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METHODS FOR MOTIVATING EMPLOYEES

Prepared for Dr. Diana J. Green, Professor Weber State University

Prepared by Matt Mossbarger and Jason Eddington April 24, 2003

MEMO TO: FROM DATE: SUBJECT: Dr. Diana J. Green, Professor Jason Eddington and Matthew Mossbarger April 24, 2003 Motivating Employees

Enclosed is the informational report on methods of motivating employees. The report studies various methods of motivating employees to perform at their best. The document covers both financial and non- financial motivating techniques used by companies to help their employees develop, perform, and excel. Productivity is a focus of todays more competitive companies, and most companies are exploring the role that employee satisfaction plays in profitability and competitiveness. We enjoyed the opportunity to study this subject. This will allow us to manage more effectively in the business world. Please call us at (801) 391-0703 or (801) 774-6359 to further discuss how to motivate employees. Enclosure

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EXECUTIVE SUMMARY METHODS FOR MOTIVATING EMPLOYEES Matt Mossbarger and Jason Eddington April 24, 2003

Managers have found many ways to motivate their employees to perform to the best of their abilities. The purpose of this report is to identify the most effective ways to motivate employees. The specific areas to be discussed are financial and non- financial motivation. Financial rewards are common in the business world today. Most experts agree that money is not the best motivator. The motivational effect of most financial rewards does not last very long. However, the absence of financial motivators is a powerful demotivator, which cannot be ignored. Therefore, financial rewards are absolutely necessary in order to successfully motivate employees. The most common types of financial rewards that will be discussed are salary increases, profit sharing, incentive travel, and paid time-off. This report speaks of emotive forces as internal emotional drives for performing a task. Effective motivation of employees goes beyond the financial compensation for work. Some of the most well-known companies in the world have realized the benefits of appealing to their employees drives to work intelligently and to be recognized. Most motivators lead directly to the empowerment and enabling of employees to perform well. Employee motivation can be improved when a company focuses on the following: goal setting, communication, autonomy, responsibility, and flexibility. In order for managers and business executives to succeed in todays business world, they must become effective motivators. Effective motivation is only achieved by using both financial and non- financial motivational tools.

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TABLE OF CONTENTS

MEMO ............................................................................................................................................ ii EXECUTIVE SUMMARY ........................................................................................................... iii Introduction..................................................................................................................................... 1 Financial Motivation................................................................................................................ 1 Salary increases................................................................................................................... 2 Profit-sharing ...................................................................................................................... 2 Incentive travel.................................................................................................................... 3 Paid time-off ....................................................................................................................... 4 Non-Financial Motivation........................................................................................................ 5 Goal-setting......................................................................................................................... 5 Communication................................................................................................................... 6 Autonomy............................................................................................................................ 7 Responsibility...................................................................................................................... 8 Flexibility............................................................................................................................ 8 Summary and Conclusions ............................................................................................................. 9 References ..................................................................................................................................... 11

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MOTIVATING EMPLOYEES

Introduction Motivation is a key factor to every business. How the employees feel, generally and specifically, about their jobs directly affect the companys bottom- line profit. Motivation is the motive force that moves employees to perform at their best. Just as a locomotive pulls a train, so a companys workforce will pull a company to profit or ruin. Motivating employees can be a complicated task based on total compensation for the work performed for a company. Compensation, as it is used in this context, is not strictly for explaining the total financial package to pay an employee. The purpose of this report is to discuss some of the possibilities in motivating employees to be productive in the workplace. The areas to be discussed are Financial Motivation and Non-Financial Motivation. Both are powerful forces in determining the drive, productivity, and effectiveness of every company employee. Financial Motivation Managers find many ways to motivate their employees, so they desire to perform to the best of their abilities. Financial rewards and incentives are common in the business world today; although, most experts agree money is not the best motivator because the motivational effect of most financial rewards does not last. According to Donna Deeprose (1994), For one thing, while the presence of money may not be a very good motivator, the absence of it is a strong demotivator (p. 29). Therefore, financial rewards are an absolutely necessary base to successful

motivate a companys workers. The most common types of financial rewards that will be discussed in this paper are salary increases, profit sharing, incentive travel, and paid time-off. Salary increases. As has been mentioned, the absence of salary increases or bonuses can be a strong de- motivator, primarily because people use money as a scorecard to measure their achievement. Money is also an indicator to the person of how important he or she is perceived to be within the organization. The absence of salary increases or bonuses to some employees would indicate that they are not valued within the organization. The economy has been in a constant decline for the last few years. As the economy continues to suffer, companies are facing the challenges of giving raises or bonuses. In recent years, most employees are willing to give up a raise if it means they could avoid being laid-off. In a year when money is not available for bonuses and raises, companies can make wise use of recognition programs and team rewards. But companies cannot adopt a products only policy for long. Experts say one year is the limit (Cummings, 2002, p. 11). If employees go for more than one year without receiving a raise or a bonus, their productivity is likely to decline, and valuable employees may be tempted to look for other employment, which can be costly in rehiring expenses. Profit-sharing. Profit sharing can be a great way to motivate company staff because it benefits both the employee and the employer. This is a win-win situation for both. A couple of most commonly used types of profit sharing programs are those based on the companies productivity and those which offer stock as a reward to employees. Most programs are designed to reward employees for the company increasing its profit or revenue. These programs are designed to give employees a bonus check, if the company

performs better in a given month in the current year compared to the previous year. This type of profit sharing program provides immediate benefit and rewards for employees. When compensation is tied to performance, companies realize the benefit in the following way: Financial rewards are also an effective motivator, and further, have the added advantage of being a need that is generally never satisfied. Linking people working smarter with some equitable reward system serves to reinforce the motivational process. Gain-sharing is an effective reward system capitalizing on both aspects. (Dar-El, 1991, p. 21) Profit sharing/bonus programs have the dual effect of motivating employees to be more productive and to cut costs. The second most common type of profit sharing is rewarding with stock; and as the company does better, the value of the its stock increases in value. According to Bob Nelson (1997), One of the highest forms of recognition is to treat an employee as if he or she is an owner of the company. This represents a long-term commitment to the individual. (p. 114). Stock is usually reserved to motivate high- level managers or key people within most corporations, and a couple of reasons exist for this trend. First, if managers are motivated by a profit-sharing program, they will make decisions that will benefit the corporation long term. Second, most mid-to- lower level employees prefer an immediate reward or incentive like a bonus system previously discussed to reward outstanding effort. Incentive travel. Who would say no to an all-expenses paid luxury holiday? Another effective way to financially motivate employees is with incentive travel. Many times when employees are rewarded with cash bonuses or pay raises, the money is used to pay off debt or everyday types of financial expenses. While money for everyday expenses is good, the added

appeal of incentive travel, as a bonus or reward, is that employees would probably never buy something like it for themselves. Incentive travel is a management tool used to motivate and recognize participants for increased levels of performance in support of company objectives. In short, it is almost a way of bribing employees to work harder. And there is evidence it works exceedingly well (Buttner, 2002). As already mentioned, the nation is experiencing a slow economy, where people immediately cut some of the discretionary expenses in their personal budgets like vacations and personal travel. Again according to Clare Buttner (2002), Another benefit of incentive travel, according to incentive travel specialists, is that even in times when economies are suffering, incentive travel works (p. 12). Therefore, even in a slow economy, companies can effectively motivate their employees through incentive travel rewards. Paid time-off. Paid time away from work is one of the most common types of financial rewards used to motivate employees. The amount of paid time-off can vary from an extended lunch to multiple days off at the same time. Bob Nelson (1997) suggests how this can be done effectively, If the job permits it, simply give people a task and a deadline and specify the quality you expect. If they finish before the deadline, the extra time is their reward (p. 185). Companies have many variations of rewarding employees by giving time-off. Some companies even offer rewards for those who do not use their annual leave. According to Sarah Fister Gale (2002), The paid time-off incentive program offers employees gift certificates from www.giftcertificates.com equaling $100 a day for every personal day they dont take (p. 81). This can be a valuable way of motivating employees to be more productive if done correctly.

Financial rewards are varied according to the situation and money available to a corporation; and as the four financial rewardssalary increases, profit-sharing, incentive travel, and paid time-offsuggest, creativity is a major part of employing effective financial motivation. Non-Financial Motivation This report speaks of emotive forces as internal emotional drives for performing a task. Effective motivation of employees goes beyond the financial compensation for work, and some of the most well-known companies in the world have realized the benefits of appealing to their employees drive to work intelligently and to be recognized. Most motivators lead directly to the empowerment and enabling of people to perform well. Productivity can be improved when a company focuses on the following: goal setting, communication, autonomy, responsibility, and flexibility. Goal-setting. A prime motivator for people is the achievement of objectives and the recognition of peers. Achievement is the successful execution of a task to reach a desired end. Whether employees are working to fasten a bolt to an engine block or developing a competition study, the successful accomplishment of that task represents a piece of the companys mission (Coffman & Gonzalez-Molina, 2002). Workers that have a clear idea of how their task fits into the larger scheme and profit of a company will feel a sense of belonging and importance because they understand the ultimate end and importance of performing that task (Weinstein, 2002). Setting goals is a good way to define an employees purpose in a company and helps to set a standard for them to gauge their success. Managers can then focus on the success of the individual by illustrating his or her performance in comparison to the goal, either with public or 5

private recognition. In this way, the organization develops an atmosphere of attainment against measurable objectives and becomes energized with each win (Nelson, 1997). The process of defining the roles and objectives of the staff brings an invaluable opportunity for sharing communication between the employee and management. Communication. The flow of information in a company can be a powerful tool in motivating its workforce. Communication of clearly stated goals and paths to achievement is the best way to begin developing employee talent (Nelson 1997). Registering and acting on the communication of employees also gives a powerful message about their value to the company and management (Nelson 1997). Employees want their company and team to succeed; and when management uses the input to help them be productive, a sense of empowerment and ownership of the process develops. The open communication also gives a measure of control over their work environment and allows for the improvement of each individual working situation. The reward employees receive for communicating is not always what managers might view as an award. As Matejka (1991) says, . . . giving an employee something pleasant is not the only way to reward. You are also rewarding (making life more pleasant) when you take something away that the employee dislikes (p. 35). Enhancing the work life, thereby compensating the employee for the communication, is a way to build rapport and loyalty. When the work environment is pleasant, the employees satisfaction and motivation increase. Communication also gives rise to trust between the supervisors and their staff. Trust enables management to give autonomy and to encourage independence, and that trust builds a strong sense of community for the employee.

Autonomy. As the workplace has evolved, the thoughts on worker autonomy have changed as well. When Charles P. McCormick took over the spice- maker McCormick and Company in 1932, the company was not profitable and failing. He promptly destroyed the time clocks and began allowing the employees a place in the decision- making process. Within one year the company was profitable and has remained that way (Nelson, 1997). Autonomy is giving the employee the impetus to do what needs to be done at that moment in the larger context of business. It is a break from the fundamental job definition structure. It allows employees to act independently to fix problems, improve procedures, or enhance interactio ns. Independence, when coup led with good communication, motivates the worker to think about the best interests of the company and further motivates by giving the freedom to act in any given situation. Good managers will define the outcomes but avoid narrowing the task into steps for the employee (Coffman & Gonzalez-Molina, 2002). Managers, trusting the employee to perform the job that he or she has been given to do, allow them to use talent and ingenuity to accomplish that task. An employee that is engaged in the decision- making process feels motivated to ensure the project is done according to business objectives (Bartlett, 2002). Autonomy is also a major driving factor in the effectiveness of an organization. An organization that is concerned with everyones role in achieving overall objectives is more adaptable and flexible. Employees will take responsibility for achieving goals in a broader context and will have less rigidity in the interpretation of job roles. The lack of rigidity will enable problems to be dealt with more efficiently and will give greater satisfaction and empowerment to each employee. An effective and productive organization is the major insurer of employee retention, satisfaction, and motivation.

Responsibility. Employees place a worthwhile job above every other employment concern, including money (Walters & Fenson, 2000). Responsibility for the success or failure of a project is a large part of creating job worth (Nelson, 1997). When employees are given the tools and autonomy to do a certain project, or work in a particular role, they are motivated to perform brilliantly because they are accountable for that particular function. Responsibility for a project will also give a good employee the opportunity to display talent and creativity in solving a problem or completing a task. When tasks are clearly outlined to stress individual and group accountability, employees feel that management is putting trust and faith in their abilities to perform. This causes positive effects as illustrated by one of the great hockey players, Phil Esposito, who set an 11-year NHL record for the most goals in a game in 1971. He said that the most influential coaches in his career were the ones that allowed him to play his own style. The coaches trusted his talent and helped him to develop and play with his own unique style (Coffman & Gonzalez-Molina, 2002). Phil was able to gain record results by having the full responsibility to utilize his talent. Flexibility. One of the aims of companies should be flexibility with employees. During the 1990's, companies realized tremendous productivity gains by demonstrating flexibility in the work environment. Schedule and organizational flexibility allow employees to balance home and work more effectively and cause productivity and morale gains as well (Nelson, 1997). Just as previously illustrated with McCormick and Company, more hours worked and time clock punching do not necessarily make a company profitable or effective. Flexibility in work scheduling allows work to be arranged according to the individuals need. Many companies illustrate how the flexible schedule gives tremendous returns in

employee loyalty, retention, and compensation. One company could not attract desirable applicants because it could not afford the massive benefit and financial compensation packages of the bigger firms. The company management decided to move towards flextime, eradicated time clocks, and invented management by wandering around. The company is HewlettPackard (Nelson, 1997). Scitor has no sick- leave days, preferring to let the employees use their best judgment. Scitor averages five sick days per employee per year, much less than the industry average (Nelson, 1997). Summary and Conclusions Employee motivatio n is a complex sum of many factors. Managers have found many ways to motivate their employees to perform to the best of their abilities. The purpose of this report is to identify the most effective ways to motivate employees. The areas that are discussed include Financial Motivation and Non-financial Motivation. Financial rewards are common. Most experts recognize that most financial rewards do not last very long but are essential in order to successfully motivate employees. The most common types of financial rewards are salary increases, profit sharing, incentive travel, and paid time-off. Salary increases involve bonuses and raises in base pay. Profit sharing provides opportunities for employees to purchase stock in the company. Incentive travel allows for employees to take vacation travel that would normally not be taken without the incentive. Paid time-off involves giving employees time off in a variety of ways. Non-financial rewards are rewards that motivate employees for their creative and intellectual ability. These types of rewards lead to employee empowerment. Goal setting, communication, autonomy, responsibility, and flexibility are considered non- financial 9

motivational rewards. Goal setting gives employees opportunities to be involved in the decisionmaking aspects of a company. Working autonomously with responsibility and flexibility also empower employees to perform at their highest level of expertise. Financial and non-financial motivational techniques can be used effectively together to maximize employee performance, company profits, and shareholder value. Motivated employees are the backbone of any profitable company, and sometimes motivation is the sole reason for profitability as illustrated by McCormick and Company. When coupled together as a complete compensation package, financial and non- financial rewards can be used to retain employees and enhance productivity.

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References Bartlett, A. (2002). Fire in the belly ...motivating employees. Retrieved April 11, 2003, from http://www.co-dr.com/article_people_motivation.htm Buttner, C. (2002, October 3). Pampered with rare and exotic holidays. Australian Financial Review, p. 24. Coffman, C. and Gonzalez-Molina, G. (2002). Follow this path: How the world's greatest organizations drive growth by unleashing human potential. New York: Warner Books, Inc. Cummings, B. (2002). Money aside, rewards lose punch. Potentials, 35, 11-12. Dar-El, E. (1991, November 22). The productivity option to annual aid from U.S. Jerusalem Post, p. 21. Deeprose, D. (1994). How to recognize & reward employees. New York: American Management Association. Gale, S. F. (2002). Small rewards can push productivity. Workforce, 81, 86-90. Hoffman, R. (1999, August). It takes more than pay to keep good workers. Human Resources Management News. Retrieved April 4, 2003, from http://www.inc.com/articles/hr/ bene_comp/bene_perks/13723.html Matejka, K. (1991). Why this horse won't drink: How to win and keep employee commitment . New York: Amacon. Nelson, B. (1997). 1001 ways to reward employees. New York: Workman Publishing Company, Inc. Stack, J. (1997, January). Measuring morale. Inc. Magazine. Retrieved April 4, 2003, from http://www.inc.com/magazine/19970101/1146.html Walters, J. and Fenson, S. (2000, March). Goals, roles, pay, and performance. Inc. Magazine. Retrieved April 4, 2003, from http://www.inc.com/articles/hr/ manage_emp/comm/17880-2.html Weinstein, B. (2002, May). Motivating employees: it's harder than you think. TechRepublic, (n.p.). Retrieved April 14, 2003, from http://www.zdnet.com.au/itmanager/management/ story/0,2000029576,20265070,00.htm

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