Motivating employees | IGCSE Class 10 Business Studies Notes

This note covers reasons for working, employee motivation, workforce performance, human needs, Maslow's hierarchy, Taylor's and Herzberg's theories, financial rewards, non-financial methods, and the choice of suitable methods of motivation.

What is motivation, and why do people work?

Definition: Motivation is the process of encouraging people to act towards desired goals by responding to their needs. In a business, it concerns employees' willingness to contribute towards the organisation's objectives.

An employee is a person who works for an employer in return for payment. People work to earn an income, but their needs also include security, friendship, recognition and opportunities to develop their abilities.

Income helps people obtain necessities such as food and shelter. Work can also provide relationships with others and a sense of belonging. Being appreciated for good work can satisfy a need for recognition, meaning acknowledgement of a person's contribution.

How are needs linked to behaviour?

A need is something a person requires or feels is lacking. A motive is an internal drive directing behaviour towards a goal. A motivator is a method used to encourage that behaviour, such as pay, praise or responsibility.

The motivation process begins with an unsatisfied need. This creates tension, which stimulates a drive to act. The person searches for a way to satisfy the need. When it is satisfied, the tension is reduced.

1. An unsatisfied need creates tension.
2. Tension stimulates the person's drive to act.
3. The person searches for a way to satisfy the need.
4. Satisfaction of the need reduces the tension.

Managers therefore need to understand what employees value. An opportunity for promotion, meaning advancement to a higher-level job, may encourage better performance if the employee is interested in promotion. Simply offering the opportunity does not establish that every employee will respond in the same way.

Motivation is complex because people differ in their expectations and reactions. Any method may not have a uniform effect on all employees. Ability to perform a job and willingness to perform it are also distinct: a capable employee may still need encouragement to use that ability.

Why does a well-motivated workforce matter?

A workforce is the group of people employed by a business. A well-motivated workforce helps the business improve performance because employees direct their effort towards its objectives. Suitable rewards and positive encouragement can also help employees develop more positive attitudes towards work.

How do productivity, attendance and retention differ?

Labour productivity means output per worker in a given period. Output is the quantity of goods or services produced. Higher productivity concerns how much each worker produces, rather than simply how many workers the business employs.

Absenteeism means employees being absent from work when expected to attend. Labour turnover concerns employees leaving a business and needing to be replaced. Reducing absence and retaining employees are different benefits of effective motivation.

Recruitment is the process of finding prospective employees. Training develops the skills and abilities needed for particular jobs. Replacing employees requires money, time and effort, so retaining talented staff helps avoid repeated recruitment and training.

Some important reasons for absenteeism are poor working conditions, inadequate rewards, lack of recognition and poor relationships with supervisors or colleagues. Motivation can address these problems by improving the experience of work and the rewards employees receive.

These connections explain why motivation matters beyond pay. A business needs to consider how employees feel about their work, whether their contributions are recognised and whether they see reasons to remain. A reward that fits their needs can support both individual and organisational performance.

How does Maslow's hierarchy explain human needs?

Maslow's hierarchy of needs is a theory arranging human needs in levels, from basic physical needs to personal fulfilment. A hierarchy means an arrangement in levels. Maslow linked motivation to satisfying needs and then moving towards higher needs.

What are the five levels?

Status means a person's position or standing. Autonomy means freedom to make decisions about work. These ideas help explain why employees may value responsibility and recognition as well as their income.

In Maslow's model, people's behaviour depends on their needs. Needs occur in a hierarchy, a satisfied need no longer motivates, and a person moves to the next level only when the lower need is satisfied. These are assumptions of the theory.

Draw a pyramid with five levels. Label them from the base upwards: physiological, safety and security, social or belonging, esteem, and self-actualisation. Place basic needs at the broad base and self-actualisation at the top.

The theory has limitations. Its classification of needs and the proposed hierarchy have been questioned. Its useful managerial lesson is to identify an employee's needs before choosing a method of motivation, rather than treating the hierarchy as an unquestionable description of every person.

How does Taylor connect pay with employee effort?

Taylor's approach links improved performance with financial reward. A financial reward is a payment or benefit measurable in money. Taylor advocated paying workers according to their output and rewarding efficient workers, who meet the required performance standard, through a higher rate of payment.

What is a differential piece wage system?

A piece rate is payment for each unit produced. A differential piece wage system uses different rates according to whether a worker meets an established output standard. A standard is the level of performance against which actual performance is assessed.

Under the arrangement below, the higher rate applies to all units made by a worker reaching the standard. It is not an extra payment applying only to units produced above the standard. The applicable rate must be identified before calculating earnings.

Worked example 1. Standard output is 10 units per worker per day. Workers making 10 units or more receive Rs. 50 per unit; workers making fewer than 10 receive Rs. 40 per unit. Compare daily earnings for workers producing 11 and 9 units. Rs. means rupees. The signs ×, = and − mean multiplication, equality and subtraction.

Answer: The worker producing 11 units earns 11 × 50 = Rs. 550. The worker producing 9 units earns 9 × 40 = Rs. 360. The earnings difference is 550 − 360 = Rs. 190.

Taylor argued that the difference of Rs. 190 should be enough to encourage the less efficient worker to perform better. This is the proposed incentive in his argument, not evidence that every worker will respond identically to it.

His wider approach also involved establishing an appropriate method of working and a fair task standard. Efficiency was understood as the result of the joint efforts of management and workers. Cooperation between them therefore matters alongside the payment system.

Financial incentives do not explain every human need. The importance of belonging, recognition and personal development helps explain why a business must also consider non-financial methods when deciding how to encourage its employees.

How does Herzberg distinguish dissatisfaction from motivation?

Herzberg's two-factor theory separates features of the work environment from features of the job itself. It distinguishes removing dissatisfaction, meaning unhappiness with work, from creating positive satisfaction through meaningful and rewarding work.

What are hygiene factors and motivators?

Hygiene factors are features surrounding a job whose inadequacy can cause dissatisfaction. They include pay, working conditions, job security, company policies, supervision and relationships at work. Here, hygiene does not mean physical cleanliness.

Motivators, in Herzberg's specific terminology, are features of the work itself that can create satisfaction and motivation. These include achievement, recognition, responsibility, advancement and the opportunity for personal growth.

The distinction means that removing a source of dissatisfaction does not, by itself, provide the achievement or responsibility associated with motivating work. A manager should consider both the conditions surrounding the job and the content of the job.

Job enrichment means redesigning a job to provide more meaningful work, responsibility and opportunities to use skills. It connects with Herzberg's emphasis on the job itself because responsibility and personal achievement can become part of everyday work.

Do not interpret this theory as saying that pay is unnecessary. Pay belongs among the hygiene factors, and inadequate pay can cause dissatisfaction. The distinction concerns the different roles of the two groups, rather than permission to neglect one of them.

Compared with Taylor's emphasis on financial incentives, Herzberg draws attention to the quality of the work experience. Compared with Maslow's hierarchy, his theory groups factors by their relationship with dissatisfaction and satisfaction rather than arranging all needs into five levels.

How do wages, salaries and bonuses reward employees?

Financial methods of motivation offer rewards in money or rewards that can be measured in money. They can be provided to individuals or groups. Their purpose is to connect working for the business with something employees value.

How do the payment methods differ?

A wage is payment for work, commonly calculated from time worked or output produced. A time rate pays according to time worked. A piece rate pays according to the number of units produced.

A salary is a fixed regular payment, usually expressed as an annual amount and paid in monthly instalments. Unlike a piece rate, it does not automatically increase whenever the employee produces an additional unit.

A bonus is an additional payment above normal wages or salary. It supplements basic pay. The conditions for receiving a bonus need to be distinguished from the conditions governing the employee's ordinary wage or salary.

Pay helps employees obtain necessities and can therefore help satisfy basic needs. Stability of income is also relevant to security needs. Some businesses link increases in pay to performance, connecting the reward with the employee's contribution.

The basis of payment matters. A piece-rate system creates a direct link between output and earnings. A salary provides regular payment without that same automatic link. A bonus can add an incentive to an existing payment arrangement.

However, a payment method should be considered alongside the employee's other needs. Financial rewards do not replace friendship, appreciation or meaningful work. Identifying how a reward responds to the employee's needs is more useful than assuming that its monetary value alone establishes its motivational effect.

How do commission and profit sharing work?

Commission is payment linked to sales made, often calculated as a percentage of sales value. Sales value is the money received or due from selling goods or services. A percentage means an amount out of each hundred.

Profit sharing gives employees a share of the business's profit. Profit is the amount by which revenue exceeds costs; revenue is income from sales. The reward therefore depends on the business's financial result rather than simply the sales made by one employee.

What are their advantages and limitations?

An advantage of commission is the clear connection between selling and receiving a reward. It can encourage employees to contribute to sales. A limitation is that sales-linked pay does not directly reward every other part of an employee's work.

An advantage of profit sharing is that employees can benefit from an improvement in the business's profit. It is intended to encourage better performance and contributions towards increasing profit. This connects employees' rewards with the organisation's financial success.

A limitation is that an individual employee does not control all the influences on overall profit. Consequently, profit sharing does not have the same direct connection with that individual's output as a piece-rate payment.

Sales and profit are different. Sales revenue does not show how much remains after costs. A reward linked to sales must therefore not be described as a share of profit unless that is actually how the arrangement works.

The choice also depends on the wider purpose of motivation. Neither commission nor profit sharing automatically provides recognition, friendship or greater responsibility. Managers can consider financial and non-financial methods together, matching each part of the approach to the needs it is intended to address.

How do job enrichment and job rotation change work?

Non-financial methods motivate mainly through psychological, social or emotional satisfaction rather than a direct cash reward. They may still involve costs or financial effects. Their classification concerns the main source of motivation, rather than whether any money is involved.

What is the difference between enrichment and rotation?

Job enrichment changes the content and responsibility of a job. It can include a greater variety of work, higher skill requirements, increased autonomy and opportunities for growth. If jobs are enriched and made interesting, the job itself becomes a source of motivation.

Job rotation involves moving an employee between jobs or departments. It allows employees to gain a broader understanding of the business and how its different activities fit together. It can also give employees opportunities to test their abilities.

Rotation creates opportunities to interact with colleagues in different departments. This supports future cooperation. It can also help the business prepare for promotions, replacements or transfers because employees have experience beyond a single position.

More work is not a sufficient definition of enrichment. Its motivational purpose lies in meaningful content, responsibility and growth. Moving between jobs describes rotation; it does not by itself establish that the jobs have greater responsibility.

The choice should follow the intended benefit. Where the aim is broader experience of different business activities, rotation fits that purpose. Where the aim is greater responsibility within work, enrichment fits more directly. Both can be connected with training when employees need additional skills.

How can teamworking, training and promotion motivate employees?

Teamworking means employees working together towards a shared task or objective. It can provide contact with colleagues and a sense of belonging. These features connect with social needs and help explain why relationships at work matter to motivation.

How do development opportunities help?

Training improves employees' skills and ability to perform particular jobs. It can improve performance in a current job or prepare an employee for an intended job. Increased knowledge and skills also support the employee's career.

Training benefits the business through improved employee productivity, in both quantity and quality of work. It also increases employee morale, meaning confidence and enthusiasm towards work, and reduces absenteeism and employee turnover. Employees benefit through improved competence and satisfaction.

Promotion means moving to a higher-level job in the organisation. It can provide increased status, authority and responsibility. Authority is the right to make decisions or give instructions; responsibility is the obligation to carry out assigned work.

Opportunities to develop skills and move into higher-level jobs encourage employees to improve their performance. Appropriate skill development and a sound promotion policy support this process. An employee needs an opportunity to prepare for the demands of the higher-level job.

Promotion can involve extra pay, but its non-financial effects include greater status, challenge and a feeling of advancement. It therefore illustrates why financial and non-financial motivation can overlap without being identical.

Recognition also matters. Most people need their work to be evaluated and duly recognised. Congratulating an employee for good performance or acknowledging a useful suggestion shows appreciation. These are ways to recognise achievement without defining the reward solely as cash.

The methods address different needs. Teamworking supports belonging, training develops capability, and promotion offers advancement. Their usefulness depends on the employee's needs and interest in the opportunity, rather than simply on the method's name.

How should a business choose suitable methods of motivation?

A recommendation is a proposed course of action. To justify it is to explain why it fits the circumstances. A good choice of motivation method begins with the problem or need, then connects the proposed action with a relevant benefit.

How can a decision be justified?

1. Identify the need. Consider whether the information points towards income, security, belonging, recognition, responsibility or growth.
2. Select a matching method. Explain what would change in pay, work content, relationships or development opportunities.
3. Explain the connection. Show how the change addresses the identified need and encourages effort, attendance or continued employment.
4. Consider a limitation. Identify what the chosen method does not directly address, using the information available.
5. Reach a reasoned conclusion. Explain why the method, or combination of methods, is suitable for the stated circumstances.

Complementary methods are methods that address different needs together. Financial rewards may support material needs while development and recognition address growth and esteem. Combining methods requires a reason for each part, rather than assuming that a longer list is automatically better.

The Tata Steel motivation example includes training through personal development programmes, job rotation, compensation linked to performance, recognition systems and opportunities for leadership. Compensation means the payment and benefits received for work. Together, these measures addressed several aspects of employees' experience.

The example also includes employee participation in decisions and communication systems for queries and concerns. Participation means involving employees in decisions affecting them. It gives employees a role in the work process as well as providing rewards for their contribution.

When evaluating such an approach, distinguish the purpose of each method. Training develops skills; rotation broadens experience; recognition acknowledges achievement; performance-linked compensation connects reward with contribution. Their combination illustrates how motivation can involve both financial and non-financial measures.

A final decision must remain tied to the information supplied. Do not assume a pay level, profit figure, available promotion or employee preference that has not been given. Where important information is absent, state the relevant condition rather than inventing a fact to support the recommendation.

Glossary

• Motivation — The process of encouraging people to act towards goals by responding to their needs.
• Labour productivity — Output produced per worker during a specified period of time.
• Absenteeism — Employees being absent from work when they are expected to attend.
• Labour turnover — Employees leaving a business and needing to be replaced by other workers.
• Hierarchy of needs — Maslow's arrangement of human needs from basic physical requirements to self-actualisation.
• Self-actualisation — The drive to develop towards what a person is capable of becoming.
• Hygiene factors — Features surrounding a job whose inadequacy can create dissatisfaction in Herzberg's theory.
• Piece rate — A payment system in which earnings depend on the number of units produced.
• Salary — A fixed regular payment, usually expressed annually and paid in monthly instalments.
• Bonus — An additional payment offered to employees above their normal wages or salary.
• Commission — Payment linked to sales made, often calculated as a percentage of sales value.
• Profit sharing — An arrangement giving employees a share of the profit earned by their business.
• Job enrichment — Redesigning work to increase meaningful content, responsibility, skill use and opportunities for personal growth.
• Job rotation — Moving an employee between jobs or departments to gain wider experience of the business.
• Promotion — Moving to a higher-level job that can provide greater status, authority and responsibility.

Common errors and misconceptions

• Misconception: Everyone works only for money. Correct: Income matters, but employees also have needs for security, belonging, recognition and growth. A method may not have the same effect on every employee.
• Misconception: Lower absenteeism means fewer employees leave permanently. Correct: Absenteeism concerns absence from expected work; labour turnover concerns employees leaving the business and needing replacement.
• Misconception: Maslow's order is an unquestionable rule describing everyone. Correct: Progression through levels is an assumption of the theory. Its classification and hierarchy have been questioned.
• Misconception: Herzberg's theory means pay can be ignored. Correct: Pay is a hygiene factor. Inadequate pay can cause dissatisfaction even though motivators concern achievement, responsibility and the work itself.
• Misconception: Commission and profit sharing reward the same result. Correct: Commission is linked to sales, whereas profit sharing is linked to profit after costs are considered.
• Misconception: Job rotation necessarily gives greater responsibility. Correct: Rotation means movement between jobs or departments. Enrichment concerns more meaningful content, responsibility and opportunities for growth.
• Misconception: Non-financial motivation cannot involve money. Correct: Promotion may include extra pay while also motivating through status, challenge and advancement. The classification concerns its main motivational emphasis.

Exam-style questions with model answers

Q1. Define motivation and identify one reason, other than income, why people work. [2 marks]

1. Motivation is the process of encouraging people to act towards desired goals by responding to their needs.
2. People may work to satisfy social needs through friendship and a sense of belonging with colleagues.

Q2. Explain two benefits to a business of reduced labour turnover. [4 marks]

1. Reduced labour turnover means fewer employees leave and need replacing, so the business has less replacement recruitment to undertake.
2. This saves the money, time and effort that finding prospective replacement employees would otherwise require.
3. Keeping existing employees also reduces the need to train replacements in the work they will perform.
4. The business therefore saves replacement training costs while retaining the skills of employees already working for it.

Q3. State Maslow's five need levels in ascending order and explain the condition for moving to the next level in his model. [6 marks]

1. Physiological needs come first. These are basic physical requirements such as food, drink, shelter and sleep, which income helps employees obtain.
2. Safety and security needs come next. They concern protection from harm and include security of employment and stability of income.
3. Social or belonging needs follow. These concern affection, friendship, acceptance and a sense of being part of a group.
4. Esteem needs follow belonging. They include self-respect, recognition, status and autonomy, which can be supported through the employee's position and work.
5. Self-actualisation is the highest level. It concerns personal growth and developing towards what the individual is capable of becoming.
6. The model assumes that the lower need must be satisfied before a person moves to the next level; a satisfied need no longer motivates.

Q4. Standard daily output is 10 units. Workers making at least 10 units receive Rs. 50 per unit for all their output; those making fewer receive Rs. 40 per unit. One worker makes 11 units and another makes 9. Calculate each worker's daily earnings and the difference, then explain Taylor's intended incentive. Rs. means rupees. [4 marks]

1. The worker producing 11 units reaches the standard, so daily earnings are 11 multiplied by Rs. 50, giving Rs. 550.
2. The worker producing 9 units falls below the standard, so daily earnings are 9 multiplied by Rs. 40, giving Rs. 360.
3. The daily earnings difference is Rs. 550 minus Rs. 360, which equals Rs. 190.
4. Taylor argued that this difference should encourage the less efficient worker to improve performance and qualify for the higher rate.

Q5. Explain two differences between hygiene factors and motivators in Herzberg's theory. [4 marks]

1. Hygiene factors concern the environment surrounding the job, including pay, working conditions, supervision and employment security.
2. Motivators concern the work itself, including opportunities for achievement, recognition, responsibility and personal growth within that work.
3. Inadequate hygiene factors cause dissatisfaction, so improving them addresses employees' unhappiness with the conditions in which they work.
4. Motivators create positive satisfaction through rewarding work; removing dissatisfaction alone does not provide those opportunities for achievement and responsibility.

Q6. Distinguish commission from profit sharing. [2 marks]

1. Commission is payment linked to sales made, often calculated as a percentage of the value of those sales.
2. Profit sharing gives employees a share of the business's profit, which depends on revenue and costs.

Q7. Explain two differences between job enrichment and job rotation. [4 marks]

1. Job enrichment redesigns the content of a job to provide greater responsibility, skill use and opportunities for personal growth.
2. Job rotation moves employees between jobs or departments, rather than defining the change through greater responsibility within a job.
3. Enrichment aims to make the work itself more meaningful and rewarding, so the job becomes a source of motivation.
4. Rotation develops a broader understanding of the business and allows contact with colleagues in different departments, supporting future cooperation.

Q8. Tata Steel's motivation programme included personal development training, job rotation, compensation linked to performance, recognition systems and participation in decisions. Recommend retaining both financial and non-financial methods, using these programme details to justify your answer. [6 marks]

1. Retain performance-linked compensation because it connects employees' payment and benefits with their contribution, providing a financial reason to improve their performance.
2. Retain personal development training because it develops employees' skills and abilities, supporting their performance and opportunities for growth in their work.
3. Retain job rotation because experience across jobs broadens understanding of the business and provides opportunities to interact with employees in other departments.
4. Retain recognition systems because acknowledging achievement addresses employees' need for appreciation, rather than relying on payment to meet every need.
5. Retain participation in decisions because it involves employees in issues affecting them and gives them a role in the work process.
6. The combination is justified because employees have financial, social and psychological needs. Different methods address different needs, and their effects may not be uniform across employees.

Key takeaways

• Motivation responds to employees' needs and encourages effort towards goals; people can value security, belonging and growth as well as income.
• A well-motivated workforce supports productivity, more regular attendance and employee retention, reducing the costs of replacement recruitment and training.
• Maslow arranges needs from physiological requirements to self-actualisation, but the proposed classification and hierarchy have been questioned.
• Taylor connects output with financial reward, including different piece rates for workers meeting or falling below an established standard.
• Herzberg distinguishes hygiene factors that address dissatisfaction from motivators associated with achievement, responsibility and rewarding work.
• Wages, salaries, bonuses, commission and profit sharing differ in how payment is determined and what contribution it rewards.
• Enrichment, rotation, teamworking, training and promotion address work content, relationships and growth through different changes to employees' experience.
• Justify a motivation method by linking the circumstances to an employee need, a suitable method and a relevant benefit.

Test yourself

What is the difference between a motive and a motivator?

A motive is an internal drive towards a goal. A motivator is a method, such as pay or recognition, used to encourage behaviour.

What does labour productivity measure?

It measures output per worker over a specified period, rather than simply the number of employees working in a business.

What is Maslow's highest level of need?

Self-actualisation is the drive to develop towards what a person is capable of becoming, including growth and personal fulfilment.

What is the role of pay in Herzberg's theory?

Pay is a hygiene factor. Inadequate pay can create dissatisfaction, while motivators concern achievement, responsibility and the work itself.

How does a bonus differ from basic pay?

A bonus is an additional payment above normal wages or salary. Basic pay is the employee's ordinary payment for work.

Why are commission and profit sharing different?

Commission is linked to sales made. Profit sharing distributes a share of business profit, which depends on revenue after costs are considered.

Why can promotion be a non-financial motivator even when it increases pay?

Promotion can provide status, authority, responsibility and challenge. These psychological benefits explain its non-financial role even when extra money is involved.

What should support a recommendation about motivation?

Link the stated circumstances to the employee's need, explain how the method addresses that need, consider a relevant limitation and justify the conclusion.