Chapter 6 I. Money as a Motivator
The money that employees receive in exchange for organizational membership is usually a
package made up of pay and various other fringe benefits that have dollar values, such as
insurance plans, sick leave, and vacation time. We are mainly concerned with the motivational
characteristics of pay. Employees and managers, however, seriously underestimate the
importance of pay as a motivator.
Motivation theories suggest that money can be a motivator to the extent that it satisfies a
variety of needs, is highly valent, and it is clearly tied to performance. Research has found
that financial incentives and pay-for-performance plans increase performance and lower
turnover. In general, the ability to earn money for outstanding performance is a competitive
advantage for attracting, motivating, and retaining employees.
A. Linking Pay to Performance on Production Jobs
The prototype of all schemes to link pay to performance on production jobs is piece-rate.
Under a piece-rate system, workers are paid a certain sum of money for each completed unit
of production completed. Various schemes that link pay to performance on production jobs are
called wage incentive plans which often offer a bonus for production over a minimum quota.
These wage incentives have often resulted in increases in productivity.
B. Potential Problems with Wage Incentives
Despite their theoretical and practical attractiveness, wage incentives have some potential
problems when they are not managed with care.
Lowered Quality. It is sometimes argued that wage incentives can increase productivity at the
expense of quality. While adequate systems can usually be put in place to monitor and
maintain quality in manufacturing operations, wage incentives that increase "through-put" in
service contexts are more difficult to control.
Differential Opportunity . A threat to the establishment of wage incentives exists when
workers have differential opportunities to produce at a high level. Sometimes access to raw
materials or the quality of production equipment can give some workers an unfair advantage
over others in their opportunity to earn incentives.
Reduced Cooperation. Wage incentives that reward individual productivity might decrease
cooperation among workers who might hoard materials intended for common use or neglect
common tasks like house-keeping that do not contribute directly to production quotas.
Incompatible Job Design. In some cases, the way jobs are designed can make it very difficult
to install wage incentives. It is very difficult to identify individual productivity in such contexts
as assembly line work or where teams are large. As the size of the team increases, the
relationship between any individual’s productivity and his or her pay decreases
Restriction of Productivity. A chief psychological impediment to the use of wage incentives is
the tendency for workers to restrict productivity. Restriction of productivity refers to the
artificial limitation of work output that can occur under wage incentive plans. Workers come to
an informal agreement about what constitutes a fair day's work and artificially limit their work
C. Linking Pay to Performance on White-Collar Jobs Compared with production jobs, evaluating white-collar performance is more difficult because
there are fewer objective performance criteria to which pay can be tied. Attempts to link pay
to performance on white-collar jobs are often called merit pay plans. Just as straight piece-
rate is the prototype for most wage incentive plans, there is also a 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.
Using these evaluations, the managers then recommend that some amount of merit pay be
awarded to individuals over and above their basic salaries. This pay is usually incorporated
into the subsequent year’s salary. Most companies employ these plans, although their
implementation is often ineffective since many individuals do not perceive a link between their
job performance and their pay.
D. Potential Problems with Merit Pay Plans
As with wage incentive plans, merit pay plans have several potential problems if employers do
not manage them carefully.
Low Discrimination. A major flaw with merit pay plans is that managers might be unable or
unwilling to discriminate between good performers and poor performers.
Small Increases. Merit increases are often simply too small to act as effective motivators,
especially if they are spread out over an entire year and combined with other things like cost
of living allowances. To overcome this problem, some companies pay a lump sum bonus
which is merit pay that is awarded in a single payment and not built into base pay.
Pay Secrecy. Since most companies consider salary information confidential, employees that
receive merit pay have no ability to assess the relative value of what they receive which
reduces its motivation potential. Further, research has shown that, in the absence of accurate
information, managers tend to overestimate the salaries of peers and subordinates, while
underestimating the salaries of superiors.
E. Using Pay to Motivate Teamwork
Given the highly individual orientation of wage incentives and merit pay, some organizations
have either replaced or supplemented individual incentive pay with plans designed to foster
more cooperation and teamwork.
Profit Sharing. Profit sharing is one of the most commonly used group-oriented incentive
systems. In years in which the firm makes a profit, some of this is returned to employees in
the form of a cash bonus or a retirement supplement. However, it is unlikely that these plans
are highly motivational. Too many factors beyond the control of individual employees can
intervene in the determination of a company’s profit. It is also difficult to see the impact of
one's efforts on overall outcomes. They work best in smaller firms that regularly turn a profit.
Employee Stock Ownership Plans (ESOPs). Employee stock ownership plans (ESOPs) are
incentive plans that allow employees to own a set amount of a company’s shares and provide
employees with a stake in the company’s future earnings and success. Employees are
sometimes allowed to purchase shares at a fixed price and in some cases the organization will
match employee contributions. However, like profit sharing, these programs work best in
small firms that regularly turn a profit. Besides being difficult to see the connection between
one’s own efforts and company profits, ESOPs lose their motivational potential in a weak
economy when a company’s share price goes down.
Gainsharing Plans. Gainsharing plans are group incentive plans based on improved
productivity or performance over which the workforce has some control. This often includes
reductions in the cost of labour, material, or supplies. When measured costs decrease, the company pays a monthly bonus according to a predetermined formula that shares this “gain”
between employees and the firm. The most common of these plans is the Scanlon Plan.
Skill-Based Pay. Also called "pay for knowledge", skill-based pay is a system in which people
are paid according to the number of job skills they have acquired. The idea is to motivate
employees to learn a wide variety of work tasks irrespective of the job that they might be
doing at any given time. Skill based pay can provide incentives for a more flexible work force,
but training costs are high.
II. Job Design as a Motivator
The use of job design as a motivator represents an attempt to capitalize on intrinsic
motivation. The goal of job design is to identify the characteristics that make some tasks more
motivating than others and to capture these characteristics in the design of jobs.
A. Traditional Views of Job Design
From the advent of the Industrial Revolution until the 1960s, the prevailing philosophy
regarding the design of most non-managerial jobs was job simplification. The zenith of job
simplification occurred in the early 1900s when industrial engineer Frederick Winslow Taylor
developed his principles of Scientific Management. Taylor advocated extreme division of labour
and specialization, and careful standardization and regulation of work activities and rest
While responsible for initial gains in both workplace productivity and employee standard of
living, in recent years, behavioural scientists have begun to question the impact of job
simplification on performance, customer satisfaction, and the quality of working life.
B. Job Scope and Motivation
Job scope can be defined as the breadth and depth of a job. Breadth refers to the number of
different activities on the job, while depth refers to the degree of discretion or control the
worker has over how the job is performed. The classic example of a low-scope job is the
traditional assembly line job. High scope jobs that are both broad and deep provide more
intrinsic motivation and are the most satisfying to workers.
One way to increase the scope of a job is to assign employees stretch assignments that offer
employees challenging opportunities to broaden their skills by working on a variety of tasks
with new responsibilities.
C. The Job Characteristics Model
The Job Characteristics Model proposes that there are several “core” job characteristics that
have a certain psychological impact on workers. In turn, the psychological states induced by
the nature of the job lead to certain outcomes that are relevant to the worker and the
organization. Several other factors known as moderators influence the extent to which these
relationships hold true.
Core Job Characteristics. There are five core job characteristics that affect worker motivation.
Higher levels of these characteristics should lead to more favourable outcomes. Skill variety
is the degree to which a job provides the opportunity to do a variety of different activities
using various skills and talents. Autonomy is the degree to which the job provides freedom to
schedule one’s own work activities and decide work procedures. Task significance is the
extent to which the job has a substantial impact on other people. Task identity is the extent to which a job involves doing a complete piece of work, from beginning to end. Feedback is
information about the effectiveness of one’s work performanc