EVA-based Bonus Systems and the Influence on Motivation of Employees in Companies with Branch- or Profit-Centre Structure
Tobias Bandt
Since the beginning of the Industrial Revolution in the early the 20th century, companies have tried to find ways to motivate their staff and, through that, increase performance and productivity. Despite several theories that consider monetary incentives as not being a motivator it is still very common practice for companies to motivate their employees using profit participation schemes. Companies and organisational structures have significantly changed in the last 50 years. Is it still possible to measure and influence the performance of the individual? And what is the assessment based on? Is the approach of profit participation sustainable and contemporary?
Even in times of globalisation, companies try to delegate responsibility to their business units and branches in order to measure performance and make them comparable. Therefore, they organise them as profit-centres, small organisational units which act like a company within a company. Economic Value Added (EVA) promises to measure more than the profit of a unit; it considers the added value of a branch to the company, shareholders and customers.
This Master thesis aims to provide an overview of EVA, how it works and how it influences the motivation of people who work in branches that are organised as a profit-centre. It also analyses the influence of EVA-based incentive systems on the cooperation between branches and regions and, further, assesses the influence of fairness and transparency on the motivation. The research project is supported by a survey, conducted among branches of DIS AG, a company that has been using EVA for eight years as a basis for the calculation of monetary incentives. The survey covers three areas of EVA’s impact on employees: the influence on motivation in general, on cooperation between branches and the influence of transparency and fairness.
The results of this survey are used to develop recommendations for adapting the system in order to maximise the impact on employee motivation.
Table of Contents
1. INTRODUCTION
1.1 ABOUT DIS AG
1.2 RESEARCH AIMS AND OBJECTIVES
1.3 WHY IS THIS AN ISSUE FOR DIS AG?
2. LITERATURE REVIEW
2.1 MOTIVE, INCENTIVES AND MOTIVATION
2.1.1 MOTIVES
2.1.2 INCENTIVES
2.1.3 MOTIVATION
2.1.4 CONTENT AND PROCESS THEORY
2.1.5 INTRINSIC VERSUS EXTRINSIC MOTIVATION
2.1.6 MONEY AND MOTIVATION
2.1.7 WORKING MOTIVES
2.1.8 EMPLOYEE MOTIVATION, MODEL OF NITIN NOHRIA
2.2 PROFIT-CENTRES
2.2.1 FORMS OF CENTRE ORGANISATIONS
2.2.2 ACCOUNTING, CONTROLLING AND KEY FIGURES IN PROFIT-CENTRES
2.3 INCENTIVE SYSTEMS
2.3.1 INCENTIVE SYSTEMS IN PROFIT-CENTRES
2.3.2 PROBLEMS WITH INCENTIVE SYSTEMS
2.4 ECONOMIC VALUE ADDED (EVA)
2.4.1 POTENTIAL USES AND PROBLEMS WITHIN COMPANIES WITH PROFIT-CENTRE STRUCTURE
2.4.2 ADVANTAGES & DISADVANTAGES OF EVA
2.5 LITERATURE REVIEW - SUMMERY
3. AN PRACTICAL EXAMPLE - THE EVA SYSTEM AT DIS AG
3.1 WHY DID THE COMPANY CHOOSE EVA?
3.2 CALCULATION OF EVA AND PAYOUTS OF BONUSES
4. RESEARCH DESIGN AND METHODOLOGY
4.1 RESEARCH PHILOSOPHY
4.2 RESOURCES, ACCESS TO INFORMATION AND DATA COLLECTION
4.3 RESEARCH APPROACH AND TECHNIQUE
4.4 RESEARCH STRATEGY AND TIME HORIZONS
4.5 ANALYSIS OF DATA: QUANTITATIVE AND QUALITATIVE METHODS
4.6 ETHICS
5. THE EVALUATION OF THE EVA-BASED INCENTIVE SYSTEM OF DIS AG
5.1 QUESTIONNAIRE ANALYSIS
5.1.1 METHODS
5.2 FINDINGS
5.2.1 MOTIVATION
5.2.2 COOPERATION
5.2.3 TRANSPARENCY OF THE INCENTIVE SYSTEM
5.2.4 GENERAL STATISTICS
5.2.5 ANALYSIS OF SUGGESTIONS FOR IMPROVEMENTS AND COMMENTS
6. DATA INTERPRETATION AND DISCUSSION
6.1 MOTIVATION
6.2 COOPERATION
6.3 TRANSPARENCY
6.4 GENERAL COMMENTS
7. CONCLUSIONS
8. RECOMMENDATIONS
Research Goals and Themes
This thesis aims to evaluate the impact of Economic Value Added (EVA)-based incentive systems on employee motivation within organizations structured as branches or profit-centres, using DIS AG as a primary case study to identify potential improvements for organizational cooperation and transparency.
- Theoretical overview of employee motivation models, specifically incentive-based systems.
- Analysis of the profit-centre organizational structure and its inherent challenges.
- Examination of Economic Value Added (EVA) as a management and incentive tool.
- Empirical evaluation of the EVA system at DIS AG through employee surveys.
- Recommendations for optimizing incentive systems to balance competitiveness with cooperation.
Excerpt from the Book
2.4.1 POTENTIAL USES AND PROBLEMS WITHIN COMPANIES WITH PROFIT-CENTRE STRUCTURE
A profit-centre acts like an independent company within a company. Each centre has its own structure, planning and controlling instruments (Biermann, 1998). This creates competition within internal business units and with external companies. The business units have a kind of customer relationship with each other. The idea behind this concept is that this kind of structure should increase the ability to compete on the external market (Füser, 1997), but this also increases competition between the profit-centres.
The manager of each unit acts as an intrapreneur. His personnel success is measured by the contribution margin. EVA supports this system; it is the key figure for measuring the value creation in a profit-centre. It offers the possibility to compare different business units with clearly defined numbers.
On the other side, EVA might also cause problems in profit-centres. In companies with different branches like DIS AG, the tasks of the single branches are very similar. Even if the business is divided into four sections (Office & Management, Finance, Industry and IT), it is sometimes not very clear which branch is responsible for what. If one of the new orders is in a grey zone regarding branch jurisdiction, it is very likely that the branch will try to do the business alone without the help of other branches. There will be little intention to involve other branches because if the turnover is achieved with the help of another branch, the contribution margin, and the resulting EVA participation, for this project has to be shared.
Another very critical point is a lack of synergy effects in matters of customer care. If there is no motivation for branches to work together, it is possible that every single branch in a region will roll-out different sales promotions or customer care actions with the same customer. This is not only ineffective but also creates unnecessary high costs. In some cases companies lose business because of rivalry and the lack of communication between the branches.
Summary of Chapters
1. INTRODUCTION: Outlines the shareholder value approach and introduces DIS AG, a major HR consulting firm, as the case study for investigating EVA-based incentive systems in profit-centre structures.
2. LITERATURE REVIEW: Explores theoretical frameworks of motivation, including Maslow, Hertzberg, and Nohria, alongside the functional requirements and common pitfalls of profit-centre organizations and EVA systems.
3. AN PRACTICAL EXAMPLE - THE EVA SYSTEM AT DIS AG: Provides a concrete analysis of why DIS AG adopted the EVA system and how the company calculates bonuses and manages payouts.
4. RESEARCH DESIGN AND METHODOLOGY: Details the mixed-methods research approach, including the design and implementation of an employee survey aimed at assessing the impact of the EVA system.
5. THE EVALUATION OF THE EVA-BASED INCENTIVE SYSTEM OF DIS AG: Presents the primary findings from the survey data, focusing on motivation levels, inter-branch cooperation, and the perceived transparency of the system.
6. DATA INTERPRETATION AND DISCUSSION: Synthesizes the survey results, comparing them with existing motivational theories and discussing the implications of the current EVA system on corporate culture.
7. CONCLUSIONS: Summarizes the key insights, confirming that while the EVA system effectively drives performance, its lack of transparency and negative impact on cooperation present significant challenges.
8. RECOMMENDATIONS: Proposes actionable strategies for management to improve transparency, align objectives through MbO, and restructure branch cooperation to maximize employee satisfaction.
Keywords
Economic Value Added, EVA, Employee Motivation, Profit-centre, Incentive Systems, Performance Management, Branch Structure, Cooperation, Transparency, DIS AG, Human Resource Consulting, Bonus Systems, Organizational Structure, Employee Satisfaction, Management Control.
Frequently Asked Questions
What is the core focus of this thesis?
The thesis evaluates how EVA-based incentive systems influence employee motivation in companies that utilize a branch or profit-centre organizational structure.
What are the central thematic fields covered?
The study covers employee motivation theories, the mechanics and pitfalls of profit-centre organizational structures, and the specific application of EVA as a financial incentive tool.
What is the primary research goal?
The goal is to assess whether EVA-based incentives drive positive motivation and to determine how these systems can be adapted to improve inter-branch cooperation and organizational transparency.
What research methodology was employed?
The research followed a mixed-methods approach, utilizing both qualitative data and a quantitative survey conducted among 165 HR consultants and branch managers at DIS AG.
What key aspects are discussed in the main chapters?
The study provides a literature review, a deep dive into the practical application of EVA at DIS AG, a detailed analysis of survey results, and final recommendations for system improvement.
Which keywords define this work?
Key terms include Economic Value Added (EVA), Profit-centre, Employee Motivation, Incentive Systems, Organizational Transparency, and DIS AG.
How does the EVA model impact inter-branch cooperation according to the findings?
The study finds that the system's focus on individual profit-centre results often discourages cooperation, leading to internal competition and instances of lost business opportunities.
Why is transparency considered a critical issue in the study?
Findings indicate that a lack of clear information regarding bonus calculations and distribution, especially among consultants, leads to frustration and dissatisfaction, which negatively affects the motivational potential of the EVA system.
- Arbeit zitieren
- Dipl. Kaufmann, MBA Tobias Bandt (Autor:in), 2010, EVA-based Bonus Systems and the Influence on Motivation of Employees in Companies with Branch- or Profit-Centre Structure, München, GRIN Verlag, https://www.grin.com/document/183808
