Motivation through bonus plans – Maslow’s & Herzberg’s Theory

I don’t believe in Maslow’s strict hierarchy however I do believe in them as a whole (see overview of theories below).  When you remove a motivator or when you create a need and then eliminate the source, it is a de-motivator and creates a lack of employee engagement.

Both of the theories listed below highlight pay as a basic need.  A lot of companies like to use bonus plans to motivate and recognize for achievements above and beyond average work performance.  I strongly support this kind of motivator if done properly.  The challenges come when bonuses become part of one’s basic needs.  Here are some common examples:

Example 1:  An employee is given a strong base salary equal to market value, plus given a bonus plan based on above average performance.   The employee successfully hits every objective for every pay cycle, for a year.   Total compensation ends up 50% over market value for the position.  A new year starts and the bonus plan has been changed, if successful will only earn an additional 20%.  This is a prime example where a company created a need and now the employee is dissatisfied and lacks engagement.  The employee cannot earn the level of pay they have grown accustomed to and value/appreciation is not shown for a certain level of achievement.

Example 2:  A manager creates a base salary plus bonus equal to market value.  This creates multiple challenges if the bonus plan is not structure properly with specific analysis around previous performance and individual contribution.  Since this kind of structure is about meeting a basic need for an employee, it should be attainable based on average performance, have a minimum expectation to qualify, and be based on individual efforts, not on things outside of one’s own control.   This is about creating a motivation to achieve minimum expectations.  If you do not want to over-pay, you need to ensure you include a cap on the bonus potential.   Beware, caps on bonus potential for certain types of positions can be a de-motivator.  1.  If it is a sales position where their contribution can affect increase revenue for the company.  2.  If you did not have a cap in place to begin with and try to implement one, the employee will not be motivated to achieve more than what is expected. 

As a business, changes to bonus plans are sometimes essential to keep employees motivated to hit higher goals and aligned with market value.  Companies should be prepared to lose top performing people when changes are made to compensation once a need has been established.    

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Maslow’s Motivation Theory is based on “human beings are motivated by unsatisfied needs” and introduced a Hierarchy of Needs:  Physiological Needs, Safety Needs, Social Needs, Esteem Needs and finally Self Actualization.  According to this theory, if fundamental needs are not satisfied, then the individual will be motivated to satisfy them.  When a need is satisfied it no longer motivates and the next higher need takes its place.  Higher needs such as social needs and esteem are not recognized until the needs basic to existence are satisfied.

Step 1 – Physiological Needs: air, water, food, sleep, pay

Workplace Motivation: work/life balance, breaks, time off, salaries/compensation

Step 2 – Safety Needs: living in a safe area, medical insurance, job security, and financial reserves

Workplace Motivation: working environment, benefit packages, stability and freedom from threats

Step 3 – Social Needs: friendship, belonging to a group, giving and receiving love

Workplace Motivation:  team dynamics, social events, and acceptance

Step 4 – Esteem Needs: recognition, attention, social status, accomplishment, self respect

Workplace Motivation: setting goals and recognizing achievements, delegating important projects, performance management: creating opportunities to express employee’s value & appreciation for job well done.

Step 5 – Self Actualization: truth, justice, wisdom and meaning 

Workplace Motivation: opportunities to show innovation, creativity and creating challenging work

Herzberg’s Theory requires two approaches that must be carried out simultaneously, Hygiene and Motivation.  Hygiene Factors: company policies, quality of supervision, working conditions, interpersonal relations, salary, status and job security.  Motivation Factors: achievement, recognition, the work itself, responsibility, and advancement.

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