Motivation: From concept to applications

CHAPTER OVERVIEW

We have presented a number of motivation theories and applications in this and the previous chapter. While it is always dangerous to synthesize a large number of complex ideas into a few simple guidelines, the following suggestions summarize the essence of what we know about motivating employees in organizations.

Recognize individual differences. Employees have different needs. Do not treat them all alike. Moreover, spend the time necessary to understand what is important to each employee. This will allow you to individualize goals, level of involvement, and rewards to align with individual needs.

Use goals and feedback. Employees should have hard, specific goals, as well as feedback on how well they are faring in pursuit of those goals.

Allow employees to participate in decisions that affect them. Employees can contribute to a number of decisions that affect them: setting work goals, choosing their own benefits packages, solving productivity and quality problems, and the like. This can increase employee productivity, commitment to work goals, motivation, and job satisfaction.

Link rewards to performance. Rewards should be contingent on performance. Importantly, employees must perceive a clear linkage. Regardless of how closely rewards are actually correlated to performance criteria, if individuals perceive this relationship to be low, the results will be low performance, a decrease in job satisfaction, and an increase in turnover and absenteeism statistics.

Check the system for equity. Rewards should also be perceived by employees as equating with the inputs they bring to the job. At a simplistic level, this should mean that experience, skills, abilities, effort, and other obvious inputs should explain differences in performance and, hence, pay, job assignments, and other obvious rewards.

WEB EXERCISES

At the end of each chapter of this instructor’s manual you will find suggested exercise and ideas for researching the WWW on OB topics. The exercises “Exploring OB Topics on the Web” are set up so that you can simply photocopy the pages, distribute them to your class, and make assignments accordingly. You may want to assign the exercises as an out-of-class activity or as lab activities with your class. Within the lecture notes the graphic will note that there is a WWW activity to support this material.

The chapter opens with the new compensation system implemented by the accounting firm of J.H. Cohn. Traditionally, accounting firms have based compensation in large part on seniority. Cohn, however, has modified its compensation program to reflect pay for performance. Cohn’s CEO, Tom Marino, sees performance based pay as helping motivate younger partners to build the business. It provides incentive and rewards performance.

BRIEF CHAPTER OUTLINE

Management by Objectives

1. What Is MBO?

1. Management by objectives emphasizes participatively set goals that are tangible, verifiable, and measurable.
2. MBO operationalizes objectives by devising a process by which objectives cascade down through the organization. (Exhibit 7-1).
3. MBO Elements

• Goal specificity
• Participative decision making
• Explicit time period
• Performance feedback

2. Linking MBO and Goal-Setting Theory

1. Goal-setting theory demonstrates that:

• Hard goals result in a higher level of performance
• Specific hard goals result in higher levels of performance
• Feedback on one’s performance leads to higher performance.

2. MBO directly advocates specific goals and feedback.

• Goals must be perceived as feasible
• Most effective when goals require stretching

3. The only area of possible disagreement with goal setting theory is participation in the setting of goals.

3. MBO in Practice

1. MBO is a popular technique

Instructor Note: At this point in the lecture you may want to introduce the TEAM EXERCISE – Goal Setting Task found in the text and at the end of these chapter notes. The purpose of the exercise is to learn how to write tangible, verifiable, measurable, and relevant goals as might evolve from an MBO program.

Employee Recognition Programs

1. What Are Employee Recognition Programs?

1. Employee recognition programs consist of personal attention, expressing interest, approval, and appreciation for a job well done.

2. Linking Recognition Programs and Reinforcement Theory

1. Research indicates that the most powerful workplace motivator is recognition.

3. Employee Recognition Programs in Practice

1. The highly competitive global economy has put most organizations under severe cost pressures, which is why recognition programs are particularly attractive. Recognizing an employee’s superior performance often costs little or no money.

Employee Involvement Programs

1. What Is Employee Involvement?

1. A catchall term covering a variety of techniques–participation or participative management, workplace democracy, empowerment, and employee ownership.

2. Examples of Employee Involvement Programs

1. Four forms of employee involvement:

• Participative management
• Representative participation
• Quality circles
• Employee stock ownership plans (ESOP’s)

2. The evidence consistently indicates that it takes ownership and a participative style of management to achieve significant improvements in an organization’s performance.

Instructor Note: At this point in the lecture you may want to introduce the POINT-COUNTER POINT – The Power of Stock Options As A Motivator found in the text and at the end of these chapter notes. A suggestion for a class exercise follows the introduction of the material.

3. Linking Employee Involvement Programs and Motivation Theories

1. Employee involvement draws on a number of the motivation

• Theory Y is consistent with participative management. Theory X aligns with the more traditional autocratic style of management.
• Two-factor theory-employee involvement programs could provide intrinsic motivation.
• Employee involvement is compatible with ERG theory and efforts to stimulate the achievement need.

4. Employee Involvement Programs in Practice

1. In Europe, the principle of industrial democracy is fairly well established. Other nations, including Japan and Israel, have some form of representative participation.
2. Employee involvement programs that stress participation have become the norm in North America.
3. Employee involvement practices differ between countries. Practices need to be modified to reflect national culture.

Job Redesign and Scheduling Programs

1. What is job redesign and scheduling

1. Ways to reshape jobs so that they are more challenging, stimulating, and motivating.
2. Three Job redesign options-job rotation, job enlargement, and job enrichment

• Job rotation
• Job enlargement
• Job enrichment (Exhibit 7-4)

3. How does management enrich an employee’s job?

• Combining tasks
• Forming natural work units
• Establishing client relationships
• Expanding jobs vertically
• Opening feedback channels

4. Overall evidence indicates that job enrichment reduces absenteeism and turnover costs and increases satisfaction.
5. Flextime. (flexible work hours). Allows employees some discretion over when they arrive at and leave work. (Exhibit 7-5).
6. Job sharing. Allows two or more individuals to split a traditional 40-hour a week job.
7. Telecommuting. Employees who do their work at home at least two days a week on a computer that is linked to their office.

Variable Pay Programs

1. What Are Variable-Pay Programs?

1. Variable Pay Programs can take the form of piece-rate wages, bonuses, profit sharing and gainsharing.
2. A portion of an employee’s pay is based on some individual and/or organizational measure of performance.
3. Variable-pay programs are generally successful in increasing motivation and productivity. Studies generally support that organizations with profit-sharing plans have higher levels of profitability than those without.

Instructor Note: At this point in the lecture you may want to introduce the CASE INCIDENT – When the Perks Fade found in the text and at the end of these chapter notes. A suggestion for a class exercise follows the introduction of the material.

2. Linking Variable-Pay Programs and Expectancy Theory

1. Variable pay is probably most compatible with expectancy theory predictions. Individuals should perceive a strong relationship between their performance and the rewards they receive if motivation is to be maximized.
2. The evidence supports the importance of this linkage:

3. Variable-Pay Programs in Practice

1. Variable pay is rapidly replacing the annual cost-of-living raise.
2. The new trend has been expanding this practice to non-managerial employees.
3. Seventy-eight percent of U.S. companies have some form of variable pay plan with rank and file workers.
4. Gain sharing’s popularity seems to be narrowly focused among large, unionized manufacturing companies.

Instructor Note: At this point in the lecture you may want to introduce the ETHICAL DILEMMA EXERCISE – Are American CEO’s Paid Too Much? box found in the text and at the end of these chapter notes. A suggestion for a class exercise follows the introduction of the material.

Instructor Note: At this point in the lecture you may want to introduce the OB IN THE NEWS – Pay for Performance at Siebel Systems box found in the text and below. A suggestion for a class exercise follows the introduction of the material below.

Skilled-Based Pay Plans

1. What Are Skill-Based Pay Plans?

1. Skill-based pay is an alternative to job-based pay. It is sometimes called competency-based pay or knowledge-based pay.
2. The appeal, from management’s perspective is flexibility:

2. Linking Skill-Based Pay Plans to Motivation Theories

1. Skill-based pay plans are consistent with several motivation theories.

• ERG theory – because they encourage employees to learn, expand their skills, and grow
• Achievement need – paying people to expand their skill levels, high achievers will find their jobs more challenging
• Reinforcement theory – by encouraging employees to develop their flexibility, to continue to learn, to cross-train, to be generalists rather than specialists, and to work cooperatively with others in the organization.

2. Skill-based pay may additionally have equity implications. When employees make their input-outcome comparisons, skills may provide a fairer input criterion for determining pay than factors such as seniority or education.

3. Skill-Based Pay in Practice

1. A number of studies conclude that skill-based pay is expanding and that it generally leads to higher employee performance and satisfaction.

Flexible Benefits

1. What Are Flexible Benefits?

1. The idea is to allow each employee to choose a benefit package that is individually tailored to his/her own needs and situation.
2. An organization sets up a flexible spending account for each employee, usually based on some percentage of his or her salary, and then a price tag is put on each benefit. There are three basic types of programs:

• Modular Plans:
• Core-plus Plans:
• Flexible Spending Plans:

2. Linking Flexible Benefits and Expectancy Theory

1. Consistent with expectancy theory’s thesis that organizational rewards should be linked to each individual employee’s goals, flexible benefits individualize rewards by allowing each employee to choose the compensation package that best satisfies his/her current needs.

3. Flexible Benefits in Practice

1. From the organization’s standpoint, it often produces savings. Once in place, costly increases often have to be substantially absorbed by the employee.

EXPANDED CHAPTER OUTLINE

Management by Objectives

1. What Is MBO?

1. Management by objectives emphasizes participatively set goals that are tangible, verifiable, and measurable. It is not a new idea. It originated more than 50 years ago.
2. MBO’s appeal lies in its emphasis on converting overall organizational objectives into specific objectives for organizational units and individual members. MBO operationalizes objectives by devising a process by which objectives cascade down through the organization. (Exhibit 7-1).
3. Common elements in MBO programs:
4. Goal specificity:

The objectives in MBO should be concise statements of expected accomplishments. Example – To cut departmental costs by seven percent, to improve service by ensuring that all telephone orders are processed within 24 hours of receipt, or to increase quality by keeping returns to less than one percent of sales.

5. Participative decision making:

• The objectives in MBO are not unilaterally set by the boss and then assigned to employees.
• The manager and employee jointly choose the goals and agree on how they will be measured.

6. An explicit time period:

• Each objective has a specific time period in which it is to be completed.
• Typically three months, six months, or a year

7. Performance feedback

MBO seeks to give continuous feedback on progress toward goals so that workers can monitor and correct their own actions.

2. Linking MBO and Goal-Setting Theory

1. Goal-setting theory demonstrates that:

1. Hard goals result in a higher level of individual performance than do easy goals.
2. Specific hard goals result in higher levels of performance than no goals at all or generalized goals.
3. Feedback on one’s performance leads to higher performance.

2. MBO directly advocates specific goals and feedback.

4. Implies that goals must be perceived as feasible
5. Is most effective when the goals are difficult enough to require stretching

The only area of possible disagreement with goal setting theory is participation-MBO strongly advocates it. Goal-setting theory-assigning goals to subordinates-frequently works just as well participation.

3. MBO in Practice

1. Reviews of studies suggest that MBO is a popular technique – it is used in business, health care, educational, government, and nonprofit organizations.
2. MBO’s popularity should not be construed to mean that it always works.

• Where it has failed, the problems rarely lie with MBO’s basic components.
• Rather, factors such as unrealistic expectations regarding results, lack of top-management commitment, and an inability or unwillingness by management to allocate rewards based on goal accomplishment are the cause.

Instructor Note: At this point in the lecture you may want to introduce the TEAM EXERCISE – Goal Setting Task found in the text and at the end of these chapter notes. The purpose of the exercise is to learn how to write tangible, verifiable, measurable, and relevant goals as might evolve from an MBO program.

Employee Recognition Programs

1. What Are Employee Recognition Programs?

1. Employee recognition programs consist of personal attention, expressing interest, approval, and appreciation for a job well done. They can take numerous forms.
2. The best ones use multiple sources and recognize both individual and group accomplishments.

2. Linking Recognition Programs and Reinforcement Theory

1. Fifteen-hundred employees were surveyed in a variety of work settings about what they considered to be the most powerful workplace motivator. Their response was “recognition!”
2. Consistent with reinforcement theory, rewarding a behavior with recognition immediately following that behavior is likely to encourage its repetition.
3. Recognition can take many forms:

• Personally congratulate an employee.
• Send a handwritten note or an e-mail message.
• “Bragging Boards,” etc.

3. Employee Recognition Programs in Practice

1. The highly competitive global economy has put most organizations under severe cost pressures, which is why recognition programs are particularly attractive. Recognizing an employee’s superior performance often costs little or no money.
2. Employee recognition programs have experienced significant growth in popularity.
3. Critics argue that these programs are susceptible to political manipulation by management. If abused, the value of recognition programs is undermined, leading to demoralized employees.

Employee Involvement Programs

1. What Is Employee Involvement?

1. Employee involvement has become a catchall term to cover a variety of techniques. It encompasses employee participation or participative management, workplace democracy, empowerment, and employee ownership.
2. Employee involvement is a participative process that uses the entire capacity of employees and is designed to encourage increased commitment to the organization’s success.
3. The underlying logic is that by involving workers in those decisions that affect them and by increasing their autonomy and control over their work lives, employees will become more motivated, more committed to the organization, more productive, and more satisfied with their jobs.

2. Examples of Employee Involvement Programs

1. Four forms of employee involvement are participative management, representative participation, quality circles, and employee stock ownership plans.
2. Participative management:

• The distinct characteristic common to all participative management programs is that subordinates actually share a significant immediate degree of decision-making power with their superiors.
• It has been promoted as a panacea for poor morale and low productivity. However, it is not appropriate for every organization. For it to work, there must be adequate time to participate, the issues in which employees get involved must be relevant to their interests, employees must have the ability (intelligence, technical knowledge, communication skills) to participate, and the organization’s culture must support employee involvement.
• Why would management want to share its decision-making power with subordinates?

1. Managers often do not know everything their employees do.
2. Better decisions
3. Increased commitment to decisions
4. Intrinsically rewarding employees makes their jobs more interesting and meaningful

Dozens of studies have been conducted but the findings are mixed. It appears that participation typically has only a modest influence on productivity, motivation, and job satisfaction.

3. Representative participation: Almost every country in Western Europe has some type of legislation requiring it. It is the most widely legislated form of employee involvement around the world.

• The goal is to redistribute power within an organization, putting labor on a more equal footing with the interests of management and stockholders.
• The two most common forms:

4. Works councils link employees with management. They are groups of nominated or elected employees who must be consulted when management makes decisions involving personnel.
5. Board representatives are employees who sit on a company’s board of directors and represent the interests of the firm’s employees.
6. In some countries, large companies may be legally required to make sure that employee representatives have the same number of board seats as stockholder representatives.
7. The overall influence seems to be minimal. The evidence suggests that works councils are dominated by management and have little impact on employees or the organization.

If one were interested in changing employee attitudes or in improving organizational performance, representative participation would be a poor choice.

8. Quality circles:

1. Quality circles became popular in North America and Europe during the 1980s.
2. A quality circle consists of a work group of eight to ten employees and supervisors who have a shared area of responsibility. Key components are:

9. They meet regularly on company time to discuss their quality problems, investigate causes of the problems, recommend solutions, and take corrective actions.
10. They take over the responsibility for solving quality problems and they generate and evaluate their own feedback.
11. Management typically retains control over the final implementation decision.

1. A review of the evidence indicates that they are likely to positively affect productivity, however, they tend to show little or no effect on employee satisfaction.
2. QC’s seem to be a fad that has come and gone.

12. First is the little bit of time (usually just an hour per week) that actually deals with employee involvement.
13. Second, the ease of implementing quality circles often worked against them. The lack of planning and top-management commitment often contributed to quality circle failures.
14. Employee stock ownership plans:

1. Employee ownership can mean any number of things. Most common is ESOPs which are company-established benefit plans in which employees acquire stock as part of their benefits.
2. In the typical ESOP, an employee stock ownership trust is created. Companies contribute either stock or cash to buy stock for the trust and allocate the stock to employees.
3. Employees usually cannot take physical possession of their shares or sell them as long as they are still employed at the company.
4. The research indicates that they increase employee satisfaction, but their impact on performance is less clear.

15. The evidence consistently indicates that it takes ownership and a participative style of management to achieve significant improvements in an organization’s performance.

Instructor Note: At this point in the lecture you may want to introduce the POINT-COUNTER POINT – The Power of Stock Options As A Motivator found in the text and at the end of these chapter notes. A suggestion for a class exercise follows the introduction of the material.

3. Linking Employee Involvement Programs and Motivation Theories

Employee involvement draws on a number of the motivation theories previously discussed:

• Theory Y is consistent with participative management. Theory X aligns with the more traditional autocratic style of management.
• Two-factor theory-employee involvement programs could provide intrinsic motivation.
• Employee involvement is compatible with ERG theory and efforts to stimulate the achievement need.

4. Employee Involvement Programs in Practice

1. Germany, France, Holland, and the Scandinavian countries have firmly established the principle of industrial democracy in Europe. Other nations, including Japan and Israel, have traditionally practiced some form of representative participation.
2. Participative management and representative participation were much slower to gain ground in North American organizations. Employee involvement programs that stress participation have become the norm.
3. Employee involvement practices differ between countries. Practices need to be modified to reflect national culture.
4. The names of companies that have used quality circles read like a Who’s Who of Corporate America. But the success of quality circles has been far from overwhelming. In recent years, many organizations have adopted more comprehensive team-based structures.

Job Redesign and Scheduling Programs

1. What is job redesign and scheduling

1. Ways to reshape jobs so that they are more challenging, stimulating, and motivating.
2. Three Job redesign options-job rotation, job enlargement, and job enrichment

1. Reduces boredom and increases motivation
2. Training costs are increased, productivity is reduced

1. Efforts have met with less than enthusiastic results
2. Some successful applications.

3. How does management enrich an employee’s job?

• Combining tasks
• Forming natural work units
• Establishing client relationships
• Expanding jobs vertically
• Opening feedback channels

4. Overall evidence indicates that job enrichment reduces absenteeism and turnover costs and increases satisfaction. Evidence is inconclusive on the issue of productivity.
5. Flextime. (flexible work hours). Allows employees some discretion over when they arrive at and leave work. (Exhibit 7-5).

• Benefits include reduced absenteeism, increased productivity, reduced overtime expense, and reduced hostility toward management, and increased autonomy and responsibility for employees.
• Major drawback is that it’s not applicable to all jobs.

6. Job sharing. Allows two or more individuals to split a traditional 40-hour a week job.
7. Telecommuting. Employees who do their work at home at least two days a week on a computer that is linked to their office.

Self-Assessment Exercise

Job Enrichment

Instructor Note: Students should complete the Self-Assessment Exercise from SAL #19 “Do I Want an Enriched Job?” The results from this exercise directly relate to the chapter material.

Students should consider the following after they have completed the exercises:

• What did you find out about yourself in doing this exercise?
• How can you use this information in helping you in the workplace?
• Do you think this information will help you as a manager? How?

Instructor Note: At this point in the lecture you may want to introduce the MYTH OR SCIENCE? “Everyone Wants a Challenging Job”” found in the text and at the end of these chapter notes. The discussion of the material will provide students the opportunity to discuss how managers should determine whether individuals desire more challenging jobs.

MYTH OR SCIENCE? – Everyone Wants a Challenging Job

This statement is false. In spite of all the attention focused by the media, academicians, and social scientists on human potential and the needs of individuals, there is no evidence to support that the vast majority of workers want challenging jobs. Some individuals prefer highly complex and challenging jobs; others prosper in simple, routinized work.

The individual-difference variable that seems to gain the greatest support for explaining who prefers a challenging job and who doesn’t is the strength of an individual’s higher-order needs. Individuals with high growth needs are more responsive toe challenging work. But what percentage of rank-and-file workers actually desire higher-order need satisfactions and will respond positively to challenging jobs? No current data are available, but a study from the 1970’s estimated the figure at about 15 percent. Even after adjusting for changing work attitudes and the growth in white-collar jobs, it seems unlikely that the number today exceeds 40 percent.

The strongest voice advocating challenging jobs has not been workers-it’s been professors, social-science researchers, and journalists. Professors, researchers, and journalists undoubtedly made their career choices, to some degree, because they wanted jobs that gave them autonomy, identity, and challenge. That, of course, is their choice. But for them to project their needs onto the workforce in general is presumptuous.

Not every employee is looking for a challenging job. Many workers meet their higher-order needs off the job. There are 168 hours in every individual’s week. Work rarely consumes more than 30 percent of this time. That leaves considerable opportunity, even for individuals with strong growth needs, to find higher-order need satisfaction outside the workplace.

Class Exercise:

1. Have students work in teams of 3-5 members.
2. Each team should prepare a short presentation based on this feature.
3. The presentation should focus on the role of managers in determining whether individuals welcome and/or “need” more challenging work.

Linking Job Redesign and Scheduling to Motivation Theories

1. Exhibit 7-4. Guidelines for enriching jobs directly related to the Job characteristics model.
2. Enrichment linked to Hertzberg’s two-factor theory.
3. Flexibility themes in job scheduling is addressed in expectancy theory with the importance placed on linking rewards to personal goals.

Variable Pay Programs

1. What Are Variable-Pay Programs?

1. Variable Pay Programs can take the form of piece-rate wages, bonuses, profit sharing and gainsharing.
2. A portion of an employee’s pay is based on some individual and/or organizational measure of performance. Unlike more traditional base-pay programs, variable pay is not an annuity-there is no guarantee.
3. The fluctuation in variable pay programs makes them attractive to management. The organization’s fixed labor costs turn into a variable cost reducing expenses when performance declines. Also, tying pay to performance recognizes contribution rather than being a form of entitlement.
4. Four widely used programs are piece-rate wages, bonuses, profit sharing, and gain sharing:

• Piece-rate wages

1. Around for nearly a century
2. Popular as a means for compensating production workers
3. Workers are paid a fixed sum for each unit of production completed.
4. A pure piece-rate plan-the employee gets no base salary and is paid only for production. For example: Selling peanuts in ballparks works this way.
5. Modified piece-rate plan-employees earn a base hourly wage plus a piece-rate differential.

• Bonuses

1. These can be paid exclusively to executives or to all employees.
2. Increasingly, bonus plans are taking on a larger net within organizations to include lower-ranking employees to reward production and increased profits.

• Profit-sharing plans

1. Organization wide programs that distribute compensation based on some established formula designed around a company’s profitability
2. Direct cash outlays or, particularly in the case of top managers, allocated as stock options

• Gainsharing

1. This is a formula-based group incentive plan.
2. Improvements in group productivity-from one period to another-determine the money allocated.
3. Gainsharing and profit sharing are similar but not the same thing. It focuses on productivity gains rather than profits.
4. Gainsharing rewards specific behaviors that are less influenced by external factors. Employees in a gainsharing plan can receive incentive awards even when the organization is n0t profitable.

5. Variable-pay programs are generally successful in increasing motivation and productivity. Studies generally support that organizations with profit-sharing plans have higher levels of profitability than those without.

Instructor Note: At this point in the lecture you may want to introduce the CASE INCIDENT – When the Perks Fade found in the text and at the end of these chapter notes. A suggestion for a class exercise follows the introduction of the material.

6. Gain sharing has been found to improve productivity in a majority of cases and often has a positive impact on employee attitudes. For example:

1. An American Management Association study of 83 companies.
2. On average, grievances dropped 83 percent, absences fell 84 percent, and lost-time accidents decreased by 69 percent.

7. The downside of variable pay is its unpredictability.

3. Depending how your variable pay is determined, company downturns can cut income.

4. Moreover, people begin to take repeated annual performance bonuses for granted.

2. Linking Variable-Pay Programs and Expectancy Theory

1. Variable pay is probably most compatible with expectancy theory predictions. Individuals should perceive a strong relationship between their performance and the rewards they receive if motivation is to be maximized.
2. The evidence supports the importance of this linkage:

• Group and organization-wide incentives reinforce and encourage employees to sublimate personal goals for the best interests of their department or the organization.
• Group-based performance incentives are also a natural extension for building a strong team ethic.

3. Variable-Pay Programs in Practice

1. Variable pay is rapidly replacing the annual cost-of-living raise. This is because of its motivational power and cost implications, avoiding the fixed expense of permanent salary boosts.
2. This pay strategy has been practiced in managerial levels for the last 10 or so years. The new trend has been expanding this practice to non-managerial employees.
3. Variable-pay plans are becoming increasingly popular: Seventy-eight percent of U.S. companies have some form of variable pay plan with rank and file workers. Even Japan has introduced these programs-a recent survey found that 21.8 percent of Japanese companies now use such pay systems.
4. Gain sharing’s popularity seems to be narrowly focused among large, unionized manufacturing companies.
5. Common concerns among firms that have not introduced performance-based compensation programs are:

• What should constitute performance, and how it should be measured?
• Overcoming the historical attachment to cost-of-living adjustments and the belief that they have an obligation to keep all employees’ pay in step with inflation.
• Salary scales keyed to what the competition is paying, etc.
• From the employees’ standpoint, the major concern is a potential drop in earnings.

Instructor Note: At this point in the lecture you may want to introduce the ETHICAL DILEMMA EXERCISE – Are American CEO’s Paid Too Much? box found in the text and at the end of these chapter notes. A suggestion for a class exercise follows the introduction of the material.

Instructor Note: At this point in the lecture you may want to introduce the OB IN THE NEWS – Pay for Performance at Siebel Systems box found in the text and below. A suggestion for a class exercise follows the introduction of the material below.

OB IN THE NEWS – Pay for Performance at Siebel Systems

Executives at Siebel Systems, the sales automation software firm headquartering in San Mateo, California, understand how rewards shape behavior. They have scrapped their traditional system of rewarding their sales people solely on the basis of how well they achieve their sales targets. They have replaced it with a new motivation system that broadens the definition of sales performance to include building long-term customer satisfaction.

Siebel considers building long-term customer relationships to be its top priority. Says the company’s vice president of technical services, Steve Mankoff: “[If reps] close a contract with a customer, continue to follow up with that customer, and make sure that customer is successful, chances are that customer will come back for more. In any given quarter, 45 to 60 percent of our business is from repeat customers.”

So now nearly 40 percent of each salesperson’s incentive compensation is based on their customer’s reported satisfaction with service and implementation of the products they have purchased. To determine how well its salespeople are doing, Siebel regularly surveys customers on the responsiveness of its sales organization, the sales consultant’s ability to integrate a customer’s requirements with Siebel’s software solutions, the rep’s knowledge of the products and of the customer’s project, and ease of purchasing and contracting.

By broadening pay for performance from just generating sales to also including customer satisfaction, Siebel is getting its sales force to focus on the needs of its customers. “It works,” says Mankoff. “Our loyalty rate among customers is in the 96 to 99 percent range.”

Class Exercise:

1. Ask students to break into small groups. Their assignment will be to develop customer retention/loyalty strategies for a landscape design and installation business. (These strategies can be any number of things such as: calling a customer after a patio installation, calling to offer additional products and services, holding free gardening seminars, having a booth at the annual home and garden sales, and providing a free monthly newsletter by email to customers.)
2. Once they have developed their strategy, ask them to determine which of these strategies applies to the sales staff for the company. Then have them develop criteria for rewarding salespeople for engaging in these behaviors. Or, they may choose to reward the salesperson in another way after repeat business occurs such as giving an extra commission bonus when an existing customer reorders.
3. Discuss the strategies they came up with as a class. Was this an easy or difficult task? Why did they make the choices they made. Ask if they would be willing to be evaluated on those criteria and how much of their pay should be subject to those alternative criteria.

Skilled-Based Pay Plans

1. What Are Skill-Based Pay Plans?

1. Skill-based pay is an alternative to job-based pay. It is sometimes called competency-based pay or knowledge-based pay.
2. Competency-based pay sets pay levels on the basis of how many skills employees have or how many jobs they can.
3. The appeal, from management’s perspective is flexibility:

• Filling staffing needs is easier when employee skills are interchangeable.
• Organizations today require more generalists and less specialists.
• It facilitates communication across the organization because people gain a better understanding of others’ jobs.
• It lessens dysfunctional “protection of territory” behavior.
• Additionally, it helps meet the needs of ambitious employees who confront minimal advancement opportunities.
• It appears to lead to performance improvements.

4. Downside of skill-based pay:

• People can “top out,” learning all the skills the program calls for them to learn.
• Skills can become obsolete. Organizations paying for skills they no longer need.
• Skill-based plans do not address level of performance.

2. Linking Skill-Based Pay Plans to Motivation Theories

1. Skill-based pay plans are consistent with several motivation theories.

• ERG theory-because they encourage employees to learn, expand their skills, and grow
• Achievement need-paying people to expand their skill levels, high achievers will find their jobs more challenging
• Reinforcement theory-by encouraging employees to develop their flexibility, to continue to learn, to cross-train, to be generalists rather than specialists, and to work cooperatively with others in the organization.

2. Skill-based pay may additionally have equity implications. When employees make their input-outcome comparisons, skills may provide a fairer input criterion for determining pay than factors such as seniority or education.

3. Skill-Based Pay in Practice

1. A number of studies conclude that skill-based pay is expanding and that it generally leads to higher employee performance and satisfaction.
2. The increased use of skills as a basis for pay is strongest among organizations facing aggressive foreign competition and those with short product life cycles.
3. Skilled-based pay appears to be an idea whose time has come. Your market value is now based on what you skill set is.

Flexible Benefits

1. What Are Flexible Benefits?

1. The idea is to allow each employee to choose a benefit package that is individually tailored to his/her own needs and situation.
2. Average fringe benefits equal approximately 40% of salary. Traditional benefit programs were designed for a male with a wife and two children at home.
3. Less than 10 percent of employees now fit this stereotype. Traditional programs do not tend to meet their needs: Some facts:

• Twenty-five percent of today’s employees are single.
• A third are part of two-income families without any children.

4. An organization sets up a flexible spending account for each employee, usually based on some percentage of his or her salary, and then a price tag is put on each benefit. There are three basic types of programs:

• Modular Plans: pre-designed with each module put together to meet the needs of a specific group of employees.
• Core-plus Plans: a core of essential benefits and a menu like selection of other benefit options.
• Flexible Spending Plans: employees set aside a specific dollar amount for benefits tax-free and draw against the account for medical and dental services as needed.

2. Linking Flexible Benefits and Expectancy Theory

1. Flexible benefits turn the benefits’ expenditure into a motivator. Approximately 13 percent of large and medium sized U.S. companies have flexible benefits plans.
2. Consistent with expectancy theory’s thesis that organizational rewards should be linked to each individual employee’s goals, flexible benefits individualize rewards by allowing each employee to choose the compensation package that best satisfies his/her current needs.

3. Flexible Benefits in Practice

1. Benefit for employees is the flexibility. It is attractive because they can tailor their benefits and levels of coverage to their own needs.
2. From the organization’s standpoint, it often produces savings. Once in place, costly increases often have to be substantially absorbed by the employee.
3. Drawbacks from the employee’s standpoint is that the costs of individual benefits often go up, so fewer total benefits can be purchased.

Drawbacks for the organization are that these plans are more cumbersome for management to oversee, and administering the programs is often expensive.

Self-Assessment Exercise

Motivation

Instructor Note: Students should complete the Self-Assessment Exercise from SAL #18 “What’s My Job Motivating Potential?” You can use student results to discuss applications of the various motivation theories.

Students should consider the following after they have completed the exercises:

• What did you find out about yourself in doing this exercise?
• How can you use this information in helping you in the workplace?
• Do you think this information will help you as a manager? How?

POINT-COUNTERPOINT – The Power Of Stock Options As A Motivator

POINT

Professional employees are different than your average employee. And they’re more difficult to motivate. Why? Because professionals don’t respond to the same stimuli that nonprofessionals do.

        Professionals like engineers, accountants, lawyers, nurses, and software designers are different from nonprofessionals. They have a strong and long-term commitment to their field of expertise. Their loyalty is more often to their profession than to their employer. And typical rewards, like money and promotions, are rarely effective in encouraging professionals to exert high levels of effort.

        Professionals see their allegiance to their profession, not to the organization that employs them. A nurse, for instance, may work for Mercy Hospital but she reads nursing journals, belongs to nursing associations, attends nursing conferences, and hangs around with other nurses during her breaks at work. When asked what she does for a living, she’s more apt to respond, “I’m a registered nurse” than “I work at Mercy Hospital.”

        Money and promotions are typically low on the professional’s priority list. Why? Because they tend to be well paid already and they enjoy what they do. For instance, professionals are not typically anxious to give up their work to take on managerial responsibilities. They’ve invested a great deal of time and effort in developing their professional skills. They’ve typically gone to professional schools for several years and undergone specialized training to build their proficiencies. They also invest regularly-in terms of reading, taking courses, attending conferences, and the like-to keep their skills current. Moving into management often means cutting off their ties to their profession, losing touch with the latest advances in their field, and having to let the skills that they’ve spent years developing become obsolete.

        This loyalty to the profession and less interest in typical organizational rewards makes motivating professionals more challenging and complex. They don’t respond to traditional rewards. And because they tend to give their primary allegiance to their profession rather than their employer, they’re more likely to quit if they’re dissatisfied. As an employer, you might be justified in deciding not to exert the effort to develop and keep professionals because they’re unlikely to reciprocate loyalty efforts you make.

COUNTERPOINT

Let’s first address the question of whether professionals with advanced degrees are really that different from nonprofessionals. One of the differences often cited regarding professionals is their allegiance to their profession. But this isn’t unique to the so-called “degreed professionals.” For instance, plumbers, electricians, and similar trades people aren’t considered professionals but they typically see themselves as affiliated to their trade or union rather than their employer. Similarly, many auto workers at Ford and GM give their primary allegiance to the United Auto Workers union.

        Even if you accept that professionals are different than nonprofessionals, these differences may make it easier to motivate professionals rather than harder. For a large proportion of professionals, their work is their life. They rarely define their workweek in terms of 8 to 5 and five days a week. Working 60 hours a week or more is often common. They love what they do and often prefer to be working rather than doing anything else. So as long as they enjoy their work, they’re likely to be self-motivated.

        What factors are likely to determine if they enjoy their work? Job challenge tends to be ranked high. They like to tackle problems and find solutions. They prefer jobs that score high on the job characteristics model; that is, they want jobs that provide variety, identity, significance, autonomy, and feedback. Professionals also value support, recognition, and opportunities to improve and expand their professionals’ expertise.

        So how do you motivate professionals? Provide them with ongoing challenging projects. Give them autonomy to follow their interests and allow them to structure their work in ways that they find productive. Provide them with lateral moves that allow them to broaden their experience. Reward them with educational opportunities-training, workshops, attending conferences-that allow them to keep current in their field. Additionally, reward them with recognition. And consider creating alternative career paths that allow them to earn more money and status, without assuming managerial responsibilities. At Merck, IBM, and AT&T, for instance, the best scientists, engineers, and researchers gain titles such as fellow and senior scientist. They carry pay and prestige comparable to those of managers but without the corresponding authority or responsibility.

QUESTIONS FOR REVIEW

1. Relate goal-setting theory to the MBO process. How are they similar? Different?

Answer – Management by objectives emphasizes participatively set goals that are tangible, verifiable, and measurable. It is not a new idea. Linking MBO and goal-setting theory:

Goal-setting theory demonstrates that:

• Hard goals result in a higher level of individual performance than do easy goals.
• Specific hard goals result in higher levels of performance than no goals at all or generalized goals.
• Feedback on one’s performance leads to higher performance.

MBO

• Directly advocates specific goals and feedback.
• Implies that goals must be perceived as feasible.
• Is most effective when the goals are difficult enough to require stretching.

The only area of possible disagreement is participation.

• MBO strongly advocates it.
• Goal-setting theory-assigning goals to subordinates frequently works just as well as participation.

2. What is an ESOP? How might it positively influence employee motivation?

Answer – ESOPs are company-established benefit plans in which employees acquire stock as part of their benefits. In the typical ESOP, an employee stock ownership trust is created. Companies contribute either stock or cash to buy stock for the trust and allocate the stock to employees. Employees usually cannot take physical possession of their shares or sell them as long as they are still employed at the company. The research indicates that ESOPs increase employee satisfaction, but their impact on performance is less clear. One study compared 45 ESOPs against conventional companies. The ESOPs outperformed the conventional firms both in terms of employment and sales growth, but other studies have shown disappointing results. The evidence consistently indicates that it takes ownership and a participative style of management to achieve significant improvements in an organization’s performance.

3. Explain the roles of employees and management in quality circles.

Answer – Probably the most widely discussed and undertaken formal style of employee involvement is management in quality circles. It is a work group of eight to ten employees and supervisors who have a shared area of responsibility. They meet regularly on company time to discuss their quality problems, investigate causes of the problems, recommend solutions, and take corrective actions. They take over the responsibility for solving quality problems, and they generate and evaluate their own feedback. Management typically retains control over the final implementation decision. Exhibit 7-3 describes a typical quality circle process.

4. What are the pluses of variable-pay programs from an employee’s viewpoint? From management’s viewpoint?

Answer – Variable pay offers bigger rewards and ties rewards to work. For management, it reduces cost because pay is tied to productivity and eliminates or reduces permanent increases in labor costs.

5. Contrast job-based and skill-based pay.

Answer – Rather than job title defining one’s pay (as in job-based pay), one’s competency (or the number and level of skills one has) determines pay levels.

6. What is gain sharing? What explains its recent popularity?

Answer – This is a formula-based group incentive plan. Improvements in group productivity-from one period to another-determine the money allocated. Gain sharing and profit sharing are similar but not the same thing. Gainsharing rewards specific behaviors that are less influenced by external factors. Employees in a gainsharing plan can receive incentive awards even when the organization is not profitable.

Studies generally support that organizations with profit-sharing plans have higher levels of profitability than those without. Gain sharing has been found to improve productivity in a majority of cases and often has a positive impact on employee attitudes.

7. What are the advantages of flextime from an employee’s perspective? From management’s perspective?

Answer – Employee perspective-can schedule work hours to align with personal demands; Management’s perspective-reduces absenteeism and frequently improves worker productivity; lessens hostility toward management and may increase employee job satisfaction.

8. What are the advantages of job sharing from an employee’s perspective? From management’s perspective?

Answer – Employee perspective-increases flexibility particularly where a 40 hour a week job isn’t practical. Management perspective-allows the organization to draw on the talents of more than one individual in a given job. Opens up the opportunity to acquire skilled workers who might not be available on a full-time basis.

9. What role, if any, does money play in MBO, employee recognition, job redesign, and skill-base pay?

Answer – Money is remuneration and could be set on a pay for performance basis in any of the programs listed here. It is usually not necessary for employee recognition. However, where jobs are redesigned and include more tasks, money would be appropriate.

10. What can you do, as a manager, to increase the likelihood that your employees will exert a high level of effort?

Answer – Check the system for equity. Rewards should also be perceived by employees as equating with the inputs they bring to the job. At a simplistic level, this should mean that experience, skills, abilities, effort, and other obvious inputs should explain differences in performance and, hence, pay, job assignments, and other obvious rewards.

QUESTIONS FOR CRITICAL THINKING

1. Identify five different criteria by which organizations can compensate employees. Based on your knowledge and experience, do you think performance is the criterion most used in practice? Discuss.

Answer – Seniority, position, merit, skill, and productivity/performance. Students’ responses will vary; generally, there is a great deal of discussion of performance pay in the literature and among managers. The key issue is whether employees perceive the compensation-performance linkage, regardless of what management implements.

2. “Recognition may be motivational for the moment but it does not have any staying power. It is an empty reinforcer. Why? Because when you go the grocery store, they do not take recognition as a form of payment!” Do you agree or disagree? Discuss.

Answer – Students’ answers may vary more due to the personalities than facts. Some people never forget being recognized once, others look for continual recognition. Keys to remember in the discussion include the following: The best recognition programs use multiple sources and recognize both individual and group accomplishments. Employees consider recognition to be the most powerful workplace motivator. Consistent with reinforcement theory, rewarding a behavior with recognition immediately following that behavior is likely to encourage its repetition.

3. “Performance cannot be measured, so any effort to link pay with performance is a fantasy. Differences in performance are often caused by the system, which means the organization ends up rewarding the circumstances. It is the same thing as rewarding the weather forecaster for a pleasant day.” Do you agree or disagree with this statement? Support your position.

Answer – Performance measurement can be difficult depending on the type of job being evaluated. The key is to try to control for those factors that employees cannot control, measure, and reward those that employees can control. Also, building in base income in an incentive system helps smooth the dips that come due to factors beyond employee control.

4. It is an indisputable fact that there has been an explosive increase in the difference between the average U.S. worker’s income and those of senior executives. In 1980, the average CEO made 42 times the average blue-collar worker’s pay. In 1990, it was 85 times. In 2000, it had risen to 531 times. What are the implications of this trend for motivation in organizations?

Answer – Students will have varying opinions on this. Given recent corporate scandals involving CEO’s who took millions at the expense of employees’ retirement accounts they should take into account such factors as trust, employee retention, productivity, efficiency, etc.

5. This book argues for recognizing individual differences. It also suggests paying attention to members of diversity groups. Is this contradictory? Discuss.

Answer – There is no inherent contradiction because both approaches seek to treat people as individuals. Sensitivity to diversity is not sensitivity to a group, but to the individual within the group.

TEAM EXERCISE – Goal-Setting Task

Purpose: This exercise will help you learn how to write tangible, verifiable, measurable, and relevant goals as might evolve from an MBO program.

Time: Approximately 20 to 30 minutes

Instructions:

1. Break into groups of three to five.
2. Spend a few minutes discussing your class instructor’s job. What does he or she do? What defines good performance? What behaviors will lead to good performance?
3. Each group is to develop a list of five goals that, although not established participatively with your instructor, you believe might be developed in an MBO program at your college. Try to select goals that seem most critical to the effective performance of your instructor’s job.
4. Each group will select a leader who will share his or her group’s goals with the entire class. For each group’s goals, class discussion should focus on their: (a) specificity, (b) ease of measurement, (c) importance, and (d) motivational properties.

Teaching notes:

1. The exercise is self-explanatory.
2. Focus on the criteria in #4 first. Then correct any misperceptions students have of your job.
3. Use the discussion of any misperceptions to exemplify the difficulty of setting goals.

ETHICAL DILEMMA EXERCISE – Are American CEOs Paid Too Much?

Critics have described the astronomical pay packages given to American CEO’s as “rampant greed.” They note, for instance, that during the 1990s, corporate profits rose 108 percent. During this same period, workers’ pay rose only 28 percent. Yet CEO pay rose 481 percent! In the year 2000, the average CEO of a major American corporation made 531 times as much as the average factory worker. If the average production workers’ pay had increased at the same rate as CEO pay during this period, worker pay would be $110,399 today rather than $29,267.

High levels of executive compensation seem to be widely spread in the United States. In 2000, for instance, John Chambers of Cisco Systems took home $157.3 million; General Electric’s Jack Welch was paid $122.6 million; and Coca-Cola’s Douglas Daft earned $91.7 million. These figures were for pay and exercised stock options only. They do not include potentially hundreds of millions more from appreciated value of unexercised stock options. Twenty-five years ago,