Role of financial compensation in industrial motivation.

Abstract

Theories and research studies related to the effects of financial compensation on employee motivation are reviewed and critically evaluated. Such theories are based primarily on limited studies conducted on subhuman species; no deductions from these theories have been adequately tested in industry. Most compensation practices in industry are based on impressionistic evidence characterized by anecdotal accounts and data gathered by means of self-report questionnaires. Studies of the effects of money on employee behavior need to be conducted in laboratory or in tightly controlled field settings. A commendable start in this direction has been made by a few investigators, but more empirical tests of the bases of current compensation practices are needed. Such research should lead eventually to a sound theory of money and employee motivation from which more effective and more behaviorally relevant compensation practices may be derived. Widespread interest in money as a motivational tool for spurring production was first stimulated in this country by Frederick Taylor. Some years before the turn of the century, Taylor observed an energetic steelworker, who, after putting in a 12-hour day of lifting pigs of iron, would run 12 miles up a mountainside to work on his cabin. If this excess energy could be used to produce more on the job, thought Taylor, higher profits from lower fixed costs could be used to pay the worker significantly more for his increased efforts. Such was the beginning of scientific management, which is based essentially on the assumption that workers will put forth extra effort on the job to maximize their economic gains. This became a guiding principle in pay practices until the late 1920s when the human relations movement in industrial psychology was ushered in with the Western Electric studies directed by Elton Mayo. As a result of these studies, recognition of man's ego and social needs became widespread, and job factors other than pay came to be emphasized as the major reasons why men work. To a large extent, these later ideas are still with us. Yet, few would disagree