IB Business Management SLTopic 2 — Motivation & DemotivationPaper 1 & 2Core skill~13 min read
Paying People Versus Motivating People
Financial rewards are what lands in the bank account. Non-financial rewards are what happens to the job itself. Businesses reach for the first because it is easy to arrange — and then wonder why nothing changed. This page shows you both toolkits and when each one actually works.
📚 What you need to know
Financial rewards are payments for work or performance: wages, salary, piece rate, commission, bonus, profit share, performance-related pay, fringe benefits.
Non-financial rewards change the job, not the pay: job enrichment, enlargement, rotation, empowerment, teamworking, delegation, flexible working.
Wages are usually paid per hour or per unit; salaries are a yearly figure paid monthly.
You must be able to calculate pay under piece rate, commission and bonus schemes.
Each reward links to a theory: piece rate to Taylor, security to Maslow, responsibility to Herzberg.
Herzberg’s warning: pay is a hygiene factor. Too little causes anger; more of it does not create effort.
The best answer is nearly always a package: fair pay plus something that improves the job.
Two toolkits
Every reward a business can offer falls into one of two boxes. Notice that the left box costs money every month forever, while most of the right box costs management time once.
Learn six from each side. In an exam you rarely need more, and a package built from both sides scores higher than a long list from one.
The financial rewards, and what each one does to behaviour
The trick with financial rewards is to ask: what exactly is this paying for? Whatever you pay for is what you will get more of — including the things you did not want.
Reward
How it works
What it encourages
Theory link
Wages (time rate)
Paid per hour worked
Turning up; not speed or quality
Maslow: physical and safety needs
Salary
A yearly figure paid in monthly parts
Stability; the job gets done, hours vary
Herzberg: a hygiene factor
Piece rate
Paid per unit produced
Speed and volume, sometimes at the cost of quality
Taylor: pay follows output
Commission
A percentage of the sales you make
Selling hard; can push staff to oversell
Maslow: esteem for top sellers
Bonus
Extra pay for hitting a target
A sprint near the deadline, then a lull
Herzberg: warned about bonus-driven behaviour
Profit share
A slice of profit shared among staff
Thinking like an owner; team effort
Herzberg: a motivator, more responsibility
Performance-related pay
Pay linked to an appraisal or targets
Meeting whatever is measured
Herzberg: often causes dissatisfaction
Fringe benefits
Non-cash extras: insurance, car, pension
Loyalty and staying put
Maslow: safety and esteem
Performance-related pay looks fair on paper and often is not. Two staff can hit the same target with very different luck, and managers can play favourites. If a case study mentions PRP and low morale together, that is the link the examiner wants.
Piece rate against time rate: the maths
These two payment methods behave completely differently as output changes, and you can be asked to compare them. Time rate is a flat line — you get the same whatever you produce. Piece rate is a sloped line starting at zero.
The crossover point is the number you are usually asked to find: total time-rate pay divided by the rate per unit.
Crossover output
units needed = total pay under time rate ÷ pay per unit
The non-financial rewards
These change the shape of the job. They cost almost nothing in cash, which is why examiners love them and why a good evaluation answer always includes at least one.
Job enrichment — add harder, more meaningful work and real decisions. A Herzberg motivator: more responsibility.
Job enlargement — add more tasks at the same level, so the day is less repetitive.
Job rotation — move people between roles. Breaks boredom and builds a flexible workforce.
Empowerment — let staff decide and act without asking permission first. Powerful, and free.
Teamworking — people share ideas and support each other. Maslow’s social and esteem levels.
Delegation and consultation — hand over a task with the authority to do it, and ask before deciding.
Flexible working — hours or place that fit a life. Often the reason someone stays.
Enlargement or enrichment? Enlargement is wider — more tasks of the same kind. Enrichment is deeper — more responsibility and more decisions. Students lose easy marks by swapping these two.
Worked examples
WORKED EXAMPLE 1
Piece rate against time rate [4 marks]
Rafi is paid a time rate of $9.50 an hour for an 8-hour day. His employer offers to switch him to a piece rate of $0.55 per shirt. How many shirts must Rafi finish in a day to be better off?
Step 1: work out today’s pay$9.50 × 8 = $76.00 a dayStep 2: find the crossover output$76.00 ÷ $0.55 = 138.18 shirtsStep 3: you cannot sew part of a shirt, so round up138 shirts = $75.90 (worse). 139 shirts = $76.45 (better).He needs 139 shirts a dayand say the business point: below 139 Rafi carries the risk of a slow day, so the switch shifts risk from employer to worker
WORKED EXAMPLE 2
Comparing two pay packages [6 marks]
Nadia is a sales assistant on $1,200 a month plus 3% commission on her sales. Last month she sold $84,000 of stock. Her colleague Omar is on a flat salary of $3,500 a month. Compare their pay and comment on the effect on behaviour.
Step 1: Nadia’s commission3% of $84,000 = 0.03 × 84,000 = $2,520Step 2: Nadia’s total pay$1,200 + $2,520 = $3,720Nadia earns $220 more than OmarStep 3: the sales she needs just to match Omar($3,500 − $1,200) ÷ 0.03 = $76,667Step 4: comment on behaviour
Nadia has a reason to sell hard, but also a reason to push customers into things they do not need.
Omar’s pay is safe but flat, so nothing in his package rewards a good month — expect steady, unspectacular effort
WORKED EXAMPLE 3
Recommending a reward package [10 marks]
A warehouse employs 60 pickers on the local minimum wage. Turnover last year was 45%. The owner suggests a $500 annual bonus for anyone who stays a full year. Evaluate this plan.
Step 1: what the bonus does well
It rewards staying, which is exactly the problem. 60 × $500 = $30,000 a year if everyone qualifies.Step 2: what it misses
Minimum wage means pay is a live grievance. Herzberg would call this a hygiene factor that is not yet fixed, so a once-a-year payment will not remove the anger.
Step 3: the timing problem
Most leavers go in the first months. A reward 12 months away is invisible to someone who quits in week six.
Step 4: build a better package
Lift the base rate first, then add rotation between picking, packing and checking to cut boredom, and empower staff to solve small stock problems themselves.
Fix the hygiene, then enrich the jobfinish by comparing costs: $30,000 of bonus versus the recruitment and training cost of replacing 27 people
💡 Exam tip
Show the working, always. Even a wrong final figure earns method marks if the steps are visible.
Label your units. “$3,720 per month” beats “3720” every time.
Ask “what is this paying for?” Piece rate pays for speed, commission pays for sales, salary pays for showing up.
When asked to assess a package, look at the business context (factory or design studio?), industry norms and the balance of financial and non-financial.
Name the theory next to the reward. Commission and esteem, profit share and responsibility, wages and hygiene.
Recommend a mix. Almost every top-band answer is “fix the pay problem, then change something about the job”.
⚠ Common mix-up
Wage and salary treated as the same thing. Wages follow hours or units; salaries are annual and paid monthly.
Job enlargement called enrichment. Wider is not deeper. More tasks is not more responsibility.
Fringe benefits called non-financial. A company car has a money value, so it is a financial reward.
Forgetting the base pay in commission questions. Total pay is base plus commission unless the question says commission only.
Assuming non-financial rewards are free. They cost management time, training and sometimes lost output while people learn.
Recommending a bonus for everything. If the case shows people are already paid fairly, a bonus is the weakest answer available.
Up next: Training Methods Compared — the reward that also makes people better at the job, and the one most businesses measure worst.
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