LEC 7 Motivation in Practice.docx

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University of Toronto Scarborough
Management (MGH)
Joanna Heathcote

LEC 7 MOTIVATION IN PRACTICE Linking Pay to Performance on Production Jobs The prototype of all schemes to link pay to performance on production jobs is piece-rate. Piece-rate refers to a pay system in which individual workers are paid a certain sum of money for each unit of production they complete. Various schemes to link pay to performance on production jobs are called wage incentive plans. The introduction of wage incentives usually leads to substantial increases in productivity. One of the best examples of the successful use of a wage incentive plan is the Lincoln Electric Company. Potential Problems with Wage Incentives Lowered Quality: Wage incentives can increase productivity at the expense of quality. Differential Opportunity: A threat to the establishment of wage incentives exists when workers have differential opportunities to produce at a high level. Reduced Cooperation: Wage incentives that reward individual productivity might decrease cooperation among workers. Incompatible Job Design: The way jobs are designed can make it very difficult to implement wage incentives. Restriction of Productivity: A major psychological impediment to the use of wage incentives is the tendency for workers to restrict productivity. Restriction of Productivity The artificial limitation of work output that can occur under wage incentive plans. Workers come to an informal agreement about what constitutes a fair day’s work. Reasons for Restriction of Productivity Employees feel that increased productivity due to the incentive will lead to reductions in the workforce. Employees fear that if they produce at an especially high level, an employer will reduce the rate of payment to cut labor costs. Restriction is less likely when a climate of trust and a history of good relations exist between employees and management. Linking Pay to Performance on White-Collar Jobs Objective indicators of individual performance on white-collar jobs are often difficult to find. Performance in many such jobs is often evaluated by the subjective judgment of an individual’s manager. Merit pay plans are systems that attempt to link pay to performance on white-collar jobs. Managers evaluate the performance of employees and then recommend some amount of merit pay be rewarded. Individuals who work under such a system often do not see a link between their job performance and pay. There is also evidence that pay is not related to performance under some merit pay plans. In most organizations, seniority, number of employees, and job level account for more variation in pay than performance does. Potential Problems with Merit Pay Plans Low Discrimination: Managers might be unable or unwilling to discriminate between good performers and poor performers. Small Increases: Sometimes merit increases are too small to be effective motivators. Some firms have replaced conventional merit pay with a lump sum bonus that is paid out all at one time and not built into base pay Pay Secrecy: Extreme secrecy that surrounds salaries in most organizations. Using Pay to Motivate Teamwork Some firms have either replaced or supplemented individual incentive pay with plans designed to foster more cooperation and teamwork. Organizations have to choose pay plans that support their strategic needs. Pay Plans to Motivate Teamwork  Profit sharing  Employee stock ownership plans (ESOPs)  Gainsharing  Skill-based pay Profit Sharing The return of some company profit to employees in the form of a cash bonus or a retirement supplement. One of the most commonly used group-oriented incentive systems. Profit Sharing (continued) A major problem is that many factors beyond the control of the workforce can affect profits no matter how well people perform their jobs. In a large firm, it is difficult to see the impact of one’s own actions on profits. Works best in small firms that regularly turn a profit. Employee Stock Ownership Plans (ESOPs) Incentive plans that allow employees to own a set amount of a company’s shares and provide employees with a stake in the company’s future earnings and success. Aligns employees’ goals and interests with those of the organization and creates a sense of legal and psychological ownership. Some evidence that ESOPs improve employee retention and profitability. They work best in small organizations that regularly make a profit. They lose their motivational potential in a weak economy when a company’s share price goes down. Gainsharing A group pay incentive plan based on productivity or performance improvements over which the workforce has some control. Such plans often include reductions in the cost of labour, material, or supplies. When measured costs decrease, the company pays a monthly bonus according to a predetermined formula that shares this “gain” between employees and the firm. The most common gainsharing plan is the Scanlon Plan. The Scanlon Plan Stresses participatory management and joint problem solving between employees and managers, and uses the pay system to reward employees for this cooperative behaviour. Pay is used to align company and employee goals. Productivity improvements have been shown to follow the introduction of Scanlon-type plans. Perception that the plan is fair is critical. Skill-Based Pay A system in which employees are paid according to the number of job skills they have acquired. The idea is to motivate employees to learn a wide variety of skills and work tasks. The more skills that are acquired, the higher the person’s pay. Encourages employee flexibility in task assignments and provides employees with a broader picture of the work process. Especially useful for self-managed teams and in flexible manufacturing. Training costs can be high. Have been found to improve productivity, lower labor costs, and reduce the amount of scrap. Job Design as a Motivator The goal of job design is to identify the characteristics that make some tasks more motivating than others and to capture these characteristics in the design of jobs. An attempt to capitalize on intrinsic motivation. Traditional Views of Job Design From the advent of the Industrial Revolution until the 1960s, the prevailing philosophy regarding the design of most non-managerial jobs was job simplification. Job Scope and Motivation Job scope refers to the breadth and depth of a job. Breadth refers to the number of different activities performed on the job. Depth refers to the degree of discretion or control the worker has over how these tasks are performed. Jobs that have great breadth and depth are called high-scope jobs. Job Rotation Another approach for increasing the scope of an individual’s job is job rotation. Employees are rotated to different tasks and jobs in an organization. It can involve working in different functional areas and departments. It can provide a variety of challenging assignments, develop new skills and expertise, and prepare employees for future roles. The Job Characteristics Model The Job Characteristics Model proposes that there are several “core” job characteristics that have a certain psycholog
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