MGHD27H3 Lecture : Textbook notes-Chapter 6-Motivation in Practice
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CHAPTER 6 ± MOTIVATION IN PRACTICE
MONEY AS A MOTIVATOR
- according to expectancy theory, if pay can satisfy a variety of needs, it should be highly
valent, and t should be a good motivator to the extent that it is clearly tied to performance
- research on pay and financial incentives is consistent with the prediction of need theory
and expectant theory
Linking Pay to Performance on Production Jobs
piece rate: a pay system in which individual workers are paid a certain sum of money for
each unit of production completed
Æ the prototype of all schemes to link pay to performance on production job
wage incentive plans: various systems that link pay to performance on production jobs
- compared with straight hourly pay, the introduction of wage incentives leads to increase
in productivity
Potential problems with wage incentives
1) lower quality
- increase productivity at the expense of quality
- cant control it if its service (ex. interviews)
2) differential opportunity
- problem when workers have diff opportunities to produce at high level
- in expectancy theory terminology, workers will differ in the expectancy that they can
produce at a high level
3) reduce cooperation
- wage incentives that reward individual productivity might decrease cooperation among
workers
4) incompatible job design
- some job designs make it hard to implement wage incentives
-ex. assembly lines
- as team increase, individuals productivity and pay decrease thus removing the intended
incentive effect
5) restriction of productivity
- w/o wage incentives, we expect productivity to be distributed in a bell-shaped manner
(some bad, some good, lots in middle)
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work and artificially limit their output accordingly
restriction of productivity: the artificial limitation of work output that can occur under
wage incentive plans
- happens cuz workers feel that increased productivity due to the inventive will lead to
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reductions in the workforce
- fear that if they produce too high, employer will cut rate of payment to cut labour cost
Linking pay to performance on white collar jobs
- compared to production jobs, white collar jobs frequently offer fewer objective
performance criteria to which pay can be tied
- trustworthy objective indicators of individual performance for the majority of white
collar jobs are often hard to find
merit pay plans: systems that attempt to link pay to performance on white collar jobs
1) periodically(usually yearly): managers are required to evaluate the performance of
employees on some form of rating scale or by means of written description of
performance, based on this, managers decide whether to allocate some money bonus
- merit pay plans are employed with a much greater frequency than wage incentive plans
and have become one of the most common forms of motivation in Canadian
organizations (attract and retain employees)
- BUT INEFFECTIVE
Potential problems with merit pay plans
1) low discrimination
- managers might be unable or unwilling to discriminate b/w good performers and poor
performers
2) small increase
- some firms abandon merit when inflation soars or when they encounter economic
difficulties
lump sum bonus: merit pay that is awarded in a single payment and not build into base
pay
- when merit pay makes up a substantial portion of the compensation package,
management has to take extreme care to ensure that it ties the merit pay to performance
criteria that truly benefit the organization
- employees could be motivated to earn their yearly bonus at the expense of long term
organization goals
3) pay secrecy
- principle of human resource management that salaries are confidential info and those
who received a merit increase shuld keep it private
- and talking could damage the motivational impact of a well designed merit plan
- in the absence of better info, employees are inclined to invent salaries for other
members, and it reduces satisfaction and motivation
read page 194
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Using pay to motivate teamwork
1) profit sharing: the return of some company profit to employees in the form of a cash
bonus or a retirement supplement
- its not too motivational
- theres too many factors beyond the control of the workforce (economy) can affect
profits no matter how well ppl perform their jobs
- hard to see individual actions on profits , better in smaller groups
2) employee stock ownership plans (ESOPs): inventive plans that allow employees to
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- employee buy shares at a fixed price
- attract retaining talent, motivating employee performance, focusing employee attention
on organizational performance, creating a culture of ownership, educating employees
about the business and conserving cash by substituting options for cash
- believed to increase employee loyalty and motivation cuz the align employees goals and
interests with those of the organization and create a sense of legal and psychological
ownership
- work best in small organizations that regularly turn a profit
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down
3) gainsharing : a group pay incentive plan based on productivity or performance
improvements over which the workforce has some control
- 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 b/w employees and the firm
- gainsharing plans have usually been installed using committees that include extensive
workforce participation
- this builds trust and commitment to the formulas that are used to convert gains into
bonuses
- perception that the plan is fair is critical
4) skill-based pay (pay for knowledge): a system in which ppl are paid according to the
number of job skills they have acquired
- use this to encourage employee flexibility in task assignments and give them a broader
pic of the work process
- training costs can be high with a skilled based pay system
- sometimes managers want to keep employees on a task they are good at rather than
letting them acquire new skills
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