Chapter Six – Motivating Behavior with Work and Rewards Overview Chapter 5 described a variety of perspectives on motivation. But no single theory or model completely explains motivation—each covers only some of the factors that actually result in motivated behavior. While using the actual theories as tools or frameworks, managers need to understand various operational procedures, systems, and methods for enhancing motivation and performance. Figure 6.1 illustrates a basic framework for relating various theories of motivation to potential and actual motivation and to operational methods for translating this potential and actual motivation into performance. The left side of the figure illustrates that motivated behavior can be induced by satisfying various specific needs or through various processes such as perceptions of inequity, expectancy relationships, and reinforcement contingencies. These need-, process-, and learning-based concepts result in the situation illustrated in the center of the figure—a certain potential exists for motivated behavior directed at enhanced performance. Managers may need to take certain steps to translate the potential for motivation directed at enhanced performance into real motivation and enhanced performance. The right side of Figure 6.1 names some of the more common methods used to enhance performance. This chapter covers these six methods: job design, employee participation and empowerment, flexible work arrangements, goal setting, performance management, and organizational rewards. Learning Outcomes After studying this chapter, students should be able to: 1. Identify and describe different approaches to job design and relate each to motivation. 2. Discuss employee participation, empowerment, and flexible work arrangements and identify how they can impact motivation. 3. Describe the goal setting theory of motivation and discuss broader perspectives on goal setting. 4. Discuss performance management and its role in motivation. 5. Describe how organizations use various kinds of rewards to motivate employees. Real World Challenge: Orchestrating Outcomes Summary: New York–based Orpheus Symphony doesn’t play with a conductor, yet flawlessly completes a complex work without the artistic and managerial leadership of someone who directs rehearsals and stands at a podium waving an authoritative baton. “For us at Orpheus,” explains executive director Graham Parker, “it’s the way we make the music that’s the difference.” Orpheus holds to the principle that its product—the music performed for audiences—is of the highest quality when its workers—the musicians—are highly satisfied with their jobs. All professional orchestra musicians, of course, are highly trained and skilled, but make no mistake about it: A lot of them are not very happy workers. Orchestra players rank top in motivation but rank below federal prison guards in terms of general satisfaction with their jobs and satisfaction with growth opportunities. Real World Challenge: An orchestra leader has asked you how to imitate the Orpheus’s success. After reading this chapter you will have some suggestions on how to do this. Real World Response: The first principle in what is now known as the “Orpheus Process” is this: “Put power in the hands of the people doing the work.” A core team of players selected by the orchestra from each instrument section plans and leads rehearsals for a given piece of music. The Orpheus Process consists of five elements designed to put this principle into practice: 1. Choosing leaders: Each piece of music receives a core leadership team responsible for the final performance reflecting “a unified vision.” 2. Developing strategies: With an ultimate goal of ensuring “an overall interpretive approach to the music,” the full orchestra rehearses various approaches to the music. 3. Developing the product: Rehearsals refine chosen pieces in a collaborative process, whose success depends on mutual respect. The group looks for solutions to problems, not opinions. 4. Perfecting the product: The group previews the performance to a mock audience and receives feedback on final adjustments. 5. Delivering the product: After performing for an audience, members further offer suggestions for refinements. Chapter Outline I. JOB DESIGN IN ORGANIZATIONS Job design is an important method managers can use to enhance employee performance. Job design can be defined as how organizations define and structure jobs. The first widespread model of how individual work should be designed was job specialization. A. Job Specialization Frederick Taylor, the chief proponent of job specialization, argued that jobs should be scientifically studied, broken down into small component tasks, and then standardized across all workers doing those jobs. On the surface, job specialization appears to be a rational and efficient way to structure jobs. In practice, however, performing those jobs can cause problems, foremost among them the extreme monotony of highly specialized tasks. A worker numbed by boredom and monotony may be less motivated to work hard and more inclined to do poor-quality work or to complain about the job. For these reasons, managers began to search for job design alternatives to specialization. B. Basic Alternative to Job Specialization Managers initially developed two alternative approaches, job rotation and job enlargement. These approaches, along with job enrichment, remain common today. 1. Job Rotation Job rotation involves systematically shifting workers from one job to another to sustain their motivation and interest. Job rotation does not entirely address long-term issues of monotony and boredom and may decrease efficiency. At the same time, job rotation is an effective training technique because a worker rotated through a variety of related jobs acquires a larger set of job skills. Thus, there is increased flexibility in transferring workers to new jobs. Many U.S. firms now use job rotation for training or other purposes, but few rely on it to motivate workers. 2. Job Enlargement Job enlargement, or horizontal job loading, is expanding a worker’s job to include tasks previously performed by other workers. The logic behind this change is that the increased number of tasks in each job reduces monotony and boredom. Unfortunately, job enlargement also failed to have the desired effects. Generally, if the entire production sequence consisted of simple, easy-to- master tasks, merely doing more of them did not significantly change the worker’s job. 3. Job Enrichment Job rotation and job enlargement seemed promising but eventually disappointed managers seeking to counter the ill effects of extreme specialization. Job enrichment is based on the two-factor theory of motivation, which is discussed in Chapter 5. That theory contends that employees can be motivated by positive job-related experiences such as feelings of achievement, responsibility, and recognition. To achieve these, job enrichment relies on vertical job loading—not only adding more tasks to a job, as in horizontal loading, but also giving the employee more control over those tasks. AT&T, Texas Instruments, IBM, and General Foods have all used job enrichment successfully. However, some companies have found job enrichment to be cost ineffective, and others believe that it simply did not produce the expected results. Some of the criticism is associated with flaws in the two-factor theory of motivation on which job enrichment is based. Because of these and other problems, job enrichment is not as popular as it was a few years ago. C. The Job Characteristics Theory The job characteristics theory uses five motivational properties of tasks and three critical psychological states to improve outcomes. The theory, diagrammed in Figure 6.2 and developed by Hackman and Oldham, focuses on the specific motivational properties of jobs. At the core of the theory is the idea of critical psychological states. These states are presumed to determine the extent to which characteristics of the job enhance employee responses to the task. The three critical psychological states are: 1. Experienced meaningfulness of the work: the degree to which the individual experiences the job as generally meaningful, valuable, and worthwhile 2. Experienced responsibility for work outcomes: the degree to which individuals feel personally accountable and responsible for the results of their work 3. Knowledge of results: the degree to which individuals continuously understand how effectively they are performing the job If employees experience these states at a sufficiently high level, they are likely to feel good about themselves and to respond favorably to their jobs. Hackman and Oldham suggest that the three critical psychological states are triggered by the following five characteristics of the job, or core job dimensions: 1. Skill variety: the degree to which the job requires a variety of activities that involve different skills and talents 2. Task identity: the degree to which the job requires completion of a “whole” and an identifiable piece of work; that is, the extent to which a job has a beginning and an end with a tangible outcome 3. Task significance: the degree to which the job affects the lives or work of other people, both in the immediate organization and in the external environment 4. Autonomy: the degree to which the job allows the individual substantial freedom, independence, and discretion to schedule the work and determine the procedures for carrying it out 5. Feedback: the degree to which the job activities give the individual direct and clear information about the effectiveness of his or her performance Figure 6.2 shows that these five job characteristics, operating through the critical psychological states, affect a variety of personal and work outcomes: High internal work motivation (that is, intrinsic motivation), High-quality work performance, High satisfaction with the work, and Low absenteeism and turnover. The figure also suggests that individual differences play a role in job design. Much research has been devoted to this approach to job design. Research has generally supported the theory, although performance has seldom been found to correlate with job characteristics. Several apparent weaknesses in the theory have also come to light. First, the measures used to test the theory are not always as valid and reliable as they should be. Further, the role of individual differences frequently has not been supported by research. Finally, guidelines for implementation are not specific, so managers usually tailor them to their own particular circumstances. II. EMPLOYEE PARTICIPATION AND INVOLVEMENT Employee motivation can also be enhanced in some cases through the use of participation and empowerment. In a sense, participation and empowerment are extensions of job design because each fundamentally alters how employees in an organization perform their jobs. Participation occurs when employees have a voice in decisions about their own work. Empowerment is the process of enabling workers to set their own work goals, make decisions, and solve problems within their spheres of responsibility and authority. Thus, empowerment is a somewhat broader concept that promotes participation in a wide variety of areas, including but not limited to work itself, work context, and work environment. The role of participation and empowerment in motivation can be expressed in terms of both the need-based perspectives and the expectancy theory discussed in Chapter 5. By participating in decision making, employees may better understand the linkage (instrumentality) between their performance and the rewards they want most. A. Areas of Employee Participation Based on their own expertise and experience with their tasks, workers might be able to improve their own productivity. It might also help to let workers make decisions about administrative matters, such as work schedules. Furthermore, employees are getting increasing opportunities to participate in broader issues of product quality. Involvement of this type has become a hallmark of successful Japanese and other international firms, and many U.S. companies have followed suit. B. Approaches to Participation and Empowerment The basic motive has been to better capitalize on the assets and capabilities inherent in all employees. Thus, many managers today prefer the term “empowerment” to “participation” because it implies a more comprehensive level of involvement. One method some firms use to empower their workers is the use of work teams. This method grew out of early attempts to use what Japanese firms call “quality circles.” This is a group of employees who voluntarily meet regularly to identify and propose solutions to problems related to quality. Work teams are collections of employees empowered to plan, organize, direct, and control their own work. The other method some organizations use to facilitate employee involvement is to change their overall method of organizing. The basic pattern is for an organization to eliminate layers from its hierarchy, thereby becoming much more decentralized. Power, responsibility, and authority are delegated as far down the organization as possible, so control of work is squarely in the hands of those who actually do it. Technology also helps organizations empower workers by making better and timelier information available to everyone in the organization. Increased responsibility does not motivate everyone. Nonetheless, empowerment can be an important management tool to increase the motivation of many employees. Practical ways to empower others include: • Articulating a clear vision and goals • Fostering personal mastery experiences to enhance self-efficacy and build skills • Modeling successful behaviors • Sending positive messages and arousing positive emotions in employees • Connecting employees with the outcomes of their work and giving them feedback • Building employee confidence by showing competence, honesty, and fairness Regardless of the specific technique used, however, empowerment only enhances organizational effectiveness if certain conditions exist. First, the organization must be sincere in its efforts to spread power and autonomy to lower levels of the organization. Second, the organization must be committed to maintaining participation and empowerment. Third, the organization must be systematic and patient in its efforts to empower workers. Finally, the organization must be prepared to increase its commitment to training. Global Issues: Participation Around the World Summary: Some people think U.S. businesses pioneered the use of work teams. Not true. In the mid-1970s, Swedish (at the time) automaker Volvo used a new process of moving platforms with partially assembled cars from one team area to another. Team members worked to complete a long list of tasks, without direct supervision, setting their own pace and schedule. Volvo’s logic was by empowering employees; they will produce higher-quality products. Japanese automakers also used teams long before their U.S. counterparts. Japanese firms use a team-oriented approach, based on participation and empowerment. Their approach is often cited as a factor in the global dominance of Japanese automobile companies, especially related to product quality. A key reason these approaches have worked so well in Sweden and Japan is the close connection between performance and rewards. Most U.S. work systems are built around individual contributions, individual performance and individual rewards. In a work team, rewards and recognition are provided based on team performance rather than individual performance. As a result, it is in the best interest of all team members to work together as productively as possible. III. FLEXIBLE WORK ARRANGEMENT Beyond the actual redesigning of jobs and the use of employee involvement, many organizations today are experimenting with a variety of flexible work arrangements. Among the more popular are variable work schedules, flexible work schedules, extended work schedules, job sharing, and telecommuting. A. Variable Work Schedules Employees locked into a standard work schedule may find it necessary to take a sick or vacation day to handle routine personal business. On a more psychological level, some people may feel so powerless and constrained by their job schedules that they grow resentful and frustrated. To help counter these problems, one alternative some businesses use is a compressed work schedule. An employee following a compressed work week schedule works a full forty-hour week in fewer than the traditional five days. One problem with this schedule is that if everyone in the organization is off at the same time, the firm may have no one on duty to handle problems or deal with outsiders on the off day. On the other hand, if a company staggers days off across the workforce, people who don’t get the more desirable days off (Monday and Friday, for most people) may be jealous or resentful. Another problem is that when employees put in too much time in a single day, they tend to get tired and perform at a lower level later in the day. A popular schedule some organizations are beginning to use is called a “nine-eighty” schedule. Under this arrangement, an employee works a traditional schedule one week and a compressed schedule the next, getting every other Friday off. Finally, a special form of compressed work schedule is job sharing. In job sharing, two part-time employees share one full-time job. Job sharing may be desirable for people who only want to work part time or when job markets are tight. For its part, the organization can accommodate the preferences of a broader range of employees and may benefit from the talents of more people. B. Extended Work Schedules An extended work schedule is one that requires relatively long periods of work followed by relatively long periods of paid time off. These schedules are most often used when the cost of transitioning from one worker to another is high and there are efficiencies associated with having a small workforce. While the specific number of hours and days and the amount of vacation time vary, most of these job settings are characterized by long periods of work followed by an extended vacation plus premium pay. Offshore drilling platform workers at ExxonMobil, for instance, generally work every day for five weeks and then have two weeks off. C. Flexible Work Schedules Another popular alternative work arrangement is flexible work schedules, sometimes called flextime. Flextime usually gives employees more personal control over the hours they work each day. Figure 6.3 illustrates how flextime works. The workday is broken down into two categories: flexible time and core time. All employees must be at their workstations during core time, but they can choose their own schedules during flexible time. The major advantage of this approach, as already noted, is that workers get to tailor their workday to fit their personal needs. On the other hand, flextime is more difficult to manage because others in the organization may not be sure when a person will be available for meetings other than during the core time. Some organizations use a plan in which workers set their own hours but then must follow that schedule each day. Others allow workers to modify their own schedule each day. D. Alternative Workplaces Another recent innovation in work arrangements is the use of alternative workplaces. The most common version of this approach is usually called telecommuting – allowing employees to spend part of their time working off-site, usually at home. On the plus side, many employees like telecommuting because it gives them added flexibility. Some employees also feel that they get more work done by staying at home because they are less likely to be interrupted. Organizations may benefit for several reasons as well: (1) they can reduce absenteeism and turnover since employees will need to take less “formal” time off, and (2) they can save on facilities such as parking spaces because fewer people will be at work on any given day. On the other hand, although many employees thrive under this arrangement, others do not. Some feel isolated and miss the social interaction of the workplace. Others simply lack the self-control and discipline to work from home. Managers may also encounter coordination difficulties in scheduling meetings and other activities that require face-to-face contact. IV. GOAL SETTING AND MOTIVATION From a motivational perspective, a goal is a meaningful objective. Goals are used for two purposes in most organizations. First, they provide a useful framework for managing motivation. Second, goals are an effective control device (control meaning the monitoring by management of how well the organization is performing). Social learning theory perhaps best describes the role and importance of goal setting in organizations. People’s degree of pride at reaching their goals or disappointment at not reaching their goals is affected by their self-efficacy, the extent to which they feel that they can still meet their goals even if they failed to do so in the past. A. Goal-Setting Theory The research of Edwin Locke and his associates most clearly established the utility of goal-setting theory in a motivational context. Locke’s goal-setting theory of motivation assumes that behavior is a result of conscious goals and intentions. Therefore, by setting goals for people in the organization, a manager should be able to influence their behavior. Given this premise, the challenge is to develop a thorough understanding of the processes by which people set their goals and then work to reach them. In the original version of goal-setting theory, two specific goal characteristics—goal difficulty and goal specificity—were expected to shape performance. 1. Goal Difficulty Goal difficulty is the extent to which a goal is challenging and requires effort. If people work to achieve goals, it is reasonable to assume that they will work harder to achieve more difficult goals. But a goal must not be so difficult that it is unattainable. A substantial body of research supports the importance of goal difficulty. Reinforcement also fosters motivation toward difficult goals. 2. Goal Specificity Goal specificity is the clarity and precision of the goal. Some goals, such as those involving costs, output, profitability, and growth, can easily be stated in clear and precise terms. Other goals, such as improving employee job satisfaction and morale, company image and reputation, ethical behavior, and social responsibility, are much harder to state in specific or measurable terms. Like difficulty, specificity has been shown to be consistently related to performance. Locke’s theory attracted widespread interest and research support from both researchers and managers, so Locke, together with Gary Latham, eventually proposed an expanded model of the goal-setting process. The expanded model, shown in Figure 6.4, attempts to capture more fully the complexities of goal setting in organizations. The expanded theory argues that goal-directed effort is a function of four goal attributes: difficulty and specificity (previously discussed), and acceptance and commitment. Goal acceptance is the extent to which a person accepts a goal as his or her own. Goal commitment is the extent to which he or she is personally interested in reaching the goal. Factors that can foster goal acceptance and commitment include participating in the goal setting process, making goals challenging but realistic, and believing that goal achievement will lead to valued rewards. The interaction of goal-directed effort, organizational support, and individual abilities and traits determines actual performance. As a result of performance, a person receives various intrinsic and extrinsic rewards that in turn influence satisfaction. B. Broader Perspectives on Goal Setting Some organizations undertake goal setting from the somewhat broader perspective of management by objectives, or MBO. The MBO approach is essentially a collaborative goal-setting process through which organizational goals systematically cascade down through the organization. A successful MBO program starts with top managers’ establishing overall goals for the organization. After these goals have been set, managers and employees throughout the organization collaborate to set subsidiary goals. First, the overall goals are communicated to everyone. Then each manager meets with each subordinate. The manager acts as a counselor and helps ensure that the subordinate develops goals that are verifiable. Finally, manager and subordinate ensure that the subordinate has the resources needed to reach his or her goals. The entire process flows downward as each subordinate manager meets with his or her own subordinates to develop their goals. During the time frame set for goal attainment (usually one year), the manager periodically meets with each subordinate to check progress. It may be necessary to modify goals in light of new information, to provide additional resources, or to take some other action. At the end of the specified time period, managers hold a final evaluation meeting with each subordinate. At this meeting, manager and subordinate assess how well goals were met and discuss why. C. Goal Setting Challenges Research has demonstrated fairly consistently that goal difficulty and specificity are closely associated with performance. A few studies have shown the importance of acceptance and commitment, but little is currently known about how people accept and become committed to goals. Goal-setting theory may also focus too much attention on the short run at the expense of long-term considerations. From the broader perspective, MBO remains a very popular technique. The technique’s popularity stems in part from its many strengths. For one thing, MBO clearly has the potential to motivate employees because it helps implement goal-setting theory on a systematic basis throughout the organization. It also clarifies the basis for rewards, and it can stimulate communication. Performance appraisals are easier and more clear-cut under MBO. Further, managers can use the system for control purposes. However, using MBO also presents pitfalls, especially if a firm takes too many shortcuts or inadvertently undermines how the process is supposed to work. Sometimes, for instance, top managers do not really participate; that is, the goals are actually established in the middle of the organization and may not reflect the real goals of top management. MBO also has a tendency to overemphasize quantitative goals to enhance verifiability. Another potential liability is that an MBO system requires a great deal of information processing and record keeping since every goal must be documented. Finally, some managers do not really let subordinates participate in goal setting but instead merely assign goals and order subordinates to accept them. Research suggests that MBO can actually do many of the things its advocates claim but that it must also be handled carefully. Properly used, MBO can also be an effective approach to managing an organization’s reward system. V. PERFORMANCE MANAGEMENT Managers can do a variety of things to enhance employee motivation and performance, including designing jobs, allowing greater participation and promoting empowerment, considering alternative work arrangements, and setting goals. However, they may also fail to do things that might have improved motivation and performance, and they might even inadvertently do things that reduce motivation and performance. It is clearly important that managers understand that performance is something that can and should be managed. Moreover, effective performance management is essential in order for rewards to be used effectively. The core of performance management is the actual measurement of the performance of an individual or group. Performance appraisal is the process by which someone (1) evaluates an employee’s work behaviors by measurement and comparison with previously established standards, (2) documents the results, and (3) communicates the results to the employee. Performance management comprises the processes and activities involved in performance appraisals. A. Purposes of Performance Measurement Performance appraisal may serve many purposes. The ability to provide valuable feedback is one critical purpose. Appraisal results, of course, are also used to decide and justify reward allocations. Performance evaluations may be used as a starting point for discussions of training, development, and improvement. Finally, the data produced by the performance appraisal system can be used to forecast future human resource needs, to plan management succession, and to guide other human resource activities such as recruiting, training, and development programs. Providing job performance feedback is the primary use of appraisal information. Other purposes of performance appraisal can be grouped into two broad categories, judgment and development, as shown in Figure 6.5. Performance appraisals with a judgmental orientation focus on past performance and are concerned mainly with measuring and comparing performance and with the uses of this information. Appraisals with a developmental orientation focus on the future and use information from evaluations to improve performance. B. Elements of Performance Management Many issues must be considered in determining how to conduct an appraisal. Three of the most important issues are who does the appraisals, how often they are done, and how performance is measured. 1. The Appraiser In most appraisal systems, the employee’s primary evaluator is the supervisor. Problems often arise, however, if the supervisor has incomplete or distorted information about the employee’s performance. Similar problems may arise when the supervisor has a limited understanding of the technical knowledge involved in an employee’s job. One solution to these problems is a multiple-rater system that incorporates the ratings of several people familiar with the employee’s performance. One possible alternative, for example, is to use the employee as an evaluator. One of the more interesting multi-rater approaches being used in some companies today is something called 360-degree feedback. This method involves employees receiving performance feedback from those on all “sides” of them in the organization—their boss, their colleagues and peers, and their own subordinates. Thus, the feedback comes from all around them, or from 360 degrees. This form of performance evaluation can be very beneficial to managers because it typically gives them a much wider range of performance-related feedback than a traditional evaluation provides. 2. Frequency of the Appraisal Another important issue is the frequency of appraisals. Annual performance appraisals are convenient for administrative purposes such as record keeping and maintaining a level of routine that helps keep everyone comfortable. Managers in international settings must ensure that they incorporate cultural phenomena into their performance-appraisal strategies. 3. Measuring Performance The foundation of good performance management is correctly identifying what should be measured and the selection of the best method(s) for measuring it. Accurately defining job performance is critical: measuring the wrong things well is not good performance management. Once the critical performance dimensions are known, the best way(s) of assessing them can be identified. The courts and Equal Employment Opportunity guidelines have mandated that performance measurements be based on job-related criteria rather than on some other factor such as friendship, age, sex, religion, or national origin. In addition, to provide useful information for the decision maker, performance appraisals must be valid, reliable, and free of bias. Some of the most popular methods for evaluating individual performance are graphic rating scales, checklists, essays or diaries, behaviorally anchored rating scales, and forced choice systems. These systems are easy to use and familiar to most managers. However, two major problems are common to all individual methods: a tendency to rate most individuals at about the same level, and the inability to discriminate among variable levels of performance. Comparative methods evaluate two or more employees by comparing them with each other on various performance dimensions. The most popular comparative methods are ranking, forced distribution, paired comparisons, and the use of multiple raters in making comparisons. C. The Balanced Scorecard Approach to Performance Management A relatively new and increasingly popular form of performance management system is the balanced scorecard approach. The balanced scorecard, or BSC, is a structured performance management technique that identifies financial and nonfinancial performance measures and organizes them into a single model. The basic BCS is shown in Figure 6.6. At the core of the BSC is organizational vision and strategy. These must be clearly established and communicated throughout the organization by the top management team. Next, managers establish a small number of objective goals and measures to support four key components of organizational success. These components are customer perceptions, financial performance, internal business processes, and innovation and learning. All subsequent performance measures are derived from this framework. VI. INDIVIDUAL REWARDS IN ORGANIZATIONS One of the primary purposes of performance management is to provide a basis for rewarding employees. Rewards are among the most powerful things managers can use to motivate behavior. The reward system consists of all organizational components—including people, processes, rules and procedures, and decision-making activities—involved in allocating compensation and benefits to employees in exchange for their contributions to the organization. Rewards constitute many of the inducements that organizations provide to employees as their part of the psychological contract. Rewards also satisfy some of the needs employees attempt to meet through their choice of work-related behaviors. A. Roles, Purposes, and Meanings of Rewards The purpose of the reward system in most organizations is to attract, retain, and motivate qualified employees. The organization’s compensation structure must be equitable and consistent to ensure equality of treatment and compliance with the law. Finally, the system must be competitive in the external labor market for the organization to attract and retain competent workers in appropriate fields. An organization must develop its philosophy of compensation based on its own conditions and needs, and this philosophy must be defined and built into the actual reward system. The organization needs to decide what types of behaviors or performance it wants to encourage with a reward system because what is rewarded tends to recur. A reward system must also take into account volatile economic issues such as inflation, market conditions, technology, labor union activities, and so forth. Intrinsic and extrinsic rewards carry both surface and symbolic value. The surface value of a reward to an employee is its objective meaning or worth. But managers must recognize that rewards also carry symbolic value or the subjective and personal meaning or worth of a reward. Managers need to tune in to the many meanings rewards can convey—not only the surface messages but the symbolic messages as well. CASE STUDY: The Whole Truth Summary: Whole Foods Market started with one store with 19 employees in Austin, Texas. Today, with 370 stores and 54,000 employees, it is the leading natural and organic foods supermarket. WFM’s motto is “Whole Foods, Whole People, Whole Planet,” and its guiding “core value,” according to co-CEO Walter Robb, is “customers first, then team members, balanced with what’s good for other stakeholders.” The structure of the company’s current health care program is that employees pay a deductible before his or her expenses are covered. Meanwhile, the employer funds a special account (an HAS) for each employee, who can spend the money to cover health-related expenditures. High-deductible plans save money for the employer, and more importantly, they also make employees more responsible consumers. 1. How important would benefits like those offered by Whole Foods be to you if you were working there to put yourself through school or to collect a paycheck while looking for a position in your chosen field? Student’s opinions will vary. I would not be as interested in health benefits as I would have youth on my side. Also, this is a temporary position and I would save my health plan worries for a future employer who I may stay with for a longer period of time. 2. What negative elements do you see in Whole Foods approach to pay and benefits? Student’s opinions will vary. I view the use of a high-deductible plan coupled with an HAS as a win-win opportunity. The company is saving on health insurance premiums and the added responsibility keeps the employee involved in their own healthcare. 3. Why don’t more companies use the approach to employee health care pioneered by Whole Foods? More companies are changing their health care offerings and many may be adopting a plan similar to the one at Whole Foods. B. Types of Rewards Most organizations use several different types of rewards. The most common are base pay (wages or salary), incentive systems, benefits, perquisites, and awards. These rewards are combined to create an individual’s compensation package. 1. Base Pay For most people, the most important reward for work is the pay they receive. Pay is very important to an organization for a variety of reasons. For one thing, an effectively planned and managed pay system can improve motivation and performance. For another, employee compensation is a major cost of doing business—well over 50 percent in many organizations—so a poorly designed system can be an expensive proposition. Finally, since pay is considered a major source of employee dissatisfaction, a poorly designed system can result in problems in other areas such as turnover and low morale. 2. Incentive Systems Incentive systems are plans in which employees can earn additional compensation in return for certain types of performance. Examples of incentive programs include the following: a. Piecework programs, which tie a worker’s earnings to the number of units produced b. Gain-sharing programs, which grant additional earnings to employees or workgroups for cost-reduction ideas c. Bonus systems, which provide managers with lump-sum payments from a special fund based on the financial performance of the organization or a unit d. Long-term compensation, which gives managers additional income based on stock price performance, earnings per share, or return on equity e. Merit pay plans, which base pay raises on the employee’s performance f. Profit-sharing plans, which distribute a portion of the firm’s profits to all employees at a predetermined rate g. Employee stock option plans, which set aside stock in the company for employees to purchase at a reduced rate Plans oriented mainly toward individual employees may cause increased competition for the rewards and some possibly disruptive behaviors. A group incentive plan, on the other hand, requires that employees trust one another and work together. Long-term compensation for executives is particularly controversial because of the large sums of money involved and the basis for the payments. When a firm is growing rapidly and its profits are also growing rapidly, relatively few objections can be raised to paying the CEO well. However, objections arise when an organization is laying off workers, its financial performance is perhaps less than might be expected, and the CEO is still earning a huge amount of money. 3. Indirect Compensation Another major component of the compensation package is indirect compensation, also commonly referred to as the employee benefits plan. Benefits are rewards and incentives provided to employees in addition to their wages or salaries. Typical benefits provided by businesses include the following: a. Payment for time not worked, both on and off the job. On-the-job free time includes lunch and breaks. Off-the-job time includes vacation and sick leave. b. Social Security contributions, the employer contributes half the money paid into the system, the employee pays the other half. c. Unemployment compensation, for those who have lost their jobs get a percentage of their wages from an insurance-like program. d. Disability and workers’ compensation benefits, employers contribute funds to help workers unable to work due to occupational injury or ailment. e. Life and health insurance programs, most organizations offer insurance at a cost far below what individuals would pay on their own. f. Pension or retirement plans, most organizations offer plans to provide supplementary income to employees after they retire. A company’s Social Security, unemployment, and workers’ unemployment compensation contributions are set by law. But deciding how much to contribute for other kinds of benefits is up to each company. 4. Perquisites Perquisites are special privileges awarded to selected members of an organization, usually top managers. In the United States, the Internal Revenue Service has ruled that some “perks” constitute a form of income and thus can be taxed. Today, however, many perks tend to be more job-related. More than anything else, though, perquisites seem to add to the status of their recipients and thus may increase job satisfaction and reduce turnover. 5. Awards At many companies, employees receive awards for everything from seniority to perfect attendance, from zero defects (quality work) to cost reduction suggestions. Award programs can be costly in the time required to run them and in money if cash awards are given, but award systems can improve performance under the right conditions. C. Related Issues in Rewarding Performance Much of our discussion on reward systems has focused on general issues. As Table 6.1 shows, however, the organization must address other issues when developing organizational reward systems. The organization must consider its ability to pay employees at certain levels, economic and labor market conditions, and the impact of the pay system on organizational financial performance. In addition, the organization must consider the relationship between performance and rewards as well as the issues of reward system flexibility, employee participation in the reward system, pay secrecy, and expatriate compensation 1. Linking Performance and Rewards For managers to take full advantage of the symbolic value of pay, there must be a perception on the part of employees that their rewards are linked to their performance. Organizations must ensure that pay differences are based strictly on performance (including seniority), and not on factors that do not relate to performance (such as gender, ethnicity, or other discriminatory factors). Because it is really quite difficult to differentiate among all the employees, most firms use some basic compensation level for everyone. They might also work to provide reasonable incentives and other inducements for high performers while making sure that they don’t ignore the average employees. The key fact for managers to remember is simply that if they expect rewards to motivate performance, employees must see a clear, direct link between their own job-related behaviors and the attainment of those rewards. 2. Flexible Reward Systems Flexible, or cafeteria-style, reward systems are a recent and increasingly popular variation on the standard compensation system. A flexible reward system allows employees, within specified ranges, to choose the combination of benefits that best suits their needs. Some organizations are starting to apply the flexible approach to pay. Obviously, the administrative costs of providing a flexible pay system are greater, many employees value this flexibility and may develop strong loyalty and attachment to an employer who offers flexible compensation packages. 3. Participative Pay Systems A participative pay system may involve the employee in the system’s design, administration, or both. Employee participation in administering the pay system is a natural extension of having employees participate in its design. 4. Pay Secrecy When a company has a policy of open salary information, the exact salary amounts for employees are public knowledge. State governments, for instance, make public the salaries of everyone on their payrolls. A policy of complete secrecy means that no information is available to employees regarding other employees’ salaries, average or percentage raises, or salary ranges. Although a few organizations have completely public or completely secret systems, most have systems somewhere in the middle. 5. Expatriate Compensation Expatriate compensation is yet another important issue in managing reward systems. Developing rewards for expatriates is a complicated process. Figure 6.7 illustrates the approach to expatriate compensation used by one major multinational corporation. The left side of the figure shows how a U.S. employee currently uses her or his salary—part of it goes for taxes, part is saved, and the rest is consumed. As shown on the right side of the figure, the individual’s compensation package will potentially consist of six components. First, the individual will receive income to cover what his or her taxes and Social Security payments in the United States will be. Next, the firm also pays an amount adequate to the employee’s current consumption levels in the United States. Finally, if the employee faces a hardship because of the assignment, an additional foreign service premium or hardship allowance is added by the firm. At the end of Chapter 5 we presented Table 5.1 to illustrate how the various theories of motivation discussed in that chapter could be used to address several representative managerial challenges. Table 6.2 shows how the various motivational tools and techniques discussed in this chapter might be used for those same challenges. DISCUSSION QUESTIONS 1. What are the primary similarities and differences between job enrichment and the approach proposed by job characteristics theory? Both job enrichment and the job characteristics theory focus on changing objective characteristics of tasks to make them more challenging and motivating. The job characteristics theory includes individual differences, however, whereas job enrichment presumes that all individuals will respond positively to enriched jobs. Further, the job characteristics theory provides more specific guidelines for implementation than job enrichment does. 2. What are the motivational consequences of increased employee involvement from the frame of reference of expectancy and equity theories? The motivational consequences of increased employee involvement can be explained in terms of both the expectancy and equity theories of motivation. From the standpoint of expectancy theory, participation should serve to enhance expectancies. For example, by participating in quality circle decisions, employees may better understand the link between their performances and the rewards they most desire. From the standpoint of equity theory, involvement should help employees manage their feelings of equity because they have a voice in making decisions about their own work. For example, if an employee felt that certain rewards should be attached to extra work (to avoid a feeling of inequity), involvement provides a forum for a discussion about extra rewards to take place. 3. What motivational problems might result from an organization’s attempt to set up work teams? Organizations may have motivational problems with work teams if individuals or circles are not rewarded for their contribution to the team’s effectiveness. In terms of equity theory, employees may perceive that they are devoting more to their jobs through involvement with the work team and thus expect increased outcomes. 4. Which form of a flexible work schedule might you prefer? How do you think you would like telecommuting? Students’ responses will vary on the first question, depending on the types of work they may have already done. They could relate their preferences for alternative work schedules back to their needs and the discussion of the job characteristics theory and job design. Again, students’ responses will vary for the second question. However, by analyzing their own personal needs and comparing them to previous jobs they may have had, they may be able to make some prediction as to whether or not their needs and preferred work styles would be compatible with telecommuting. 5. Develop a framework whereby an instructor could use goal setting in running a class such as this one. The frameworks developed by the students should specify how the four goal attributes will be addressed and how the goals will be set and measured. It should also be interesting to see how the students integrate rewards into their goal-setting frameworks. 6. Why are employees having their performance measured and evaluated all the time instead of simply being left alone to do their jobs? Employees are evaluated at regular intervals for several reasons. In general, performance measurement is necessary because of the information it provides about work behaviors. It is useful for controlling employee behaviors, pointing out training and development opportunities, developing ways to overcome obstacles and barriers to performance, devising methods to improve performance, and reaching agreement on expectations between supervisor and subordinate. Finally, performance appraisal information can serve as a basis for feedback to the employee and reward allocation. 7. In what ways is your performance as a student evaluated? How is the performance of your instructor measured? What are the limitations of this method? Students’ performances are evaluated in terms of exams, class participation, class attendance, and written assignments. Generally, students are evaluated individually. If the number or percentage of students who can be given each letter grade is limited, however, a comparative forced-distribution method is used. Instructor performance measurement will vary as to method and frequency. Typically, a one-page questionnaire is administered at the end of the course, requesting an assessment of a number of aspects of both the course and the instructor. It is highly subjective, may offer an opportunity for disgruntled students to take vengeance in an anonymous way, and may rarely assess the real performance level of the instructor beyond providing an indication of his/her popularity. 8. Can performance on some jobs simply not be measured? Why or why not? If performance in a job is important to organizational success, then there must be some way to determine if the job is being done and how well. It may be difficult to measure, but it probably can be measured in some way. The results of good performance may take a long time to come to fruition, as with basic research and development jobs. 9. As a student in this class, what “rewards” do you receive in exchange for your time and effort? Rewards students might receive from a class are a sense of accomplishment, new acquaintances, course credit, knowledge, and information. Students may discuss whether they believe they are rewarded equitably in comparison with other students in the class. As a student in this class, I receive several valuable rewards for my time and effort, including knowledge acquisition that enhances my understanding of the subject matter. The skills I develop, such as critical thinking and problem-solving, are essential for my academic and professional growth. Additionally, engaging with peers and instructors fosters a collaborative learning environment, building important relationships. Feedback on my work helps me improve and motivates me to strive for excellence. Ultimately, these rewards contribute to my personal and academic development, preparing me for future challenges. GROUP EXERCISE – Fad versus Substance Summary: Albert Q. Fixx, the founder and CEO of your company, a small manufacturer of auto parts, has spent the past weekend at a seminar conducted by a nationally respected consultant on management effectiveness. The principal speaker and the group sessions focused squarely on the use of employee participation as means of improving company-wide productivity and enhancing employees’ commitment to their jobs. So inspired was Mr. Fixx, that he composed and sent an e-mail that all managers would find in their inboxes bright and early on Monday morning. I am convinced that participative management is the key to improving productivity at this company. Because you did not have the advantage of attending the same seminar that I did, I am attaching copies of all the handouts that were given to participants. They explain everything you need to know about practicing participative management, and I expect all of you to begin putting these principles into practice, starting this week. As of now, both I myself and this company are committed to participative management. Those of you who do not undertake the application of participative-management principles in your departments will find it very difficult to remain with a forward-looking company like A.Q. Fixx. Task: Divide the class into groups of four to seven people. Each member of the group will pretend to be a manager at A.Q. Fixx, and your group of “managers” will discuss each of the following issues. Be prepared to discuss the group’s thinking on each issue, even if the group doesn’t reach a consensus. 1. What are the chances that Mr. Fixx’s e-mail will spur effective participative management at the company? Are the odds better or worse than 50/50? 2. How has each individual manager responded to the e-mail? Is your response consistent with that of most group members, or do you find yourself taking a stance that’s different, even if only slightly so? If you’ve taken a different stance, do you think it’s worthwhile trying to convince the group to come around to your way of thinking? Why or why not? 3. What is the group’s opinion of Mr. Fixx’s approach to implementing participative management at the company? If you don’t regard his approach as the best way of implementing participative practices – or his e-mail as the best means of introducing the subject – discuss some ways in which he could have improved his approach. VIDEO EXERCISE Flight 001 Summary: Until the late 1990s, Brad John and John Sencion worked in different areas of New York’s fashion industry. During a flight from New York to Paris in 1998, the weary travelers came up with an idea for a one-stop travel shop targeted at fashion-forward globetrotters like themselves. They called it Flight 001 and began selling guidebooks, cosmetics, laptop bags, luggage, electronic gadgets, passport covers, and other consumer products. Now, Flight 001 is one of the most exciting businesses in the industry. In addition to selling useful travel merchandise, the New York-based retailer offers a unique shopping experience: Flight 001 stores resemble airplane fuselages tricked out with retro airport décor and accessories. In the years to come, the founders expect to be in every major city in the United States, Europe, and Asia. Co-founder Brad John is determined to make Flight 001 the international authority on travel, but ambitious plans will require changes to the company’s staffing, merchandising, and financial planning. With all the talk about expansion and new product lines, it will be increasingly important that Flight 001 not become distracted from what makes it special in the first place: location, design, and an impeccable product line. 1. Can you describe Brad’s motivation in terms of the goal-setting theory of motivation? Brad’s goal making Flight 001 the international authority on travel is ambitious and a difficult goal to achieve. The goal must be specific enough to allow Brad to know when he has reached his goal. He certainly seems to have accepted the goal and shows full commitment. 2. How does Emily see her job from the standpoint of motivating Flight 001 employees? What motivates her? Emily believes that employees feel a sense of personal connection and loyalty to the store because the owners have an open door policy and available for any employee who wishes to call them on the phone. Emily feels this makes employees aware of the bigger picture and in tune with what the company expects of them. Emily seems motivated by her surprise at her career in retail. She feels like the owners are patient of her learning process and tolerant of mistakes. This seems to be a big motivator for Emily. 3. What are the roles of performance management and individual rewards in a start-up company like Flight 001? Owners of start-ups must recognize that managers can, and should, manage employee performance. Effective performance management is an essential element in rewarding effectively. Using performance appraisals to measure performance, the owners of a start-up must evaluate, document, and communicate results to the employee. Providing job performance feedback is the primary use of appraisal information. Appraisals can indicate when an employee is ready for promotion or needs additional training. These are important for a growing start-up who wishes to continue growing by offering quality products. Now What? Imagine that a coworker is complaining to you about being upset after learning that another coworker is being paid more despite the complaining coworker being at the company a year longer. What do you say or do? Go to this chapter’s “Now What?” video, watch the challenge video, and choose a response. Be sure to also view the outcomes of the two responses you didn’t choose. OB Concepts Applied: distributive justice; equity theory; surface and symbolic reward value, ethics, attributions Discussion Questions 1. What role do rewards play in this situation? How do the surface and symbolic values of the rewards influence what happens? In this situation, the reward is base pay. Ryan is upset that John makes more money even though Ryan has worked at Happy Time Toys longer. Ryan was only comparing the numbers and not thinking objectively about the extra contributions John brings to the company or the extra hours John works per week. Seeing John’s new car out the window made Ryan resentful and he decided to steal office supplies. In this case, John’s industry expertise, his contributions to the company, and the extra time he puts into his position, warrant a higher base pay. Happy Time Toys had to pay John at a higher rate in order to obtain him. John could easily have obtained the same pay at another company. When Ryan viewed the pay difference as just numbers, he became angry because he had worked at the company for over a year but made less money. An objective view of the situation gives Ryan some better perspective on the pay difference. 2. In chapter 5 we discussed equity theory. How do the concepts from equity theory apply to this situation? Explain your answer. Ryan wants fair treatment and defines an inequity in the fact that John makes more money Ryan has been at Happy Time Toys for longer. Ryan likely arrived at this perception after going through the four-step process. First, Ryan evaluated his own pay and secondly, compared it to John’s base pay. Third, Ryan recognized that John just started while he had been at the company for much longer. Fourth, Ryan felt so strongly about the difference in pay that he reacted in one of three ways, depending on Alex’s reaction. When Alex empathized or told Ryan to “hang in there” this did nothing to change Ryan’s perceptions. In these instances, Ryan chose to rectify this inequality in one of two ways: changing the outcomes or altering the perception of the ‘other’, in this case John. When changing the outcomes, Ryan stole a box of office supplies to correct the balance, and in the other situation, Ryan spread a rumor about John and altered his coworker’s perceptions of John. 3. As a manager, what could you have done to better handle the situation? Why would this be a better solution? Alex handled the situation best in the third alternative. Pointing out the extra value John brings to the company and the additional hours he works is enough to sway Ryan’s perceptions of the pay difference. Ryan even mentions asking John to mentor him. If this happens, the company will benefit from additional production from both Ryan. Solution Manual for Organizational Behavior: Managing People and Organizations Ricky W. Griffin, Jean M. Phillips, Stanley M. Gully 9781305501393, 9780357042502
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