This paper critically evaluates whether incentives really help to motivate employees. For this purpose it provides a clear definition of motivation, points out why existing theories are partly outmoded and introduces a new model in order to gain a holistic view of the motivation concept. As the paper progresses it will be dealt with appropriate theories and practical examples in order to promote understanding of the key aspects of incentives and highlight under which circumstances threats might motivate.
Successful organisations share a common attribute: They came quickly to realise that employees play a significant role in terms of business performance (Tidd and Bessant, 2009). A key contribution to current understanding comes from Boxall and Purcell (2003), who argue that an employee’s performance is a function of his or her ability, motivation and opportunity. Given this notion, the adverse effects of zero motivation on an organisation’s bottom line are already conceivable. But what is motivation and what role do incentives or threats play in the motivation process?
Motivation can best be described as the force “ that gives impetus to our behaviour by arousing, sustaining, and directing it toward the attainment of goals ” (Wortman, et al, 1999, p. 364).
For decades, numerous theorists have attempted to find a way of describing the concept of motivation. Much has been told about Maslow’s hierarchy of needs (Maslow, 1970), MC Gregor’s XY theory (McGregor, 1960) or Herzberg’s two factor theory (Herzberg, 2003) and there is no doubt that these content theories do provide valuable insights into motivation. Yet they also have limitations and do not necessarily apply nowadays (Wilson, 2010). Likewise, process theories like Vroom’s Expectancy-Valence-theory (Vroom, 1964) might be considered more meaningful as they are based on the assumption that motivation depends on different variables, but they still lack clarity as they overlook important interrelationships.
It was therefore necessary to develop a model that takes into account the major factors that influence motivation in order to promote understanding. For example, the effect of a financial crisis, the introduction of new technology and government regulations or competitive pressure might compel organisations to adapt to changing circumstances if they are to survive. Any changes, in effect, can also influence employee motivation, whereas the latter will be affected by factors such as the organisation’s leadership capability, its culture or benefits as well as individual differences in terms of needs, personality or aspirations.
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The inference which can be drawn from the model is that motivation depends on various external, individual and organisational factors. Moreover, the model makes clear that both incentives and threats are only part of the whole process.
French and Raven, as cited by Wilson (2010, p. 302), identified incentives and threats as key bases of power in order to “ change beliefs, attitudes or behavior of a target. ” Yet doing so is easier said than done.
In this respect, it is worth considering John Adair’s 50/50 theory (Adair, 2006), which stresses that one half of motivation is attributed to intrinsic factors (e.g. culture or job design) and the other half to extrinsic factors (e.g. incentives or threats). This implies that extrinsic factors alone do not help to motivate employees. Organisations therefore, first of all, need to align the various organisational factors in a way that they become an employer of choice and contribute to intrinsic motivation.
For example, Apple, which is considered the most innovative and admired company in the world (BusinessWeek, 2009; Fortune, 2009), attracts and retains employees in part owing to the benefits, or expected and non-performance related incentives, it offers, such as product discounts or insurances (Apple, 2010). But even more important is its outstanding creative culture. Steve Jobs, Apple’s CEO, argues that the latter is the gravitational force that puts all the bright and creative people together (Burrows, 2004).
With regard to innovative organisations like Apple it is argued that employees’ motivation is a key success factor and hence they need to be given incentives in order to foster creative thinking and sustain high motivation (Tidd and Bessant, 2009). As Gilmore et al (2009, p. 184) point out, “ managing employee reward is a crucial element in encouraging flexibility, leveraging performance and competing for talent in tight labour markets. ”
However, many authors disagree over which incentives are most appropriate. Wallace and Szilagyi (1982), for instance, believe that money is a key incentive as it enables people to satisfy their needs. On the contrary, Herzberg (2003) contends that monetary rewards only boost motivation in the short term. Kohn (1993) shares this view, as he states that there is no evidence for the contribution of money to sustainable employee motivation. Likewise, Pfeffer (1998) and Trott (2002) stress that people are not only driven by financial incentives.
Given the controversies in regard to incentives it is arguable that the whole concept is too complex to come to a universally valid conclusion. There are only a few authors who acknowledge this, among them are Thomson (2003) and Armstrong (1993).