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Financial Motivators | Methods of Financial Motivation Explained | Remuneration, Fringe Benefits etc - YouTube
Channel: Two Teachers
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There are many ways that businesses can
motivate their employees and this video
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looks at the most common methods of financial
motivation that a business can choose from.
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At the end of the video there will be a
featured question based on the methods
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discussed and it would be great to
hear your thoughts if you answer
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the question in the comments section.
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First of all, we are going to look at remuneration
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Remuneration is the money that employees receive
in exchange for working for the business.
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However, the amount of money an employee receives
is dependent on their role within the business,
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typically the more senior the role,
the more money an employee receives
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in exchange for working for the business.
For example, a customer service manager
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is likely to receive a greater amount of
money than a customer service assistant.
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Remuneration can be a very effective method
of motivation for employees as money is one
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of the key reasons why many employees’ work.
There are two main methods of remuneration,
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the first is wages, which are a variable method
of pay, within which the money employees receive
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varies depending on how their pay is structure.
The second is salary, which is when employees
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receive a fixed amount of
money in exchange for work.
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First of all, let’s have a look at wages.
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Now as I’ve just mentioned, wages are
a variable method of remuneration,
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within which the money employee receives varies
depending on how their pay is structured.
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Some employees are paid on a time rate basis
Within which they are paid based on the amount
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of hours they work, multiplied
by a set amount per hour.
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This is very common method which is widely used by
many businesses such as McDonald’s who pay most of
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their entry level employees on a time rate basis.
The advantages of the time rate method include
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the employer being able to accurately forecast how
much the wage bill will be which enables planning,
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whilst also provides employees with the
security of knowing how much they will earn.
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However, the time rate method also has potential
drawbacks for the business as it doesn’t encourage
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efficiency as employees receive the same pay
per hour regardless of their performance.
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Also, the time rate method may disgruntle workers
if they are efficient and they consider their
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colleagues to be less efficient or effective than
themselves, but they still receive the same pay.
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In manufacturing businesses, a piece rate
method is commonly used to pay employees.
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Within this method employees are motivated
by the fact that they are paid based on
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the amount of products they produce.
Employees tend to work more efficiently
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under the piece rate method as this will
mean the wage they receive is higher which
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increases productivity for the business.
Whilst the most experienced, skilled,
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and efficient employees earn more than less
experience, skilled and efficient colleagues.
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However, the piece rate method does make
it more complex to forecast employee pay,
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as it based on their performance which may
vary from month to month for many employees.
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Also, due to the incentive of being paid more
for every item they produce, employees may rush,
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which could result in sub-standard goods
or excessive amounts being produced.
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Therefore, effective quality control processes are
essential when using the piece rate method of pay.
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In addition to the time rate
and piece work methods, some
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businesses may also offer employees overtime pay.
Overtime is when a business pays employees an
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additional amount of money for working above their
contracted hours at the request of the business.
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This can be a very important method
of remuneration to motivate employees
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to work more than they are required to,
especially during busy periods of trade
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such as Christmas for the majority of retailers.
Also, if employees know overtime may be available
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in the near future and they want to do it
to increase their wage, this can effectively
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motivate them to increase their efficiency and
productivity within their regular working hours
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so they get chosen for the overtime hours if
there is competition amongst employees for this.
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However, if overtime is forced upon employees
and they feel pressured to do it above and
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beyond their contracted working hours, this can
actually demotivate employees and may lead to
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decreased productivity or even the employee
leaving the business over the long term.
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Moving onto salaries which are another
form of remuneration for employees,
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but in contrast to wages,
salary payments are a fixed amount of pay
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which employees receive in exchange for work.
This is typically split into equal amounts and
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paid monthly or four weekly
depends on the business
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Salaries are much more common for employees
who hold senior roles within a business
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such as managers and executives, or employees
who are classed as working in a profession
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such as doctors and teachers.
Salaries offer employees a
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guaranteed amount of pay regardless of their
performance which provides employees with
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safety and comfort in their role which often
leads to more loyalty and longer service.
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Often employees who are paid a salary are
motivated by the incentive of a possible
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yearly rise in their salary should
they meet or exceed their targets.
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However, salaries can also lead to
decreased production and efficiency
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because the employee is guaranteed a set
level of pay regardless of their performance.
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Also, employees who are paid a salary sometimes
face pressure to work more than their contracted
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hours without any additional payment due
to the nature of their role which can cause
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conflict in the workplace and demotivate
the employee and decrease their efficiency.
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We now move onto performance-related pay which
is based on the performance of employees,
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and as you can see from the
look on this ladies face,
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it can make employees very happy
when they see their wage slip.
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Simply put, the better an employee
performs, the more they are paid.
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For employees who are motivated by money,
performance related pay can be a very effective
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motivator as they have the possibility of
receiving a greater amount of pay if they perform
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well, especially if they outperform set targets.
Therefore, the most experience, skilled,
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and efficient employees tend to earn more than
less experience, skilled and efficient colleagues
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but the performance levels of all employees tends
to increase through performance related pay.
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There are two common methods of performance
related pay, these are bonus and commission.
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A bonus is an additional payment made to employees
on top of their standard pay typically as a reward
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for their productivity and performance or to share
some of the business’ profit to show recognition
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and reward to the employees that have contributed
to the overall performance of the business.
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It is a very common method of financial motivation
and is used in a wide range of industries
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including manufacturing and retail, where
bonus could be calculated on the productivity
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of individual employees and is paid to employees
who meet or exceed their production targets.
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Alternatively, bonus may also be paid to
all employees within a business based on
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their collective contribution, a good example of
this is Greggs, where employees each received a
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one-off bonus up to £300 in 2020 following
a successful year for the business. Within
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which 25,000 employees received their share of £7
million due to a 13.5% increase in sales in 2019.
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Whether bonus is based on either a team or
an individual’s performance, it can be a very
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effective motivator which provides employees
with clear targets and the financial incentive
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of additional pay if they achieve or exceed them
alongside a sense of being valued by the business.
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If a bonus is based on a team’s performance it
can also have the added benefit of increased
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team work and employee collaboration as they
are working together towards a collective goal
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which can increase productivity, efficiency,
and morale of an entire department.
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Alternatively, if bonus is calculated
and paid based on individual performance
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it can be a very effective motivator for every
employee as they feel that they get rewarded
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for their personal contribution which helps the
business to retain and increase the performance
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of the most experienced and skilled employees.
However, once a bonus system is in place,
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it can become an expectation and it
is often hard to remove or reduce a
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bonus system as this is likely to frustrate
employees who may then become demotivated
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and their performance may suffer as a result.
Also, it is very important that the business
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considers the financial implications of
introducing a bonus system as it can be very
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costly and reduces the overall profitability
of the business, so they need to ensure
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the additional benefits such as increased
productivity outweigh the increased costs.
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Another form of performance
related pay is commission.
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Which is an additional payment employees receive
on top to their wage, commonly associated with
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employees who sell products and services.
It’s typically calculated as a percentage
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of a sale or the profit within a sale,
alternatively it maybe fixed amount per sale.
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For example, a car salesperson sells a car for
£10,000, which makes the business £1,000 profit
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and they receive 5% commission based
on the profit they make in every sale.
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Therefore, in this scenario, the
salesperson would receive £50 in commission.
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Commission tends to be a very effective motivator
as employees know the more items they sell and the
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more profit they make for the business,
the more money they receive in their wage.
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Therefore, employees strive to make each sale
as profitable as possible due to this incentive.
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In a similar fashion to many other
forms of financial motivators,
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it typically benefits the most experienced,
skilled, and efficient employees as they
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tend to outperform and earn more than less
experience, skilled and efficient colleagues.
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However, using commission to motivate employees
can also create a poor workplace culture,
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one which could be described as dog eat dog,
within which employees are highly competitive
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with each other and don’t work together towards
a collective goal which can cause conflict and
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demotivate employees over the long term.
Whilst at the same time, commission has
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the potential to negatively
impact the customer experience
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as the salesperson may think more about the
potential profit than the needs of the customer.
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The next method of financial motivation
we’re going to look at is employee promotion.
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A promotion is when an employee progresses through
the hierarchy within a business into a new role
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with additional responsibilities and increased pay
on the back of their performance in the workplace.
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When employees get promoted it
often makes them feel valued
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and vastly increases their motivation to
demonstrate their capabilities in the new role,
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whilst at the same time increasing
their loyalty to the business.
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Also, by promoting existing employees within the
business, costs will be reduced in comparison to
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the fees associated with external recruitment.
However, promotion isn’t just an effective
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motivator for newly promoted employees, If
employees are interested in career progression,
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the opportunity for promotion itself often
makes them very motivated and committed in
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their current role which leads to increased
productivity and efficiency as they aim to
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impress their managers to increase their chances
of getting promoted when the opportunity arises.
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A drawback of using promotion as method
of motivating employees is that it could
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lead to friction between employees as they
compete for the same promotion opportunity.
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Even once a successful employee has been
chosen, it may be demoralising for the
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remaining employees who weren’t successful which
could lead to them becoming demotivated and
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their performance could suffer as a result.
The final method of financial motivation we
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are going to look at is Fringe Benefits.
Many businesses use fringe benefits as a
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form of financial motivation, and they are seen as
additional employment perks awarded to employees
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which are often ways of saving employees money
rather than providing them with additional pay.
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The fringe benefits offered to employees vary
vastly from business to business, however some are
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more commonly used than others. Let’s take a look
at 6 of the most commonly used fringe benefits.
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Profit sharing schemes reward
employees for their contribution
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to the business’ overall profitability.
A famous example of a profit-sharing scheme
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is John Lewis, which rewards its
employees with a percentage of
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their overall profitability each year.
This can be a very effective motivator
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for employees and they typically become much
more focused on how they personally impact the
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business’ profitability as it impacts the
amount they get paid personally each year.
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Which in turn encourages employees to
become more knowledgeable in their role
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and committed to the business and its customers
to ensure they positively impact the bottom line.
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However, profit sharing schemes can be very costly
and they aren’t as common as they once were,
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slowly being replaced by share schemes where
employees have the choice to purchase shares
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in the business, typically at a reduced rate
through monthly wage deductions if they want to.
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This approach still motivates employees in the
same way as a profit-sharing scheme as they are
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still personally benefitting when the business
does well, but it reduces the costs associated
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as employees have to purchase shares themselves.
Another type of fringe benefit is a workplace
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pension scheme and in October 2012 the government
emphasised the importance of this type of
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fringe benefit by announcing an automatic
enrolment pension scheme for all employees.
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Now that a workplace pension
scheme is a legal requirement
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and businesses are required by law to
contribute at least 3% from April 2019,
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many businesses now need to offer and invest
heavily into a pension scheme which is better
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than the minimum requirements if
they want to attract the top talent.
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However, a competitive pension scheme can
effectively motivate employees whilst increasing
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loyalty and morale across the workforce as
employees often feel valued by the business.
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Offering employees private healthcare or health
insurance allows them to have medical treatment
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in private hospitals and facilities.
It has many similar benefits to offering
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a company pension scheme in the sense that
employees will feel valued by the business
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which in turn increases their loyalty,
morale and motivation in the workplace.
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Alongside these factors, it helps the business
to reduce the amount of employee absences
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as it increases the chances of having a healthier
workforce who can receive treatment quicker than
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they would by going through the NHS in most cases.
Put simply, providing employees with additional
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support with their physical and mental health
is costly, however it should be looked at as
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an investment as it typically leads to improved
productivity by a happier and healthier workforce.
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Some businesses choose to offer their employees
free or discounted meals whilst at work,
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a famous example of this is McDonald’s who
offer employees a free meal whilst on shift,
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it is more common for businesses which
operate in the hospitality industry but
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is also used in other industries where staff
get a free or subsidised meal in the canteen.
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If employees don’t eat, it is likely
to negatively impact their performance
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and levels of motivation, which
links to Maslow’s Hierarchy of needs.
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By offering food to employees, the business
is able to ensure some of their employees
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phycological needs are met to ensure they
are able to perform in the workplace.
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Another fringe benefit is
additional sick and holiday pay,
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which have similar effects on employees as a
pension scheme and private healthcare insurance
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would, due to phycological effects of feeling
looked after and cared for by an employer.
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Whilst paying employees additional sick
and holiday pay above the legal requirement
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can increase the costs substantially for the
business, it can lead to a more motivated
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and happy workforce as it provides employees
with time to relax whilst on annual leave
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so they return refreshed and refocused.
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Alternatively, employees who are sick don’t
come back to work before they fully recover
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which is more likely to happen when they are faced
with the pressure of running out of sick pay.
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For example, if employees only receive
statutory sick pay, they may return before
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they are fully recovered, which can lead to
low levels of motivation and poor performance,
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whilst potentially spreading across the workforce
if the sickness is related to a virus etc.
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which would further impact the business.
The final fringe benefit we are going to look at
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is staff discount, which some may argue does not
directly increase motivation levels of employees.
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However, offering employees discount on the
business’ or affiliated business’ products and
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services can make employees feel valued, which in
turn naturally increases motivation and commitment
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to the business, which in turn could be one of
the key reasons they are loyal to the business.
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So, there you have it, the most common methods
of financial motivation which businesses use.
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Now you’ve watched the video, why not have a go
at our featured question by commenting below.
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The question is: which method of financial
motivation would be the most effective method
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to motivate you personally and which
methods would you choose to motivate
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your employees if you owned a business?
We’ve also got a free activity worksheet
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if you’d like to test your knowledge
of financial motivators even further,
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just click the link to our
website in the video description.
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And if you’ve found the video useful,
remember to hit the like button and subscribe
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for lots more Business Studies videos.
Thanks for listening and all the best.
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