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MGHD27H3 Study Guide - Cay, Problem Solving, Information Processing

Management (MGH)
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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
Financial incentives and pay-for-performance plans increase performance and
decrease turnover. Pay may be the most important and effective motivator of
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

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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.
oUnder normal circumstances (without wage incentives), productivity is
distributed in a bell-shaped manner.
oWhy 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.
oHypothetical 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
Periodically (usually yearly), managers evaluate the performance of employees.

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Using these evaluations, the managers then recommend that some amount of merit
pay be awarded to individuals (usually incorporated into the subsequent years
salary cheques).
Merit pay plans are used more often than wage incentive plans.
Many pay-for-performance systems are now ineffective in most organizations,
seniority, the number of employees, and job level account for more variations 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. Subjective evaluations of
performance may be difficult to make and may be distorted by perceptual errors.
Therefore, manager might feel that the only fair response is to rate most employees
as equal performers (equalization strategy). If there are true performance
differences among employees, equalization over-rewards poorer performers and
under-rewards better performers.
Small Increases. Occurs when merit increases are too small to be effective
motivators. Sometimes a reasonable amount of merit pay is provided, but its
motivational impact is reduced because it is spread out over a year or because the
organization fails to communicate how much of a raise is for merit and how much is
for cost of living.
oLump Sum Bonus: Merit pay that is awarded in a single payment and not
built into base pay. Used to overcome the small increases problem.
oWhen 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 benefit the organization. Otherwise, employees
could be motivated to earn their yearly bonus at the expense of long-term
organizational goals.
Pay Secrecy. Even if merit pay is administered fairly, is contingent on performance,
and is generous, employees have no way of comparing their own merit treatment
with that of others. As a result, pay secrecy might damage the motivational impact of
a well-designed merit plan.
oWithout better information, employees are inclined to invent salaries for
other organizational members (reduces job satisfaction and motivation).
These tendencies will reduce satisfaction with pay, damage perceptions of the
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