.

3. Interactional Justice:

When making judgments about fairness, people take into account not only the outcomes received and the procedures used, but also the quality of the interpersonal treatment they receive at the hands of decision – makers. Judgments of this type refer to interactional justice.

Two major factors contribute to it:

i. Informational justification (the thoroughness of the information received about a decision).

ii. Social sensitivity (the amount of dignity and respect demonstrated in the course of presenting an undesirable outcome, such as – a pay cut or the loss of a job).

Although employees might not like these things, they are more likely to accept them if they are presented in an interpersonally fair manner (at least in their own eyes).  

How to Motivate Employees – By Altering Expectations (Expectancy Theory)

In essence, the expectancy theory asserts that people are motivated to work when they expect that they will be able to achieve the thing they want from their jobs. Expectancy theory characterises people as rational beings who think about what they have to do to be rewarded and how much the reward means to them before they perform their jobs.

But the theory does not only focus on what people think. It also recognises that these thoughts combine with other aspects of the Organizational environment to influence job performance.

Although several different versions of expectancy theory have been proposed, expectancy theorists agree that motivation is the result of three different types of beliefs that people have.

These are:

i. Expectancy – the belief that one’s effort will result in performance.

ii. Instrumentality – the belief that one’s performance will be rewarded.

iii. Valence – the perceived value of the rewards to the recipient.

Expectancy theory claims that motivation is a multiplicative function of all these three components. This means that higher levels of motivation will result when expectancy, instrumentality, and valence are all high than when they are all low. The multiplicative assumption of the theory also implies that if any one of these three components is zero, the overall level of motivation will be zero.

For e.g., even if an employee believes that her effort will result in performance that will result in a reward, motivation will be zero if the valence of the reward she expects to receive is zero.

Expectancy theory recognises that motivation is one of several important determinants of job performance. For e.g., the theory assumes that skills and abilities also contribute to a person’s job performance. It is no secret that some people are better suited to performing their jobs than others by virtue of their unique characteristics and special skills and abilities.

The theory also recognises that job performance will be influenced by people’s role perceptions – in other words, what they believe is expected of them on the job. To the extent that there are disagreements about what one’s job duties are, performance may suffer.

For example, an assistant manager who believes her primary job duty is to train new employees may find that her performance is downgraded by a supervisor who believes she should be spending more time doing routine paper work instead.

In this case the person’s performance would not suffer as a result of any deficit in motivation but simply because of misunderstandings regarding what the job entails. Finally, the theory even recognises the role of opportunities to perform one’s job.

Managerial Applications of Expectancy Theory:

Expectancy theory is a very practical approach to motivation and suggests several important points:

1. Clarify People’s Expectancies that their Effort will Lead to Performance:

Motivation may be enhanced by training employees to do their jobs more efficiently, thereby, achieving higher levels of performance from their efforts. It also may be possible to enhance effort – performance expectancies by following employee’s suggestions about ways to change their jobs.

To the extent that employees are aware of problems in their jobs that interfere with their performance, attempting to alleviate these problems may help them perform more effectively. In essence, make the desired performance attainable. Good supervisors not only make it clear to workers what is expected of them, but they also help them attain that level of performance.

2. Administer Rewards that are Positively Valent to Employees:

These days, with a highly diverse workforce, it would be misleading to assume that all employees care about having the same rewards. Some might recognise the incentive value of a pay-raise, whereas others might prefer additional vacation days, improved insurance benefits, day care, or elder care facilities.

With this in mind, many companies have introduced cafeteria – style benefit plans – incentive systems allowing employees to select their fringe benefits from a menu of available alternatives.

3. Clearly Link Valued Rewards and Performance:

Managers should enhance their subordinates’ beliefs about instrumentality by specifying exactly what job behaviours will lead to what rewards. To the extent that it is possible for employees to be paid in ways directly linked to their performance – such as – through piece – rate incentive systems, sales commission plans or bonuses-theory specifices that it would be effective to do so.

This is the idea behind pay-for-performance plans-pay plans that systematically reward employees in proportion to how will they have done their jobs. The rewards need not be monetary in nature; even symbolic and verbal forms of recognition for a job well done can be very effective. Some companies help recognise their employees’. Organizational contributions by acknowledging them on the pages of their corporate newsletter.

Some companies are giving their employees a small piece of the company in exchange for their contributions – a practice that is sure to link performance with rewards in their minds. One popular form this has taken in many high-tech start-ups is known as Incentive Stock Option (ISO) plans. In such plans, a company grants an employee the opportunity to purchase its stock at some future time at a specified price.

So, overtime, if the value of the company’s stock increases, the employee can “exercise the option” by selling the stock at a profit and with certain income tax advantages. The underlying rationale is – give employees a stake in the success of the company. So, what’s good for the company also is good for the employee. This motivates them to put forth the effort to succeed.

How to Motivate Employees – By Structuring Jobs

The idea behind job design is that motivation can be enhanced by making jobs more appealing to people. Frederick W. Taylor’s principles of scientific management attempted to stimulate performance by designing jobs in the most efficient manner. However, treating people like machines often meant having them engage in repetitive movements that they found highly routine and monotonous.

Not surprisingly, people became bored with such jobs and frequently quit. Fortunately, today’s Organizational scientists have found several ways of designing jobs that can not only be performed very efficiently but that are also highly pleasant and enjoyable.

Way # 1. Job Rotation, Job Enlargement, and Job Enrichment:

If employees suffer from over routinisation of their work, one alternative is to use job rotation (or cross-training). It involves the periodic shifting of an employee from one task to another. When an activity is no longer challenging, the employee is rotated to another job, usually at the same level, that has similar skill requirements.

The strengths of job rotation are that it reduces boredom, increases motivation through diversifying the employee’s activities, and helps employees better understand how their work contributes to the Organization. Job rotation also has indirect benefits for the Organization because when employees have a wider range of skills, management has more flexibility in scheduling work, adapting to changes, and filling vacancies.

However, job rotation is not without drawbacks. Training costs are increased and productivity is reduced by moving a worker into a new position just when efficiency at the prior job is creating Organizational economies. Job rotation also creates disruptions. Members of the work group have to adjust to the new employee. And supervisors may also have to spend more time answering questions and monitoring the work of recently rotated employees.

Another approach is known as job enlargement, i.e., the practice of expanding the content of a job to include more variety and a greater number of tasks at the same level. Adding tasks in this way is said to increase the horizontal job loading of the position. Although job enlargement may help improve job performance, its effects may not be long lasting.

In contrast to job enlargement, job enrichment gives employees not only more jobs to do but also more tasks to perform at a higher level of skill and responsibility. Job enrichment gives employees the opportunity to take greater control over how to do their jobs. Because people performing enriched jobs have increased opportunities to work at higher levels, the job enrichment process is said to increase a position’s vertical job loading.

Several factors limit the popularity of job enrichment programmes. Most obvious is the difficulty of implementation. To redesign exiting facilities so that jobs can be enriched is often prohibitively expensive. The technology needed to perform certain jobs also may make it impractical for them to be redesigned.

Another impediment is the lack of employee acceptance. Although many relish it, some people do not desire the additional responsibility associated with performing enriched jobs. In particular, individuals low in achievement motivation are especially frustrated with enriched jobs.

Similarly, people may get used to having to do their jobs in certain ways and not like having to change. In other words, enriched jobs are not for everyone.

An attempt to expand the idea of job enrichment, known as the job characteristics model, provides an answer to the important question, i.e., what elements of a job need to be enriched for it to be effective?

This approach assumes that jobs can be designed to help people get enjoyment out of their jobs and to care about the work they do. The job characteristics model identifies how jobs can be designed to help people feel, that they are doing meaningful and valuable work. In particular, the model specifies that enriching certain elements of jobs alters peoples psychological states in a manner that enhances their work effectiveness.

Specifically, the model identifies five core job dimensions that help create three critical psychological states leading, in turn; to several beneficial personal and work outcomes.

The five critical job dimensions are:

i. Skill variety,

ii. Task identity,

iii. Task significance,

iv. Autonomy, and

v. Feedback.

i. Skill Variety:

Skill variety refers to the extent to which a job requires a number of different activities using several of the employee’s skills and talents. For e.g., an office manager with a variety of skills may have to perform many different tasks (like, do word processing, answer the telephone, greet visitors, and file records).

ii. Task Identity:

Task Identity refers to the extent to which a job requires completing a whole piece of work from beginning to end. For e.g., in a garment industry, tailors will have high task identity if they do everything related to making a whole suit (for instance, taking the measurements of the client, selecting the fabric, cutting and sewing it, and altering it to fit).

iii. Task Significance:

Task Significance refers to the degree of impact the job is believed to have on others. For e.g., medical researchers working on a cure for a deadly disease probably recognise the importance of their work to the world at large. Even more modest contributions to the company can be recognised as being significant to the extent that employees understand the role of their jobs in the overall mission of the Organization.

iv. Autonomy:

Autonomy refers to the extent to which employees have the freedom and discretion to plan, schedule, and carry out their jobs as desired. For e.g., a salesperson schedules his/her own work each day and decides on the most effective sales approach for each customer without supervision.

v. Feedback:

Feedback refers to the extent to which the job allows people to have information about the effectiveness of their performance. For e.g., telemarketing representatives regularly receive information about how many calls they make per day and the number and values of the sales made.

The model species that these various job dimensions have important effects on various critical psychological states of the employees. For example, skill variety, task identity, and task significance contribute jointly to a task’s experienced meaningfulness. A task is considered to be meaningful to the extent that it is experienced as being highly important, valuable, and worthwhile.

Jobs that provide a great deal of autonomy are said to make people feel personally responsible and accountable for their work. When they are free to decide what to do and how to do it, they feel more responsible for the results, whether positive or negative.

Finally, effective feedback is said to give employees knowledge of the results of their work. When a job is designed to provide people with information about the effects of their actions, – they are better able to develop an understanding of how effectively they have performed — and such knowledge improves their effectiveness.

The job characteristics model specifies that the three critical psychological states affect various personal and work outcomes – namely, employees motivation, the quality of work performed, satisfaction with work, absenteeism, and turnover. The higher the experienced meaningfulness of work, responsibility for the work performed, and knowledge of results, the more positive the personal and work benefits will be.

When performing jobs that incorporate high levels of the five core job dimensions, people should feel highly motivated, perform high-quality work, be highly satisfied with their jobs, be absent infrequently, and be unlikely to resign from their jobs.

At the same time, it may be noted that this job characteristics model is theorised to be especially effective in describing the behaviour of individuals who are high in growth need strength – i.e., people who have a high need for personal growth and development.

People not particularly interested in improving themselves on the job are not expected to experience the theorised psychological reactions to the core job dimensions nor, consequently to enjoy the beneficial personal and work outcomes predicted by the model. By introducing this variable, the model recognises the important limitation of job enrichment— not everyone wants and benefits from enriched jobs.

A questionnaire known as the Job Diagnostic Survey (JDS) has been developed to measure the degree to which various job characteristics are present in a particular job. Based on responses to the JDS, we can make predictions about the degree to which a job motivates people who perform it.

This is done by using an index known as the Motivating Potential Score (MPS), computed as follows:

The MPS is a summary index of a job’s potential for motivating people. The higher the score for a given job, the greater the likelihood of experiencing the personal and work outcomes specified by the model. Knowing a job’s MPS helps one identify jobs that might benefit by being redesigned.

Way # 2. Alternative Work Arrangements:

Beyond redesigning the nature of the work itself and involving employees in decision – making, another approach to making the work environment more motivating is to alter work arrangements including – flexitime, job-sharing, and telecommuting.

How to Motivate Employees – By Enhancing Employees’ Involvement

Employees’ empowerment is a participative process that uses the input of employees to increase their commitment to the Organization’s success.

The underlying logic is that if we involve workers in the decisions that affect them and increase their autonomy and control over their work lives, employees will become more motivated, more committed to the Organization, more productive, and more satisfied with their jobs.

The three major forms of employee involvement are:

i. Participative management,

ii. Representative participation, and

iii. Quality circles.

i. Participative management is a process in which subordinates share a significant degree of decision making power with their immediate superiors.

ii. Representative participation is a system in which workers participate in Organizational decision-­making through a small group of representative employees.

iii. Quality circle is a work group of employees who meet regularly to discuss their quality problems, investigate causes, recommend solutions, and take corrective actions.

In short, such extensive employee’s involvement programs have the potential to increase employees’ intrinsic motivation in work tasks.

How to Motivate Employees – By Using Rewards

Pay does motivate people, and companies often underestimate the importance of pay in keeping top talent. A study found that whereas only 45 percent of employers thought that pay was a key factor in losing top talent, 71 percent of top performers indicated that it was a top reason.

Given that pay is so important, we need to understand what to pay employees and how to pay them. To do this, management must make some strategic decisions.

We consider four major strategic rewards decisions that need to be made:

i. What to pay employees (which is decided by establishing a pay structure)?

ii. How to pay individual employees (which is decided through variable pay plans and skill-based pay plans)?

iii. What benefits to offer, especially whether to offer employees choice in benefits (flexible benefits)?

iv. How to construct employee recognition programs?

i. What to Pay (Establishing a Pay Structure): 

There are many ways to pay employees. The process of initially settling pay levels can be rather complex and entails balancing internal equity – the worth of the job to the Organization (usually established through a technical process called job evaluation ) – and external equity – the external competitiveness of an Organization’s pay relative to pay elsewhere in its industry (usually established through pay surveys).

Obviously, the best pay system pays the job what it is worth (internal equity) while also paying competitively relative to the labour market.

Pay if often the highest single operating cost for an Organization which means that paying too much can make the Organization’s products or services too expensive. It is a strategic decision an Organization must make, with clear trade-offs.

ii. How to Pay (Variable Pay Plans and Skill-Based Pay Plans):

A number of Organizations are moving away from paying people based solely on credentials or length of service and toward using variable – pay programs. Piece- rate plans, merit-based pay, bonuses, profit-sharing, gain sharing, and employee stock ownership plans are all forms of variable – pay programs.

a. Piece – rate pay plan is a pay plan in which workers are paid a fixed sum for each unit of production completed.

b. Merit-based pay plan is a pay plan based on performance appraisal ratings.

c. Bonus is a pay plan that rewards employees for recent performance rather than historical performance.

d. Skill-based pay is a pay plan that sets pay levels on the basis of how many skills employees have or how many jobs they can do.

e. Profit-sharing plan is an Organizational wide program that distributes compensation based on some established formula designed around a company’s profitability.

f. Gain sharing is a formula—based group incentive plan.

g. Employee stock ownership plan is a company – established benefits plan in which employees acquire stock, often at below – market prices, as part of their benefits.

Instead of paying a person only for time on the job or seniority, a variable – pay program bases a portion of an employee’s pay on some individual and/or Organizational measure of performance. Earnings, therefore, fluctuate with the measure of performance.

Variable – pay plans have long been used to compensate sales people and executives. Recently, they have begun to be applied to other employees. IBM, Wal-Mart, Pizza Hut, Cigna Corp., etc., are a few examples of companies using variable pay with rank – and – file employees.

It is precisely the fluctuation in variable pay that has made these programs attractive to management. It turns part of an Organization’s fixed labour costs into a variable cost, thus reducing expenses when performance declines. So when the U.S. economy encountered a recession in 2001, companies with variable pay were able to reduce their labour costs much faster than companies that had maintained non-performance — based compensation systems.

In addition, when pay is tied to performance, the employee’s earnings recognise contribution rather than being a form of entitlement. Low performers find, over time, that their pay stagnates, while high performers enjoy pay increases commensurate with their contributions.

Studies generally support the idea that Organizations with profit-sharing plans have higher profitability than those without them. Similarly, gain-sharing has been found to improve productivity in a majority of cases and often has a positive impact on employee attitudes.

iii. Flexible Benefits:

Flexible benefits allow each employee to put together a benefits package individually tailored to his/her own needs and situation. It replaces the traditional “one-benefit-plan-fits-all” programs that dominated Organizations for more than fifty years. Flexible benefits individualise rewards by allowing each employee to choose the compensation package that best satisfies his/her current needs based on age, mental status, spouses’ benefit status, number and age of dependents, etc.

The three most popular types of benefits plans are:

a. Modular Plans are predesigned packages of benefits, which each module put together to meet the needs of a specific group of employees. So a module designed for single employees with no dependents, might have only essential benefits. Another designed for single parents, might have additional life insurance, disability insurance, and expanded health coverage.

b. Core Plus Plans consist of a core of essential benefits and a menu- like selection of other benefit options from which employees can select and add to the core. Typically, each employee is given “benefit credits”, which allow the “purchase” of additional benefits that uniquely meet his/her needs.

c. Flexible Spending Plans for e.g., for employees to pay for health care and dental premiums. Flexible spending accounts can increase employee take-home pay because employee do not have to pay taxes on the money they spend out of these accounts.

iv. Intrinsic Rewards:

Important work rewards can be both intrinsic and extrinsic. Rewards are intrinsic in the form of employee’s recognition programs and extrinsic in the form of compensation systems.

Employee recognition programs range from a spontaneous and private ‘thank you’ up to widely publicised formal programs in which specific ways of behaviour are encouraged and the procedures for attaining recognition are clearly identified. Some research has suggested that whereas financial incentives may be more motivating in the short term, in a long run, non-financial incentives are more motivating.

An obvious advantage of recognition programs is that they are inexpensive (praise, of course, is free!). It should not be surprising, therefore, to find that employee recognition programs have grown in popularity. For example, Wipro has a unique package called Encore, which is essentially a basket of non-monetary rewards given to motivate employees and to recognise excellent work performance.

For instance, the Feather in My Cap Award is an on-the-spot recognition of an effort awarded to a project or project team. “Dear Boss” recognises the positive qualities of a good boss, including technical, managerial, and leadership skills. Awards like Mastermind note the most innovative solution or idea in Wipro, and the Wipro Hall of Fame recognises, superlative performers in different roles as well as superlative team performance.

At NUT, there is a practice of naming a conference room or office or training room after the most outstanding employee of the year. This is done ceremoniously, the employee’s family is invited, a cake is ordered, and all the employees assemble for the felicitation.

An outgrowth of the cognitive evaluation theory is self-concordance, which considers the degree to which peoples’ reasons for putting effort in pursuing goals are consistent with their interests and core values. For example, if individuals pursue goals because of an intrinsic interest, they are more likely to attain their goals and are happy even if they do not attain them.

Because the process of striving toward them is fun. In contrast, people who pursue goals for extrinsic reasons (money, status, etc.,) are less likely to attain their goals and are less happy even when they do achieve them. Because the goals are less meaningful to them.

Research suggests that people who pursue work goals for intrinsic reasons are more satisfied with their jobs, feel like they fit into their Organizations better, and may perform better.

What does all of this mean? It means choose your job carefully. Make sure you are choosing to do something for reasons other than extrinsic rewards. For Organizations, managers need to provide intrinsic rewards in addition to extrinsic incentives.

In other words, managers need to make the work interesting, provide recognition, and support employee growth and development. Employees who feel that what they do is within their control and a result of free choice are likely to be more motivated by their work and committed to their employers.

How to Motivate Employees – Top 4 Useful Tips for Motivating Managers

Tip # 1. Avoid Underpayment:

Companies that attempt to save money by reducing employees’ salaries may find that employees respond in many different ways to even the score. For e.g., they may shave a few minutes off their workdays or otherwise withhold production. In extreme cases, employees express their feelings of extreme underpayment inequity by going on strike.

Over the past few years, a particularly counselling form of institutionalisation underpayment has materialised in the form of two-tier wage structures – payment systems in which newer employees are paid less than those hired to do the same work at an earlier point in time. Not surprisingly, such systems are considered to be highly unfair, particularly by those in the lower tier.

Tip # 2. Avoid Overpayment:

One may think that because overpaid employees work hard to deserve their pay, it would be a useful motivational technique to pay people more than they merit. There are several reasons why this would not work.

i. The increases in performance shown in response to overpayment inequity tend to be only temporary. As time goes on, people begin to believe that they actually deserve the higher pay they are getting and bring their work-level down to normal.

ii. When one overpays one employee, one is underpaying the others. When the majority of the employees feel underpaid, they will lower their performance, resulting in a net decrease in productivity and dissatisfaction.

Hence, managers should strive to treat all employees equitably. This may be more easily said than done. Part of the difficulty lies in the fact that feelings of equity and inequity are based on perceptions, and these are not always easy to control. One approach that may help is to be open and honest about outcomes and inputs.

People tend to overestimate how much their superiors are paid and, therefore, tend to feel that their own pay is not as high as it should be. However, if information about pay is shared, inequitable feelings may not result.

Tip # 3. Give People a Voice in Decisions Affecting them:

People are likely to believe that decisions have been made fairly to the extent that they have had a chance to influence those decisions – i.e., they are given a “say in the matter”.

Tip # 4. Explain Outcomes thoroughly Using a Socially Sensitive Manner:

In a study of manufacturing worker’s reactions to a pay freeze, the researchers made comparisons between two groups of workers- those who received a thorough explanation of the procedures necessitating the pay freeze (e.g., information about the Organization’s economic problem) and those who received no such information.

Although all workers were adversely affected by the freeze, those receiving the explanation better accepted it. In particular, the explanation reduced their interest in looking for a new job. These findings suggest that even if managers cannot do anything to eliminate workplace inequities, they may be able to take some of the sting out of them by providing explanations as to why these unfortunate conditions are necessary.