2.4.2 - Financial and non-financial rewards

Remuneration, bonuses and commission

Financial rewards give employees income or benefits with a monetary value, but the way rewards are linked to work changes the incentive.

Wages may be based on hours worked or output, while a salary is usually a fixed annual amount paid in regular instalments. Reliable, competitive pay can attract applicants, help meet living costs and reduce dissatisfaction. It is a continuing cost to the employer. Increasing pay does not guarantee increased effort if employees also face poor supervision or uninteresting work.

A bonus is an additional payment, often linked to a target or performance. It can recognise achievement and encourage effort towards a goal. In an illustrative small café in Portugal, a team bonus for reducing avoidable food waste rewards cooperation. A target based only on speed could instead encourage rushed service; a fair target should reflect things employees can influence and avoid damaging quality.

Commission is pay linked to sales, often a percentage of the value sold. It encourages selling, but can encourage pressure selling or competition between colleagues. Employees may dislike unpredictable income, especially if sales depend on customer demand beyond their control. A basic salary plus commission can offer some security while keeping a sales incentive.

Illustrative monthly data: a salesperson receives basic pay of $900 and 4% commission on sales of $6,000. Commission is $6{,}000\times0.04=240$, so total pay is $1,140. The $240 is the commission only; the $6,000 is sales revenue, not the worker's pay or the business's profit.

Promotion and fringe benefits

Promotion and fringe benefits can make employment more attractive even when ordinary pay is not the only reward employees consider.

Promotion moves an employee to a higher position, usually with greater responsibility and often higher pay. It gives a financial incentive to perform well and stay with the business to pursue a career. Recognition and achievement can also motivate, so promotion can have both financial and non-financial effects. A small business may have few higher positions available; repeatedly promising promotion without realistic opportunities can disappoint employees. A strong technical performer may need training before managing people.

Fringe benefits are benefits provided in addition to ordinary wages or salary, such as employer-provided healthcare, a company vehicle, subsidised meals or a staff discount. They have a cost or monetary value but are not necessarily cash paid directly to the employee. In an illustrative large retailer in South Africa, a staff discount may make the overall reward package attractive to people who regularly buy its products.

Benefits can improve security or make work more convenient, helping attraction and retention. Their value differs between people: a company car may be useful for a travelling employee but less useful to someone who works remotely. Businesses must compare the cost with employees' needs and consider fair access. A benefit that staff cannot use may be less motivating than its cost suggests.