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Please do Q & A Chapter 10 Assignment- Managing Employee Motivation and Performance

and answer 7 questions correctly.

  • You will learn about employee motivation including, content, process, and reinforcement perspectives and organizational reward systems.
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Chapter 10: Managing Employee Motivation and Performance: Reading Chapter Introduction Learning Outcomes After studying this chapter, you should be able to: 1. Characterize the nature of motivation, including its importance and basic historical perspectives. 2. Identify and describe the major content perspectives on motivation. 3. Identify and describe the major process perspectives on motivation. 4. Describe reinforcement perspectives on motivation. 5. Identify and describe popular motivational strategies. 6. Describe the role of organizational reward systems in motivation. Management in Action Motivating the Whole Person “If I put our mission in simple terms, it would be, No. 1, to change the way the world eats and, No. 2, to create a workplace based on love and respect.” —Whole Foods co-CEO Walter Robb Whole Foods is often recognized as a great place to work. Employees such as this one are motivated by Whole Foods’ competitive pay and benefits, although some criticism has been directed at the firm’s healthcare plan. Jim West/Alamy Whole Foods Market (WFM) started out in 1980 as 1 store with 19 employees in Austin, Texas. Today, with 350 stores and 54,000 employees in North America and Great Britain, it’s the leading natural and organic foods supermarket (and ninth-largest food and drug chain in the United States). Along the way, it’s also gained a considerable reputation as a socially responsible company and a good place to work. WFM’s motto is “Whole Foods, Whole People, Whole Planet,” and its guiding “core value,” according to co-CEO Walter Robb, is “customers first, then team members, balanced with what’s good for other stakeholders…. If I put our mission in simple terms,” Robb continues, “it would be, No. 1, to change the way the world eats and, No. 2, to create a workplace based on love and respect.” WFM made Fortune magazine’s very first list of the “100 Best Companies to Work For” in 1998 and is one of 13 organizations to have made it every year since. Citations have acknowledged the company’s growth (which means more jobs), salary-cap limits (the top earner gets no more than 19 times the average full-time salary), and generous health plan. The structure of the company’s current health-care program, which revolves around high deductibles and so-called health savings accounts (HSAs), was first proposed in 2003. Under such a plan, an employee (a “team member,” in WFM parlance) pays a deductible before his or her expenses are covered. Meanwhile, the employer funds a special account (an HSA) for each employee, who can spend the money to cover health-related expenditures. The previous WFM plan had covered 100 percent of all expenses, and when some employees complained about the proposed change, the company decided to put it to a vote. Nearly 90 percent of the workforce went to the polls, with 77 percent voting for the new plan. In 2006, employees voted to retain the plan, which now carries a deductible of around $1,300; HSAs may go as high as $1,800 (and accrue for future use). The company pays 100 percent of the premiums for eligible employees (about 89 percent of the workforce). High-deductible plans save money for the employer (the higher the deductible, the lower the premium), and more important—at least according to founder and co-CEO John Mackey—they also make employees more responsible consumers. When the first $1,300 of their medical expenses comes out of their own pockets (or their own HSAs), he argues, people “start asking how much things cost. Or they get a bill and say, ‘Wow, that’s expensive.’ They begin to ask questions. They may not want to go to the emergency room if they wake up with a hangnail in the middle of the night. They may schedule an appointment now.” Mackey believes that “the individual is the best judge of what’s right for the individual,” and he’s so convinced of the value of plans like the one offered by his company that in August 2009 he wrote an op-ed in the Wall Street Journal in which he recommended “The Whole Foods Alternative to ObamaCare.” Health care, he wrote, “is a service that we all need, but just like food and shelter, it is best provided through voluntary and mutually beneficial market exchanges.” Going a step further, Mackey argued against an “intrinsic right to health care,” and on this point he stirred up a reaction among his customers that ran the gamut from surprise to boycotting. “I’m boycotting [Whole Foods],” said one customer who’d been shopping WFM several times a week, “because all Americans need health care. While Mackey is worried about health-care and stimulus spending, he doesn’t seem too worried about expensive wars and tax breaks for the wealthy and big businesses such as his own that contribute to the [national] deficit.” Consumer advocates and HR specialists also attacked Mackey’s proposals and policies. “High-deductible plans for low-wage workers,” says Judy Dugan, research director of Consumer Watchdog, “are the next best thing to being uninsured: The up-front costs are so high that workers have to weigh getting health care against paying the rent (to the detriment of their health).” A former WFM executive points out, for example, that the firm’s plan entails “astronomical deductibles and co-pays.” As for the HSA, it has to cover all co-pays and all expenses not covered by the plan (such as mental health care). “There’s way more going on here than ‘health insurance,’” concludes the anonymous former exec. “… [The] system has massive hidden charges that routinely threaten and undermine the financial stability and, ultimately, [the] well-being of the employees.” Responding to the backlash against Mackey’s WSJ piece, the WFM Customer Communications Team hastened to point out that “our team members vote on our plan … to make sure they continue to have a voice in our benefits.” Mackey’s intent, said the press release, “was to express his personal opinions—not those of Whole Foods Market team members or our company as a whole.” The release also offered an apology for having “offended some of our customers,” but for many onetime WFM loyalists, the apology was too little too late. “I will no longer be shopping at Whole Foods,” announced one New Jersey shopper, explaining that “a CEO should take care that if he speaks about politics, his beliefs reflect at least the majority of his clients.” In fact, WFM had become, in the words of one reporter, “the granola set’s chain of choice,” and much of its customer base consists of people whose opinions on such issues as health-care reform are quite different from Mackey’s. His WSJ article, declared a contributor to the company’s online forum, was “an absolute slap in the face to the millions of progressive-minded consumers that have made [Whole Foods] what it is today.” The potential repercussions weren’t lost on the WFM board. In late August, following the appearance of the WSJ op-ed piece, shareholder activists called for Mackey’s removal. The CEO, they charged, had “attempted to capitalize on the brand reputation of Whole Foods to champion his personal political views but has instead deeply offended a key segment of Whole Foods consumer base.” The company’s stock had also slipped 30 percent over the previous five-year period. The board eventually compromised by convincing Mackey to step down as chairman of the board. Obviously, managers can’t always motivate people to perform in ways that are in the best interests of the organization. But managers are responsible for encouraging high performance from their employees, so it’s always worthwhile trying to figure out what makes employees more (or less) productive. Whether it’s pay, benefits, or job security, the issue almost invariably comes down to motivation, which is the subject of this chapter. We first examine the nature of employee motivation and then explore the major perspectives on motivation. Newly emerging approaches are then discussed. We conclude with a description of rewards and their role in motivation. The Nature of Motivation Motivation is the set of forces that cause people to behave in certain ways. On any given day, an employee may choose to work as hard as possible at a job, work just hard enough to avoid a reprimand, or do as little as possible. The goal for the manager is to maximize the likelihood of the first behavior and minimize the likelihood of the last. This goal becomes all the more important when we understand how important motivation is in the workplace. Individual performance is generally determined by three things: motivation (the desire to do the job), ability (the capability to do the job), and the work environment (the resources needed to do the job). If an employee lacks ability, the manager can provide training or replace the worker. If there is a resource problem, the manager can correct it. But, if motivation is the problem, the task for the manager is more challenging. Individual behavior is a complex phenomenon, and the manager may be hard pressed to figure out the precise nature of the problem and how to solve it. Thus, motivation is important because of its significance as a determinant of performance and because of its intangible character. The motivation framework in Figure 10.1 is a good starting point for understanding how motivated behavior occurs. The motivation process begins with a need deficiency. Figure 10.1The Motivation Framework The motivation process progresses through a series of discrete steps. Content, process, and reinforcement perspectives on motivation address different parts of this process. © Cengage Learning For example, when a worker feels that she is underpaid, she experiences a need for more income. In response, the worker searches for ways to satisfy the need, such as working harder to try to earn a raise or seeking a new job. Next, she chooses an option to pursue. After carrying out the chosen option— working harder and putting in more hours for a reasonable period of time, for example—she then evaluates her success. If her hard work resulted in a pay raise, she probably feels good about things and will continue to work hard. But, if no raise has been provided, she is likely to try another option. Content Perspectives on Motivation Content perspectives on motivation deal with the first part of the motivation process—needs and need deficiencies. More specifically, content perspectives address the question “What factors in the workplace motivate people?” Labor leaders often argue that workers can be motivated by more pay, shorter working hours, and improved working conditions. Meanwhile, some experts suggest that motivation can be more effectively enhanced by providing employees with more autonomy and greater responsibility. Both of these views represent content views of motivation. The former asserts that motivation is a function of pay, working hours, and working conditions; the latter suggests that autonomy and responsibility are the causes of motivation. Two widely known content perspectives on motivation are the needs hierarchy and the two-factor theory. 10-2aThe Needs Hierarchy Approach The needs hierarchy approach has been advanced by many theorists. Needs hierarchies assume that people have different needs that can be arranged in a hierarchy of importance. The best known is Maslow’s hierarchy of needs. Abraham Maslow, a human relationist, argued that people are motivated to satisfy five need levels. Maslow’s hierarchy of needs is shown in Figure 10.2. At the bottom of the hierarchy are the physiological needs—things such as food, sex, and air, which represent basic issues of survival and biological function. In organizations, survival needs are generally satisfied by adequate wages and the work environment itself, which provides restrooms, adequate lighting, comfortable temperatures, and ventilation. Figure 10.2Maslow’s Hierarchy of Needs Maslow’s hierarchy suggests that human needs can be classified into five categories and that these categories can be arranged in a hierarchy of importance. A manager should understand that an employee may not be satisfied with only a salary and benefits; he or she may also need challenging job opportunities to experience self-growth and satisfaction. Source: Adapted from Abraham H. Maslow, “A Theory of Human Motivation,” Psychology Review, 1943, Vol. 50, pp. 370–396. Next are the security needs for a secure physical and emotional environment. Examples include the desire for housing and clothing and the need to be free from worry about money and job security. These needs can be satisfied in the workplace by assured job continuity (no layoffs), an effective grievance system (to protect against arbitrary supervisory actions), and an adequate insurance and retirement benefit package (for security against illness and provision of income in later life). Even today, however, depressed industries and economic decline can put people out of work and restore the primacy of security needs. Belongingness needs relate to social processes. They include the need for love and companionship and the need to be accepted by one’s peers. These needs are satisfied for most people by family and community relationships outside work and by friendships on the job. A manager can help satisfy these needs by allowing social interaction and by making employees feel like part of a team or work group. Esteem needs actually comprise two different sets of needs: the need for a positive self-image and self-respect and the need for recognition and respect from others. A manager can help address these needs by providing a variety of extrinsic symbols of accomplishment, such as job titles, nice offices, and similar rewards as appropriate. At a more intrinsic level, the manager can provide challenging job assignments and opportunities for the employee to feel a sense of accomplishment. At the top of the hierarchy are the self-actualization needs. These involve realizing one’s potential for continued growth and individual development. The self-actualization needs are perhaps the most difficult for a manager to address. In fact, it can be argued that these needs must be met entirely from within the individual. But a manager can help by promoting a culture wherein self-actualization is possible. For instance, a manager could give employees a chance to participate in making decisions about their work and the opportunity to learn new things. Maslow suggests that the five need categories constitute a hierarchy. An individual is motivated first and foremost to satisfy physiological needs. As long as they remain unsatisfied, the individual is motivated to fulfill only them. When satisfaction of physiological needs is achieved, they cease to act as primary motivational factors, and the individual moves “up” the hierarchy and becomes concerned with security needs. This process continues until the individual reaches the selfactualization level. Maslow’s concept of the needs hierarchy has a certain intuitive logic and has been accepted by many managers. But research has revealed certain shortcomings and defects in the theory. Some research has found that five levels of need are not always present and that the order of the levels is not always the same, as postulated by Maslow. In addition, people from different cultures are likely to have different need categories and hierarchies. 10-2bThe Two-Factor Theory Another popular content perspective is the two-factor theory of motivation. Frederick Herzberg developed his theory by interviewing a group of accountants and engineers. He asked them to recall occasions when they had been satisfied and motivated and occasions when they had been dissatisfied and unmotivated. Surprisingly, he found that different sets of factors were associated with satisfaction and with dissatisfaction—that is, a person might identify “low pay” as causing dissatisfaction but would not necessarily mention “high pay” as a cause of satisfaction. Instead, different factors—such as recognition or accomplishment—were cited as causing satisfaction and motivation. This finding led Herzberg to conclude that the traditional view of job satisfaction was incomplete. That view assumed that satisfaction and dissatisfaction are at opposite ends of a single continuum. People might be satisfied, dissatisfied, or somewhere in between. But Herzberg’s interviews had identified two different dimensions altogether: one ranging from satisfaction to no satisfaction and the other ranging from dissatisfaction to no dissatisfaction. This perspective, along with several examples of factors that affect each continuum, is shown in Figure 10.3. Note that the factors influencing the satisfaction continuum—called motivation factors—are related specifically to the work content. The factors presumed to cause dissatisfaction—called hygiene factors—are related to the work environment. Figure 10.3The Two-Factor Theory of Motivation The two-factor theory suggests that job satisfaction has two dimensions. A manager who tries to motivate an employee using only hygiene factors, such as pay and good working conditions, will likely not succeed. To motivate employees and produce a high level of satisfaction, managers must also offer factors such as responsibility and the opportunity for advancement (motivation factors). © Cengage Learning Based on these findings, Herzberg argued that there are two stages in the process of motivating employees. First, managers must ensure that the hygiene factors are not deficient. Pay and security must be appropriate, working conditions must be safe, technical supervision must be acceptable, and so on. By providing hygiene factors at an appropriate level, managers do not stimulate motivation but merely ensure that employees are “not dissatisfied.” Employees whom managers attempt to “satisfy” through hygiene factors alone will usually do just enough to get by. Thus, managers should proceed to stage 2— giving employees the opportunity to experience motivation factors such as achievement and recognition. The result is predicted to be a high level of satisfaction and motivation. Herzberg also went a step further than most other theorists and described exactly how to use the two-factor theory in the workplace. Specifically, he recommended job enrichment, as discussed in Chapter 6. He argued that jobs should be redesigned to provide higher levels of the motivation factors. Although widely accepted by many managers, Herzberg’s twofactor theory is not without its critics. One criticism is that the findings in Herzberg’s initial interviews are subject to different explanations. Another charge is that his sample was not representative of the general population and that subsequent research often failed to uphold the theory . At the present time, Herzberg’s theory is not held in high esteem by researchers in the field. The theory has had a major impact on managers, however, and has played a key role in increasing their awareness of motivation and its importance in the workplace. 10-2cIndividual Human Needs In addition to these theories, research has focused on specific individual human needs that are important in organizations. The three most important individual needs, sometimes referred to as manifest needs, are achievement, affiliation, and power. The need for achievement, the best known of the three, is the desire to accomplish a goal or task more effectively than in the past. People with a high need for achievement have a desire to assume personal responsibility, a tendency to set moderately difficult goals, a desire for specific and immediate feedback, and a preoccupation with their task. David C. McClelland, the psychologist who first identified this need, argues that only about 10 percent of the U.S. population has a high need for achievement. In contrast, almost 25 percent of the workers in Japan have a high need for achievement. The need for affiliation is less well understood. Like Maslow’s belongingness need, the need for affiliation is a desire for human companionship and acceptance. People with a strong need for affiliation are likely to prefer (and perform better in) a job that entails a lot of social interaction and offers opportunities to make friends. One recent survey found that workers with one or more good friends at work are much more likely to be committed to their work. American Airlines, for instance, allows flight attendants to form their own teams; those who participate tend to form teams with their friends. The need for power is the desire to be influential in a group and to control one’s environment. Research has shown that people with a strong need for power are likely to be superior performers, have good attendance records, and occupy supervisory positions. The need for power has also received considerable attention as an important ingredient in managerial success. One study found that managers as a group tend to have a stronger power motive than the general population and that successful managers tend to have stronger power motives than less successful managers. The need for power might explain why Mark Hurd, the former CEO of Hewlett-Packard, recently took advantage of his power and role as head of the company. Hurd was forced to resign after a sexual harassment claim by a female contractor alleging that Hurd had used corporate funds for personal gains in attempts to woo her. The former CEO had submitted personal receipts ranging from $1,000 to $20,000 over a two-year period. 10-3Process Motivation Perspectives on Process perspectives are concerned with how motivation occurs. Rather than attempting to identify motivational stimuli, process perspectives focus on why people choose certain behavioral options to satisfy their needs and how they evaluate their satisfaction after they have attained those goals. Three useful process perspectives on motivation are the expectancy, equity, and goal-setting theories. 10-3aExpectancy Theory Expectancy theory suggests that motivation depends on two things—how much we want something and how likely we think we are to get it. Assume that you are approaching graduation and looking for a job. You see online that Ford Motor Company is seeking a new vice president with a starting salary of $900,000 per year. Even though you might want the job, you will not apply because you realize that you have little chance of getting it. You also find a job posting for someone to scrape bubble gum from underneath theater seats for a starting wage of $8 an hour. Even though you could probably get this job, you do not apply because you do not want it. Then you see a posting for a management trainee at a big company, with a starting salary of $60,000. You will probably apply for this job because you want it and because you think you have a reasonable chance of getting it. Expectancy theory rests on four basic assumptions. First, it assumes that behavior is determined by a combination of forces in the individual and in the environment. Second, it assumes that people make decisions about their own behavior in organizations. Third, it assumes that different people have different types of needs, desires, and goals. Fourth, it assumes that people make choices from among alternative plans of behavior, based on their perceptions of the extent to which a given behavior will lead to desired outcomes. Figure 10.4 summarizes the basic expectancy model. The model suggests that motivation leads to effort and that effort, combined with employee ability and environmental factors, results in performance. Performance, in turn, leads to various outcomes, each of which has an associated value, called its valence. The most important parts of the expectancy model cannot be shown in the figure, however. These are the individual’s expectation that effort will lead to high performance, that performance will lead to outcomes, and that each outcome will have some kind of value. Figure 10.4The Expectancy Model of Motivation The expectancy model of motivation is a complex but relatively accurate portrayal of how motivation occurs. According to this model, a manager must understand what employees want (such as pay, promotions, or status) to begin to motivate them. © Cengage Learning Effort-to-Performance Expectancy The effort-to-performance expectancy is the individual’s perception of the probability that effort will lead to high performance. When the individual believes that effort will lead directly to high performance, expectancy will be quite strong (close to 1.00). When the individual believes that effort and performance are unrelated, expectancy is very weak (close to 0). The belief that effort is somewhat but not strongly related to performance carries with it a moderate expectancy (somewhere between 0 and 1.00). Performance-to-Outcome Expectancy The performance-to-outcome expectancy is the individual’s perception that performance will lead to a specific outcome. For example, the individual who believes that high performance will result in a pay raise has a high expectancy (approaching 1.00). The individual who believes that high performance may lead to a pay raise has a moderate expectancy (between 1.00 and 0). The individual who believes that performance has no relationship to rewards has a low expectancy (close to 0). Outcomes and Valences Expectancy theory recognizes that an individual’s behavior results in a variety of outcomes, or consequences, in an organizational setting. A high performer, for example, may get bigger pay raises, faster promotions, and more praise from the boss. On the other hand, she may also be subject to more stress and incur resentment from coworkers. Each of these outcomes also has an associated value, or valence—an index of how much an individual values a particular outcome. If the individual wants the outcome, its valence is positive; if the individual does not want the outcome, its valence is negative; and if the individual is indifferent to the outcome, its valence is zero. It is this part of expectancy theory that goes beyond the content perspectives on motivation. Different people have different needs, and they will try to satisfy these needs in different ways. For an employee who has a high need for achievement and a low need for affiliation, the pay raise and promotions cited earlier as outcomes of high performance might have positive valences, the praise and resentment zero valences, and the stress a negative valence. For a different employee, one with a low need for achievement and a high need for affiliation, the pay raise, promotions, and praise might all have positive valences, whereas both resentment and stress could have negative valences. For motivated behavior to occur, three conditions must be met. First, the effort-to-performance must be greater than 0 (the individual must believe that if effort is expended, high performance will result). The performance-to-outcome expectancy must also be greater than 0 (the individual must believe that if high performance is achieved, certain outcomes will follow). And the sum of the valences for the outcomes must be greater than 0. (One or more outcomes may have negative valences if they are more than offset by the positive valences of other outcomes. For example, the attractiveness of a pay raise, a promotion, and praise from the boss may outweigh the unattractiveness of more stress and resentment from coworkers.) Expectancy theory suggests that when these conditions are met, the individual is motivated to expend effort. Starbucks credits its unique stock ownership program with maintaining a dedicated and motivated workforce. Based on the fundamental concepts of expectancy theory, Starbucks employees earn stock as a function of their seniority and performance. Thus, their hard work helps them earn shares of ownership in the company. The Porter–Lawler Extension An interesting extension of expectancy theory has been proposed by Porter and Lawler. Recall from Chapter 1 that the human relationists assumed that employee satisfaction causes good performance. We also noted that research has not supported such a relationship. Porter and Lawler suggested that there may indeed be a relationship between satisfaction and performance but that it goes in the opposite direction—that is, high performance may lead to high satisfaction. Figure 10.5 summarizes Porter and Lawler’s logic. Performance results in rewards for an individual. Some of these are extrinsic (such as pay and promotions); others are intrinsic (such as selfesteem and accomplishment). The individual evaluates the equity, or fairness, of the rewards relative to the effort expended and the level of performance attained. If the rewards are perceived to be equitable, the individual is satisfied. Figure 10.5The Porter–Lawler Extension of Expectancy Theory The Porter–Lawler extension of expectancy theory suggests that if performance results in equitable rewards, people will be more satisfied. Thus, performance can lead to satisfaction. Managers must therefore be sure that any system of motivation includes rewards that are fair, or equitable, for all. Source: “The Effect of Performance on Job Satisfaction,” Industrial Relations, p. 23, Edward E. Lawler III and Lyman W. Porter. © 1967. Reproduced with permission of John Wiley & Sons Ltd. 10-3bEquity Theory After needs have stimulated the motivation process and the individual has chosen an action that is expected to satisfy those needs, the individual assesses the fairness, or equity, of the resultant outcome. Equity theory contends that people are motivated to seek social equity in the rewards they receive for performance. Equity is an individual’s belief that the treatment he or she is receiving is fair relative to the treatment received by others. According to equity theory, outcomes from a job include pay, recognition, promotions, social relationships, and intrinsic rewards. To get these rewards, the individual makes inputs to the job, such as time, experience, effort, education, and loyalty. The theory suggests that people view their outcomes and inputs as a ratio and then compare it to someone else’s ratio. This other “person” may be someone in the work group or some sort of group average or composite. The process of comparison looks like this: Both the formulation of the ratios and comparisons between them are very subjective and based on individual perceptions. As a result of comparisons, three conditions may result: The individual may feel equitably rewarded, underrewarded, or overrewarded. A feeling of equity will result when the two ratios are equal. This may occur even though the other person’s outcomes are greater than the individual’s own outcomes— provided that the other’s inputs are also proportionately greater. Suppose that Mark has a high school education and earns $35,000. He may still feel equitably treated relative to Susan, who earns $50,000, because she has a college degree. People who feel underrewarded try to reduce the inequity. Such an individual might decrease her inputs by exerting less effort, increase her outcomes by asking for a raise, distort the original ratios by rationalizing, try to get the other person to change her or his outcomes or inputs, leave the situation, or change the object of comparison. An individual may also feel overrewarded relative to another person. This is not likely to be terribly disturbing to most people, but research suggests that some people who experience inequity under these conditions are somewhat motivated to reduce it. Under such a circumstance, the person might increase his inputs by exerting more effort, reduce his outcomes by producing fewer units (if paid on a perunit basis), distort the original ratios by rationalizing, or try to reduce the inputs or increase the outcomes of the other person. Managers today may need to pay even greater attention to equity theory and its implications. Many firms, for example, are moving toward performance-based reward systems (discussed later in this chapter) as opposed to standard or across-theboard salary increases. Hence, they must ensure that the bases for rewarding some people more than others are clear and objective. Beyond legal issues such as discrimination, managers need to be sure that they are providing fair rewards and incentives to those who do the best work. Moreover, they must be sensitive to cultural differences that affect how people may perceive and react to equity and inequity. 10-3cGoal-Setting Theory The goal-setting theory of motivation assumes that behavior is a result of conscious goals and intentions. Therefore, by setting goals for people in the organization, a manager should be able to influence their behavior. Given this premise, the challenge is to develop a thorough understanding of the processes by which people set goals and then work to reach them. In the original version of goal-setting theory, two specific goal characteristics—goal difficulty and goal specificity—were expected to shape performance. Goal Difficulty Goal difficulty is the extent to which a goal is challenging and requires effort. If people work to achieve goals, it is reasonable to assume that they will work harder to achieve more difficult goals. But a goal must not be so difficult that it is unattainable. If a new manager asks her sales force to increase sales by 300 percent, the group may become disillusioned. A more realistic but still difficult goal—perhaps a 30 percent increase—would be a better incentive. A substantial body of research supports the importance of goal difficulty. In one study, for example, managers at Weyerhauser set difficult goals for truck drivers hauling loads of timber from cutting sites to wood yards. Over a nine-month period, the drivers increased the quantity of wood they delivered by an amount that would have required $250,000 worth of new trucks at the previous per-truck average load. Goal Specificity Goal specificity is the clarity and precision of the goal. A goal of “increasing productivity” is not very specific; a goal of “increasing productivity by 3 percent in the next six months” is quite specific. Some goals, such as those involving costs, output, profitability, and growth, are readily amenable to specificity. Other goals, however, such as improving employee job satisfaction, morale, company image and reputation, ethics, and socially responsible behavior, may be much harder to state in specific terms. Like difficulty, specificity has been shown to be consistently related to performance. The study of timber truck drivers just mentioned, for example, also examined goal specificity. The initial loads the truck drivers carried were found to be 60 percent of the maximum weight each truck could haul. The managers set a new goal for drivers of 94 percent, which the drivers were soon able to reach. Thus, the goal was both specific and difficult. Because the theory attracted so much widespread interest and research support from researchers and managers alike, an expanded model of the goal-setting process was eventually proposed. The expanded model, shown in Figure 10.6, attempts to capture more fully the complexities of goal setting in organizations. Figure 10.6The Expanded Goal-Setting Theory of Motivation One of the most important emerging theories of motivation is goalsetting theory. This theory suggests that goal difficulty, specificity, acceptance, and commitment combine to determine an individual’s goaldirected effort. This effort, when complemented by appropriate organizational support and individual abilities and traits, results in performance. Finally, performance is seen as leading to intrinsic and extrinsic rewards that, in turn, result in employee satisfaction. Source: Reprinted from Organizational Dynamics, Autumn 1979, Gary P. Latham and Edwin A. Locke, A Motivational Technique That Works, p. 79, © 1979, with permission from Elsevier. The expanded theory argues that goal-directed effort is a function of four goal attributes: difficulty and specificity, as already discussed, and acceptance and commitment. Goal acceptance is the extent to which a person accepts a goal as his or her own. Goal commitment is the extent to which he or she is personally interested in reaching the goal. The manager who vows to take whatever steps are necessary to cut costs by 10 percent has made a commitment to achieve the goal. Factors that can foster goal acceptance and commitment include participating in the goal-setting process, making goals challenging but realistic, and believing that goal achievement will lead to valued rewards. The interaction of goal-directed effort, organizational support, and individual abilities and traits determines actual performance. Organizational support is whatever the organization does to help or hinder performance. Positive support might mean making available adequate personnel and a sufficient supply of raw materials; negative support might mean failing to fix damaged equipment. Individual abilities and traits are the skills and other personal characteristics necessary for doing a job. As a result of performance, a person receives various intrinsic and extrinsic rewards, which in turn influence satisfaction. Note that the latter stages of this model are quite similar to the Porter–Lawler expectancy model discussed earlier. 10-4Reinforcement on Motivation Perspectives A third element of the motivational process addresses why some behaviors are maintained over time and why other behaviors change. As we have seen, content perspectives deal with needs, whereas process perspectives explain why people choose various behaviors to satisfy needs and how they evaluate the equity of the rewards they get for those behaviors. Reinforcement perspectives explain the role of those rewards as they cause behavior to change or remain the same over time. Specifically, reinforcement theory argues that behavior that results in rewarding consequences is likely to be repeated, whereas behavior that results in punishing consequences is less likely to be repeated. The “Leading the Way” feature highlights an interesting perspective on reinforcement. Leading the Way To Reward or To Punish? … That Is the Question Organizations use a variety of rewards to motivate their employees. This employee, for example, is receiving an award recognizing his high performance. His facial expression clearly communicates his sense of accomplishment and happiness at being recognized for his contributions. Fuse/Getty Images Suppose you are the general manager of a supermarket and you’ve just finished a department-by-department year-end review of your managers’ performance. Every department—meats, dairy, seafood, deli, bakery, and so forth—has performed up to or beyond expectations. All except one: Produce fell 12 percent short of your forecast. You decide to reward all your managers with healthy bonuses except for your produce manager. In other words, you plan to use punishment to motivate your produce manager and positive reinforcement to motivate all of your other managers. You congratulate yourself for having reached a fair and logical decision. According to Daniel Kahneman, a psychologist who won the Nobel Prize in economics for his work on behavioral and decision-making models, your decision is probably not fair (at least not altogether), and it’s certainly not logical—at least not when the reality of the situation is taken into consideration. Here’s how Kahneman sees your two-pronged decision-making model: Manager’s department performs well → You reward manager → Department continues to perform well • Manager’s department performs poorly → You punish manager → Department performs better The key to Kahneman’s perspective is called regression to the mean—the principle that, from one performance measurement to the next, the change in performance will be toward the overall average level of performance. Say, for example, that you’re a par golfer and that par for your course is 72. If you shoot 68 in one round, your next round will probably be in the direction of 72—not necessarily 72 exactly, which is your average, or 76, which would bring you exactly back to a two-round average of 72. Technically, regression to the mean is a law, and not a rule: You could shoot a second round of 70 or even 67, but most of the time, your second-round score won’t be as good as your first-round score. • Why does regression to the mean occur? Because a complex combination of factors usually determines any outcome. And because this combination is complex, it’s not likely that the same combination will repeat itself the next time you measure the outcome. Which brings us back to your produce manager: It’s not likely that his managerial performance was the sole (or even necessarily the primary) factor in his department’s poor performance. Other factors might include variations in competition, economic and market conditions, and decisions made by managers above him—all of which are largely random and which will undoubtedly be different from one performance measurement to the next. Now that you understand a little about the reality of regression to the mean, compare your decision-making model to a model that reflects reality: Manager’s department performs well → Department probably does not perform as well • Manager’s department performs poorly → Department probably performs better Your reinforcement decision will probably have little or nothing to do with next year’s outcome in any of your store’s departments. And you’ve probably been unfair to your produce manager. Kahneman isn’t inclined to be overly critical of your mistaken belief that you’ve made a logical, fair, and effective decision: “It’s very difficult for people to detect their own errors,” he admits. “You’re too busy • making a mistake to detect it at the same time.” He does, however, reserve the right to be pessimistic: “The failure to recognize the import of regression,” he warns, can have pernicious consequences…. We normally reinforce others when their behavior is good and punish them when their behavior is bad. By regression alone [however], they are most likely to improve after being punished and most likely to deteriorate after being rewarded. Consequently, we are exposed to a lifetime schedule in which we are most often rewarded for punishing others and punished for rewarding [them]. References: Bryan Burke, “Fighter Pilots and Firing Coaches,” Advanced NFL Stats,, accessed on December 7, 2013; David Hall, “Daniel Kahneman Interview,” New Zealand Listener,, accessed on December 7, 2013; Steve Miller, “We’re Not Very Good Statisticians,” Information Management,, accessed on December 7, 2013; Galen Strawson, “Thinking, Fast and Slow by Daniel Kahneman—Review,” The Guardian,, accessed on December 7, 2013; and Judgment under Uncertainty: Heuristics and Biases, ed. Daniel Kahneman, Paul Slovic, and Amos Tversky (Cambridge, UK: Cambridge University Press, 1982),, accessed on December 7, 2013. 10-4aKinds of Reinforcement in Organizations Four basic kinds of reinforcement can result from behavior— positive reinforcement, avoidance, punishment, and extinction. Two kinds of reinforcement strengthen or maintain behavior, whereas the other two weaken or decrease behavior. Positive reinforcement, one method of strengthening behavior, is a reward or a positive outcome after a desired behavior is performed. When a manager observes an employee doing an especially good job and offers praise, the praise serves to positively reinforce the behavior of good work. Other positive reinforcers in organizations include pay raises, promotions, and awards. Employees who work at General Electric’s customer service center receive clothing, sporting goods, and even allexpenses-paid vacations as rewards for outstanding performance. The other method of strengthening desired behavior is through avoidance. An employee may come to work on time to avoid a reprimand. In this instance, the employee is motivated to perform the behavior of punctuality to avoid an unpleasant consequence that is likely to follow tardiness. Punishment is used by some managers to weaken undesired behaviors. When an employee is loafing, coming to work late, doing poor work, or interfering with the work of others, the manager might resort to reprimands, discipline, or fines. The logic is that the unpleasant consequence will reduce the likelihood that the employee will choose that particular behavior again. Given the counterproductive side effects of punishment (such as resentment and hostility), it is often advisable to use the other kinds of reinforcement if at all possible. Extinction can also be used to weaken behavior, especially behavior that has previously been rewarded. When an employee tells an offensive joke and the boss laughs, the laughter reinforces the behavior and the employee may continue to tell offensive jokes. By simply ignoring this behavior and not reinforcing it, the boss can cause the behavior to subside and eventually become “extinct.” 10-4bProviding Reinforcement in Organizations The kind of reinforcement is important, but when or how often it occurs also is important. Various strategies are possible for providing reinforcement. The fixed-interval scheduleprovides reinforcement at fixed intervals of time, regardless of behavior. A good example of this schedule is the weekly or monthly paycheck. This method provides the least incentive for good work because employees know they will be paid regularly regardless of their efforts. A variable-interval schedule also uses time as the basis for reinforcement, but the time interval varies from one reinforcement to the next. This schedule is appropriate for praise or other rewards based on visits or inspections. When employees do not know when the boss is going to drop by, they tend to maintain a reasonably high level of effort all the time. A fixed-ratio schedule gives reinforcement after a fixed number of behaviors, regardless of the time that elapses between behaviors. This results in an even higher level of effort. For example, when Sears is recruiting new credit-card customers, salespersons get a small bonus for every fifth application returned from their department. Under this arrangement, motivation will be high because each application gets the person closer to the next bonus. The variable-ratio schedule, the most powerful schedule in terms of maintaining desired behaviors, varies the number of behaviors needed for each reinforcement. A supervisor who praises an employee for her second order, the seventh order after that, the ninth after that, then the fifth, and then the third is using a variableratio schedule. The employee is motivated to increase the frequency of the desired behavior because each performance increases the probability of receiving a reward. Of course, a variable-ratio schedule is difficult (if not impossible) to use for formal rewards such as pay because it would be too complicated to keep track of who was rewarded when. Managers wanting to explicitly use reinforcement theory to motivate their employees generally do so with a technique called organizational behavior modification (OB Mod). An OB Mod program starts by specifying behaviors that are to be increased (such as producing more units) or decreased (such as coming to work late). These target behaviors are then tied to specific forms or kinds of reinforcement. Although many organizations (such as Procter & Gamble and Ford) have used OB Mod, the best-known application was at Emery Air Freight (now a part of UPS). Management felt that the containers used to consolidate small shipments into fewer, larger shipments were not being packed efficiently. Through a system of selfmonitored feedback and rewards, Emery increased container usage from 45 percent to 95 percent and saved over $3 million during the first three years of the program. 10-5Popular Strategies Motivational Although the various theories discussed thus far provide a solid explanation for motivation, managers must use various techniques and strategies to actually apply them. Among the most popular motivational strategies today are empowerment and participation and alternative forms of work arrangements. Various forms of performance-based reward systems, discussed in the next section, also reflect efforts to boost motivation and performance. 10-5aEmpowerment and Participation Empowerment and participation represent important methods that managers can use to enhance employee motivation. Empowerment is the process of enabling workers to set their own work goals, make decisions, and solve problems within their sphere of responsibility and authority. Participation is the process of giving employees a voice in making decisions about their own work. Thus, empowerment is a somewhat broader concept that promotes participation in a wide variety of areas, including but not limited to work itself, work context, and work environment. The role of participation and empowerment in motivation can be expressed in terms of both content perspectives and expectancy theory. Employees who participate in decision making may be more committed to executing decisions properly. Furthermore, the successful process of making a decision, executing it, and then seeing the positive consequences can help satisfy one’s need for achievement, provide recognition and responsibility, and enhance selfesteem. Simply being asked to participate in organizational decision making may also enhance an employee’s self-esteem. In addition, participation should help clarify expectancies; that is, by participating in decision making, employees may better understand the linkage between their performance and the rewards they want most. The “At Your Service” feature highlights the importance of empowerment in service organizations. At Your Service Service with a Smile More and more people are working in service jobs. Service employees are often a critical point of contact with customers so it is important that they feel good about their jobs and convey a sense of trust. Empowering service employees to make decisions and solve problems can go a long way toward building excellent customer relationships. © Norman Pogson/ Service organizations generally rely on their employees’ ability to figure out what the customer wants, needs, and expects and then provide it during that experience. This means that empowerment is a necessity in services because there is no way to fully prepare, train, or teach an employee how to perform the tasks required in the way that each customer expects. So, most service organizations use empowerment extensively. Empowerment works because supervisors can’t be everywhere all the time to answer questions, coach correct employee behavior, or prepare their employees for every possible variation that customers will bring to the service encounter. An even more critical reason that empowerment is necessary is that service failures are inevitable. Thus, employees have to be ready, willing, and able to correct those situations in which the service hasn’t gone the way the customer expected and something must be done to fix the service failure. The research on service failures tells us that the faster a service failure is resolved, the better the outcome for company and customer. The customer is happier when the problem is resolved quickly—and sometimes is even happier than if there had been no problem in the first place. The company is also happier because happy customers are more likely to return as repeat customers. Best of all, the server is happier because most customer encounters with failures are not pleasant, and having the ability to resolve a failure in a positive, quick way leads to a more positive experience for the employee as well as the customer. As one final benefit, most people feel that when they are hired they are supposed to do the jobs for which they were employed and greatly appreciate the opportunity to do them well. When empowered to add value to the customer’s experience by personalizing the transaction, service employees feel they have more control over how to perform their jobs, more awareness of the business and their contribution to its success, and more accountability for their own performance. Successful empowerment requires satisfying five assumptions. First, the employee must have the training, capability, and motivation to do what is needed in the service experience. Second, the outcome must be measureable in some way. Third, the employee must be committed to the organization’s mission to provide excellent service and care about sustaining his or her role in the organization’s success. Fourth, the manager must be comfortable with allowing the employee to use discretion in performing the job. Finally, the organization needs a strong culture that can guide the employee on doing the right thing when the right thing is an on-the-spot decision the employee must make as to what should be done to respond to a customer. Thus, both company and employee have to be ready, willing, and able to do what the customer wants when the customer wants it. 10-5bAlternative Forms of Work Arrangements Many organizations today are also experimenting with a variety of alternative work arrangements. These alternative arrangements are generally intended to enhance employee motivation and performance by providing employees with greater flexibility in how and when they work. Among the more popular alternative work arrangements are variable work schedules, flexible work schedules, job sharing, and telecommuting. Variable Work Schedules Although there are many exceptions, of course, the traditional work schedule starts at 8:00 or 9:00 in the morning and ends at 5:00 in the evening, five days a week (of course, many managers work additional hours outside these times). Unfortunately, this schedule makes it difficult to attend to routine personal business—going to the bank, seeing a doctor or dentist for a routine checkup, having a parent– teacher conference, getting an automobile serviced, and so forth. At a surface level, then, employees locked into this sort of arrangement may find it necessary to take a sick day or a vacation day to handle these activities. At a more unconscious level, some people may also feel powerless and constrained by their job schedule and develop resentment and frustration. To help counter these problems, some businesses have adopted a compressed work schedule, working a full forty-hour week in fewer than the traditional five days. One approach involves working ten hours a day for four days, leaving an extra day off. Another alternative is for employees to work slightly fewer than ten hours a day, but to complete the forty hours by lunchtime on Friday. A few firms have tried having employees work twelve hours a day for three days, followed by four days off. Organizations that have used these forms of compressed workweeks include Chevron, BP Amoco, Kraft Foods, and Philip Morris. One problem with this schedule is that when employees put in too much time in a single day, they tend to get tired and perform at a lower level later in the day. A schedule that some organizations today are beginning to use is what they call a “nine-eighty” schedule. Under this arrangement, an employee works a traditional schedule one week and a compressed schedule the next, getting every other Friday off. In other words, they work eighty hours (the equivalent of two weeks of full-time work) in nine days. By alternating the regular and compressed schedules across half of its workforce, the organization can be fully staffed at all times, while still giving employees two extra full days off each month. Shell Oil and BP Amoco Chemicals are two of the firms that currently use this schedule. Flexible Work Schedules Another promising alternative work arrangement is flexible work schedules, sometimes called flextime. Flextime gives employees more personal control over the times they work. The workday is broken down into two categories: flexible time and core time. All employees must be at their workstation during core time, but they can choose their own schedules during flexible time. Thus, one employee may choose to start work early in the morning and leave in mid-afternoon, another to start in the late morning and work until late afternoon, and still another to start early in the morning, take a long lunch break, and work until late afternoon. Organizations that have used the flexible-work schedule method for arranging work include Hewlett-Packard, Microsoft, and Texas Instruments. Job Sharing Yet another potentially useful alternative work arrangement is job sharing. In job sharing, two part-time employees share one full-time job. One person may perform the job from 8:00 a.m. to noon, and the other from 1:00 p.m. to 5:00 p.m. Job sharing may be desirable for people who want to work only part-time or when job markets are tight. For its part, the organization can accommodate the preferences of a broader range of employees and may benefit from the talents of more people. Telecommuting An increasingly popular approach to alternative work arrangements is telecommuting—allowing employees to spend part of their time working offsite, usually at home. By using various forms of digital communication, many employees can maintain close contact with their organization and still get just as much—or even more—work done at home as if they were in their office. The increased power and sophistication of modern communication technology are making telecommuting easier and easier. One recent study found that nearly 40 percent of the U.S. workforce (33 million workers) are in jobs that allow for partial or complete telecommuting. Nearly half of AT&T’s employees have received mobile and remote access technologies that provide them with the flexibility to work from various locations. And 40 percent of IBM’s employees currently telecommute. (In the case of IBM, not only are employees more satisfied with the arrangement but the firm also has saved close to $2.9 billion in office space needs. ) Telecommuting is becoming more and more common and can often help enhance employee commitment and motivation. This man is spending his morning working from home. He has served breakfast to his daughter and is now discussing a work issue with a colleague. The flexibility afforded to him by his employer helps him function more effectively as both a parent and an employee. 10-6Using Reward Systems to Motivate Performance Aside from these types of motivational strategies, an organization’s reward system is its most basic tool for managing employee motivation. An organizational reward system is the formal and informal mechanisms by which employee performance is defined, evaluated, and rewarded. Rewards that are tied specifically to performance, of course, have the greatest impact on enhancing both motivation and actual performance. But managing rewards and motivation is not always as easy as it might first seem. Performance-based rewards play a number of roles and address a variety of purposes in organizations. The major purposes involve the relationship of rewards to motivation and to performance. Specifically, organizations want employees to perform at relatively high levels and need to make it worth their effort to do so. When rewards are associated with higher levels of performance, employees will presumably be motivated to work harder to achieve those awards. At that point, their own self-interests coincide with the organization’s interests. Performance-based rewards are also relevant regarding other employee behaviors, such as retention and citizenship. 10-6aMerit Reward Systems Merit reward systems are one of the most fundamental forms of performance-based rewards. Merit pay generally refers to pay awarded to employees on the basis of the relative value of their contributions to the organization. Employees who make greater contributions are given higher pay than those who make lesser contributions. Merit pay plans, then, are compensation plans that formally base at least some meaningful portion of compensation on merit. The most general form of merit pay plan is to provide annual salary increases to individuals in the organization based on their relative merit. Merit, in turn, is usually determined or defined based on the individual’s performance and overall contributions to the organization. For example, an organization using such a traditional merit pay plan might instruct its supervisors to give all their employees an average pay raise of, say, 4 percent. But the individual supervisor is further instructed to differentiate among high, average, and low performers. Under a simple system, for example, a manager might give the top 20 percent of her employees a 7 percent pay raise, the middle 60 percent a 5 percent or average pay raise, and the bottom 20 percent a 3 percent pay raise. 10-6bIncentive Reward Systems Incentive reward systems are among the oldest forms of performance-based rewards. For example, some companies were using individual piece-rate incentive plans over 100 years ago. Under a piece-rate incentive plan, the organization pays an employee a certain amount of money for every unit he or she produces. For example, an employee might be paid $5 for every dozen units of products that are successfully completed. But such simplistic systems fail to account for facts such as minimum wage levels and rely very heavily on the assumptions that performance is totally under an individual’s control and that the individual employee does a single task continuously throughout his or her work time. Thus, most organizations today that try to use incentive compensation systems use more sophisticated methodologies. Incentive Pay Plans Generally speaking, individual incentive plans reward individual performance on a real-time basis. In other words, rather than increasing a person’s base salary at the end of the year, an individual instead receives some level of salary increase or financial reward in conjunction with demonstrated outstanding performance in close proximity to when that performance occurred. Individual incentive systems are most likely to be used in cases in which performance can be objectively assessed in terms of number of units of output or similar measures, rather than on a subjective assessment of performance by a superior. Some variations on a piece-rate system are still fairly popular. Although many of these still resemble the early plans in most ways, a well-known piece-rate system at Lincoln Electric illustrates how an organization can adapt the traditional model to achieve better results. For years, Lincoln’s employees were paid individual incentive payments based on their performance. However, the amount of money shared (or the incentive pool) was based on the company’s profitability. There was also a wellorganized system whereby employees could make suggestions for increasing productivity. There was motivation to do this because the employees received one-third of the profits (another third went to the stockholders, and the last share was retained for improvements and seed money). Thus, the pool for incentive payments was determined by profitability, and an employee’s share of this pool was a function of his or her base pay and rated performance based on the piece-rate system. Lincoln Electric was most famous, however, because of the stories (which were apparently typical) of production workers receiving a year-end bonus payment that equaled their yearly base pay. In recent years, Lincoln has partially abandoned its famous system for business reasons, but it still serves as a benchmark for other companies seeking innovative piece-rate pay systems. Perhaps the most common form of individual incentive is sales commissions that are paid to people engaged in sales work. For example, sales representatives for consumer products firms and retail sales agents may be compensated under this type of commission system. In general, the person might receive a percentage of the total volume of attained sales as his or her commission for a period of time. Some sales jobs are based entirely on commission, whereas others use a combination of base minimum salary with additional commission as an incentive. Notice that these plans put a considerable amount of the salespersons’ earnings “at risk.” In other words, although organizations often have drawing accounts to allow the salesperson to live during lean periods (the person then “owes” this money back to the organization), if he or she does not perform well, he or she will not be paid much. The portion of salary based on commission is simply not guaranteed and is paid only if sales reach some target level. Other Forms of Incentive Occasionally, organizations may also use other forms of incentives to motivate people. For example, a nonmonetary incentive, such as additional time off or a special perk, might be a useful incentive. For example, a company might establish a sales contest in which the sales group that attains the highest level of sales increase over a specified period of time will receive an extra week of paid vacation, perhaps even at an arranged place, such as a tropical resort or a ski lodge. A major advantage of incentives relative to merit systems is that incentives are typically a one-shot reward and do not accumulate by becoming part of the individual’s base salary. Stated differently, an individual whose outstanding performance entitles him or her to a financial incentive gets the incentive only one time, based on that level of performance. If the individual’s performance begins to erode in the future, then the individual may receive a lesser incentive or perhaps no incentive in the future. As a consequence, his or her base salary remains the same or is perhaps increased at a relatively moderate pace; he or she receives one-time incentive rewards as recognition for exemplary performance. Furthermore, because these plans, by their very nature, focus on one-time events, it is much easier for the organization to change the focus of the incentive plan. At a simple level, for example, an organization can set up an incentive plan for selling one product during one quarter, but then shift the incentive to a different product the next quarter, as the situation requires. Automobile makers like Ford routinely offer sales incentives on vehicles that are selling at a slower rate than projected. Common consumer incentives include price cuts, rebates, and low interest rate financing. Incentives are also offered to dealerships and individual sales people who “push” these vehicles. Extra commissions and bonuses, for example, are often used in addition to consumer incentives. Daniel Acker/Bloomberg/Getty Images 10-6cTeam and Group Incentive Reward Systems The merit compensation and incentive compensation systems described in the preceding sections deal primarily with performance-based reward arrangements for individuals. There also exists a different set of performance-based reward programs that are targeted for teams and groups. These programs are particularly important for managers to understand today, given the widespread trends toward teamand group-based methods of work and organizations. 10-6dCommon Team and Group Reward Systems There are two commonly used types of team and group reward systems. One type used in many organizations is an approach called gainsharing. Gainsharing programs are designed to share the cost savings from productivity improvements with employees. The underlying assumption of gainsharing is that employees and the employer have the same goals and thus should appropriately share in incremental economic gains. In general, organizations that use gainsharing start by measuring team- or group-level productivity. It is important that this measure be valid and reliable and that it truly reflects current levels of performance by the team or group. The team or work group itself is then given the charge of attempting to lower costs or otherwise improve productivity through any measures that its members develop and its manager approves. Resulting cost savings or productivity gains that the team or group is able to achieve are then quantified and translated into dollar values. A predetermined formula is then used to allocate these dollar savings between the employer and the employees themselves. A typical formula for distributing gainsharing savings is to provide 25 percent to the employees and 75 percent to the company. One specific type of gainsharing plan is an approach called the Scanlon plan. This approach was developed by Joseph Scanlon in 1927. The Scanlon plan has the same basic strategy as gainsharing plans, in that teams or groups of employees are encouraged to suggest strategies for reducing costs. However, the distribution of these gains is usually tilted much more heavily toward employees, with employees usually receiving between two-thirds and three-fourths of the total cost savings that the plan achieves. Furthermore, the distribution of cost savings resulting from the plan is given not just to the team or group that suggested and developed the ideas, but across the entire organization. Other Types of Team and Group Rewards Although gainsharing and Scanlon-type plans are among the most popular group incentive reward systems, there are other systems that are used by some organizations. Some companies, for example, have begun to use true incentives at the team or group level. Just as with individual incentives, team or group incentives tie rewards directly to performance increases. And, like individual incentives, team or group incentives are paid as they are earned rather than being added to employees’ base salary. The incentives are distributed at the team or group level, however, rather than at the individual level. In some cases, the distribution may be based on the existing salary of each employee, with incentive bonuses being given on a proportionate basis. In other settings, each member of the team or group receives the same incentive pay. Some companies also use nonmonetary rewards at the team or group level—most commonly in the form of prizes and awards. For example, a company might designate the particular team in a plant or subunit of the company that achieves the highest level of productivity increase, the highest level of reported customer satisfaction, or a similar index of performance. The reward itself might take the form of additional time off, as described earlier in this chapter, or a tangible award, such as a trophy or plaque. In any event, the idea is that the reward is at the team level and serves as recognition of exemplary performance by the entire team. There are also other kinds of team or group level incentives that go beyond the contributions of a specific work group. These are generally organization-wide kinds of incentives. One longstanding method for this approach is profit sharing. In a profitsharing approach, at the end of the year, some portion of the company’s profits is paid into a profit-sharing pool that is then distributed to all employees. If the amount is not distributed at that time, it is put into an escrow account and payment is deferred until the employee retires. Employee stock ownership plans (ESOPs) also represent a grouplevel reward system that some companies use. Under the ESOP, employees are gradually given a major stake in ownership of a corporation. The typical form of this plan involves the company’s taking out a loan, which is then used to buy a portion of its own stock in the open market. Over time, company profits are then used to pay off this loan. Employees, in turn, receive a claim on ownership of some portion of the stock held by the company, based on their seniority and perhaps on their performance. Eventually, each individual becomes an owner of the company. 10-6eExecutive Compensation The top-level executives of most companies have separate compensation programs and plans. These are intended to reward these executives for their performance and for the performance of the organization. Standard Forms of Executive Compensation Most senior executives receive their compensation in two forms. One form is a base salary. As with the base salary of any staff member or professional member of an organization, the base salary of an executive is a guaranteed amount of money that the individual will be paid. For example, in 2013 Kraft Foods paid its CEO, Irene Rosenfeld, $3,600,000 million in base salary. Above and beyond this base salary, however, most executives also receive one or more forms of incentive pay. The traditional method of incentive pay for executives is in the form of bonuses. Bonuses, in turn, are usually determined by the performance of the organization. Thus, at the end of the year, some portion of a corporation’s profits may be diverted into a bonus pool. Senior executives then receive a bonus expressed as a percentage of this bonus pool. The CEO and president are obviously likely to get a larger percentage bonus than a vice president. The exact distribution of the bonus pool is usually specified ahead of time in the individual’s employment contract. Some organizations intentionally leave the distribution unspecified, so that the board of directors has the flexibility to give larger rewards to those individuals deemed to be most deserving. Kraft Foods’ Irene Rosenfeld received a cash bonus of about $6.5 million in 2013. Special Forms of Executive Compensation Beyond base salary and bonuses, many executives receive other kinds of compensation as well. A form of executive compensation that has received a lot of attention in recent years has been various kinds of stock options. A stock option plan is established to give senior managers the option to buy company stock in the future at a predetermined fixed price. The basic idea underlying stock option plans is that if the executives contribute to higher levels of organizational performance, then the company stock should increase in value. Then the executive will be able to purchase the stock at the predetermined price, which theoretically should be lower than its future market price. The difference then becomes profit for the individual. Kraft Foods awarded Irene Rosenfeld stock options with a potential value of $14.4 million. Stock options continue to grow in popularity as a means of compensating top managers. Options are seen as a means of aligning the interests of the manager with those of the stockholders, and given that they do not cost the organization much (other than some possible dilution of stock values), they will probably be even more popular in the future. In fact, a recent study by KPMG Peat Marwick indicates that for senior management whose salary exceeds $250,000, stock options represent the largest share of the salary mix (relative to salary and other incentives). Furthermore, when we consider all of top management (annual salary over $750,000), stock options comprise a full 60 percent of their total compensation. And the Peat Marwick report indicates that even among exempt employees at the $35,000-a-year level, stock options represent 13 percent of total compensation. But events in recent years have raised serious questions about the use of stock options as incentives for executives. For example, several executives at Enron allegedly withheld critical financial information from the markets, cashed in their stock options (while Enron stock was trading at $80 a share), and then watched as the financial information was made public and the stock fell to less than $1 a share. Of course, such actions (if proven) are illegal, but they raise questions in the public’s mind about the role of stock options and about the way organizations treat stock options from an accounting perspective. Most organizations have not treated stock options as liabilities, even though, when exercised, they are exactly that. There is concern that by not carrying stock options as liabilities, the managers are overstating the value of the company, which, of course, can help raise the stock price. Finally, when stock markets generally fell during the middle of 2002, many executives found that their options were worthless because the price of the stock fell below the option price. When stock options go “underwater” in this way, they have no value to anyone. Aside from stock option plans, other kinds of executive compensation are also used by some companies. Among the more popular are perquisites such as memberships in private clubs, access to company recreational facilities, and similar considerations. Some organizations also make available to senior executives low- or no-interest loans. These are often given to new executives whom the company is hiring from other companies and serve as an incentive for the individual to leave his or her current job to join a new organization. Kraft Food’s Irene Rosenfeld received slightly more than $400,000 in other compensation during 2013 for things such as perks and payment of life insurance. Criticisms of Executive Compensation In recent years, executive compensation has come under fire for a variety of reasons. One major reason is that the levels of executive compensation attained by some managers seem simply too large for the average shareholder to understand. It is not uncommon, for instance, for a senior executive of a major corporation to earn total income from his or her job in a given year of well in excess of $1 million. Sometimes the income of CEOs can be substantially more than this. Thus, just as the typical person has difficulty comprehending the astronomical salaries paid to some movie stars and sports stars, so, too, would the average person be aghast at the astronomical salaries paid to some senior executives. Compounding the problem created by perceptions of executive compensation is the fact that there often seems to be little or no relationship between the performance of the organization and the compensation paid to its senior executives. Certainly, if an organization is performing at an especially high level and its stock price is increasing consistently, then most observers would agree that the senior executives responsible for this growth should be entitled to attractive rewards. However, it is more difficult to understand a case in which executives are paid huge salaries and other forms of rewards when their company is performing at only a marginal level, yet this is fairly common today. Finally, we should note that the gap between the earnings of the CEO and the earnings of a typical employee is enormous. First of all, the size of the gap has been increasing in the United States. In 1980, the typical CEO earned 42 times the earnings of an ordinary worker; by 1990, this ratio had increased to 85 times the earnings of an ordinary worker; in 2009, the ratio was 263 times the earnings of a typical worker. In Japan, on the other hand, the CEO-to-worker pay ratio is 16 times; in Germany, the ratio is 13 times. 10-6fNew Rewards Approaches to Performance-Based Some organizations have started to recognize that they can leverage the value of the incentives that they offer to their employees and to groups in their organization by allowing those individuals and groups to have a say in how rewards are distributed. For example, at the extreme, a company could go so far as to grant salary increase budgets to work groups and then allow the members of those groups themselves to determine how the rewards are going to be allocated among the various members of the group. This strategy would appear to hold considerable promise if everyone understands the performance arrangements that exist in the work group and if everyone is committed to being fair and equitable. Unfortunately, it can also create problems if people in a group feel that rewards are not being distributed fairly. Organizations are also getting increasingly innovative in their incentive programs. For example, some now offer stock options to all their employees, rather than just top executives. In addition, some firms are looking into ways to purely individualize reward systems. For instance, a firm might offer one employee a paid three-month sabbatical every two years in exchange for a 20 percent reduction in salary. Another employee in the same firm might be offered a 10 percent salary increase in exchange for a 5 percent reduction in company contributions to the person’s retirement account. Corning, General Electric, and Microsoft are among the firms closely studying this option. Regardless of the method used, however, it is also important that managers in an organization effectively communicate what rewards are being distributed and the basis for that distribution. In other words, if incentives are being distributed on the basis of perceived individual contributions to the organization, then members of the organization should be informed of that fact. This will presumably better enable them to understand the basis on which pay increases and other incentives and performance-based rewards have been distributed. 1. The motivation framework (Connect) 1. The figure below represents the motivation framework. Label the missing steps. Choose one. A (a. choose behavior to satisfy need, b. search for ways to satisfy need, evaluate need satisfication) B (a. evaluates need satisfaction; b. choose behavior to satisfy need c. search for ways to satisfy need) C (a. evaluates need satisfaction; b. choose behavior to satisfy need c. search for ways to satisfy need) (Source: Adapted from Griffin, R. W.. (2011). Fundamentals of management (8th ed., p. 295). Boston, MA: Cengage Learning) 2. After a year on the job, Ted realizes that he has become bored with his work as a cashier. In terms of the motivation framework, what step is Ted in? a. He is evaluating whether his behavior is meeting his need. b. He is looking for a way to satisfy a need. c. He is experiencing a need. d. He has chosen a behavior that may meet his need. 2. Content perspectives on motivation (Connect) 1. Use your understanding of Maslow’s hierarchy of needs to complete the sentence. According to Maslow’s hierarchy of needs, employees would be motivated by (a. job enrichment b. health insurance) only if (a. health insurance b. job enrichment) were already offered. Read the following scenario and apply your knowledge of Herzberg’s two-factor theory of motivation to answer the questions. Management at Work Harry’s Grill is a popular local eatery. Recently, Harry noticed that sales were starting to slip a bit. In general, employees are neither satisfied nor dissatisfied—they tend to have neutral satisfaction levels. Harry has decided to try some new management techniques to see if he can increase employee satisfaction and, he hopes, sales. 2. Harry asks each employee what kind of work is most interesting to him or her. He assigns new tasks according to employee interests. This is an example of a (a. motivation factor b. hygiene factor). 3. Harry decides to raise employee wages. Each employee will receive a bonus worth 15% of his or her base pay. This is an example of a (motivation factor b. hygiene factor). Indicate which individual human need each example illustrates. Choose one anwer. Example Need Bob, a McDonald’s crew member, rushes to beat the store record for drive-through service speed. a. Achievement b. power c. goal setting d. affiliation When a student asked a question, Professor Caddell said, “I’m in charge of this classroom. You’ll ask questions when I permit you to!” a. Equity b. power c. affiliation Kenji is good friends with everyone on your study team, and he does everything he can to avoid problems with other team members. d. achievement a. Power b. expectancy c. affiliation d. achievement 4. Lucia often finds herself impatient with her employees. She often thinks, "Why can’t others do their work the way I want them to do it? I need to meet my weekly sales target, and their inability to work quickly and accurately is getting in the way of that." Lucia is likely to have a high need for: a. Power b. Equity c. Affiliation d. Achievement 3. Process perspectives on motivation (Connect, Perform) 4. Reinforcement perspectives on motivation (Connect, Perform) Read the short scenario below and then use your understanding of how reinforcement affects motivation to answer the questions. Management at Work Cho works as a receptionist and technician at an animal shelter. Her boss, Bob, believes that smiling at the people who come to the shelter leads to more dogs being adopted. Recently, he has been nagging his employees to smile. Last week, Bob noticed that Cho smiled and immediately greeted a family who was at the animal shelter looking for a new dog. Bob decides to use either positive reinforcement or avoidance learning to increase Cho’s behavior. Now Bob is asking for your advice about exactly what to do to use each technique. 1. If Bob wants to use a positive reinforcement technique, which of the following should Bob do? a. Give instructions to Cho. b. Give Cho a bonus. c. Stop nagging Cho. d. Pay no attention to Cho. 2. On the other hand, if Bob wants to use an avoidance learning technique, which of the following should Bob do? a. Give instructions to Cho. b. Pay no attention to Cho. c. Stop nagging Cho. d. Give Cho a bonus. 3. You manage employees in several cities, and while you try to visit the various offices as much as possible, your travel schedule is unpredictable. When you do see an employee performing a desirable behavior, you are quick to praise that person. What reinforcement schedule are you using, and is it likely to be effective in promoting desirable behavior? a. Variable-interval schedule; ineffective b. Variable-ratio schedule; effective c. Variable-interval schedule; effective d. Variable-ratio schedule; ineffective 5. Motivational strategies (Connect, Perform) Management at Work Flight 001 (pronounced “flight one”) is a store that caters to frequent travelers. The business was conceived by international business travelers John Sencion and Brad John. Sencion and John thought it took too long to prepare for trips. They decided to start a travel store that is streamlined and provides frequent fliers with everything they need to travel comfortably. Flight 001’s products include a wide range of carry-on bags, luggage sets, duffels and totes, toiletry bags, document organizers, and gadgets to help travelers use their electronic items wherever they might travel. 1. Employees who feel like they are important to the growth of a company are more likely to (a. feel a high need for affiliation b. feel a high need for power c. feel that their jobs are enlarged d. have self- esteem needs met). 2. Suppose you were just hired as a manager at Flight 001. You want to motivate your employees by using engagement. Which of the following actions will likely be effective for this purpose? Check all that apply. - Listen to employees and show caring about their problems and concerns. - Regularly evaluate your employees’ work, giving them specific instructions on how tasks should be done. - Give people work that they can feel proud of, something they feel is significant and important. - Help employees understand their skills and give them work that uses those skills and helps them to develop new skills. Your company recently conducted an employee survey. As the VP of human resources, you are concerned about responses indicating that a standard work schedule of 8:00 a.m. to 5:00 p.m., Monday through Friday, is a source of dissatisfaction for many employees. As a result, you decide to implement a variety of alternative work schedules that meet both employee and company needs. 3. The number of employees in your Seattle office has doubled, and commercial space is expensive so you do not want to expand the office. Which of the following is a potential solution? a. Ask employees to volunteer for a compressed work schedule b. Identify some jobs as appropriate for job sharing c. Implement flexible work schedules d. Allow selected employees to telecommute 6. Reward systems and motivation (Connect) © Shutterstock Images 1. At Southwest Airlines, employees participate in every decision the company makes—including the financial ones. Their payoff for their efforts includes owning part of the company. This reflects a rewards system that includes: a. Pay for knowledge b. Employee stock options c. Gainsharing d. Lump-sum bonuses 2. NACCO believes that employees will work most effectively when all employees benefit directly from the organization’s success. NACCO uses an organization-wide incentive called: a. Organizational development b. Profit sharing c. Pay for knowledge d. Team-based compensation 3. Carla has just received her annual performance review. Because Carla had the highest productivity of anyone in her department, she will get the largest raise this year. This is an example of: a. Gainsharing b. Employee stock options c. Pay for knowledge d. Merit pay 4. When the U.S. Department of Defense identifies a department where efficiency has increased over prior years and work quality has remained the same or gotten better, everyone in the department is rewarded according to how much money they have saved the agency. This type of reward system is known as: a. Pay for knowledge b. Gainsharing c. Employee stock options d. Lump-sum bonuses 7. Motivation: Mike Boyle Strength & Conditioning case study(Lead) Research Study A number of studies suggest that people are motivated by financial incentives when they do simple tasks, but for more complex tasks, financial incentives can actually decrease performance. People have to be paid enough so that they are not worried about money, but giving them additional money doesn’t motivate them to do more. For complex tasks, research shows that there are three things that motivate people: autonomy, or the ability to direct their own behavior; mastery, or the desire to get better at the things they do; and purpose, or caring about what they do. (Source: Pink, D. (2009). Drive: The surprising truth about what motivates us. New York, NY: Riverhead) As you will see in the following video, Mike Boyle Strength Conditioning (MBSC) is a company that uses a variety of nonmonetary motivators with its employees. Watch the video and then answer the questions that follow. Transcript Bob Hanson emphasizes that sending MBSC employees to seminars on a regular basis is highly motivating. It’s possible that for some employees, having to attend seminars is a burden. However, for an employee like Marco, who was excited when he found out he could major in strength and conditioning in college, having the opportunity to further his professional development is a major source of satisfaction, and it motivates him to work hard for MBSC. Professional development is described in different ways by different theories of motivation. 1. If Bob and Mike were analyzing how they motivate their employees in terms of important individual human needs that vary from person to person, which of the following would be true? a. The recognition and autonomy offered by attending seminars would result in satisfaction, but employees might also be dissatisfied if pay were poor or their ideas were not valued. b. Going to seminars can motivate employees with a high desire to achieve by helping them to develop skills that in turn allow them to contribute more to the organization. c. Learning at seminars could meet an employee’s need for growth, and if the employee were not allowed to attend seminars, then he or she might desire greater participation at work or more pay. d. Attending seminars could meet an employee’s need for self-actualization, but this would be motivating only if pay, job security, inclusion, and recognition needs were also met. In terms of expectancy theory, how could Mike and Bob motivate Marco to be a great personal trainer? 2. Suppose Marco says, “I don’t think I can reach the goals you’ve set for me.” Mike and Bob should address (a. satisfaction b. valence c. performance-to-outcome expectancy d. effort-to-performance expectancy). 3. One way they could do this would be by: a. Sending Marco to an appropriate seminar b. Telling Marco that the other personal trainers have similar goals c. Reassuring Marco that he’ll get a bonus if he meets his goals d. Increasing Marco’s pay In the video, Mike Boyle says he has read that meeting with employees regularly is important to motivation. Although he and Bob hold weekly staff meetings with their employees, Mike believes they should meet more often. He knows that employee meetings should have a purpose, and he asks you for advice. 4. If the purpose of meeting with an employee is to motivate that individual, which of the following are appropriate topics? Check all that apply. - How the employee’s job could include more variety and be more meaningful - What the employee’s strengths are - Exactly how the employee should perform each task of the job - What rewards the employee values
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Explanation & Answer


1. The motivation framework (Connect)
1. The figure below represents the motivation framework. Label the missing steps. Choose one.

*A (a. choose behavior to satisfy need, b. search for ways to satisfy need, evaluate need
B (a. evaluates need satisfaction; b. choose behavior to satisfy need c. search for ways to
satisfy need)
C (a. evaluates need satisfaction; b. choose behavior to satisfy need c. search for ways to
satisfy need)
(Source: Adapted from Griffin, R. W.. (2011). Fundamentals of management (8th ed., p. 295).
Boston, MA: Cengage Learning)

2. After a year on the job, Ted realizes that he has become bored with his work as a cashier. In term s
of the m otivation fram ework, what step is Ted in?

He is evaluating whether his behavior is m eeting his need.

b. He is looking for a way to satisfy a need.
c. He is experiencing a need.
d. He has chosen a behavior that m ay m eet his need.

2. Content perspectives on motivation (Connect)
1. Use your understanding of Maslow’s hierarchy of needs to complete the sentence.
According to Maslow’s hierarchy of needs, em ployees would be m otivated by (a. job enrichment b.
health insuarance) or if

(a .health insurance b. job enrichment) were already offered.

Read the following scenario and apply your knowledge of Herzberg’s two-factor theory of motivation to
answer the questions.
Management at Work
Harry’s Grill is a popular local eatery. Recently, Harry noticed that sales were starting to slip a bit. In
general, em ployees are neither satisfied nor dissatisfied—they tend to have neutral satisfaction levels.
Harry has decided to try some new m anagement techniques to see if he can increase em ployee
satisfaction and, he hopes, sales.
2. Harry asks each em ployee what kind of work is m ost interesting to him or her. He as signs new
tasks according to employee interests. This is an exam ple of a (*a. motivation factor b. hygiene

3. Harry decides to raise em ployee wages. Each em ployee will receive a bonus worth 15% of his or
her base pay. This is an exam ple of (a. Motivation factor *b. hygiene factor).

Indicate which individual human need each example illustrates. Choose one anwer.



Bob, a McDonald’s crew member, rushes to beat the
store record for drive-through service speed.

a *Achievement b. power c.
goal setting d. affiliation

When a student asked a question, Professor Caddell
said, “I’m in charge of this classroom. You’ll ask

a. Equity b.*power c. affiliation
d. achievement

questions when I permit you to!”
Kenji is good friends with everyone on your study

a. Power b. expectancy c.

team, and he does everything he can to avoid

*affiliation d.

problems with other team me...

Really helped me to better understand my coursework. Super recommended.


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