Textbook Notes - Chapter 6

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University of Toronto Scarborough
Management (MGH)
Joanna Heathcote

MGTB27 01 Week 5 Chapter 6 Motivation in Practice (pg. 178 207) - WestJet motivates their employees by employing: a profit-sharing plan, an employee stock ownership plan, jobs that are designed to provide employees with freedom and autonomy, and alternative working schedules - Discussed in this chapter will be four motivational techniques: money, job design, Management by Objectives, and alternative working schedules Money as a Motivator - Employees and managers seriously underestimate the importance of pay as a motivator - According to Maslow and Alderfer, pay is especially motivating in order for people to achieve strong lower-level needs (e.g. money for food, shelter, other necessities in life) - Pay can also make you look prestigious among your friends (social need) as well as make you feel competent (self-esteem need) - Financial incentives and pay-for-performance plans have been found to increase performance and lower turnover - The ability to earn money for outstanding performance is a competitive advantage for attracting, motivating, and retaining employees Linking Pay to Performance on Production Jobs - Linking pay to performance on production jobs uses pure piece-rate which is a pay system in which individual workers are paid a certain sum of money for each unit of production completed (e.g. for a sewing machine operator, they are paid $2dress sewed) - Wage incentive plans are various systems that link pay to performance on production jobs: o Paying workers a basic hourly wage and a piece-rate on top of this hourly wage (e.g. a sewing machine operator is paid $8hr plus $2dress sewn) o Group incentives are sometimes employed if it is difficult to measure the productivity of an individual because of the nature of the production process (e.g. workers in a steel mill are paid an hourly wage as well as a monthly bonus for each ton of steel produced over some minimum quota) - Compared with straight hourly pay, wage incentives usually leads to substantial increases in productivity (median productivity increased 30% through piece-rate pay, goal setting or job enrichment could not match this increase) and greater productivity than those without such wage incentive plans (43 64% greater productivity) Potential Problems with Wage Incentives - Wage incentives have some potential problems when they are not managed with care - Lowered Quality o It can be argued that wage incentives can increase productivity at the expense of quality (when you make things faster, it may not be as high quality) - Differential Opportunity o When workers have different opportunities to produce at a high level (e.g. supply of raw materials or the quality of production may vary from different workplaces) - Reduced Cooperation o Wage incentives that reward individual productivity might decrease cooperation among workers (e.g. may be so focused on individual tasks, you may refuse to me engaged in unimportant tasks such as unloading supplies or cleaning up) - Incompatible Job Design www.notesolution.comMGTB27 02 Week 5 o Some jobs designed make it difficult to implement wage incentives (e.g. assembly line where it is impossible to identify and reward individual contributions to productivity) o When rewarding team productivity, as the size of the team increases, the relationship -09Z003,3L3L;L:,O8574:.9L;L9,3KL847K075,decreases (e.g. impact of your productivity in teams of 2 has a greater impact than in teams of 10) - Restriction of Productivity o Restriction of productivity is the artificial limitation of work output that can occur under wage incentive plans o Restriction often occur because employees fear that if they produce at an especially high level, an employer will reduce the rate of payment to cut labour costs (e.g. when productivity increases dramatically, they may change the rate where it requires more output for a given amount of pay) Linking Pay to Performance on White-Collar Jobs - Performance on many white-collar jobs (professional and managerial) is evaluated by the subjective judgement of the perf4720782,3,J07>3490,89420,8:705071472,3.0 4-M0.9L;0 data), may tie annual bonuses to the profitability of the firm] - Merit pay plans are systems that attempt to link pay to performance on white-collar jobs - There is also a prototype for the merit pay plan: managers are required to evaluate the performance of employees periodically (usually yearly) on some form of rating scale or by means of a written description of performance. Using these evaluations, managers then recommend that some amount of merit pay be awarded to individuals over their basic salaries - Since the distribution of merit pay are from unclear or highly subjective reviews on performance, an employee is able to see a strong link between rewards and performance - Merit pay plans are used more frequently than wage incentive plans and have become one of the most common forms of motivation in Canadian organizations - There are some studies that show the ineffectiveness of merit systems: o 83% of organizations with pay-for-performance system said it was only somewhat successful or not working at all o Some organizations, seniority, number of employees and job level account for more variation in pay than performance does Potential Problems with Merit Pay Plans - There are also potential problems in merit plans if employers do not manage them carefully - Low Discrimination o Merit plans may fail to achieve their intended effect if managers are unable or unwilling to discriminate between good performers and poor performers o In the absence of performance rating systems, subjective evaluations of performance can be difficult so managers may think that it would be fair to rate most employees as equal performers (perceptual error) o If there are true performance differences among employees, equalization over-rewards poor performers and under-rewards better performers (performers may feel unfairness) - Small Increases o A threat to the effectiveness of merit pay plans is when the merit increases are simply too small to be effective motivators even if rewards are carefully tied to performance and managers do a good job of discriminating between moreless effective performers o A lump sum bonus is a merit pay that is awarded in a single payment and not built into base pay (can motivate and retain employees since it gets their attention) www.notesolution.com
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