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Chapter 6

MGHD27H3 Chapter Notes - Chapter 6: Highscope

Management (MGH)
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MONEY AS A MOTIVATORcapture extrinsic motivation
-Maslow & Alderfer: pay can satisfy lower level needs by exchanging for food & shelter; pay raise
can also satisfy all other higher level needs by giving you prestige in front of ppl to signal your
competence & boss care about you
-Pay is a motivator: expectancy theory -> if pay satisfy a variety of needs then it should have high
valent and a good motivator to the extent that it is clearly tied to performance
- Increase performance & lower turnover
-Linking Pay to Performance on Production Jobs
Piece rate: a pay sys in which individual workers are paid a certain sum of $$ for each unit of
production completed – link pay to performance
Usually combined with hourly wagesex. $8/hr + $0.30/unit produced
Wage incentive plans: various sys that link pay to performance on production jobs
Lead to substantial ^ in productivity
When individual productivity is hard to measure -> group incentive
-Potential Problems with Wage Incentives
Lowered Quality: when ppl care only about speed, quality may be lowered
Differential Opportunity: if factors like supply of raw materials, quality of production
equipment or work environment differ among diff workplace then workers will differ in the
expectancy that they can produce at high level
Reduced Cooperation: when reward based on individual productivity then ppl begin to only
care bout themselves and wont help othersex. keeping shop clean/unload supplies
Incompatible Job Design: hard to implement wage incentives in certain jobs such as
assembly line -> cant track individual productivity so can only use group, but when team has
many ppl, impact of ones performance on team is minimized cant link to pay then
Restriction of Productivity:
w/o wage incentive – generally have bell shape productivity
w/ wage incentive – ppl afraid productivity over expectation will cause firms to lower
piece rate so end up work more to make same amount w/o incentive so they tend to
restrict their productivity at certain level
-Linking Pay to Performance on White-Collar Jobs (clerical, professional, managerial)
Generally tie sales/profitability of firm to these jobs salesppl earn commission on sales
Hard to find indicator of individual performance for most of white collar jobssubject to
judgment of the performers manager
Merit Pay Plans: sys that attempt to link pay to performance on white collar jobs
Managers periodically evaluate employee performance and award some amount of merit
pay to ppl over their basic salaries
White collar workers support performance be important determinant of pay
Merit pay used with greater frequency -> firms use it as alternative to wage ^ to attract &
keep employees
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-Potential Problems with Merit Pay Plans
Low Discrimination:
b/c merit pay based on manager’s subjective evaluation -> hard to accurately
discriminate b/w gd & bad performers and may involve some perceptual errors
w/o performance rating sys, managers might feel the only fair response is to rate most
workers as equal performers so tend to overreward poor performers and underreward gd
performerssometimes managers are reluctant to discriminate
Small Increases:
When increase is too small -> lower effectiveness -> no motivation even if rewards tie to
performance and managers are able to discriminate gd & bad performers
Sometimes when increase is reasonable, but motivational impact is lowered b/c amount
is spread out over a yr or org. fail to communicate how much is for merit
Lump Sum Bonus: merit pay that is awarded in a single payment and not built into base
pay to overcome prob. Above and can motivate/retain workers at all levels
Pay Secrecy:
Org. tend to keep everyones pay confidential -> workers cant compare so they wont
know if the merit pay is fair and contingent on performance even if it is
Damage motivational impact of well designed merit pay plan
b/c extreme secrecy, ppl tend to make up salaries for others for own comparison, but
such invention reduce both satisfaction & motivation, damage perception of linkage b/w
performance & rewards, reduce valence of promotion to higher level of mgt when
managers tend to overestimate pay of employees & underestimate pay of boss
-Using Pay to Motivate Teamwork
Problems of wage incentives & merit pay: highly individual orientation
Profit Sharing:
The return of some company profit to employees in the form of a cash bonus or
retirement supplement most commonly group oriented incentive system
too many factors (ex. recession/depression) beyond control of workforce that can
affect profits regardless how well workers perform
hard to see impact of ones performance on profits when firm is LARGE
Employee Stock Ownership Plans (ESOPs):
Incentive plans that allow employees to own a set amount of a companys shares and
provide employees with a stake in the companys future earnings and success
Allow purchase at a fixed price
Attract/retain talent, motivate performance, focus attention on org. performance, create
culture of ownership, educate workers on business, conserve cash paid out
Increase employee loyalty & motivation -> align employees goals w/ org. & create a
sense of legal & psychological ownership: improve worker retention & profitability
work well in small firms -> hard for employees to see linkage b/w their effort & company
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profits b/c other factors can influence value of firms stocks
lose motivational impact when weak economy/share price go down
Based on improved productivity or performance over which the workforce has some
Often include reduction in cost of labour, material or supplies
When costs decrease, firm share the gain from reduction w/ employees
Builds trust & commitment extensive workforce participation
Scanlon Planmost common gainsharing plan – by Joe Scanlon in 30s
Stresses participatory mgt & joint problem solving b/w workers & managers
Also stresses using pay to reward employees for cooperative behaviour – pay must
align company & employee goals
Perception that plan is fair is important
Skill-Based Pay (aka. Pay for knowledge):
A system in which ppl are paid according to the # of job skills they have acquired
Motivate workers to learn a variety of work tasks, irrespective to their job
Use this to encourage employee flexibility in task assignments and give broad pic of
work processuseful on self-managed teams
Training cost is high & sometimes managers dont want to let workers doing gd on a task
off to learn new skills
Increase productivity, lower labour cost/unit, reduction in waste
JOB DESIGN AS A MOTIVATORcapture intrinsic motivation
-goal of job design
= identify characteristics that make some tasks more motivating than others and
to capture these characteristics in the design of jobs
-Traditional Views of Job Design low scope jobs
Job simplification – Frederick Taylorspecialization of labourIndustrial Revolution
Careful standardization & regulation of work activities & rest pauses
DIDN’T SEEM INTRINSICALLY MOTIVATING – used close supervision & piece
rate pay – not welcomed by workers that are fighting to fulfill basic needs
Increase demand for manufactured goods, but workforce was untrained & uneducated
In order to be efficient & productive -> break tasks down to the most basic & simple form so
anyone can do it
-Job Scope and Motivation
Job Scope: breadth ( ) [# of diff activities performed on job] & depth ( ) [degree of
discretion or control the worker has over how these tasks are performed] of a job
Broad job require workers to do a # of diff tasks
Deep job emphasize freedom in planning how to do the work
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