Monetary Rewards

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Monetary Rewards

Almost thirty years ago more and more companies started looking at pay for performance to increase their bottom line and gain productivity. Slowly these general pay increases gave way to merit pay and other forms of monetary incentives. These types of monetary rewards can be grouped into two categories: individual and group incentive plans (Appelbaum and Shapiro, 1992). The literature suggests that merit raises are used the most as an individual incentive and profit sharing is widely used by organizations as a group incentive. Other individual and group incentives that are also commonly used are commissioned pay, bonuses, and stock options. The goal of most companies is to use these financial incentives to motivate workers and thereby boost productivity (Hassink and Koning, 2009). Monetary rewards definitely matter to most people. This is evident when a company reduces or even eliminates the financial incentives that they had in place because of the state of the economy. The consequences of this action are often very unpleasant, resulting in decreased employee motivation, increased turnover, and lessened productivity (Martin, 2010). However; the use of monetary rewards has both its advantages and disadvantages.

Individual Incentives

According to E.A. Locke, the use of money as a means of motivation probably traces back to the origins of money itself. Merit pay systems are among the most popular vehicles for rewarding employees today (Lowery, Petty, and Thompson, 1996). The idea behind using this system is based on expectancy theory which Appelbaum and Shapiro (1992) defined as a theory holding that people want to be fairly or equitably treated by the organization that employs them. A study done by...

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