Financial Rewards: Why Your Boss Needs to Pay You Right

Show Me The Money: Why Your Future Boss Needs to Pay You Right

Here is today's scenario: You've just landed your dream Saturday job at a trendy clothing shop. First day, you're over the moon. Week two, you clock the full-timer who's been there for three years earning basically the same as you. Week three? She's gone. Handed in her notice and walked straight into a competitor's store across the road.

What happened? Simple, she wasn't being paid properly for her value, and someone else was willing to cough up. In the financial rewards world, how you get paid is just as important as how much you get paid.

Why Companies Actually Care About Financial Rewards

Companies need to work out a payment system that:

• Attracts you in the first place (because let's be honest, you've got options, make no mistake here, you always have options, no matter your background)

• Motivates you to actually care about the job (not just scroll TikTok in the stockroom)

• Keeps you from legging it to the competition the second they offer you 50p more per hour

Get this wrong, and companies hemorrhage money having to replace staff. The average cost to replace someone who leaves? Around £19,000. That's a lot of Greggs sausage rolls.

This is where financial rewards come in. And no, it's not just "here's your money, now go away." It's way more strategic than that. The IB Business Management examiners love it when you can apply these concepts to real businesses, so stay put - we're going deep with actual companies doing this stuff right now.

Getting Paid Whether You're Grafting or Slacking

A salary is your guaranteed annual pay, divvied up into monthly chunks. Teachers have it. Office workers have it. That bloke at your mum's work who seems to do absolutely nothing? Yeah, he's got it too.

Salaries are fixed costs for businesses. Whether you teach 15 lessons or 35 in a month, whether you mark 2 essays or 200, your pay stays exactly the same. No overtime. No extra bunce. Just your set monthly amount hitting your account like clockwork every month.

As of April 2025, if you're 21 or over in the UK, you're entitled to the National Living Wage of £12.21 per hour. But that's still not enough to properly live on in many parts of the country. The actual "Real Living Wage" (which companies choose to pay voluntarily) is £13.45 outside London and a whopping £14.75 inside the capital. That's the difference between renting a shoebox with three flatmates and maybe, affording your own place as early as the year 2045.

IB Business Management Exam Gold: Remember, salaries = fixed costs. They don't change with how hard you work or how many hours you put in. Perfect for companies that want predictable costs, terrible for you if you're the type who wants to earn more by working harder.

Wages: When Time Actually Equals Money

Right, so your mate works in Costa. She gets paid wages, not a salary - and there's a massive difference.

Two types of wages:

Time Rate: The Hourly Hustle

Time rate is dead simple: you get paid for each hour you work. Work 20 hours at £10 per hour? You've earned £200. Work 40 hours? Double that. Call in sick? You get nowt.

This is how most part-time gigs work. Your weekend retail job, that summer position at the cinema, your cousin who works in that dodgy restaurant that definitely doesn't have proper health and safety certificates.

Current Situation for you (2025 UK Edition):

• Ages 21+: £12.21/hour (National Living Wage)

• Ages 18-20: £10.00/hour

• Under 18s: £7.55/hour

• Apprentices: £7.55/hour

Notice the massive difference? An 18-year-old working full-time (37.5 hours/week) takes home about £19,500 a year, while a 21-year-old doing the exact same job earns £23,809. That's £4,309 more for being three years older. There would be a lot to be said about this.

Piece Rate: Get Paid for What You Actually Do

Piece rate means you get paid based on your output (what you produce), not your time. Imagine getting £1.50 for every kilo of strawberries you pick, or every delivery you complete, or every article you write.

The Gig Economy Connection: Your Deliveroo driver? Piece rate. Your Uber driver? Piece rate. That influencer everyone's obsessed with? Basically piece rate (they get paid per post/video/sponsor deal).

Advantages:

• Work harder = earn more (straight up)

• Lazy colleagues can't hide - they just earn less

• If you're absolutely grafting, you can out-earn people on salaries

• Businesses save money when sales drop (fewer deliveries = less they pay out)

Disadvantages:

• Quality can go right out the window (rushing = mistakes)

• Creates toxic competition (nobody helps anyone because you're all fighting for the same orders)

• Zero stability (quiet Tuesday afternoon? You're earning basically nothing through no fault of your own, you still have the same skills as on Mondays)

• Nightmare for businesses trying to predict costs

IB Business Management Pro Tip: The key distinction examiners want you to understand is that wages = variable costs. More work = more pay for employees = higher costs for businesses. Salaries are fixed. Don't mix them up or you'll lose marks faster than you can say "revenue streams."

Commission: The Sales Superhero's Best Friend

Why is that bloke in Currys so desperate to sell you the extended warranty? Two words: commission, baby.

Commission is a percentage of every sale you make. Flog a £1,000 MacBook? Maybe you get £50 of that. Sell a £500,000 house? You might pocket £7,500. It's no wonder estate agents are always so...Let's say enthusiastic.

IB Business Management Real-life Example: UK estate agents typically work on a base salary plus commission model. The commission rate for selling houses in 2025 averages around 1.42% (including VAT) of the final sale price.

Let's do the maths: Sell a £300,000 house at 1.42%, and the agency gets £4,260. The individual agent might take home anywhere from 10-50% of that (so £426 to £2,130) depending on how their commission structure works. Top London estate agents working in Chelsea or Kensington? They can earn between £200,000 to £800,000+ annually because they're shifting multi-million-pound properties.

In Q3 2025, over 82,000 property sales collapsed in the UK, costing estate agents an estimated £1.07 billion in lost commission. Imagine working for months on a deal, only for it to fall through at the last second. You get paid precisely... £0. That's the risk.

Advantages of Commission:

• Acts like rocket fuel for motivation (more sales = more money)

• Customer service improves (usually) because happy customers buy more

• Shows who needs training (if someone's earning peanuts, maybe they need help)

• Businesses can adjust costs when times are tough

Disadvantages:

• Can turn colleagues into competitors (not ideal for team morale)

• Might encourage dodgy unethical practices (mis-selling, anyone?)

• Creates a hostile work environment if not managed properly

• Short-term motivation doesn't always last

IB Business Management Alert: Commission is brilliant for jobs where individual performance directly impacts revenue. Think sales roles. Terrible for jobs where teamwork matters or where quality is more important than quantity.

Performance-Related Pay (PRP): The Report Card for Adults

Remember getting pocket money based on your GCSE results? (I remember I got a watch) That's basically Performance-Related Pay (PRP) in a nutshell.

PRP means you get extra money, usually as a cash bonus or a pay rise, when you hit specific targets. These are set during appraisal meetings (think: awkward conversations with your boss about your "development areas") and reviewed at least once a year.

Hit your targets? Ker-ching. Miss them? Better luck next year, mate.

IB Business Management Real-life Example: Real Companies Doing This: Tech companies like Google are massive on PRP. Software engineers can earn total compensation of £227,000 to £349,000, with a chunk of that being performance bonuses. Product managers? £269,000 to £417,000. Not too shabby for working in Silicon Valley (or Google's London office in King's Cross).

Advantages:

• Motivates people to actually achieve things (revolutionary concept, really)

• Rewards individual effort (great if you're a high performer)

• Can promote teamwork if targets are team-based

• Flexible, can be adjusted to personal circumstances

Disadvantages:

• Targets set too high = instant demotivation

• Can create rivalry if not handled properly

• Arguments about "fair" measurement (who decides what counts as good performance and why?)

• Might feel pointless if the bonus is tiny

Profit-Related Pay: When the Whole Team Wins (or Loses) Together

Profit-related pay is like PRP's cooler, more collaborative cousin. Instead of individual targets, everyone gets a slice of the company's profits if certain profit targets are hit.

Banking sector? They're all over this. Hit your profit targets, and junior bankers might get bonuses worth 50-100% of their base salary. Senior executives? Try 200-400%. (Yes, really. Hence why everyone's always banging on about "banker bonuses.")

How It Works: Company sets a profit target → Company exceeds it → Everyone gets a share of the extra profits, either as cash, shares, or retirement contributions.

The Good:

• Everyone's working toward the same goal (team spirit, lads!)

• Can really boost teamwork and morale

• You feel properly invested in the company's success

The Bad:

• Massive capital investment? Profits drop. Your bonus? Gone.

• The payout might be pathetically small (oh wow, £200 when the CEO got £2 million)

• Targets might be unrealistic

• Profits can tank due to things totally outside your control (hello, global pandemic)

Key IB Business Management Distinction: PRP = individual performance. Profit-related pay = team/company performance. Examiners love testing whether you know which one rewards who.

Employee Share Ownership: Becoming Part-Owner of Your Workplace

Ever wanted to own a piece of the company you work for? Employee share ownership schemes make that happen. Companies give you actual shares, either free or at a discount, and suddenly you're not just an employee, you're a shareholder.

Why Companies Do This:

• Aligns everyone's interests (company does well = your shares are worth more)

• Dividends! Extra money just for holding shares

• Potential capital gains (buy low, sell high, retire to Barbados)

• Makes employees think and act like owners

IB Business Management Real-life Example: The UK Scene (2025) Over two million UK employees now hold shares or options through company share schemes. Eight out of ten FTSE 100 companies offer them. The motoring and automotive industry leads the way, with basically every job listing including share scheme options.

Popular UK Share Schemes:

• EMI (Enterprise Management Incentives): For smaller companies (under 250 employees, less than £30m in assets). Employees can get up to £250,000 worth of shares with mega tax advantages

• CSOP (Company Share Option Plan): For bigger companies that don't qualify for EMI

• SIP (Share Incentive Plan): All employees can get up to £3,600 in free shares per year, tax-free

• SAYE (Save As You Earn): Save up to £500/month for 3-5 years, then use it to buy shares

IB Business Management Real-life Example: Tech Giant Example Google (obviously) offers Google Stock Units (GSUs) to employees. These vest over time (meaning you gradually earn them), and when they do, they're taxed as income. Why is this clever? If Google's share price goes up, your GSUs are suddenly worth way more than when you were awarded them. Some Googlers have made bank from this.

The Downsides:

• More shareholders = diluted ownership (existing owners own a smaller percentage)

• Decision-making gets slower (more people = more opinions = more arguments)

• If the company's share price tanks, your "reward" becomes worthless

• Tax can be complicated

IB Business Management Gold: Share schemes encourage long-term thinking. Employees become more productive because they directly benefit from the company's success. This is catnip for IB examiners, they love a good "alignment of stakeholder interests" discussion.

Fringe Benefits (Perks): The Stuff That Actually Makes You Want to Turn Up

Right, let's talk about the fun stuff. Fringe benefits (or "perks" if you're not 70 years old) are all the extra goodies you get on top of your basic pay.

Common Perks:

• Staff discounts (20% off at John Lewis or Waitrose? Yes please)

• Health insurance (not having to wait 6 months for an NHS appointment)

• Gym membership (that you'll definitely use, honest)

• Free/subsidised food (the real reason people work at Google)

• Pension contributions (boring but important, older you will appreciate this)

• Company cars (usually for managers)

• Education assistance (company pays for your degree)

IB Business Management Real-life Example: Who's Doing It Best in 2025?

Google (because of course): Free food everywhere (you're never more than 200 feet from food), on-site fitness centers, climbing walls, volleyball courts, bikes, electric scooters, nap pods, on-site doctors and nurses, 18 weeks paid maternity leave, $500 "Baby Bonding Bucks" for new parents, death benefits up to $2.5 million (dark, but thorough), and equity that can make you genuinely wealthy.

Patagonia: Company bikes, volleyball courts, yoga lessons. Very on-brand for an outdoor clothing company.

Starbucks (USA): Full tuition fees paid for online degrees at Arizona State University. Fancy a free degree with your latte?

McDonald's: Store managers get company cars in many countries. Drive-thru in a company BMW? Living some people's dream.

Why Companies Offer These:

Advantages:

• Tax benefits (some perks are exempt from income tax)

• Keeps employees healthy (healthy staff = less sick days)

• Better corporate image (attracts top talent)

• Cheaper than pay rises sometimes

Disadvantages:

• Still costs money (at a reduced price but someone's paying for that gym membership)

• Admin fees add up (managing all these schemes isn't free)

• Not everyone benefits equally (maternity leave doesn't help everyone, company cars only go to managers)

The 2025 Reality: With National Insurance contributions rising and the cost-of-living crisis still biting, more UK companies are turning to fringe benefits as a tax-efficient alternative to straight-up pay rises. Why? Because some benefits don't attract the same tax and NI that cash bonuses do. It's a win-win situation... kind of.

The Remuneration Package: Adding It All Up

Quick vocab lesson: Remuneration means your total compensation package. That's:

• Basic salary/wages

• PLUS commission

• PLUS bonuses

• PLUS share options

• PLUS housing allowance

• PLUS all other fringe benefits

When companies try to recruit you, they'll talk about "competitive remuneration packages" rather than just salary because it sounds fancier and lets them compete without necessarily offering more cash.

Real IB Business Management Talk: A £30,000 salary with amazing benefits (health insurance, gym, pension, shares) might actually be better than a £35,000 salary with nothing extra. Do the maths before you sign anything.

Bringing It Home: What This Means for IB Business Management Exams

Here's your exam survival kit:

Key Distinctions You MUST Know:

1. Salary vs Wages: Salary = fixed cost, wages = variable cost. Don't mix them up.

2. PRP vs Profit-Related Pay: PRP = individual targets, Profit-Related = team/company targets.

3. Commission vs Piece Rate: Commission = % of sales value, Piece Rate = payment per unit produced.

Stakeholder Analysis:

• Employees want: Fair pay, recognition, security, work-life balance

• Employers want: Motivated staff, low turnover, controlled costs, increased productivity

• Shareholders want: Higher profits (which might mean lower wages for staff)

Theory Application Tips: When you're asked about financial rewards in the exam:

1. Identify which type of reward system the question mentions

2. Define it properly (use the exact IB Business Management terminology)

3. Explain advantages AND disadvantages (both sides, always)

4. Apply it to the specific business context in the question

5. Evaluate whether it's suitable (consider the type of business, the employees, the industry, the culture)

Current Example Bank for Essays:

• UK minimum wage increases (2025): £12.21/hour for 21+, demonstrating government intervention in labour markets

• Gig economy workers: Deliveroo/Uber drivers on piece rate, highlighting flexible working but insecure income

• Estate agents: Commission-based, showing high earnings potential but income instability (£1.07bn lost in Q3 2025 from failed sales)

• Google's benefits: Comprehensive fringe benefits costing millions but reducing turnover and increasing productivity

• UK share schemes: Over 2 million employees participating, demonstrating employee ownership trends

The Bottom Line

Financial rewards aren't just about money, they're about strategy. Companies use these systems to attract the talent they need, motivate people to perform, and stop everyone from quitting the second something better comes along.

For you as an IB Business Management student? This stuff is everywhere in the real world. Every job you'll ever have will use some combination of these reward systems. Understanding them now means:

• You'll negotiate better when you get your first proper job

• You'll spot dodgy employment practices a mile off

• You'll absolutely nail those Paper 1 and Paper 2 questions about motivation and reward systems

And honestly? That's worth way more than any commission, bonus, or share option your future employer could ever offer.

(Well... maybe not all the share options. Those Google / Amazon / Nvidia ones look pretty tasty.)

Key Terminology Recap:

• Salary: Fixed annual sum, paid monthly, regardless of hours

• Wages: Payment based on time worked (time rate) or output (piece rate)

• Commission: Percentage of sales value

• Performance-Related Pay (PRP): Bonuses/raises for hitting individual targets

• Profit-Related Pay: Share of company profits for hitting profit targets

• Employee Share Ownership: Shares awarded to employees

• Fringe Benefits: Extra perks beyond basic pay

• Remuneration: Total compensation package

Stay well,