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Money is
the principal inducement and no other incentive comes close to it with respect
to its influential value (Locke and Latham, 1990). Money has the dominancy to
magnetize, retain and motivate individuals towards higher performance (Stanley,
2012). People do not work for free; employees want to be compensated for the
work that they do. Employees must be motivated through adequate incentives
plans and reward systems and this will invariably encourage them to be proactive
and have right attitude to work, thereby promote organizational productivity
(Armstrong, 2007).

McChilloh (2001), posits that financial
incentives mean any inducement involving the payment of money and reduction in
price paid for goods or services or any award of credit.

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Financial
incentives and rewards positively affect on employees commitment or loyalty.
Employees stay in an organization because the benefits of being part of an
organization far outweigh the cost of leaving the organization (Saleem, 2011).
The fact that employees fear losing their job makes money an extremely
effective motivator because it is indispensable for survival in an economy
(Cole, 2000).

The
major objective of a manager is to ensure that business and corporate objectives
are realized. This is only possible if employees, who are the key assets of an
organization, have a positive attitude towards their organizations (Banjoka,
1996). To keep the pace of achieving goals organizations try to hire competent
human resource. Employing competent human resource, organizations have to offer
better working environment, market based salaries, job security, empowerment
etc (Hersberg, 2009).

While
there are a variety of ways to compensate a sales force, most companies use
three main methods: straight salary, straight commissions and a combination of
salary and commissions (Wiese and Coetzee, 2013). Besides salary and
commission, financial compensation could also include reimbursement of sales
expenses and transportation (Wiese and Coetzee, 2013). Fredrick Taylor has
described money as the most fundamental factor in motivating the industrial
workers’ to attain greater productivity (Steers and Porter, 2011). It is
therefore imperative that organizations think critically about the remuneration
packages that they offer to their employees.

Financial
incentives enhance the employment relationship because it creates the basis for
high levels of commitment and therefore, firms must develop strategies that
include financial incentives and rewards for example promotion, bonus, profit
sharing or gain sharing and employees stock ownership etc (Ismail, Guatleng,
Chhekiong, and Ibrahim, 2009). In fact, some authors assert that the primary
aim of incentives is to enhance extrinsic motivation by satisfying an
individual employee’s needs indirectly through means of pay and bonuses
(Anthony and Govindarajan, 2007). A natural way to motivate workers at any
level is to offer them financial incentives; linking pay to performance
improves the motivation value of money (Kinicki and Kreitner, 2016). Many jobs
require financial rewards to motivate employees and many people primarily work
to make money or attain the recognition denoted by financial rewards (Giancola,
2011).

Using
financial incentives to motivate people fits principles of positive
reinforcement and punishment (Aguinis, 2012). A useful principle of using
financial incentives to motivate workers at all levels is to investigate which
incentives are most appealing to groups and individuals (Denisi and Pritchard,
2016). Many workers are extrinsically motivated by salaries and benefits while
others are intrinsically motivated by recognition and rewards or better health
benefits (Giancola, 2011).

According
to Kinicki and Kreitner (2016), financial incentives are more effective when
they are linked to (or contingent upon) good performance. A key principle is
for managers to explain clearly to employees how performance is linked to pay,
including the fact that unethical behavior will not be tolerated as a way of
attaining a performance goal (Steers and Porter, 2011). An increasing effort of
managers and compensation specialists to link pay to performance supports many
business strategies- workers receive financial incentives for performing in
ways consistent with the business strategy (Aguinis, 2012).

Literature
has shown that remuneration issues play a critical role in organizations;
however, there has been little advice that companies could use in terms of when
certain incentive system designs have been more (or less) appropriate (Dubrin,
2012). The use of pay-for-performance plans is growing (Kepner, Wyoski,
McKenzie and Ballentine, 2003) and there is a trend to increasing variable pay
as a percentage of total remuneration (McChilloh, 2001).

Compensation is one of the physical needs that
influence motivation which in turn will affect the employee performance
(Hersberg, 2009). Compensation has a big influence in the recruitment of
employees, motivation, productivity and employee turnover (Steers and Porter, 2011).
Financial incentives are largely regarded as an adequate means to motivate
employees and to improve their performance (Smith and Hitt, 2005). 

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