Money as positive reinforcement

Money is an extrinsic reward, as opposed to an intrinsic one such as job satisfaction. Does it motivate?

Herzberg's widely accepted view is that the absence of an equitable paycheck will cause employee morale to go down, but its presence will not cause an increase in morale. Of course, Herzberg believes that in the long run, intrinsic factors motivate.

Viewed in extrinsic terms, reinforcement is effective if given on an intermittent basis. Thus, the biweekly paycheck ceases to be an effective reinforcement. When employees expect to be paid every two weeks, the absence of that money would be viewed negatively. Its presence has little or no positive impact. Even a pay increase has only a short-term effect. The first time an employee receives the increase, there may be a rise in motivation. By the next pay period, the increased amount is expected, the employee's standard of living probably will have risen to meet or even exceed the increase in pay, and the motivating effect is gone. However, there are ways to extend the effect of the motivation.

A pay scale must be developed that is sufficiently high that employees perceive it as equitable. This is necessary to prevent a reduction in motivation. At the same time, it is possible to build into that plan several elements that will take into consideration the positive aspects of reinforcement.

The pay scale for a job must have internal equity and external competitiveness. Internal equity means that a system should be established that identifies the relative worth of each job within the property in such a way that, for example, the desk clerk feels fairly compensated compared to the room attendant. It is a truism that equitable pay to the employee means not only the absolute amount of the paycheck but also how much it is relative to those of other people doing different jobs within the property.

Techniques for job evaluation described in the chapter “Improving productivity: job design” can be used to establish internal equity. Having grouped jobs of similar value together, a salary range is established. The salary range has a minimum, midpoint and maximum. The minimum is the amount paid to hire an employee with limited experience in that job. No one will be hired to do this job and be paid a wage lower than the minimum. The maximum is the highest rate to be paid for jobs in that particular salary range. If an employee is not promoted before reaching the maximum for the job, any increase in pay will come about only if and when the salary range is increased. The midpoint falls halfway between these two. Typically, it is the amount paid in the external labor market for someone performing a similar job.

Internal equity also means paying employees equitable amounts relative to other employees performing the same job in their unit. The introduction of a merit pay plan permits employee raises based on performance. If employees perceive the process of setting and measuring performance is fair, they will readily accept a merit plan. For it to have any motivational impact, employees must see a significant difference given for different performance levels. An example of a performance-based system is illustrated in Table 10. For example, George is hired as a front- desk clerk low in the third quartile of the salary range, based on his significant experience. If his future performance is outstanding, he can expect a 12 per cent increase in salary after 9 to 12 months on the job. If George's performance did no more than meet the standards for the job, no raise would be given.

The development of a merit pay plan will have a more beneficial effect on motivation and productivity than either a flat rate or step rate plan. A flat rate plan is one in which everyone performing a particular job is paid the same rate, irrespective of time in the job or performance.

A step rate plan allows for pay increases only on the basis of seniority in the job. The only times such a plan should be applied is when there is little opportunity for different levels of performance within the job.

External competitiveness refers to the relationship between how much an employee is paid and what others performing similar jobs in other properties receive. Employees must perceive that the amount paid is fair compared to what others in the marketplace are receiving. An unsatisfied employee can always leave; if that is not possible, dissatisfaction will surely result. As noted above, the midpoint in the salary range is usually fixed at this external rate.

The timing of raises has implications for profitability and motivation. Giving a raise on the anniversary of employment is effective if seniority is important to the company. A raise at this time emphasizes another year of service. It also has the effect of spreading the expense throughout the year.

A calendar date plan gives raises on the same day to all employees. This makes budgeting much easier. Room or food and beverage rates can be adjusted to take pay increases into account. If this method is chosen, it is important also to take into account the effect of Social Security contributions in the US. If the maximum was reached prior to the end of the year, an increase on January 1 will go unnoticed; the employee will be comparing a December paycheck with no deduction and a January paycheck with a deduction. The effect of the raise will be diluted. Obviously, this is important only to higher-paid employees, as they are the ones who will meet the maximum contribution by year's end.

To maximize the motivational impact of money, it would be wise to give several smaller raises over the year rather than a large one, as long as the smaller raises were noticeable in their impact on the employee. If we assume that the motivating effect of a raise lasts several weeks, more motivating weeks per year can be gained through multiple raises than through one.

Employees expect a paycheck. It is possible, however, to structure periodic awards of money to induce more motivated employees and productivity. Where a link can be shown between individual effort and unit profitability, profit sharing can be effective. Amounts awarded usually are based on a percentage of base salary and vary as profits vary.

Employees also could be awarded a production bonus. This could occur, for example, when the housekeeping staff is reduced by one person. If the remaining room attendants maintain the same level of quality in covering all the rooms, the salary of the employee who left can be divided among those who remain. This would provide more money to each of the employees while reducing fringe benefits for management. This can result in a considerable savings, as benefits can add 1/3 to the labor bill.

It is also possible to arrange special cash awards of recognition to employees for suggestions that result in savings to the property.