Understand the use of financial methods of motivation (including an…

The idea

Financial motivation uses money to encourage employees to work productively. Salary is a fixed annual sum, paid monthly, so income is predictable but overtime is usually unpaid. A wage is paid per hour or per unit produced, so pay varies with hours worked and can reward extra effort. Commission is a percentage of sales value, linking pay directly to selling performance; it can be high-risk because income falls when sales fall. Profit sharing distributes a share of company profit to employees, often at year end, so effort is tied to overall business success rather than individual output. Each method has strengths and drawbacks: salary gives security, wage and commission give incentives, profit sharing builds shared purpose, but none guarantees motivation if pay is seen as unfair.

What earns the marks

• Salary: fixed annual amount, normally paid monthly in equal instalments; gives predictable income and security but does not directly reward extra hours or output.
• Wage: payment per hour worked or per unit produced; pay rises with hours or output, so it can motivate extra effort, but income is less predictable.
• Commission: a percentage of the value of sales made; directly links pay to selling performance and can be a strong short-term incentive, but income varies with sales.
• Profit sharing: employees receive a share of the business's profit, often annually; links individual reward to overall business performance and can encourage teamwork and cost awareness.
• Comparison: financial methods differ in certainty, timing and closeness to individual effort; salary is most secure, commission most variable, and profit sharing depends on collective results.
• Evaluation: the motivational effect depends on whether employees value the amount, perceive it as fair, and believe their effort affects the reward.

Common mistakes and how to put them right

• Confusing salary with wage.

  Put it right by stating the basis of payment for each.

• Treating commission as a fixed addition to pay.

  Put it right by describing it as a percentage of sales value.

• Assuming profit sharing pays a guaranteed bonus.

  Put it right by linking payment to actual profit earned.

Exam tips

• Define each method briefly, then apply it to the case study business rather than listing definitions only.
• Use comparative connectives such as whereas and therefore to contrast salary, wage, commission and profit sharing.
• When evaluating, state a condition: for example, commission motivates strongly when sales staff can influence sales and value the extra income.