Lecture 8

APPLYING MOTIVATION THEORIES: REWARDS AND

PERFORMANCE MANAGEMENT

Class Overview

• Two ways to apply knowledge of the motivational process to enhance employee performance– Reward systems– Goal Setting

• Group exercise (30 minutes)

Reward Systems

• Are used to motivate employees

• Extrinsic rewards come from sources that are outside of the individual, e.g. pay and benefits

• Intrinsic rewards are self-administered, i.e., arising from within the person, e.g. accomplishment, responsibility

Compensation (Pay)

• The most obvious form of reward that employees receive in the work environment

• Edward E. Lawler III studied the role of compensation as a reward and strongly advocates tying rewards to performance

Compensation (cont.)

• Pay is an optimal reward for several reasons:– Virtually all recipients value it

– Its size is flexible, i.e., it can be divided into various-sized portions

– Its value is relatively constant

– The relationship of pay to performance upon which it is paid must be obvious, must be visible

Relating Pay and Performance

• Pay systems vary widely, but generally differ on three dimensions:

• Organizational Unit– e.g. whole organization, business unit, work

team, individual

• Method of measuring performance– objective versus subjective indicators

• Form of monetary reward– salary, piece-rate, cash bonus, commission

Incentive Pay and Performance

• Findings:– Perception that pay is tied to performance is

enhanced when rewards are administered on basis of individual performance, rather than group

– Objective measures of performance also elicit higher ratings

– Bonus schemes link pay with performance better than salaries

Incentive Pay and Performance• No one best incentive pay plan exists• Increasing in popularity are some

combination of profit sharing, stock ownership, gain sharing

• Profit sharing and stock ownership: employees share directly in profits of total organization

• Gain sharing ties an individual’s bonuses to productivity improvements and cost reductions within a business unit

Individual Pay for Performance

• Typically starts with reduced wages or salary - i.e. places some pay ‘at-risk’

• Offers bonuses to employees for attaining specific performance targets or goals

• 35% of Fortune 500 companies are experimenting with some form of pay-for-performance plan

• Works better in service industries

Goal Setting

• Goals have a positive influence upon effort (i.e. they motivate)

– give feedback

• Three goal attributes greatly enhance effectiveness of goal setting:– Specificity– Difficulty– Acceptance

Management by Objective

• MBO puts goal theory into practice• Employees engage in one-on-one goal

setting sessions with supervisors; both providing inputs

• Deadlines are established• Intermediate review dates are established• Indicators of success are agreed upon• Paths to the desired goals and removal of

possible obstacles are discussed

Track Record of MBO

• Fairly good

• One recent literature review examined findings from 70% of MBO programs– Productivity gains averaged 47%– Employee attendance improved by 24%– When top level managers were committed to

programs, productivity increased by 57%

When MBO Doesn’t Work...

• Lack of support from top-level management

• Inability of managers to assume coaching posture due to their own insecurities

• System relies heavily on trust between subordinates and superiors

• Overemphasis upon goals versus behaviors– Domino’s 30 minute delivery window

Group exercise• Experiential exercise “Goal setting and

performance” (pp.120- 123)

• Individually read the instructions and complete the questionnaire (1)

• Individually total your scores and plot them (2 and 3)

• Individually respond to (4) the satisfaction question

Group exercise• Who in your group has the highest/lowest

satisfaction rating

• For the persons with the highest/lowest satisfaction rating, identify the subscale whose scores correlate most strongly and least strongly– i.e. for the person with the highest satisfaction

rating, what is the subscale with the highest scores, and what is the subscale with the lowest scores

– Repeat for the person with the lowest satisfaction rating