Chapter 6

Types of Rewards

- Extrinsic - financial and nonfinancial - Intrinsic - meaningfulness and achievement

Key Factors in Organizational Reward

1. Types of rewards 2. Distribution criteria 3. Desired outcomes

360-degree feedback

individuals compare perceptions of their own performance with behaviorally specific (and usually anonymous) performance information from their manager, subordinates, and peers leads us to favor anonymity and also to discourage use of 360-degree feedback for pay and promotion decisions. When it is used for pay and promotions, managers often resist and/or try to manipulate the process. However, multi-source feedback can be extremely helpful for training and development purposes.

Exit & Stay Interviews

**Exit and stay interviews have different purposes and provide different types of useful information. -Stay interviews, in particular, can create an environment in which managers and employees have more open and frequent communication about what is working and what is not.

How to Make Pay for Performance Work

**monetary rewards do not increase knowledge, skills, and abilities, nor do they enrich jobs or enhance intrinsic motivation - a modest positive relationship between financial incentives and performance quantity, and no impact on performance quality

Three potential outcomes from rewards

1. Desired outcome: You get more of what you intended and for which you are rewarding people. 2. Nothing: The reward can have no effect. 3. Undesired side effects: ewards reinforce or motivate the wrong behaviors. Be sure your performance management system produces the desired outcomes and be mindful of undesirable side effects.

Desired Outcomes

Attract Motivate Retain Develop Engage

Alternatives to Money and Promotions

McKinsey Consulting found that three non-cash rewards were at least as effective as monetary rewards such as cash bonuses, increased pay, and stock options. Those rewards are: Praise from immediate managers (e-mail or handwritten notes, recognition in meetings). Attention from leadership (one-on-one conversations with top leaders, lunch). Opportunities to lead projects or task forces (such as for new products, new practices, or market research)

Distribution Criteria

Results Behaviors and Actions Nonperformance factors

SMART

Specific, measurable, attainable, reachable, & timely Specific - Quantify Measurable - Verification: completed yes/no, quantity & quality Attainable: realistic, challenging Reachable: goals should support accomplishment/ organization's vision Time bound: specify target dates

Effective Performance Management

Step 1: Defining performance - Set goals & communicate performance expectations Step 2: Monitoring and evaluating performance - Measure & evaluate progress & outcomes Step 3: Reviewing performance - Deliver feedback & coaching Step 4: Providing consequences - Administer valued rewards & appropriate punishment

Unlearned reflexes (stimulus-response, S-R)

connections respondent behavior - describes a very small proportion of adult human behavior, like shedding tears while peeling onions and reflexively withdrawing your hand from a hot stove

intermittent reinforcement

consists of reinforcement of some but not all instances of a target behavior.

Reinforcement Schedules

fixed ratio, variable ratio, fixed interval, variable interval

Feedback

information about individual or collective performance shared with those in a position to improve the situation

Why We Don't Get Much Feedback

- Potential strain on relationships. - Too little time - Lack of confidence - No consequences

What Goes Wrong with Performance Management

1. obsolete; outdated 2. time consuming 3. performance reviews are too narrow;do not focus on important elements or limit them; should only include what should be measured

Results

Tangible results: quantity produced, quality, & individual, group, or organizational performance (sales, customer satisfaction, profit, or error rate)

Law of Effect

says behavior with favorable consequences tends to be repeated, while behavior with unfavorable consequences tends to disappear

Extinction

weakening of behavior by ignoring it or making sure it is not reinforced Discouraging a former boyfriend or girlfriend by blocking phone calls or texts or unfriending the person on Facebook is an extinction strategy A good analogy for extinction is the fate of your houseplants if you stopped watering them. Like a plant without water, a behavior without occasional reinforcement eventually dies. **Although they are very different processes, both punishment and extinction have the same weakening effect on behavior

PM policies and practices cannot substitute for poor management,

yet effective managers can be undermined by poor PM policies and practices.

negative feedback

**feedback itself is simply information. It becomes positive or negative only when you compare it to a goal or expectation. - But negative feedback (such as being told your performance is below average) can have a positive motivational effect. - Those receiving positive feedback were less motivated to do better. - feedback with a negative message or threatening content needs to be administered carefully to avoid creating insecurity and defensiveness. -Put another way, perception matters. Both negative and positive feedback need to provide clear guidance to improve performance. -Feedback is most likely to be perceived accurately, and thus more likely to be acted on, when it is instructional and helps achieve an important or valued outcome

Pay for Performance (Incentive or Variable Pay)

**popular term for monetary incentives linking at least some portion of one's pay directly to results or accomplishments - Pay for performance is compensation above and beyond basic wages and salary, and its use is consistent with recommendations derived from the expectancy theory of motivation - General idea behind pay-for-performance is to give employees an incentive for working harder and/or smarter. - Supporters of incentive compensation say something extra is needed because hourly wages and fixed salaries do little more than motivate people to show up and put in the required hours

Stay interviews

*are conducted during employment to help employers understand why good employees stay and what might make them leave. - build engagement by allowing your employees' opinions to be heard, acted on and cared about ... while they're still your employees

Exit Interviews

*exit interviews can provide the feedback that uncovers the true reasons for leaving a position 1. Build employee engagement (collecting, sharing, & acting on info gained signals to remaining employees that their views & experiences matter) 2. Highlight needed action. (Because poor management is a common cause of turnover, exit interviews can help pinpoint development needs for managers, such as help for those who tend to micromanage) 3. Help benchmark. (Exiting employees often can reveal pay and benefits packages of competitors, as well as other factors that make them attractive to key talent.) 4. Make former employees into recruiters. (Providing exiting employees an opportunity to share opinions and experiences can build goodwill in their eyes. Favorable opinions may lead departed employees to recommend their former employer to friends and associates as a good place to work or do business.) 5. Make former employees into customers or partners. (Depending on the nature of the business, former employees may become or remain customers of their past employer's products or services. They may also partner and actually work together. In both cases the former employer wins. For instance, many attorneys leave law firms and go "in house" to work for clients. They then hire the law firm for legal services. )

Components of a Total Rewards Perspective

- Compensation: Base pay, merit pay, incentives, promotions, and pay increases - Benefits: Health and wellness care, savings and retirement planning, and paid time off - Work-life effectiveness: Policies and practices to help employees thrive at work and home - Recognition: Formal and informal programs that acknowledge employee efforts and behaviors that support the organization's strategies and objectives - Talent development: Training, career development, and other support necessary to improve performance and advance careers

Christopher Lee, author of Performance Conversations: An Alternative to Appraisals

- Feedback is the exchange of information about the status and quality of work products. - It provides a road map to success. It is used to motivate, support, direct, correct, and regulate work efforts and outcomes. - Feedback ensures that the manager and employees are in sync and agree on the standards and expectations of the work to be performed. - Traditional appraisals, on the other hand, discourage two-way communication and treat employee involvement as a bad thing. - Employees are discouraged from participating in a performance review, and when they do, their responses are often considered "rebuttals."

Two Functions of Feedback

- Instructional: clarifies roles or teaches new behaviors (For example, an assistant accountant might be advised to handle a certain entry as a capital item rather than as an expense item. ) - Motivational: serves as a reward or promise of a reward (Hearing the boss say, "You've completed the project ahead of schedule; take the rest of the day off," is a pleasant reward for hard work. More generally, however, many employees appreciate the attention and interest expressed by the very act of providing feedback, regardless of content.)

Commissions

- Sales commissions, whereby a salesperson receives a specified amount of money for each unit sold, are another long-standing example of pay for performance. - This approach is utilized very successfully by ride-sharing companies Uber and Lyft, as well as many other companies in the "gig economy." In these arrangements companies contract with people to do work for a set fee or commission. - The company benefits by not having to officially hire employees or pay the associated costs (such as taxes and benefits), while the workers get to control their hours, location, and amount of work they perform

How to Boost Rewards' Effectiveness

- involving employees in devising the system - Including them in the design, selection, and assessment of rewards programs increases the chance that employees will perceive the rewards as fair and valuable. (Valuable rewards are valence outcomes in expectancy theory) - Involvement also fosters employee engagement because it makes them feel valued.

Applying OB

1. Establish clear motives for monitoring (performance improvement, safety, or theft avoidance) 2. Identify the boundaries (time) 3. Avoid monitoring non-work areas (bathrooms, cafeterias, etc) 4. Communicate what, where, how, and why (Tell employees what is monitored, where, how, and especially why. Justify! The primary motive should be performance improvement. But if guarding against theft is also a goal, say so. Employees may raise potential pitfalls you didn't consider. Addressing them will help avoid lawsuits) 5. Focus on improvement, not punishment (avoid inducing fear, instead foster better performance) 6. Be consistent

Common Uses of Performance Management

1. Make employee-related decisions (justify pay raise, promotion, new assignments) 2. Guide employee development (identify strengths, weaknesses, & development needs) 3. Send strong signals to employees (performance management processes signal/ communicate what is expected from employees) (job performance & career advancement) Example: components of your grade in the class signal what is important, what you professor expects you to do, & what is rewarded

Three Sources of Feedback

1. Others (peers, supervisors, lower-level employees, and customers) 2. Task (a common source of objective feedback. For instance, many tasks—writing code, landing a plane, or driving a golf ball—provide a steady stream of feedback about how well or poorly you are doing) 3. Self (self-serving bias and other perceptual problems can contaminate this source ) Those high in self-confidence tend to rely on personal feedback more than those with low self-confidence. This effect becomes more common as we move up the organizational hierarchy, because the higher someone's rank, the more difficult it is to get useful feedback from others. These challenges aside, feedback can be made even more useful when it is supported by senior managers or is collected from departing employees and from customers.

Practical Implications for Using the Strongest Schedul

1. Spot Rewards - If your coworker has worked hard to make your project a success, recognize her efforts via an e-mail to the entire team including your manager. Your manager, in turn, may decide to give Friday off to those who complete their current work satisfactorily and ahead of schedule. 2. Variable Rewards/Bonuses - You would like to provide regular bonuses and pay raises, but you can afford monetary rewards only when your company secures a new customer or a big order. The variable nature of these rewards not only recognizes employees' efforts and success, but it also motivates them to work hard in the future because they know that such efforts are recognized and reinforced 3. Celebrations - Scattering these reinforcers throughout the semester can help motivate and reenergize you to work hard in the future, especially if you make these rewards contingent on good behavior.

Factors that Affect Your Perceptions of Feedback

1. accuracy: A common criticism of PM systems is that they measure the wrong things or measure the right things the wrong way. Either way, the feedback is inaccurate. 2. credibility of the sources: If a member of your project team points out shortcomings in your work, you are likely to put more weight on the feedback if he or she is an "A" student or top performer. Trust is also critical here. If you don't trust the person delivering the feedback, you will likely be suspicious of his or her intentions and discount its value. 3. fairness of the system --> equity theory; If you perceive the process or outcomes as unfair, you are likely not only to discount the feedback but also to be outraged, withdraw, commit counterproductive work behaviors, and/or quit. Performance appraisals are one of the aspects of organizational life that most commonly reveal issues of fairness 4. performance-reward expectancies: Effective performance management, particularly ongoing and open feedback between you and your supervisors, is an important means of managing such expectancies. 5. reasonableness of the goals or standards (When it comes to goals, challenging is good, unattainable bad. If your manager says, "You can earn a bonus of up to 50 percent of your salary," ask whether anybody has actually ever earned that much. If not, you may be the first, but more likely the goal is unreasonable.)

Goal Setting Process

1. set goals 2. promote goal commitment 3. provide support and feedback 4. create action plans

Continuous Reinforcement (CRF)

A schedule of reinforcement that provides reinforcement for each occurrence of the target behavior. For instance, if you get paid every time you make a sale, this is a CRF schedule. The sale is the desired behavior and payment is the reinforcement. CRF is especially useful for making early links between desired behaviors and outcomes, but they are susceptible to perceptions of entitlement and rapid extinction if the link is broken.

Contingency Approach to Defining Performance

Behavioral Goals: Can be used in most jobs, most relevant for knowledge work - example: treat others with professionalism & respect; communicate clearly Objective goals: Best for jobs wit clear & readily measured outcomes, measure what matters not just what can be measured - example: sales, quotas, production, rates, error rates Task or Project Goals: best for jobs that dynamic, but in near-term activities & milestones can be defined, similar to SMART goals - example: complete your portion of the team project by Tuesday

Monitor & Evaluate

Both progress toward the final goal & ultimate level of goal achievement Doing both boost motivation & performance accurately and appropriately monitoring and evaluating both progress and outcomes are critical components of effective performance management and your personal effectiveness

Feedback Do's and Don'ts

Don't: punish, embarrass, degrade Don't provide: irrelevant, late, unattainable, incomprehensible feedback Do: relevant, timely, specific & descriptive, attainable, constructive/developmental feedback

Fixed Interval Reinforcement Schedule

Example: Paychecks (every two weeks or once a month); annual bonuses; probationary periods Advantages: Clear and predictable link between the behavior and reinforcer; less costly than fixed ratio Disadvantages: Inconsistent effort and performance over the interval (majority of effort/performance occurs near reinforcer)

Variable Interval Reinforcement Schedule

Example: Random supervisor "pats on the back"; spot rewards; random audits (financial); random drug tests of athletes and employees; pop quizzes Advantages: Consistent and strong motivation to perform over time; least costly schedule due to relatively little monitoring and administration Disadvantages: Some desired behaviors will not be reinforced; potentially long periods between reinforcers (payouts)

Variable Ratio reinforced schedule

Example: Slot machines that pay after a variable number of pulls; lotteries that pay after a variable number of tickets sold Advantages: Strong motivation to continue until reinforcer is received; less costly than fixed ratio Disadvantages: Some desired behaviors will not be rewarded; potentially long periods between reinforcers (such as payouts)

fixed ratio reinforcement schedule

Example: piece-rate pay, bonuses tied to the sale of a fixed number of units Advantages: clear & predictable link between the behavior and the reinforcer Disadvantages: Costly to monitor performance and administer reinforcers (like money); reinforcers lose effect over time

Nonperformance considerations

Examples are abundant, such as rewards linked to seniority or job title. Associate attorneys' salaries are often linked to the number of years out of law school

Behavior & Actions

Examples: teamwork , cooperating, risk taking, and creativity

Reinforcement Schedules & Performance

Generally, variable ratio and variable interval schedules of reinforcement produce the strongest behaviors that are most resistant to extinction.

When to Use Positive & Negative Feedback

POSITIVE FEEDBACK BEST WHEN RECEIVER IS: Near beginning of pursuing a goal, A novice, A distant relationship NEGATIVE FEEDBACK BEST WHEN RECEIVER IS: Near end of pursuing a goal, An expert, A close relationship

Who Seeks Feedback & Who Doesn't

PREDICTORS OF SEEKING LESS FEEDBACK: tenure with the organization (stable position), tenure in current job, age PREDICTORS OF SEEKING MORE FEEDBACK: High learning and performance goal orientation, High self-esteem, High-quality relationships

companies with the best pay-for-performance results

Paid top performers substantially more than their other employees. Reduced "gaming" of the system by increasing transparency. Utilized multiple measures of performance. Calibrated performance measures to ensure accuracy and consistency.

According to Skinner's operant theory, contingent consequences control behavior in one of four ways

Positive reinforcement Negative reinforcement Punishment Extinction

What can executives or high-level managers do to improve their response to feedback?

They can seek feedback from others by creating an environment in which employees feel they can be honest and open. Separating feedback from the performance review process also helps, especially for executives who typically are reviewed informally if at all. They can create a mechanism to collect feedback anonymously. This is useful if the source of the feedback is not particularly important.

Central tendency

To avoid all extreme judgments and rate people and objects as average or neutral. example: Rating an employee as average on all dimensions regardless of actual performance.

Contrast effect

To evaluate people or objects by comparing them with characteristics of recently observed people or objects. example: Rating an employee as average, from a comparison of the employee's performance with the exceptional performance of a few top performers.

Recency Effect

To over-rely on the most recent information. If it is negative, the person or object is evaluated negatively. example: Rating an employee based only on the last portion of the review period

Why Rewards Often Fail

Too much emphasis on monetary rewards. Sense in recipient that extensive benefits are entitlements. Fostering of counterproductive behavior Long delay between performance and reward. One-size-fits-all rewards. Use of one-shot rewards with short-lived motivational impact. Continued use of de-motivating practices such as layoffs, across-the-board raises and cuts, and excessive executive compensation

Coaching

a customized process between two or more people with the intent of enhancing learning and motivating change - an individualized and customized form of performance management. It is different from training, which typically consists only of skill building with the same content delivered to a group of people. - It also differs from mentoring, which typically has a career rather than a performance focus and flows exclusively from more senior to more junior employees. - All these processes differ from counseling, which usually aims to overcome a problem, conflict, or dysfunctional behavior

Operant behavior

behavior learned when we "operate on" the environment to produce desired consequences. Some call this view the response-stimulus (R-S) model.

Piece-Rate Pay

employee is paid a specified amount of money for each unit of work. Many contractors use such plans, such as by paying a set amount for replacing a roof, number of homes connected to the Internet, or boxes of cookies sold.

Total Rewards

encompass not only compensation and benefits, but also personal and professional growth opportunities and a motivating work environment that includes recognition, job design, and work-life balance

COMMON PERCEPTUAL ERRORS RELATED TO PERFORMANCE EVALUATION

halo effect, leniency, central tendency, recency effect, contrast effect,

Effective Feedback

information, not an evaluation Ex: hard data like units sold, days absent, dollars saved, projects completed, customers satisfied, and quantity rejects

Performance management

is a set of processes and managerial behaviors that include defining, monitoring, measuring, evaluating, and providing consequences for performance expectations

Effective Coaching

is developmental, has specific performance goals, and typically includes considerable self-reflection, self-assessment, and feedback

Seeking Feedback

is linked with improved - Job satisfaction - Proactive work behavior - Relationship building - Networking

Monitoring Performance

measuring, tracking, or verifying progress & ultimate outcomes Can improve: Timeliness, quality, quantity, financial metrics (profits, returns)

Successful Managing Performance

powerful means for improving individual, group/team, and organizational effectiveness Effective performance management influences important outcomes such as greater employee engagement and betterPage 204 organizational performance

Negative reinforcement

strengthens a desired behavior by contingently withdrawing something displeasing strengthens a behavior because it provides relief from something undesirable (paperwork, meetings, or yelling)

Performance goal

targets a specific end result, and a learning goal which promotes enhancing your knowledge or skill

Leniency

tendency to consistently evaluate other people/objects in an extremely positive fashion Example: Rating an employee high on all dimensions of performance regardless of actual performance

Evaluating Performance

the process of comparing performance at some point in time to a previously established expectation or goal.

positive reinforcement

the process of strengthening a behavior by contingently presenting something pleasing A behavior is strengthened when it increases in frequency and weakened when it decreases in frequency.

Halo effect

the tendency to form an overall impression of a person or object & use that impression to bias ratings about same. Ex: rating an employee positively across all dimensions of performance because the employee is so likable

contingent

there is a purposeful if-then link between the target behavior and the consequence. So you should first think of the target behavior and whether you want to increase or decrease it, and then choose the appropriate consequence

Punishment

undesired behavior the process of weakening behavior through either the contingent presentation of something displeasing or the contingent withdrawal of something positive