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1212Chapter
PowerPoint Presentation by Charlie Cook© Copyright The McGraw-Hill Companies, Inc., 2003. All rights reserved.
MotivationMotivation
© Copyright McGraw-Hill. All rights reserved. 12–2
Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives
• After studying the chapter, you should be able to:After studying the chapter, you should be able to:Explain what motivation is and why managers Explain what motivation is and why managers
need to be concerned about it.need to be concerned about it.Describe from the perspectives of expectancy Describe from the perspectives of expectancy
theory and equity theory what managers theory and equity theory what managers should do to have a highly motivated should do to have a highly motivated workforce.workforce.
Explain how goals and needs motivate people Explain how goals and needs motivate people and what kinds of goals are especially likely to and what kinds of goals are especially likely to result in high performance.result in high performance.
Identify the motivation lessons that managers Identify the motivation lessons that managers can learn from operant conditioning theory and can learn from operant conditioning theory and social learning theory.social learning theory.
© Copyright McGraw-Hill. All rights reserved. 12–3
Learning Objectives (cont’d)Learning Objectives (cont’d)Learning Objectives (cont’d)Learning Objectives (cont’d)
Explain why and how managers can use pay Explain why and how managers can use pay as a major motivation tool.as a major motivation tool.
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Chapter OutlineChapter OutlineChapter OutlineChapter Outline
• The Nature of MotivationThe Nature of Motivation
• Expectancy TheoryExpectancy TheoryExpectancyExpectancyInstrumentalityInstrumentalityValenceValenceBringing It All TogetherBringing It All Together
• Need TheoriesNeed TheoriesMaslow’s Hierarchy of NeedsMaslow’s Hierarchy of NeedsAlderfer’s ERG TheoryAlderfer’s ERG TheoryHerzberg’s Motivator-Hygiene TheoryHerzberg’s Motivator-Hygiene Theory
© Copyright McGraw-Hill. All rights reserved. 12–5
Chapter Outline (cont’d)Chapter Outline (cont’d)Chapter Outline (cont’d)Chapter Outline (cont’d)
• Need Theories (cont’d)Need Theories (cont’d)McClelland’s Needs for Achievement, McClelland’s Needs for Achievement,
Affiliation, and PowerAffiliation, and PowerOther NeedsOther Needs
• Equity TheoryEquity TheoryEquityEquityInequityInequityWays to Restore EquityWays to Restore Equity
• Goal-Setting TheoryGoal-Setting Theory
© Copyright McGraw-Hill. All rights reserved. 12–6
Chapter Outline (cont’d)Chapter Outline (cont’d)Chapter Outline (cont’d)Chapter Outline (cont’d)
• Learning TheoryLearning TheoryOperant Conditioning TheoryOperant Conditioning Theory
• Social Learning TheorySocial Learning Theory
• Pay and MotivationPay and MotivationBasing Merit Pay on Individual, Group, or Basing Merit Pay on Individual, Group, or
Organizational PerformanceOrganizational PerformanceSalary Increase or Bonus?Salary Increase or Bonus?Examples of Merit Pay PlansExamples of Merit Pay Plans
© Copyright McGraw-Hill. All rights reserved. 12–7
The Nature of MotivationThe Nature of MotivationThe Nature of MotivationThe Nature of Motivation
• MotivationMotivationThe psychological forces acting on an The psychological forces acting on an
individual that determine:individual that determine:• DirectionDirection——possible behaviors the individual could possible behaviors the individual could
engage inengage in
• EffortEffort——how hard the individual will workhow hard the individual will work
• PersistencePersistence—whether the individual will keep trying —whether the individual will keep trying or give upor give up
Explains why people behave the way they do Explains why people behave the way they do in organizationsin organizations
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The Nature of Motivation (cont’d)The Nature of Motivation (cont’d)The Nature of Motivation (cont’d)The Nature of Motivation (cont’d)
• Intrinsic MotivationIntrinsic MotivationBehavior that is performed for its own sake.Behavior that is performed for its own sake.
• The source of the motivation that comes from actually The source of the motivation that comes from actually engaging in the behavior.engaging in the behavior.
• The sense of accomplishment and achievement The sense of accomplishment and achievement derived from doing the work itselfderived from doing the work itself
• Extrinsic MotivationExtrinsic MotivationBehavior that is performed to acquire Behavior that is performed to acquire
material or social rewards or to avoid material or social rewards or to avoid punishment.punishment.
• The source of the motivation is the consequences of The source of the motivation is the consequences of the behavior and not the behavior itself.the behavior and not the behavior itself.
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Sources of MotivationSources of MotivationSources of MotivationSources of Motivation
Nature of the Nature of the OrganizationOrganization
Nature of the Nature of the OrganizationOrganization
Personal Personal CharacteristicsCharacteristics
Personal Personal CharacteristicsCharacteristics
Nature of theNature of theJobJob
Nature of theNature of theJobJob
Individual Individual MotivationMotivation
Individual Individual MotivationMotivation
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Outcomes and InputsOutcomes and InputsOutcomes and InputsOutcomes and Inputs
• OutcomeOutcomeAnything a person gets from a job or an Anything a person gets from a job or an
organizationorganization• Pay, job security, autonomy, accomplishmentPay, job security, autonomy, accomplishment
• InputInputAnything a person contributes to his or her Anything a person contributes to his or her
job or organizationjob or organization• Time, effort, skills, knowledge, work behaviorsTime, effort, skills, knowledge, work behaviors
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The Motivation EquationThe Motivation EquationThe Motivation EquationThe Motivation Equation
Figure 12.1
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Expectancy TheoryExpectancy TheoryExpectancy TheoryExpectancy Theory
• Motivation will be high when workers believe:Motivation will be high when workers believe:High levels of effort will lead to high High levels of effort will lead to high
performance. performance. High performance will lead to the attainment of High performance will lead to the attainment of
desired outcomes.desired outcomes.
• Major Factors of Motivation Major Factors of Motivation ExpectancyExpectancy—the belief that effort (input) will —the belief that effort (input) will
result in a certain level of performanceresult in a certain level of performanceInstrumentalityInstrumentality—the belief that performance —the belief that performance
results in the attainment of outcomesresults in the attainment of outcomesValenceValence—how desirable each of the available —how desirable each of the available
outcomes from the job is to a personoutcomes from the job is to a person
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Expectancy, Instrumentality, and ValenceExpectancy, Instrumentality, and ValenceExpectancy, Instrumentality, and ValenceExpectancy, Instrumentality, and Valence
Figure 12.2Source:
© Copyright McGraw-Hill. All rights reserved. 12–14
Expectancy Theory in PracticeExpectancy Theory in PracticeExpectancy Theory in PracticeExpectancy Theory in Practice
Expectancy: Effort will result in a level of Expectancy: Effort will result in a level of performance.performance.
• Employees will work work hard if they believe they can Employees will work work hard if they believe they can attain high performanceattain high performance—organizations must provide the —organizations must provide the resources that support performance.resources that support performance.
Instrumentality: Performance leads to outcomes.Instrumentality: Performance leads to outcomes.• Workers are only motivated if they think performance Workers are only motivated if they think performance
leads to an outcomeleads to an outcome—managers must link —managers must link performance performance to outcomes.to outcomes.
Valence: How desirable an outcome is to a Valence: How desirable an outcome is to a person.person.
• Workers have preferences for outcomesWorkers have preferences for outcomes—m—managers anagers must determine which outcomes are valued.must determine which outcomes are valued.
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Expectancy and MotivationExpectancy and MotivationExpectancy and MotivationExpectancy and Motivation
• Motivation is highest when expectancy, Motivation is highest when expectancy, instrumentality, and valence levels are high.instrumentality, and valence levels are high.If one of the values is low, motivation will be If one of the values is low, motivation will be
low.low.• Workers do not believe they can perform well.Workers do not believe they can perform well.
• Workers do not believe that performance and rewards Workers do not believe that performance and rewards are closely linked.are closely linked.
• Workers do not value the rewards offered for Workers do not value the rewards offered for performance.performance.
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Expectancy TheoryExpectancy TheoryExpectancy TheoryExpectancy Theory
Figure 12.3Source:
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Need TheoriesNeed TheoriesNeed TheoriesNeed Theories
• Need Need A requirement for survival and well-being.A requirement for survival and well-being.
• Need TheoriesNeed TheoriesTheories of motivation that focus on what Theories of motivation that focus on what
needs people are trying to satisfy at work needs people are trying to satisfy at work and what outcomes will satisfy those needs.and what outcomes will satisfy those needs.
Basis premise is that people are motivated to Basis premise is that people are motivated to obtain outcomes at work to satisfy their obtain outcomes at work to satisfy their needs.needs.
• Managers must determine what needs a worker Managers must determine what needs a worker wants satisfied and ensure that a person receives the wants satisfied and ensure that a person receives the outcomes when performing well.outcomes when performing well.
© Copyright McGraw-Hill. All rights reserved. 12–18
Maslow’s Hierarchy of NeedsMaslow’s Hierarchy of NeedsMaslow’s Hierarchy of NeedsMaslow’s Hierarchy of Needs
Table 12.1
Self-Self-actualizationactualization
Self-Self-actualizationactualization
Realize one’sRealize one’s full potentialfull potential
Realize one’sRealize one’s full potentialfull potential
Use abilities Use abilities to the fullestto the fullest
Use abilities Use abilities to the fullestto the fullest
EsteemEsteemEsteemEsteem Feel good Feel good about oneselfabout oneself
Feel good Feel good about oneselfabout oneself
PromotionsPromotions and recognitionand recognition
PromotionsPromotions and recognitionand recognition
BelongingnessBelongingnessBelongingnessBelongingness Social Social interaction, loveinteraction, love
Social Social interaction, loveinteraction, love
Interpersonal Interpersonal relations, partiesrelations, parties
Interpersonal Interpersonal relations, partiesrelations, parties
SafetySafetySafetySafety Security, stabilitySecurity, stabilitySecurity, stabilitySecurity, stability Job security, Job security, health insurancehealth insurance
Job security, Job security, health insurancehealth insurance
PhysiologicalPhysiologicalPhysiologicalPhysiological Food, water, Food, water, sheltershelter
Food, water, Food, water, sheltershelter
Basic pay level Basic pay level to buy itemsto buy items
Basic pay level Basic pay level to buy itemsto buy items
NeedsNeeds DescriptionDescription ExamplesExamples
Lower-level needs must be satisfied Lower-level needs must be satisfied before higher-level needs are addressed.before higher-level needs are addressed.
Highest-level Highest-level needsneeds
Lowest-level Lowest-level needsneeds
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Alderfer’s ERG TheoryAlderfer’s ERG TheoryAlderfer’s ERG TheoryAlderfer’s ERG Theory
Table 12.2Source:
After lower level needs satisfied, person seeks higher needs. WhenAfter lower level needs satisfied, person seeks higher needs. Whenunable to satisfy higher needs, lower needs motivation is raised.unable to satisfy higher needs, lower needs motivation is raised.
GrowthGrowthGrowthGrowth Self-development,Self-development,creative workcreative work
Self-development,Self-development,creative workcreative work
ContinuallyContinuallyimprove skillsimprove skills
ContinuallyContinuallyimprove skillsimprove skills
RelatednessRelatednessRelatednessRelatedness Interpersonal Interpersonal relations, feelingsrelations, feelings
Interpersonal Interpersonal relations, feelingsrelations, feelings
Good relations,Good relations,accurate feedbackaccurate feedback
Good relations,Good relations,accurate feedbackaccurate feedback
ExistenceExistenceExistenceExistence Food, water, Food, water, clothing, and shelterclothing, and shelter
Food, water, Food, water, clothing, and shelterclothing, and shelter
Adequate payAdequate payfor necessitiesfor necessities
Adequate payAdequate payfor necessitiesfor necessities
NeedsNeeds DescriptionDescription ExamplesExamples
Highest-level Highest-level needsneeds
Lowest-level Lowest-level needsneeds
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Herzberg’s Motivation-Hygiene TheoryHerzberg’s Motivation-Hygiene TheoryHerzberg’s Motivation-Hygiene TheoryHerzberg’s Motivation-Hygiene Theory
• Focuses on outcomes that lead to higher Focuses on outcomes that lead to higher motivation and job satisfaction, and those motivation and job satisfaction, and those outcomes that can prevent dissatisfaction.outcomes that can prevent dissatisfaction.Motivator needs relate to the nature of the Motivator needs relate to the nature of the
work itselfwork itself—a—autonomy, responsibility, utonomy, responsibility, interesting work.interesting work.
Hygiene needs are related to the physical and Hygiene needs are related to the physical and psychological context of the workpsychological context of the work——comfortable comfortable work environment, pay, job work environment, pay, job security.security.
• Unsatisfied hygiene needs create dissatisfaction; Unsatisfied hygiene needs create dissatisfaction; satisfaction of hygiene needs does satisfaction of hygiene needs does notnot lead to lead to motivation or job satisfaction.motivation or job satisfaction.
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McClelland’s Needs for Achievement, McClelland’s Needs for Achievement, Affiliation, and PowerAffiliation, and Power
McClelland’s Needs for Achievement, McClelland’s Needs for Achievement, Affiliation, and PowerAffiliation, and Power
• Need for AchievementNeed for AchievementA strong need to perform challenging tasks A strong need to perform challenging tasks
well and meet personal standards for well and meet personal standards for excellenceexcellence
• Need for AffiliationNeed for AffiliationA concern for good interpersonal relations, A concern for good interpersonal relations,
being liked, and getting alongbeing liked, and getting along
• Need for PowerNeed for PowerA desire to control or influence othersA desire to control or influence others
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Adam’s Equity TheoryAdam’s Equity TheoryAdam’s Equity TheoryAdam’s Equity Theory
• Focuses on people’s perceptions of the Focuses on people’s perceptions of the fairness (or lack of fairness) of their work fairness (or lack of fairness) of their work outcomes in proportion to their work inputs.outcomes in proportion to their work inputs.A relative outcome to input ratio comparison A relative outcome to input ratio comparison
to oneself or to another person (referent) to oneself or to another person (referent) perceived as similar to oneself. perceived as similar to oneself.
Equity exists when a person perceives that Equity exists when a person perceives that their outcome/input ratio to be equal to the their outcome/input ratio to be equal to the referent’s ratio.referent’s ratio.
• If the referent receives more outcomes, they should If the referent receives more outcomes, they should also give more inputs to achieve equity.also give more inputs to achieve equity.
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Equity TheoryEquity TheoryEquity TheoryEquity Theory
Table 12.3
Condition Person Referent Example
EquityEquityEquityEquity OutcomesOutcomes = = OutcomesOutcomesInputs InputsInputs Inputs
OutcomesOutcomes = = OutcomesOutcomesInputs InputsInputs Inputs
Worker contributesWorker contributesmore inputs but alsomore inputs but also
gets more outputsgets more outputsthan referentthan referent
Worker contributesWorker contributesmore inputs but alsomore inputs but also
gets more outputsgets more outputsthan referentthan referent
UnderpaymentEquity
UnderpaymentEquity
Outcomes < OutcomesInputs Inputs
Outcomes < OutcomesInputs Inputs
Worker contributesmore inputs but also
gets the same outputsas referent
Worker contributesmore inputs but also
gets the same outputsas referent
OverpaymentOverpaymentEquityEquity
OverpaymentOverpaymentEquityEquity
OutcomesOutcomes > > OutcomesOutcomesInputs InputsInputs Inputs
OutcomesOutcomes > > OutcomesOutcomesInputs InputsInputs Inputs
Worker contributesWorker contributessame inputs but alsosame inputs but also
gets more outputsgets more outputsthan referentthan referent
Worker contributesWorker contributessame inputs but alsosame inputs but also
gets more outputsgets more outputsthan referentthan referent
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Equity Theory (cont’d)Equity Theory (cont’d)Equity Theory (cont’d)Equity Theory (cont’d)
• Inequity exists when worker’s outcome/input Inequity exists when worker’s outcome/input ratio is not equal to referent.ratio is not equal to referent.Underpayment inequity: ratio is less than the Underpayment inequity: ratio is less than the
referent.referent.• Workers feel they are not getting the outcomes they Workers feel they are not getting the outcomes they
should for their inputs.should for their inputs.
Overpayment inequity: ratio is higher than Overpayment inequity: ratio is higher than the referent.the referent.
• Workers feel they are getting more outcomes than Workers feel they are getting more outcomes than they should for their inputs.they should for their inputs.
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Equity Theory (cont’d)Equity Theory (cont’d)Equity Theory (cont’d)Equity Theory (cont’d)
• Restoring Equity: Inequity creates tension in Restoring Equity: Inequity creates tension in workers causing them to attempt to restore workers causing them to attempt to restore equity.equity.In underpayment, workers may reduce input In underpayment, workers may reduce input
levels to correct (rebalance) the ratio or seek levels to correct (rebalance) the ratio or seek a raise.a raise.
In overpayment, workers may change the In overpayment, workers may change the referent person and readjust their ratio referent person and readjust their ratio perception.perception.
If inequity persists, workers will often choose If inequity persists, workers will often choose leave the organization.leave the organization.
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Goal Setting TheoryGoal Setting TheoryGoal Setting TheoryGoal Setting Theory
• Focuses on identifying the types of goals that Focuses on identifying the types of goals that are effective in producing high levels of are effective in producing high levels of motivation and explaining why goals have motivation and explaining why goals have these effects.these effects.
• Considers how managers can ensure that Considers how managers can ensure that workers focus their inputs in the direction of workers focus their inputs in the direction of high performance and the achievement of high performance and the achievement of organizational goals.organizational goals.
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Goal Setting Theory (cont’d)Goal Setting Theory (cont’d)Goal Setting Theory (cont’d)Goal Setting Theory (cont’d)
• GoalGoalWhat a person is trying to accomplish.What a person is trying to accomplish.
• Characteristics of Motivating GoalsCharacteristics of Motivating GoalsSpecific and not vague in providing directionSpecific and not vague in providing directionDifficult but not impossible to attainDifficult but not impossible to attainAccepted and committed to by workersAccepted and committed to by workersFeedback on goal attainment is important.Feedback on goal attainment is important.
• Goals point out what is important to the firm.Goals point out what is important to the firm.Workers should be encouraged to develop Workers should be encouraged to develop
action plans to attain goals.action plans to attain goals.
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Learning TheoriesLearning TheoriesLearning TheoriesLearning Theories
• Theories that focus on increasing motivation Theories that focus on increasing motivation and performance by linking outcomes to and performance by linking outcomes to performance and the attainment of goals.performance and the attainment of goals.
• LearningLearningA relatively permanent change in person’s A relatively permanent change in person’s
knowledge or behavior that results from knowledge or behavior that results from practice or experience.practice or experience.
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Operant Conditioning TheoryOperant Conditioning TheoryOperant Conditioning TheoryOperant Conditioning Theory
• Operant ConditioningOperant ConditioningPeople learn to perform behaviors that lead People learn to perform behaviors that lead
to desired consequences and learn not to to desired consequences and learn not to perform behaviors that lead to undesired perform behaviors that lead to undesired consequences.consequences.
Linking specific behaviors to the attainment Linking specific behaviors to the attainment of specific outcomes can motivate high of specific outcomes can motivate high performance and prevent behaviors that performance and prevent behaviors that detract from organizational effectiveness.detract from organizational effectiveness.
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Operant Conditioning ToolsOperant Conditioning ToolsOperant Conditioning ToolsOperant Conditioning Tools
• Positive ReinforcementPositive ReinforcementGetting desired outcomes for performing Getting desired outcomes for performing
needed work behaviorsneeded work behaviors• Positive reinforcers: Pay, praises, or promotionsPositive reinforcers: Pay, praises, or promotions
• Negative ReinforcementNegative ReinforcementEliminating undesired outcomes once the Eliminating undesired outcomes once the
desired behavior occursdesired behavior occurs• Negative reinforcers: criticisms, pay cuts, suspensionNegative reinforcers: criticisms, pay cuts, suspension
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Operant Conditioning Tools (cont’d)Operant Conditioning Tools (cont’d)Operant Conditioning Tools (cont’d)Operant Conditioning Tools (cont’d)
• ExtinctionExtinctionCurtailing the performance of a dysfunctional Curtailing the performance of a dysfunctional
behavior by eliminating whatever is behavior by eliminating whatever is reinforcing it. reinforcing it.
• Behavior is not rewarded and over time, the worker Behavior is not rewarded and over time, the worker stops performing it.stops performing it.
• PunishmentPunishmentAdministering an undesired/negative Administering an undesired/negative
consequence to immediately stop a consequence to immediately stop a dysfunctional behavior.dysfunctional behavior.
• Manager administers an undesired consequence to Manager administers an undesired consequence to worker (verbal reprimand, demotion, pay cut).worker (verbal reprimand, demotion, pay cut).
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Organizational Behavior ModificationOrganizational Behavior ModificationOrganizational Behavior ModificationOrganizational Behavior Modification
• Organizational Behavior Modification (OB MOD)Organizational Behavior Modification (OB MOD)The systematic application of operant The systematic application of operant
conditioning techniques to organizationally conditioning techniques to organizationally functional behaviors and discourage functional behaviors and discourage dysfunctional behaviors.dysfunctional behaviors.
Improves productivity, attendance, punctuality Improves productivity, attendance, punctuality and other behaviors that are specific, objective and other behaviors that are specific, objective and countable.and countable.
Has Criticized for ethicality of application and Has Criticized for ethicality of application and effects on workers.effects on workers.
Appears to be effective in promoting Appears to be effective in promoting organizational efficiency.organizational efficiency.
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Steps in Steps in OrganizationOrganizational Behavior al Behavior ModificationModification
Steps in Steps in OrganizationOrganizational Behavior al Behavior ModificationModification
Figure 12.4Source: Adapted from Organizational Behavior Modification and Beyond by F. Luthans and R. Kreitner (Scott, Foresman, 1985). With permission of the authors.
© Copyright McGraw-Hill. All rights reserved. 12–34
Social Learning TheorySocial Learning TheorySocial Learning TheorySocial Learning Theory
• A theory that takes into account how learning A theory that takes into account how learning and motivation are influenced by people’s and motivation are influenced by people’s thoughts and beliefs and their observations of thoughts and beliefs and their observations of other people’s behavior.other people’s behavior.
• Vicarious Learning (Observational Learning)Vicarious Learning (Observational Learning)Learning that occurs when a learner is Learning that occurs when a learner is
motivated to perform a behavior by watching motivated to perform a behavior by watching another person perform and be rewarded.another person perform and be rewarded.
• People are motivated to imitate models who are People are motivated to imitate models who are highly competent, expert, receive attractive highly competent, expert, receive attractive reinforcers, and are friendly or approachable.reinforcers, and are friendly or approachable.
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Social Learning Theory (cont’d)Social Learning Theory (cont’d)Social Learning Theory (cont’d)Social Learning Theory (cont’d)
• Conditions for Social LearningConditions for Social LearningThe learner observes the model performing The learner observes the model performing
the behavior.the behavior.The learner accurately perceives the model’s The learner accurately perceives the model’s
behavior.behavior.The learner remembers the behavior.The learner remembers the behavior.The learner has the skills and abilities The learner has the skills and abilities
needed to perform the behavior.needed to perform the behavior.The learner sees or knows that the model is The learner sees or knows that the model is
positively reinforced for the behavior.positively reinforced for the behavior.
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Social Learning Theory (cont’d)Social Learning Theory (cont’d)Social Learning Theory (cont’d)Social Learning Theory (cont’d)
• Self-ReinforcementSelf-ReinforcementAny desired or attractive outcome or award Any desired or attractive outcome or award
that a person can give himself or herself for that a person can give himself or herself for good performance.good performance.
• ““The self-management of behavior”The self-management of behavior”
• Self-efficacySelf-efficacyA person’s belief about his or her ability to A person’s belief about his or her ability to
perform a behavior successfully.perform a behavior successfully.• Influences motivation both when managers provide Influences motivation both when managers provide
reinforcement and when workers themselves provide reinforcement and when workers themselves provide it.it.
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Pay and MotivationPay and MotivationPay and MotivationPay and Motivation
• Pay as a MotivatorPay as a MotivatorExpectancy: pay is an instrumentality (and Expectancy: pay is an instrumentality (and
outcome), must be high for motivation to be outcome), must be high for motivation to be high.high.
Need Theory: pay is used to satisfy many Need Theory: pay is used to satisfy many needs.needs.
Equity Theory: pay is given in relation to inputs.Equity Theory: pay is given in relation to inputs.Goal Setting Theory: pay is linked to attainment Goal Setting Theory: pay is linked to attainment
of goals.of goals.Learning Theory: outcomes (pay), is distributed Learning Theory: outcomes (pay), is distributed
upon performance of functional behaviors.upon performance of functional behaviors.
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Merit Pay and PerformanceMerit Pay and PerformanceMerit Pay and PerformanceMerit Pay and Performance
• Merit Pay PlanMerit Pay PlanA compensation plan that bases pay on A compensation plan that bases pay on
based on individual, group and/or based on individual, group and/or organization performance.organization performance.
Individual plan: when individual performance Individual plan: when individual performance (sales) can accurately measured.(sales) can accurately measured.
Group plan: when group that works closely Group plan: when group that works closely together is measured and rewarded as a together is measured and rewarded as a group.group.
Organization plan: when group or individual Organization plan: when group or individual outcomes not easily measured.outcomes not easily measured.
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Salary Increase or Bonus?Salary Increase or Bonus?Salary Increase or Bonus?Salary Increase or Bonus?
• Motivational Value of a Bonus Is Higher When:Motivational Value of a Bonus Is Higher When:Salary levels are unrelated to current Salary levels are unrelated to current
performance.performance.Changes in other compensation items (cost of Changes in other compensation items (cost of
living, seniority) are not having a large effect in living, seniority) are not having a large effect in increasing compensation.increasing compensation.
Salaries rarely change and performance does.Salaries rarely change and performance does.
• Benefits of Using BonusesBenefits of Using BonusesDo not become permanent part of compensationDo not become permanent part of compensationAre more directly tied to current performanceAre more directly tied to current performanceProvide more flexibility in distributing rewardsProvide more flexibility in distributing rewards
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Salary Increase or Bonus? (cont’d)Salary Increase or Bonus? (cont’d)Salary Increase or Bonus? (cont’d)Salary Increase or Bonus? (cont’d)
• Employee Stock OptionEmployee Stock OptionA financial instrument that entitles the A financial instrument that entitles the
bearer to buy shares of an organization’s bearer to buy shares of an organization’s stock at a certain price during a certain stock at a certain price during a certain period of time or under certain conditions.period of time or under certain conditions.
UsesUses• To attract high-level managersTo attract high-level managers
• To motivate employee performance through To motivate employee performance through ownership in the firmownership in the firm
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Examples of Merit Pay PlansExamples of Merit Pay PlansExamples of Merit Pay PlansExamples of Merit Pay Plans
• Piece-rate PayPiece-rate PayEmployee’s pay is based on the number of Employee’s pay is based on the number of
units that the employee produces.units that the employee produces.
• Commission PayCommission PayEmployee’s pay is based on a percentage of Employee’s pay is based on a percentage of
sales that the employee makes.sales that the employee makes.
• Organization-based Merit PlansOrganization-based Merit PlansScanlon planScanlon plan—focuses on reduced expenses —focuses on reduced expenses
or cutting costsor cutting costsProfit sharingProfit sharing—employees receive a share of —employees receive a share of
an organization’s profitsan organization’s profits