Chapter 3 - Motivation and Pay for Performance

T or F: Despite the evidence that pay for performance generally does result in higher productivity and engagement, many employees report satisfaction with their company's PFP.

false: despite the evidence that pay for performance generally does result in higher productivity and engagement, many employees report dissatisfaction with their company's PFP.

distribute fairness explains..

if an employee view the amount of compensation received as fair

What is performance management?

making sure what is expected of employees, and what is measured in regular performance reviews

incentives aren't as effective as well as when organizational performance is fairly stable When individual performance is fairly stable and there are clear performance objectives, then it's more appropriate to provide...

monetary rewards

efficiency of a pay system involves three areas of concern, this one is: Objectives - Are they specific yet flexible? Can employees see that their behavior influences their ability to achieve objectives? Measures - Do employees know what measures will be used to assess their performance? Eligibility - How far down the organization will the plan run? Funding - Will you fund the program out of extra revenue generated above and beyond some preset standard? If so, what happens in a bad year?

standards

efficiency of a pay system involves three areas of concern, this one is: does the pay-for-performance plan support corporate objectives? Is the plan cost-effective, or are we making payouts that don't help improve performance?

strategy

T or F: Group incentives work if you have implemented a team-based structure where members monitor team performance and personally sanction "free riders"

true

T or F: Well-designed variable-pay plans have a proven track record in motivating better performance and helping cut costs.

true

how do compensation plans reinforce development?

After attracting and retaining good employees, concentrate on building further knowledge and skills

what is flexible compensation

Flexible compensation is based on the idea that only the individual employee knows what package of rewards would best suit personal needs (- Employees who hate risk could opt for more base pay and less incentive pay - Trade-offs between pay and benefits could also be selected)

Do people join a firm because of pay?

Generally, yes, a well-designed plan linking pay to behaviors results in better individual and organizational performance.

Two conditions must be met before goals can positively impact performance:

Goal awareness; knowing what must be accomplished Goal acceptance; knowing a goal is something willing to work for

Pay for performance can encourage positive sorting effects:

Helps to encourage top talent to join an organization, as talented candidates are attracted to strong links between pay and performance. It can also encourage turnover of poor performers, especially if pay for performance is based on individual performance.

How does compensation reinforce attraction?

It should make recruiting and hiring easier

Rewards the lead people to stay with an organization are:

Job satisfaction and work enjoyment Pay and benefits Social and fun coworkers Organizational commitment; not being a job jumper Organizational prestige; respect afforded company in industry and region

What the implications of pay for performance under equity theory?

Link is critical Increases in performance must be matched by commensurate increases in pay to achieve equity/fairness, particularly among high performers Employees evaluate the adequacy of their pay via comparisons with other employees That means that relative pay matters. Perceived inequity can lead to lower effort, theft, lawsuits, and/or turnover Perceptions of pay and contribution may or may not be accurate. Organizations must focus on communicating accurate information on pay and contribution Otherwise, inaccurate information and perceptions play a larger role and can influence motivation and behaviors

explain Herzberg's theory of feelings about work

Satisfiers/motivators, like recognition, promotion and achievement, motivate performance; they are the direct consequences of doing the job and the primary cause of satisfaction on the job Argues that not every need is a motivator Lower-order needs = potential dis-satisfiers Higher-order needs = true motivators

PFP can also encourage negative sorting effects:

Small pay increases and pay based on group performance can lead to turnover of high performers Pay dissatisfaction is a strong driver of turnover.

What are the essential features of equity theory?

Some actions employees take to restore perceived equity are not helpful to organizations. Employees experience equity and will be motivated to perform when the ratio of their perceived outputs is equal to the perceived inputs of a comparison person If the ratios are not equal, perceived inequity results and the person is motivated to take action to restore equity: Equity exists if my salary/degree = other's salary/degree Equity does not exist if my salary/degree is LESS than other's outcomes/inputs

Do employee more readily agree to develop job skills because of pay?

We don't really know Skill-based pay is intended to at least partially, to pay employees for learning new skills - skills that hopefully will help employees perform better on current jobs and adjust more rapidly to demands on future jobs

Motivation involves three elements:

What's important to a person Offering it in exchange for some Desired behavior

With these theories in mind, what are the implications for compensation?:

With these theories in mind, what are the implications for compensation?: Base pay needs to be enough to meet minimum requirements High may not always be motivating!! Rewards need to be large enough Link between pay and performance is critical Fairness and consistency matter

Some critics argue that financial rewards harm performance, but there is no evidence to support this claim. Performance is optimized when ...

a total rewards approach that emphasizes both extrinsic (i.e., financial) and intrinsic (i.e., non-financial) rewards.

incentives aren't as effective as well as when organizational performance is fairly stable. When individual performance varies and doesn't have clear performance objectives, it's more appropriate to provide...

a wide variety of rewards in addition to cash.

preference for being under rewarded

benevolents

What is EGR theory?

collapses Maslow's five levels of needs into three: Existence - Incorporates Maslow's physiological and safety need Focuses on basic primary needs that enable a person to live and function productively Relatedness - Incorporates Maslow's need for belongingness - Desire to interact with others and to be a part of a whole group Individuals seek opportunity to interact with others, share feelings, and openly debate and express thoughts or ideas Growth - Incorporates Maslow's needs for self esteem and self-actualization

New developments in technology and work processes requires workers to adapt quickly. Failure to move quickly means market share goes to ...

competitors

Employers want employees to perform in ways that lead to better organizational performance. HR's job is to ...

devise policies that lead employees to behave in ways that support organizational objectives and goals.

Our pay model suggests effectiveness is dependent on three things:

efficiency, equity, compliance in designing a pay system

preference for being over rewarded

entitleds

wanting and equal ratio of reward along with others

equity sensitives

We are mainly motivated by disadvantages or inequity. People differ in their preference for equity, and we called this ...

equity sensitivity

What is expectancy theory?

explains that employees expect that high effort should lead to good performance and that good performance, in turn, should lead to reward.

What is Maslow's hierarchy of needs?

explains that people are motivated by needs and must be fulfilled in a hierarchial order to ensure total satisfaction

What is equity theory?

explains that people will compare their circumstances with those of similar others and this behavior motivates them to seek fairness in the way they are rewarded for performance

procedural justice explains..

if the procedures used to determine the amount of rewards and pay to employees fair?

What is goal setting theory?

states that setting goals that are difficult, but achievable is a significant motivator of performance

efficiency of a pay system involves three areas of concern, this one is: the structure of the organization sufficiently decentralized to allow different operating units to create flexible variations on a general pay-for-performance plan? Different operating units may have different competencies and different competitive advantages. We don't want a rigid pay-for-performance system that detracts from these advantages, all in the name of consistency across divisions

structure

efficiency of a pay system involves three areas of concern:

structure, standards, strategy

Meeting these needs do not need to be met in order; they can also occur in a continuous loop

EGR theory

What is expectancy theory, Motivation is the product of the following three perceptions:

Expectancy - employees' assessment of their ability to perform required job tasks What are my chances of reaching my goal if I work hard? (effort to performance) Instrumentality - employees' beliefs that higher job performance will be rewarded by the organization What are my changes of getting various outcomes if I achieve my goal? (performance to outcome 1, outcome 2, outcome 3) Valence - the value employees attach to the organization rewards received for job performance How much do I value this outcome that I'm getting?

What are the implications of pay for performance under maslow's hierarchy of needs?

Implications for pay for performance: Base pay must be high enough to provide people with the economic means to meet basic living needs. PFP works best when focused on unmet needs In cases where basic needs are met, PFP is motivating to the extent that performance is instrumental in gaining achievement, recognition, and/or approval in addition to higher pay

What are pay for performance plans?

Pay-for-performance plans signal a movement away from entitlement toward pay that varies with some measure of individual or organizational performance.

Implications for pay for performance under goal setting theory are:

Performance-based pay that is contingent upon continued achievement of challenging, specific performing goals increases performance Regular and specific feedback on performance/goal attainment is important

Compensation alone isn't enough, but an employer's compensation program should reinforce the following behaviors:

attraction retention development performance

What are the implications of pay for performance under Herzberg's theory?

Base pay must be high enough to provide people with means to meet hygiene needs, but it alone cannot motivate performance Low pay will cause dissatisfaction. High pay, by itself doesn't motivate. It only motivates if it is instrumental in achieving higher-level needs Primary causes of dis-satisfaction with this theory are restrictive company policy, micromanagement, poor working conditions, and inadequate salary Satisfaction is usually derived from challenging work assignments, achievement, job autonomy, and recognition

What behaviors does compensation need to reinforce?

Compensation should be sufficiently attractive to make it possible to recruit and hire good potential employees. We also need to make sure that good employees stay with the company

How do compensation plans reinforce performance?

Compensation should motivate employees to apply their abilities in ways that contribute to organizational performance.

The use of variable pay in general has increased: Merit bonus/variable pay budgets have increased from 4.2% in 1990 to roughly 13% today. Why the change?

First, the increasing competition from foreign producers forces American firms to cut costs and/or increase productivity. Second, today's fast-paced business environment means employees must be willing to adjust what they do and how they do it.

What are the essential features of goal setting theory?

Goals increase motivation in four ways: 1) Direct attention and effort 2) Difficult goals make employees want to work harder 3) Tight deadlines for goal completion lead to a more rapid work pace 4) Opportunity to apply new and/or existing knowledge and skills to meet new goals

What are the essential features of Herzberg's theory of feelings about work?

Hygiene/maintenance factors prevent dissatisfaction, but do NOT motivate or cause satisfaction. Hygiene factors, which include pay, help with basic living needs, security, and fair treatment These factors comprise the makeup of the work environment and are a potential source of dissatisfaction

How do compensation plans reinforce retention?

It needs to make sure good employees stay

What are the implications of pay for performance under expectancy theory?

Job tasks and responsibilities should be clearly defined Line of sight is critical - employees must believe they can influence performance targets Selection and training and job design matter Pay must be linked to performance and this link must be strong Rewards for high performance must be perceived as significant People choose to put forth effort toward the behavior (low, average, or high performance) with the highest motivational force

What is motivation?

Motivation is the desire, stimulus, or incentive to pursue a particular course of action.

What are the essential features of Maslow's hierarchy of needs?

Needs form a hierarchy from most lower/basic (food and shelter) to higher order (self-esteem, love, self-actualization) Unmet needs motivate, met needs do not motivate Unmet higher-order needs become motivating after lower-order needs have been met