Role of Monetary Incentives in Management Control: An Analysis

This essay discusses the role of monetary incentives in management control and employee motivation. It analyzes the impact of financial incentives on employee performance and productivity, and the importance of effective management control in achieving organizational goals. The essay also explores Maslow's hierarchy of needs and Herzberg's two-factor theory in the context of motivation.

1572335 BS3517 word count:
Contents
Introduction.......................................................................................................................................1
Effective management control and monetary incentives.................................................1
Motivation.............................................................................................................................................3
Motivation theory..................................................................................................................................5
Maslow’s hierarchy of needs.............................................................................................................5
Herzberg’s two factor theory.............................................................................................................7
Conclusion.............................................................................................................................................7
References.............................................................................................................................................8

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Introduction
The essay brings about the discussion on the concept of management
control and the attainment of objectives and goals through the aspect of
employee motivation. Organizational goal has analyzed as the strategic
objectives established to by an organization through guiding employee
efforts. It is essential for the organization to have effective management
control to achieve the specific objective. Effective management control
can maintain when the management accounting and control systems
encourage the managers by attaining the organizational goals and
objectives. The discussion of all these aspects will be surrounded on the
topic “role of monetary incentives in the exercise of management control”
in organizations. In later part, the essay will enlist some financial
incentives to increase motivation of employees, and their satisfaction for
the purpose of organization’s growth and success in the long-term.
Effective management control and monetary incentives
In the perspective of Anthony, the process of Management control system
has been defined as the process through which managers ensures the
utilisation of resources is done in accordance to the attainment of pre-
determined organisational objectives (Birnberg, 2011). The process helps in

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analysing and evaluating the performance of organisational resources,
which influences the behaviour of organisation to implement strategies
(Berry, Broadbent and Otley, 2016).Human resource is most valuable resource of
the company, which helps to attain the competitive advantage and
capture a high share in the market. This system of the company
influences the performance of human resources to achieve the objectives,
as it facilitates enhancement of the organisational efficiency (Cleverism,
2018). Monetary Incentive is a motivation tool and change management
programs that helps to achieve the organisational objectives, and it
facilitates the enhancement of goal congruence, and objective to perform
best. It consists of some fixed or variable pay, and other financial and non-
financial incentives, as these lead to the employee motivation and higher
performance in the long-term (Bhasin, 2017).
Monetary incentives are the financial incentives provided by employers or
managers within an organisation to the employees towards accomplishing
their targets. Thus, it states the important role of monetary incentives in
exercising control over the management of an organisation. However,
there are both positive and negative aspects of monetary incentives, as
positive aspects include increased morale or motivation of employees,
and better working environment (Berry, Broadbent and Otley, 2016). On the

MANAGEMENT ACCOUNTING AND CONTROL 3
contrary, monetary incentives also lead to inequality, which may further
lead to dissatisfaction or demotivation amongst them within organisation.
Motivation
Monetary incentive is a motivation tool that encourages employees to
perform their duties in an effective manner. It influences the behaviour of
employees to show commitment and dedication through putting their
efforts towards attaining organisational goals. Rewards attract the human
resources working within an organisation, and inform them about the
relative competing results areas. It has observed as a common practice in
many of the companies, which utilise this tool to achieve the objective
such as Barclays. Barclays offer the rewards to their employees to provide
quality services through their employees. However, it affects the
organisation in terms of financial burden, and impact on the firm’s
financial stability (Bonner and Sprinkle, 2002). Thus, it is good to provide the
incentive to employees provided from the total profits of the company.
Due to this reason, the profit of the company reduces to some extent,

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which further leads to the issue or lack of funds and capital for other
activities. Hence, effective management control is required to ensure a
balance between the financial and other resource used in the organisation
(McGagh, 2012).
As discussed above, management control is a system, which also helps to
evaluate the performance of employees. According to the Bonner and
Sprinkle (2002), management control is effective when the decision-
making process is appropriate. The three experiment of incentive evaluate
the performance of employees such as framing of incentive, form of
incentive and measures their impact on decision-making. Social incentive
appreciates the employee to improve its quality of work, and financial
incentive improved control performance. These experiments indicate the
improvement of performance of employees in every step due to attraction
towards the image and monetary benefits.
However, it also observed that forcing people to compete for rewards and
incentives cause them to see each other as a barrier. The conflicts
arearising in the organisation due to competing with each other to
attaining the large amount of monetary incentive. Goalcongruence is
enhanced through providing managers or individuals in the organisation

MANAGEMENT ACCOUNTING AND CONTROL 5
with the monetary incentives. These leads to an increase in amount of
profits, share price, or other factors, thereby increasing performance. It
has been found that the element of goal congruence is found higher in the
sense when the employees in an organization strive to integrate their
personal interests with the organizational objectives. Goal congruence and
temporal satisfaction of the employees are illustrated well, as goal
congruence define the dysfunctional behavior of employees, that often
impacts performance (Kohn, 1993).
Monetary benefit is the first motive of every company and individuals, and
the company can earn high profit and attain competitive advantage when
employees perform effectively. Monetary incentive attracts the employees
to earn higher benefits in terms of money, which further facilitates an
organisation to ensure employee retention for a longer perioddue to
effective reward system (Hines, 1988). Thus, many companies that face
the issue ofmanagement of financial resources while developing and
retaining the human resource of the organisation.
The governor of Bank of England puts a cap on bankers to scrap the
bonuses, after the Brexit, EU banks face the financial crisis due to
multimillion payouts apart from the losses. Thus, it is required to maintain

MANAGEMENT ACCOUNTING AND CONTROL 6
the finance by deducting the bonuses. Carney also developed rules that
raisedifficulties for the bankers such as deduction of bonuses on the poor
performance (The Guardian, 2017).
The step taken by the governor is right because it is necessary to
maintain the financial resource otherwise the company fail in terms of
brand image that causes the insolvency. Strong financial condition of the
organisation indicates the ability to provide the good amount of rewards
to human resources and invest in the other resources. Monetary incentive
is a negative aspect during the period of poor financial condition of the
organisations (The New York Times, 2017).
Motivation theory
Maslow’s hierarchy of needs
One of the most popular used needs theories is Abraham Maslow’s
hierarchy of needs, which stated that motivation achieved through
fulfilling various needs of the employees working in organisation. These
consist of the five basic needs such as physiological, safety needs, social
esteem and self-actualization needs. Need theories influence the
behaviour of an employee and thereupon determines the level of
satisfaction(Rasskazova, Ivanova and Sheldon, 2016).

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Physiological needs are essential to fulfil to ensure the human survival,
and consist of water, food, shelter, clothing, and sleep (Lazaroiu, 2015).
Safety needs consist of the need of an employee in terms of protection or
freedom from any threat or law, and also includes security, i.e. personal,
financial, and good health and protection from any kind of accidents.
Esteem needs - refers to the need for self-esteem and respect of the
employees working in an organisation, which is a major factor leading to
employee motivation.
Self-actualization needs- refer to the needs of an individual employee to
attain their potential and personal growth for enhancing the
organisational performance (Rasskazova, Ivanova and Sheldon, 2016)
In context to the Maslow theory of motivation, it has been analysed that unfulfilled needs or
interest leads to dissatisfaction or low motivation amongst employees. Therefore, it is
essential for managers to implement this theory and attain high motivation of employees.
Thus, discussing about the implications or impact of the financial incentives in context to the
Maslow’s need hierarchy of motivation; it has been found that ‘wages’ are included in
‘deficiency needs’. It ensures the safety of the individual, which further increases the self-
esteem of the employees. Thus, increased self-esteem increases their productivity and
performance to work in the organisation.

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Herzberg’s two factor theory
The theory is also termed as ‘motivation-hygiene’ theory, as there are some factors which
lead to satisfaction, and some which leads to dissatisfaction. This often creates the feeling of
job dissatisfaction amongst employees. This theory is also supported through monetary or
financial incentives. As increase in the salary, promotion, advancements, and interpersonal
relationships increase the employee motivation, and further lead to high employee
performance (Alshmemri, Shahwan-Akl and Maude, 2017).
Conclusion
From the above analysis, it has concluded that the monetary incentive
plays an important role in management control. It influences in both,
positive and negative manner to an employee’s productivity and
performance within organisation. The concept of management control
ensures effective allocation and utilisation of resources, to attain the
organisational goals and objectives. However, providing incentives to
employees leads to an improvement in their performance and ensures
their retention for a longer period. However, the factor of financial
resources and incentives play a vital role in ensuring effective
management control. The system of giving rewards or benefits may
create the issues or financial crises within organisation that states the

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importance of maintaining balance and exercise development of a plan by
forecasting the past and future organisational performance and growth.

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Berry, A.J., Broadbent, J. and Otley, D.T. eds. (2016) Management control: theories, issues
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Kohn, A. (1993) Why incentive plans cannot work. Harvard Business Review. [online]
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