Discuss the financial methods used by small businesses to motivate employees.

Question

What will be an ideal response?

Answer 1

Many small businesses use some form of financial incentive to motivate their employees to use their initiative and to perform better. Some of the more popular financial incentives are: (1) merit increases, (2) incentive payments, and (3) profit sharing.
Merit Increases: Merit increases, which base a person's wage or salary on ability and merit rather than on seniority or some other factor, tend to be effective motivators. Merit programs identify, appraise, and reward employees for outstanding contributions toward the company's profits. Thus, an employee's wage or salary relates directly to that person's efforts to achieve company objectives.
Incentive Payments: Incentive payments can be paid in the form of incentive wages, bonuses, commissions, and push money. An incentive wage, which is the extra compensation paid for all production over a specified amount, is effective in situations in which a worker can control the volume of sales or production. Piece rates, commissions, and bonuses are forms of incentive payments.
Commissions, which consist of a given amount per sale or a percentage of sales, are used extensively to reward salespeople, especially in retailing. They are particularly useful in rewarding door-to-door selling of items such as encyclopedias and magazine subscriptions, but they are also used by most department stores and similar retail outlets and are the only form of compensation for real estate agents.
Bonuses are amounts given to employees either for exceeding their production quotas or as a reward on special occasions.
Another form of incentive payment is called push money (PM), or spiff, which is a reward given to employees for selling an item the business is making a special effort to sell-in other words, pushing.
Profit Sharing: In profit sharing, employees receive a prearranged share of the company's profits. Profit sharing can be effective in motivating employees by tying rewards to company performance. Not only does it reward good performance, but a good plan can also reduce turnover, increase productivity, improve communication, and reduce the amount of supervision needed.
Employers can also use an employee stock ownership plan (ESOP), which is a modification of profit sharing. In general, an ESOP borrows money, purchases a block of the company's stock, and allocates it to the employees on the basis of salaries and/or longevity.