Incentives: Bonuses & Wages

Why dose management often prefer Profit-sharing increases or bonuses to deferred wage increases? 

Structure and objectives of Contemporary Organizations

Contemporary organizations are evolved corporations that have evolved since the emergence of global economic system, which allows company to operate in different markets and economic systems around the world. Since contemporary organizations can operate in different markets, the competition has increased between companies that increased consumer surplus, decreased producer surplus and profit. Therefore, companies have to develop new corporate instruments, tools and mechanisms to not only compete against rivals that have different attributes and competitive edges, but new instruments, mechanisms and methods are developed so swell revenues. As for any company the core objective is to generate and increase its profit.

From the study and literature, it is apparent that all companies, firms or organizations, which operate in corporate of economic system, are profit seeking organizations. This implies that organizations, of corporate system, are designed to employ resources at disposal, in such manner that it generates wealth/profit and in long run swell it.

Employees as a resource

When we speak of resources, of an organization, Human resource is frequently and extensively is mentioned and discussed. This is because studies and researches have suggested that Human resource is the most sensitive and important resource of an organization, as organizations can develop this resource, as per requirements, to meet objectives, which are indentified in the strategy.

The systematic study of literature on organization’s functionalities and its methods to realize objective, reveals that not just human resource (employees) is developed, but also its productivity is increased through various other approaches. It is known fact that relevant skills and information, provided through various processes, to the employees, increase the productivity of employees. The increased productivity is essential for the optimal performance and higher profits, as increase marginal productivity of employees not only reduces cost, but also augments the exploitation of other tangible and intangible resources employed by organization (Chamorro-Premuzic, 2013).

Incentives, Bonuses and Wages

Another most common technique, used by organizations, to increase the productivity of its human resource, is incentives and wages. Incentives, the information implies, are of different kinds and different organizations use particular kinds of incentives to motivates its employees. For instance, some organizations use financial incentives to motivate and increase productivity of its labor. Organizations have developed mechanisms to evaluate performance and dedication of its employees so that at periodically it can identify hard working employees that have performed better than others. In some organizations, manager’s opinion is taken/weighted and based on manger’s opinion, employees are befitted or employees are rewarded. However, this system is contradictory and it has been observed that bias of mangers is hard to curb or check.

Bonuses are another very frequently used instrument to increase the motivation of employee. Periodically, usually at the end of operational period when profit is determined, organization announces bonuses for its employees. These bonuses could be of various natures and from employee to employee their size and benefit may vary (JR, 2014).

Wages are another method of motivating hardworking or better performing employees. Organizations, after certain period, as per its design, increase the wage of its employees. This is serious measure and mostly organizations take more time increasing wage of its employees. Therefore, we observe that organizations use incentive and bonuses more, as motivating instrument and reward, than wages.

This may be because organizations, which are usually very sensitive about its monetary resources, have to pay an increased wage regularly, usually after every month, whereas bonuses are paid, after calculating profit. This also keeps perpetual check on employees. Literature also suggests that after increase in wage, for smaller period, employees remain motivated. Therefore, organizations rely more on incentives and bonuses than salaries that they have to pay every month.

In addition, the increase in the wage of few and not of others, may increase negative work deviance, whereas, the bonuses and incentives usually increase positive work deviance. Organizations are benefitted from the positive work deviance, as it not only reduces the cost of processes, but also aids in creating rich work culture that increases the capacity and ability of all its employees.

Conclusion

From the deliberation, it is very obvious that why organizations use incentives and bonuses more than wages as an instrument to motivate its employees and augment their devotion. The merits of the discussion suggest that it is in favor of organizations to rely more on incentives and bonuses, which put less burden on organizations, than on wages that put organization under financial stress, if it has to increase it every time, after a certain period.

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References

Chamorro-Premuzic, T. (2013). Does Money Really Affect Motivation? A Review of the Research. Retrieved September 23, 2016, from Harvard Business Review: https://hbr.org/2013/04/does-money-really-affect-motiv

JR. (2014). Pay-for-performance, merit pay, bonuses and worker productivity: Research roundup. Retrieved September 23, 2016, from Journalist's Resource: http://journalistsresource.org/studies/economics/workers/wages-gifts-worker-productivity