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Chapter 6

MGHB02H3 Chapter Notes - Chapter 6: Work Motivation

Management (MGH)
Course Code
Julie Mc Carthy

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Chapter 6 Motivation in Practice Notes
Money as a Motivator
x the money that employees receive in exchange for organizational membership is in reality a package made up of pay and various
fringe benefits that have dollar values, such as insurance plans, sick leave, and vacation time
x employees and managers seriously underestimate the importance of pay as a motivator; yet, the motivation theories suggest that
pay is, in fact, a very important motivator and everyone considers it to a deep extent
x according to Maslow and Alderfer, pay should prove especially motivational to people who have strong lower-level needs
x for these people, pay can be exchanged for food, shelter, and other necessities of life
x using need hierarchy terminology, pay can also function to satisfy social, self-esteem, and self-actualization needs
x according to 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—this is how pay’s potential can be realized
Linking Pay to Performance on Production Jobs
x piece-rate Æ a pay system in which individual workers are paid a certain sum of money for each unit of production completed
x more common than pure piece-rate is a system where workers are paid basic hourly wage and paid a piece-rate differential on top
x in some cases, it is very difficult to measure the productivity of an individual worker because of the nature of production process
x under these circumstances, group incentives are sometimes employed
x wage incentive plans Æ various systems that link pay to performance on production jobs
x compared with straight hourly pay, the introduction of wage incentives usually leads to substantial increases in productivity
Potential Problems with Wage Incentives
x despite their theoretical and practical attractiveness, wage incentives have some problems when they are not managed with care
x it is sometimes argued that wage incentives can increase productivity at the expense of quality
x while this may be true in some cases, it does not require particular ingenuity to devise a system to monitor and maintain quality
in manufacturing; however, the quality issue can be a problem when employers use incentives to motivate faster “people
processing”, such as conducting consumer interviews on the street or in stores, where quality control is more difficult
x a threat to the establishment of wage incentives exists when workers have different opportunities to produce at a high level
x in expectancy theory terminology, workers will differ in the expectancy that they can produce at a high level
x wage incentives that reward individual productivity might decrease cooperation among workers
x in some cases, the way jobs are designed can make it very difficult to implement wage incentives
x some wage incentive systems can be designed to reward team productivity in some circumstances; however, as the size of the
team increases, the relationship between any individual’s productivity and his/her pay decreases
x a chief psychological impediment to the use of wage incentives is the tendency for workers to restrict productivity
x under normal circumstances, without wage incentives, productivity can be expected to be distributed in “bell-shaped” manner—a
few workers are especially low producers, a few are especially high producers, and most produce in the middle range
x when wage incentives are introduced, workers sometimes come to informal agreement about what constitutes a fair day’s work
and artificially limit their output accordingly, which can decrease the expected benefits of the incentive system
x restriction of productivity Æ the artificial limitation of work output that can occur under wage incentive plans
x sometimes it happens because workers feel that increased productivity due to the incentive will lead to reductions in workforce
x more often, employees fear that if they produce at especially high level, employer will reduce rate of payment to cut labour costs
Linking Pay to Performance on White-Collar Jobs
x compared to production jobs, white-collar jobs offer fewer objective performance criteria to which pay can be tied
x performance in many such jobs is evaluated by the subjective judgment of the performer’s manager
x merit pay plans Æ systems that attempt to link pay to performance on white-collar jobs
x the prototype for most merit pay plans: periodically (usually yearly), managers are required to evaluate the performance of
employees on some form of rating scale or by means of a written description of performance
x using these evaluations, the managers then recommend that some amount of merit pay be awarded to individuals over and above
their basic salaries, which is usually incorporated into the subsequent year’s salary cheques
x since indicators of good performance on some white-collar jobs (especially managerial jobs) can be unclear or highly subjective,
merit pay can provide an especially tangible signal that the organization considers an employee’s performanceon track”
x individuals who see a strong link between rewards and performance tend to perform better; in addition, white-collar workers
(especially managers) particularly support the notion that performance should be an important determinant of pay
Potential Problems with Merit Pay Plans
x one reason that many merit pay plans fail to achieve their intended effect is that managers might be unable or unwilling to
discriminate between good performers and poor performers, which means that effective rating systems are rarely employed
x if the performance evaluation system does not assist the manager in giving feedback about his or her decisions to employees, the
equalization strategy might be employed to prevent conflicts with them or among them
x if there are performance variations in workers, equalization over-rewards poorer performers and under-rewards better performers
x a second threat to the effectiveness of merit pay plans exists when merit increases are simply too small to be effective motivators
x in this case, even if rewards are carefully tied to performance and managers do a good job of discriminating between more and
less effective performers, the indented motivational effect of pay increases may not be realized
x to overcome this visibility problem, some firms have replaced conventional merit pay with a lump sum bonus
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x lump sum bonus Æ merit pay that is awarded in a single payment and not built into base pay
x 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; otherwise, employees could be motivated to earn
their yearly bonus at the expense of long-term organizational goals
x a final threat to the effectiveness of merit pay plans is the extreme secrecy that surrounds salaries in most organizations
x even if merit pay is administered fairly, is contingent on performance, and is generous, employees might remain ignorant of these
facts because they have no way of comparing their own merit treatment with that of others
x as a consequence, such secrecy might severely damage the motivational impact of a well-designed merit plan
x in the absence of better information, employees are inclined to “invent” salaries for other members
x unfortunately, this invention seems to reduce both satisfaction and motivation
Using Pay to Motivate Teamwork
x profit sharing Æ the return of some company profit to employees in the form of cash bonus or a retirement supplement
x however, it is unlikely that profit sharing, as normally practised, is highly motivational
x its greatest problem is that too many factors beyond control of workforce can affect profits no matter how well they perform jobs
x also, in a large firm, it is difficult to see the impact of one’s own actions on profits
x employee stock ownership plans (ESOPs) Æ incentive plans that allow employees to own a set amount of a company’s shares
and provide employees with a stake in the companys future earnings and success
x ESOPs also serve a number of other purposes, including attracting and 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
x employee stock options are believed to increase employees loyalty and motivation because they align employees goals and
interests with those of the organization and create a sense of legal and psychological ownership
x however, like profit sharing, ESOPs work best in small organizations that regularly turn a profit
x in larger organizations it is more difficult for employees to see the connection between their efforts and company profits because
many factors can influence the value of a companys stock besides employee effort and performance
x gainsharing Æ group pay incentive plan based on productivity or performance improvements over which force has some control
x when measured costs decrease, firm pays monthly bonus according to formula that shares “gain between employees and firm
x gainsharing plans have usually been installed using committees that include extensive workforce participation
x this builds trust and commitment to the formulas that are used to convert gains into bonuses
x also, most plans include all members of the work unit, including production people, managers, and support staff
x skill-based pay Æ a system in which people are paid according to the number of job skills they have acquired
x firms use skill-based pay to encourage employee flexibility in task assignments and to give them broader picture of work process
x group-based financial incentives can have a positive effect on the collective efforts of employees and business-unit outcomes
Profit sharing Æ employees receive a cash bonus based on organization profits
x employees have a sense of ownership
x aligns employee goals with organization goals
x only pays when the organization makes a profit
x many factors beyond control of employees can affect profits
x it is difficult for employees to see the impact of their actions
on organization profits
Employee stock ownership Æ employees can own a set amount of the organization’s shares
x creates a sense of legal and psychological ownership for
x aligns employees’ goals and interests with those of the
x many factors can influence the value of an organization’s
shares, regardless of employees efforts and performance
x it is difficult for employees to see the connection between
their efforts and the value of their organization’s stocks
x they lose their motivational potential in a weak economy
when the value of an organization’s stocks decline
Gainsharing Æ when measured costs decrease, employees receive a bonus based on a predetermined formula
x aligns organization and employee goals
x encourages teamwork and cooperative behaviour
x bonuses might be paid even when firm does not make profit
x employees might neglect objectives not included in formula
Skill-based pay Æ employees are paid according to the number of job skills they acquire
x encourages employees to learn new skills
x greater flexibility in task assignments
x provides employees with a broader picture of work process
x increases the cost of training
x labour costs can increase as employees acquire more skills
Job Design as a Motivator
x if the use of money as a motivator is primarily an attempt to capitalize on extrinsic motivation, current approaches to using job
design as a motivator represent an attempt to capitalize on intrinsic motivation
x goal of job design is to identify characteristics that make some tasks more motivating than others and to capture these in designs
Job Scope and Motivation
x job scope Æ the breadth (the number of different activities performed on a job) and depth (the degree of discretion or control a
worker has over how work tasks are performed) of a job
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