Chapter 9 - Motivation and Pay

Do employees perform better on their jobs because of pay?

A well-designed plan linking pay to behaviors of employees generally results in better individual and organizational performance Higher-ability individuals are attracted to companies that will pay for performance, thus recognizing their greater contribution Higher performers will also leave firms that don't reward their performance and go to those that do

We need to develop HR practices that create a complementary fit (i.e., horizontal fit) to work together to generate positive employee behavior. Compensation alone isn't enough, but an employer's compensation program should reinforce the following behaviors:

Attraction - It should make recruiting and hiring easier Retention - It needs to make sure good employees stay Development - After attracting and retaining good employees, concentrate on building further knowledge and skills Performance - Compensation should motivate employees to apply their abilities in ways that contribute to organizational performance.

Implications to pay for performance with herzbergs' two factor 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 People can be satisfied and dis-satisfied at the same time Extinguishes needs as being either intrinsic or extrinsic motivation

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

What behaviors does compensation need to reinforce?

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

Goals increase motivation in four ways:

Direct attention and effort Difficult goals make employees want to work harder Tight deadlines for goal completion lead to a more rapid work pace Opportunity to apply new and/or existing knowledge and skills to meet new goals

What are the two types of fairness in a pay model?

Distributive justice - does an employee view the amount of compensation received as fair? Procedural justice - are the procedures used to determine the amount of rewards and pay to employees fair?

collapses Maslow's five levels of needs into three parts: 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 Meeting this needs do not need to be met in order; they can also occur in a continuous loop)

EGR theory

Do people stay in a firm or leave because of pay?

Employee decisions to leave are influenced by their performance and the degree to which pay is performance-based Turnover is much higher for poor performers when pay is based on individual performance Group incentive plans may lead to more turnover for better performers Too little pay triggers feelings of being treated unfairly = turnover Pay that employees find reasonable can help reduce turnover. Some employees are uncomfortable with pay systems that put any substantial future earnings at risk or pay systems that link less to personal effort and more to group effort

he 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? (2 reasons)

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 is flexible compensation?

Flexible compensation - 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

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 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 Fulfilment doesn't lead to more satisfaction, just less dissatisfaction Higher-order needs = true motivators Become more satisfied when fulfilled

Herzberg's two factor theory

Does pay for performance work?

It does, when it's done well. It 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.

Rewards the lead people to stay:

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

Implications for pay for performance with 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 Selection, training, job design, and compensation decisions influence this choice

Implications to pay-for-performance using 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

What is motivation?

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

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.

Define what behaviors employers' desire and connect organization strategy to employee behavior.

People used to think of pay as primarily an entitlement. If an employee went to work and did well enough to avoid being fired, the employee was entitled to the same size check as everyone else doing the same job. One of the most important compensation policies that organizations need to establish is how they will evaluate employee contributions; that is, how do you pay different people performing the same or similar job?

Implications for pay for performance using goal setting theory:

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

How can pay for performance 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.

Our pay model suggests effectiveness is dependent on three things: efficiency, equity, compliance in designing a pay system. Efficiency - involves three areas of concern:

Strategy: 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? Structure: is the structure of the organization sufficiently decentralized to allow different operating units to create flexible variations on a general pay-for-performance plan? Standards: - 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?

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

True

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

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.

Our pay model suggests effectiveness is dependent on three things:

efficiency, equity, compliance in designing a pay system

Who are equity sensitives?

employees wanting and equal ratio of reward along with others

Who are entitleds?

employees who have a preference for being over rewarded

Who are benevolents?

employees who have a preference for being under rewarded

Ensure that the system is fair to employees

equity and fairness

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

equity sensitivity

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 Key to all comparisons in perception 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

equity theory

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

goal setting theory

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

maslow's needs hierarchy

When individual performance is fairly stable and there are clear performance objectives, it's more appropriate to provide ...

monetary rewards more

What is performance management?

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

T or F: 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. This means that compensation decisions should increase the likelihood that employees will behave in ways that help organizations achieve strategic objectives.

true

T or F: Most employees prefer pay systems that are influence primarily by individual performance and the market rate, with seniority also important to some

true

T or F: Performance is optimized when a total rewards approach that emphasizes both extrinsic (i.e., financial) and intrinsic (i.e., non-financial) rewards.

true

T or F: companies are best able to get employees to adjust, be flexible, and show commitment when a broader array of rewards, rather than just money, is part of the compensation package.

true

T or F: Group pay is likely to lead to small increases in productivity

true; Group incentives work if you have implemented a team-based structure where members monitor team performance and personally sanction "free riders"

explains that employees expect that high effort should lead to good performance and that good performance, in turn, should lead to reward. 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? Motivational force to choose high performance is higher to the degree expectancy, instrumentality, and valence are high for that choice

expectancy theory