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Financial Incentives to Motivate Employees

A good manager who is providing business coaching to their employee or employees knows that there is a vast array of potential tools available to them which can be utilised to increase the motivation of their team or an individual.

A variety of these tools and incentives can be of a financial nature, and are intended to reward employees with a monetary return for their work. The intention is to motivate and incentivise them to work harder and increase their output which, despite having to pay extra to the workers, should lead to increased revenue and greater levels of profit.

The Disadvantages of Financial Incentives for Workers

Two employees sharing a reward from work

Managers need to be extremely careful though when it comes to the use of financial incentives to motivate their employees. Once issued, it can be hard for this technique to be taken away, and workers may expect a financial incentive the next and indeed every time a project or target is set. Not only can this greatly increase costs if it is paid every time, but workers may become de-motivated if they expect a financial incentive but none is provided.

Financial incentives such as bonuses for exceeding targets or a per piece payment may increase output but can end up causing an adverse effect upon overall quality of the finished product as workers rush to complete each one and produce as many as possible to receive more money. Not only can this damage the company's reputation if they get a name for producing poor quality products, but can also have financial consequences from product returns and recalls, not to mention potential fines if the defective products cause a risk to the health and safety of consumers who are injured by a sub-standard item. These dangers can come in many forms including sharp edges, faulty electrical wiring or coated with a harmful chemical which is hazardous to health to name but a few.

Rewards Need to be Meaningful

Rewards Have to be Rewarding!

An incentive scheme designed to get workers or employees to achieve a certain target or objective needs to have at its core a reward scheme which actually means something and has an effect upon the workers. If it is a reward which is considered small and insignificant by workers it will have very little impact upon them and is highly likely to fail in its objective of motivating them to increase their performance levels. In order for them to go above and beyond the call of their workplace duties, employees will want to feel like there is something in it for them at the end to make it worth their while for working harder and going above and beyond normal activity, otherwise they will just ignore management's wishes to work harder for what they see as no reward.

Financial Incentives can be Detrimental in the Long-Term

Many rewards and incentives are of a financial nature. The downside to making use of meaningful financial rewards is that whilst the bigger the reward the greater its potential impact and chances of successfully achieving the desired results, the greater the cost to the company. Managers need to be careful that the bonuses paid to workers do not offset the financial gain brought about by the increase in output. This will not only make it a pointless exercise, but also may bring with it the expectation from workers that they should get a bonus the next and every time there is a need to raise production to fulfil a big order or project. If they do, it will cost the company money and lost profit if they offer the incentive every time. If not, workers can become de-motivated if this is not forthcoming.

Utilising Incentives Has Advantages and Disadvantages

Employees in the food manufacturing industry

Many managers engaging in business coaching for their staff members will be aware of the value, and the potential pitfalls, of using incentives and bonuses to motivate them. These can be financial, but can also be of a non-financial nature and include rewards such as job enrichment, extra time off or a team away day for example. When utilised correctly, incentives can increase the productivity and/or quality of their work, but there are potential dangers too with issuing bonuses and rewards, particularly financial ones (See Article: Carrot and Stick Approach to Motivation).

When using monetary or non-financial incentive schemes, either in conjunction with providing business coaching or in isolation, it is important that managers convey to employees clear targets, goals and objectives that are required in order to earn the reward in question. This will allow them to have a clear idea of what they need to do in order to obtain the reward and set about doing it, which is the intention of providing the incentive scheme in the first place.

Conveying an indistinct and ambiguous target such as "increased production" or "better quality finished product" is too vague and can lead to unhappiness and de-motivation amongst workers if they feel they have achieved this objective whereas management, who had a different definition of success in mind, do not.

Setting a clear, preferably quantifiable target at the outset can eliminate confusion and make it clear to everyone as to what is desired and what will trigger the incentive. It will also allow employees to track and measure how far their efforts are going in terms of satisfying the target, which can also increase their motivation to succeed, particularly towards the end of a specified time period for completion.

Using Business Coaching to Overcome Problems

Whilst financial rewards can be an effective tool to motivate employees, it is often far more effective in the long run for managers to engage in business coaching with workers to address issues and remove barriers which are holding them back from being highly motivated and achieving more when at work.

Financial Incentives Work Better in a Short Time Period

When making use of financial incentives to motivate employees, either on their own or at the same time as providing business coaching sessions for/with them, it is highly likely that these incentives will have much more of an impact if they are utilised over a short period of time, insofar as the targets required to achieve the promised reward and the delivery of that reward.

Unsustainable Levels Can Put Quality and Employee Health and Work

For example, workers will be able to raise their production levels over a short term of say a week or a month, but if they are asked to do it for a year or longer they are unlikely to keep up the same level of intensity for this period, and will then either go back to their normal speed of working, or will keep trying to work to this extra level and risk damaging their psychological health and may need to take time off work with conditions such as occupational stress, or leave the company altogether as they find the demands too onerous which is making them unhappy at work.

A Long Time Period Can Either Nullify the Incentive or Even Cause De-Motivation!

It may also de-motivate workers if they have to wait a long time to actually receive the promised reward. If they know this from the outset, they may feel that it is so far away in time that it is not worth the effort to achieve the increased targets. Just as bad, they may have satisfied the requirements only to then be unexpectedly told that they will not see any of the bonus until the next financial year which can be many months away, or the completion of the entire project which could take years.

Needless to say, this will cause extreme dissatisfaction, de-motivation and a possible mini-revolt amongst employees which would be preferable for managers to avoid!

How Incentive Schemes Can Impact Health and Safety

Incentive Schemes Can Have Health and Safety Implications

However incentive schemes which are intended to increase production and output can not only have an adverse effect on the quality of the finished articles, but it can also have a detrimental impact upon health and safety in the workplace. This is down to the fact that as workers will be paid more if they produce more, they are likely to rush the job and will be much more inclined to circumvent existing health and safety regulations and control procedures which have been put in place to prevent an accident or injury to them. Likely examples include not stopping to put on protective clothing, failing to comply with instructions on safety permits, and trying to fix or perform maintenance on machinery or equipment themselves when they should stop and wait for a qualified engineer to work on it.

Don't Ignore Health and Safety in the Workplace

It is imperative that whilst managers have a desire to increase production, they still do not allow workers to ignore health and safety rules that are there to prevent accidents. Failure to do so can result in hefty fines which will more than offset any financial gain made by the increase in output, and may even threaten the future existence of the company.

Related Courses

Please see below for some business coaching courses and qualifications which you may be interested in:

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Advanced Coaching Certificate

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