Motivation and performance - Reward systems and appraisal

Learning Outcomes

After reading this article, you will understand how motivation theories apply within organisations and the ways reward systems and appraisal processes can influence performance. You will be able to explain key approaches such as Maslow's and Herzberg's models, design effective reward systems, identify internal and extrinsic rewards, and describe the stages and purposes of performance appraisal. You should be able to apply these principles to workplace scenarios and assess their relevance for ACCA exam questions.

ACCA Business and Technology (BT) Syllabus

For ACCA Business and Technology (BT), you are required to understand how motivation and performance influence organisational behaviour and business success. This article covers:

• The meaning of motivation and its importance for individuals, teams, and organisations
• Key motivation theories including Maslow's hierarchy and Herzberg's two-factor theory
• The distinction between internal and extrinsic rewards
• Methods of designing and implementing reward systems (e.g., performance pay, bonuses, profit sharing)
• The definition, purposes, stages, and benefits of performance appraisal
• Barriers to appraisal effectiveness and best practice recommendations

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. List two differences between internal and extrinsic rewards.
2. According to Herzberg, what are hygiene factors, and how do they affect motivation?
3. Briefly explain the purpose of a performance appraisal interview.
4. Which theory argues that employees may strive to fulfil needs in a defined order, and what is the typical sequence?
5. State one possible barrier to effective staff appraisal.

Introduction

Motivation is the drive that compels individuals to act in a certain way in the workplace. Motivated employees tend to work harder, commit fewer errors, and contribute more to organisational success. Conversely, low motivation often leads to absenteeism, poor performance, and higher turnover.

Organisations use various reward systems to encourage desirable behaviours and outcomes. These must be designed carefully to strengthen both individual and team performance. Appraisal processes play a central role in identifying achievements, highlighting development needs, and linking rewards to outcomes.

A firm understanding of motivation theory, reward system design, and effective appraisal is essential for ACCA students and future accountants, as these underpin business productivity and employee engagement.

Motivation and its Theories

Motivation refers to why people work, how much effort they are willing to put in, and how committed they are to their roles.

Key Term: motivation
The internal and external factors that stimulate individuals to take action towards achieving a goal.

Maslow's Hierarchy of Needs

Maslow proposed that individuals have five levels of needs, progressing from basic to advanced. Each lower-level need must be satisfied before higher-level needs become motivating.

Order of Needs:

1. Physiological (food, shelter, rest)
2. Safety (security, health, stability)
3. Social (belonging, relationships)
4. Esteem (status, achievement, recognition)
5. Self-actualisation (fulfilment, growth, potential)

When a need is met, attention moves to the next level. Workplaces can influence multiple levels using pay, security, teamwork, rewards, and opportunities for responsibility.

Key Term: Maslow's hierarchy of needs
A motivation theory stating that human needs are arranged in a sequence from basic physiological needs to self-actualisation.

Herzberg's Two-Factor Theory

Herzberg identified two distinct sets of factors affecting employee attitudes:

• Hygiene factors: Their absence causes dissatisfaction, but their presence alone does not motivate (e.g. salary, company policy, working conditions).
• Motivators: Their presence encourages high performance (e.g. achievement, recognition, responsibility, advancement).

Improving hygiene factors prevents demotivation but does not necessarily boost enthusiasm. To increase motivation, attention must be given to motivators, such as providing challenging work, recognition, and growth opportunities.

Key Term: hygiene factors
Workplace elements which, if inadequate, cause dissatisfaction but do not independently create motivation.

Key Term: motivators
Aspects of work that, when present, lead to increased job satisfaction and motivation.

McGregor's Theory X and Theory Y

McGregor suggested that management attitudes fall into two categories:

• Theory X: Employees naturally avoid work, require close supervision, prefer direction, and must be coerced to perform.
• Theory Y: Employees view work as normal, seek responsibility, are capable of self-direction, and benefit from a participative management style.

Most workforces are a mix, and managers should match their style to employee groups and tasks.

Reward Systems

Reward systems are the frameworks organisations use to recognise performance. Effective design ensures hard work, innovation, and high output are encouraged.

Internal and Extrinsic Rewards

Rewards may be internal to the work or external to the job role.

Key Term: internal rewards
Positive feelings experienced by employees through engaging in meaningful, interesting work or achieving goals.

Key Term: extrinsic rewards
Benefits provided by the organisation, such as pay, bonuses, or benefits, external to the work itself.

Types of Reward Schemes

• Base salary: Core wage, not linked to performance.
• Performance-related pay: Additional pay based on individual or group performance against targets.
• Bonuses: One-off payments for meeting or exceeding objectives.
• Profit sharing: Employees receive a share of company profits, usually annually.
• Commission: Pay based on sales or outputs, common in sales roles.
• Non-financial rewards: Recognition, flexible working, training opportunities.

Considerations for Reward System Design

An effective reward scheme should be:

• Fair and consistent
• Transparent in process and criteria
• Sufficient to attract and retain talent
• Aligned to organisational goals
• Compliant with laws and regulations

Long-term vs. short-term incentives: Balance is needed between both to prevent employees from prioritising short-term wins over sustainable success.

Worked Example 1.1

An accountancy firm wishes to increase productivity. They introduce monthly bonuses for exceeding set targets, but find teamwork declines and staff focus only on their own goals. Why might this happen?

Answer:
The bonus is tied solely to individual achievement, discouraging collaboration. To support teamwork, the firm could offer group bonuses or combine individual and team measures.

Performance Appraisal

Appraisal is a structured process where employee performance is reviewed, discussed, and documented, usually at scheduled intervals.

Key Term: performance appraisal
A formal process to evaluate and review an individual's work performance, achievements, and development needs against set objectives.

Appraisal Purposes

• Assess job performance
• Set new objectives
• Identify training or development needs
• Inform reward decisions (pay, promotion, bonuses)
• Improve communication and understanding between employee and manager

The Appraisal Process

1. Set objectives: Clear, measurable goals agreed between manager and employee.
2. Monitor progress: Exchange feedback and support during the review period.
3. Review performance: Formal appraisal meeting to discuss progress, strengths, weaknesses, and workplace behaviours.
4. Document outcomes: Written summary and agreed action plan for improvement or further development.

Types of Criteria

Both quantitative (output, error rates, sales numbers) and qualitative (attitude, teamwork, initiative) factors may be used.

Methods of Appraisal Interview

• Tell and sell: Manager gives feedback and tries to convince the employee to accept it.
• Tell and listen: Manager gives feedback but invites comment; discussion may lead to changes in assessment.
• Problem solving: Manager and employee collaborate to address issues and set improvement plans.

Benefits and Barriers

Benefits: Employees know what is expected, receive development, and have recognition. Employers identify strengths, gaps, and succession candidates.

Barriers: Poor feedback skills, lack of clear objectives, managerial bias, or appraisals perceived as tick-box exercises can reduce impact.

Best Practice

• Appraisals should be regular and not treated only as annual events.
• Support should follow the appraisal, ensuring agreed actions occur.
• Effective appraisals are factual, fair, and frequent.

Worked Example 1.2

During an appraisal, a manager tells an employee their "attitude is poor and no one likes working with them." What is wrong with this feedback?

Answer:
The feedback lacks specificity and is subjective. Appraisals should focus on factual, observable behaviours and concrete examples to be fair and constructive.

Exam Warning

Avoid assuming pay alone motivates staff. For exam purposes, recognise that non-monetary factors and personal needs also drive performance.

Revision Tip

When studying appraisal, focus on the distinct steps: objective setting, performance monitoring, formal review, and follow-up action.

Summary

Motivation impacts business outcomes significantly. Maslow and Herzberg offer key models for understanding employee needs. Successful reward systems combine fair pay, appropriate bonuses, and recognition, matching both internal and extrinsic motivators. Performance appraisal provides an essential mechanism for reviewing, supporting, and rewarding employees, but it must be objective, regular, and linked to organisational goals. Appraisal effectiveness depends on meaningful criteria, open feedback, and development action.

Key Point Checklist

This article has covered the following key knowledge points:

• Define motivation and its impact on organisational performance
• Explain Maslow’s hierarchy and Herzberg’s two-factor theory
• Describe differences between internal and extrinsic rewards
• Identify features of effective and ineffective reward systems
• Outline the performance appraisal process and its objectives
• Recognise common barriers to effective appraisal and methods for overcoming them

Key Terms and Concepts

• motivation
• Maslow's hierarchy of needs
• hygiene factors
• motivators
• internal rewards
• extrinsic rewards
• performance appraisal