Financial and Non-Financial Methods in Business
Financial Methods
Time-Rate (‘Flat Rate’) Schemes
This payment method involves the employee receiving a basic rate of pay per time period that they work (e.g., £5 per hour, £50 per day, £400 per week). The pay is not related to output or productivity.
Any time that the employee works above the agreed number of hours per week may make them eligible for overtime payments, often at ‘time and a half’ (e.g., £7.50 per hour instead of £5 per hour).
Piece-Rate Schemes
This payment method involves the employee receiving an amount of money per unit (or per ‘piece’) that they produce. Therefore, their pay is directly linked to their productivity level.
However, it is possible that in order to boost earnings, an employee may reduce the quality and craftsmanship per unit, so that they can produce more output in a given period of time.
Commission
This is a common method of payment for sales personnel (e.g., insurance, double-glazing, telesales). The employee receives a very small percentage (say 0.5%) of the value of the goods that they manage to sell in a period of time.
Performance-Related Pay (PRP)
This is a method of giving pay raises on an individual basis, related to the employee achieving a number of targets over the past year. This is common with managerial and professional workers.
Profit Sharing
This involves each employee receiving a share of the business’s profit each year, effectively representing an annual pay raise. It aims to increase the levels of effort, motivation, and productivity of each employee, since their annual pay-award will be related to the profitability of the business.
Non-Financial Methods
Delegation
This occurs when managers pass a degree of authority down the hierarchy to their subordinates.
Empowerment
This involves a manager giving their subordinates a degree of power over their work (i.e., it enables the subordinates to be fairly autonomous and to decide for themselves the best way to approach a problem).
Job Enlargement
This involves increasing the number of tasks which are involved in performing a particular job, in order to motivate and multi-skill the employees.
Job Enrichment
This is a method of motivating employees by giving them more responsibilities and the opportunity to use their initiative.
Job Rotation
This involves the employees performing a number of different tasks in turn, in order to increase the variety of their job and, therefore, lead to higher levels of motivation.
Quality Circles
This is a group of workers that meets at regular intervals in order to identify any problems with quality within production, consider alternative solutions to these problems, and then recommend to management the solution that they believe will be the most successful.
Teamworking
This is the opposite production technique to an assembly-line which uses an extreme division of labor. Teamworking involves a number of employees combining to produce a product, with each employee specializing in a few tasks. Cell production is an example of teamworking.