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University of Toronto Scarborough
Management (MGH)

Chapter 6 Motivation in Practice Money as a Motivator Money as a motivator represents an attempt to capitalize on extrinsic motivation. Pay is motivational to people with strong lower-level needs (pay can be exchanged for necessities). Pay can also satisfy social (pay can give you prestige among friends and family), self-esteem (pay can signal your competence as a worker), and self- actualization (pay can demonstrate that your boss cares about you) needs. According to the expectancy theory, if pay can satisfy a variety of needs, it should be highly valent, and it should be a good motivator to the extent that it is clearly tied to performance. Financial incentives and pay-for-performance plans increase performance and decrease turnover. Pay may be the most important and effective motivator of performance. 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. Wage Incentive Plans: Various systems that link pay to performance on production jobs. Usually leads to substantial increases in productivity. Potential Problems with Wage Incentives Lowered Quality. Wage incentives can increase productivity at the expense of quality. Differential Opportunity. Workers may have different opportunities to produce at a high level. If the supply of raw materials or the quality of production equipment varies from workplace to workplace, some workers will be at an unfair disadvantage under an incentive system. Workers will differ in the expectancy that they can produce at a high level (expectancy theory). Reduced Cooperation. Wage incentives that reward individual productivity might decrease cooperation among workers. Incompatible Job Design. The way jobs are designed can make it hard to implement wage incentives. On an assembly line, it may be impossible to identify and reward individual contributions to productivity. As the size of the team increases, the relationship between any individuals productivity and his or her pay decreases (removes the intended incentive effect) (e.g., the impact of your productivity in a team of two is greater than the impact of your productivity in a team of ten). Restriction of Productivity: The artificial limitation of work output that can occur under wage incentive plans. o Under normal circumstances (without wage incentives), productivity is distributed in a bell-shaped manner. o Why it happens: workers may feel that increased productivity due to the incentive will lead to reductions in the workforce or workers may fear that if they produce at an especially high level, an employer will reduce the rate of payment to cut labour costs. o Hypothetical productivity distributions, with and without wage incentives, when incentives promote restriction: Linking Pay to Performance on White-Collar Jobs White-collar jobs frequently offer fewer objective performance criteria to which pay can be tied. Performance in many such jobs is evaluated by the subjective judgment of the performers manager. Merit Pay Plans: Systems that attempt to link pay to performance on white-collar jobs. Periodically (usually yearly), managers evaluate the performance of employees.
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