CH-8-10 Managing Human Resources in Organizations – Fundamentals of Management : Chapter Notes

This Document Contains Chapters 8 to 10 Chapter 8 Managing human resources in organizations CHAPTER SUMMARY This chapter explores how organizations manage their human resources. The topics covered in the chapter include the environmental context of HRM and how organizations attract, develop, and maintain human resources. This is followed by a discussion of workforce diversity. After presenting information about labor relations, the chapter concludes with an explanation of how to manage knowledge, contingent, and temporary workers. LEARNING OUTCOMES After studying this chapter, students should be able to: 1. Describe the environmental context of human resource management, including its strategic importance and its relationship with legal and social factors. 2. Discuss how organizations attract human resources, including human resource planning, recruiting, and selecting. 3. Describe how organizations develop human resources, including training and development, performance appraisal, and performance feedback. 4. Discuss how organizations maintain human resources, including the determination of compensation and benefits and career planning. 5. Discuss the nature of diversity, including its meaning, associated trends, impact, and management. 6. Discuss labor relations, including how employees form unions and the mechanics of collective bargaining. 7. Describe the issues associated with managing knowledge and contingent and temporary workers. The opening case describes human resources practices at Wegmans Food Markets, a family-owned East Coast grocery chain with 80 stores. The company placed at the top of Consumer Reports survey of the best national and regional grocery stores. While it spends above the industry average on employee costs, it pays off in terms of low turnover and service advantage. Discussion Starter: Ask students if they have ever worked in a grocery store. If so, what attracted them to such a job? What were the drawbacks to holding such a job? How did your employer motivate you? In what ways was your job similar to, or different from, that of a typical Wegmans employee? LECTURE OUTLINE I. The Environmental Context of Human Resource Management Human resource management (HRM) is the set of organizational activities directed at attracting, developing, and maintaining an effective workforce. Teaching Tip: Most business programs have a separate course in human resource management, and many offer a major or specialization in the area. If this applies to your school, point it out to your students. A. The Strategic Importance of HRM 1. The HRM function has become more and more important over the past several years, because organizations perceive that effective HRM functions translate into effective organizations and improved bottom-line performance. Teaching Tip: Point out to your students that all organizations can build similar factories, adopt similar technology, and make similar products. However, the ways in which they manage their human resources can be very different and can thus lead to competitive advantage. 2. Responsibility for HRM functions is shared between HR departments and line managers. HR staff have specialized skills and knowledge, and line managers are in daily contact with workers. 3. The term human capital emphasizes that a firm’s commitment to its people is equally important as its financial resources. Human capital reflects the organization’s investment in attracting, retaining, and motivating an effective workforce. B. The Legal Environment of HRM 1. Equal employment opportunity Teaching Tip: Note that Title VII was really the beginning of the legal environment regarding HRM. a) Title VII of the Civil Rights Act of 1964 forbids direct and indirect discrimination on the basis of race, ethnicity, national origin, language, religion, or gender. Discrimination is said to occur when an employment requirement has an adverse impact—that is, when minority applicants pass the requirement at a rate lower than 80 percent of the pass rate for nonminorities. b) The Equal Employment Opportunity Commission (EEOC) is the federal agency that enforces employment-related laws. c) The Age Discrimination in Employment Act outlaws discrimination against workers older than 40 years. Teaching Tip: In 2004, some workers under the age of 50 were denied benefits by General Dynamics, while older workers were not. The workers who were at least 40 filed suit under the Age Discrimination Act, claiming reverse discrimination. The U.S. Supreme Court ruled that while the Act prohibits employers from favoring the young over the old, it permits preferences for the old over the young. d) Affirmative action refers to a set of executive orders requiring companies that contract with the federal government to actively seek out and hire employees from underrepresented groups. Protected groups are defined by such parameters as race, gender, ethnicity, veteran status, disability status, and pregnancy. Note that affirmative action requirements go beyond the more limited scope of Title VII. Extra Example: One of the most controversial issues in the United States today is affirmative action. Some presidential candidates, for example, have argued that affirmative action has served its purpose and should no longer be used. e) The Americans with Disabilities Act (ADA) requires employers to provide reasonable accommodation in hiring disabled workers. f) The Civil Rights Act of 1991 strengthens the ability of workers to bring discrimination lawsuits, while also lessening the amount of financial damages that can be sought. 2. Compensation and benefits a) The Fair Labor Standards Act, passed in 1938, established minimum wage and required overtime pay. b) The Equal Pay Act of 1963 requires that men and women be paid the same amount for doing the same job if they have the same qualifications. Extra Example: Female workers, on average, make only about 75 percent of what the average male worker makes. Most of this difference is due to the fact that traditional “female” careers such as nursing, teaching, and clerical work pay far less than traditional “male” careers such as engineering or business. c) The Employee Retirement Income Security Act (ERISA) regulates pension funds. d) The Family and Medical Leave Act of 1993 requires up to 12 weeks of unpaid leave for family and medical emergencies, for both men and women. 3. Labor relations a) The National Labor Relations Act (the Wagner Act) of 1935 establishes guidelines for forming a union and requires companies to bargain collectively with a properly established union. The National Labor Relations Board was established to enforce the Act. b) The Labor-Management Relations Act (the Taft-Hartley Act) of 1947 was passed to establish a balance between firms and unions. It allows the president of the United States to end a strike that threatens national security. Management Update: President Clinton did not use the Taft-Hartley Act to end a 1997 strike by United Parcel Service (UPS) workers. He and his advisors felt that UPS was not sufficiently important to the U.S. economy to warrant stopping the strike. However, President George W. Bush invoked Taft-Hartley in connection with the employer lockout of the International Longshore and Warehouse Union in 2002. Management Update: In its 1997 strike, UPS lost about 25 percent of its business to rivals Federal Express and the U.S. Postal Service, and customers did not return after the strike ended. Management Update: Clinton did, however, order an end to a 1997 strike by American Airlines pilots. The airline was seen as vital to the continued well-being of the U.S. economy, because it carried 20 percent of all U.S. air passengers on any given day. 4. Health and safety The Occupational Safety and Health Act of 1970 (OSHA) founded the federal agency OSHA, which regulates the safety of workers from job-related accident and disease. Management Update: A recent controversy about health and safety relates to employees who work at home. Specifically, some companies worry that if an employee working at home suffers an accident due to poor lighting or improper equipment, the company will be just as liable as if the problem had occurred at work! 5. Emerging legal issues Emerging areas of legal concern include sexual harassment, alcohol and drug dependence, and treatment of employees diagnosed with AIDS. Discussion Starter: Ask students to comment on the pluses and minuses of each of the various laws summarized above. II. Attracting Human Resources A. Human Resource Planning 1. Job analysis is a systematic analysis of jobs within an organization. It consists of a job description listing the duties of a job, working conditions, tools, and materials of a job and the job specification, which explains the skills, abilities, and credentials required to perform the job. Teaching Tip: Obtain a copy of a job description and share it with your students. 2. Forecasting human resource demand and supply requires managers to collect relevant information, forecast the supply of and demand for labor, and then develop appropriate strategies for addressing differences. Extra Example: As already noted, there is currently a shortage of skilled workers in the United States. a) Replacement charts can be used to plan for management positions. These list each important managerial position, who occupies it now, how long he or she will probably stay in it before moving up, and who is or soon will be qualified to move into the position. Extra Example: In 1994, Disney experienced problems due to the lack of a replacement chart. Michael Eisner (the firm’s top executive) was having emergency heart surgery, Frank Wells (the firm’s number two executive) had just been killed in a plane crash, and Jeffrey Katzenberg (the firm’s number three executive) left the firm in a highly publicized run-in with Eisner. This uncertainty created concern among major shareholders. In contrast, the 2005 transition from Michael Eisner to his successor, Robert Iger, was smooth since it was anticipated and planned. b) Employee information systems, or skills inventories, can be used to identify individuals who are ready for a transfer or promotion. Group Exercise: Have students brainstorm examples of the most important information that should be included in an employee information system or skills inventory. 3. Matching human resource supply and demand requires managers to plan and deal with predicted human resources shortfalls or overstaffing. B. Recruiting Human Resources Recruiting is the process of attracting qualified individuals to apply for jobs that are open. 1. There are two types of recruiting: internal recruiting considers present employees as applicants for higher-level jobs in the organization, while external recruiting attracts persons outside the organization to apply for jobs. Teaching Tip: In 2014, most business sectors are contracting or stable, so many firms are not recruiting new employees. This pattern is in contrast to the late 1990s when most firms were expanding. Teaching Tip: Bring in the “help wanted” section from a local paper and read a few ads to your students. Select ads that reflect a diversity of jobs, companies, and so forth. Use this to illustrate how firms recruit through external sources. 2. A realistic job preview (RJP) provides external applicants with a real picture of what it is like to perform the job. RJPs can ensure that applicants have an accurate understanding of the job being offered so that their expectations can be met by the job. Teaching Tip: Before they start work, all potential new employees of Walmart are asked to view a two-hour video showing what the job of an entry-level associate is like. This RJP helps the firm control turnover among its employees. C. Selecting Human Resources Effective selection depends on hiring the candidates who are most likely to be successful in the organization. There are many different selection techniques, with differing levels of validity for a particular job. Validation is the process of determining the predictive value of information—in this case, to predict future job performance and thus the success of an applicant. 1. Application blanks require applicants to provide background information about themselves. The application is often the first step and is used to decide whether or not the candidate merits further evaluation. Teaching Tip: If possible, obtain a blank employment application and discuss its content with your students. Point out what it asks (e.g., education and experience) and what it does not ask (e.g., gender, ethnicity). 2. Tests measure ability, skill, aptitude, or knowledge that is relevant to the job. Extra Example: Another increasingly popular selection test today is an honesty test. Organizations are finding that such tests are surprisingly good predictors of an individual’s ethics and honesty in the workplace. 3. Interviews are a popular selection device but can be a poor predictor of job success, due to biases and inconsistencies. 4. Assessment centers provide a content-valid simulation of key parts of a managerial job that lasts two to three days. A variety of techniques (for example, interviews or tests) are included in the assessment. Extra Example: Tenneco makes frequent use of assessment centers to identify and select managers for promotion to higher levels in the organization. 5. Other techniques include reference and background checks, polygraph tests, physical exams, drug tests, and credit checks. Management Update: The use of polygraph tests today is highly regulated; they can be used only for hiring certain kinds of employees (e.g., police officers). III. Developing Human Resources After an organization has hired new employees, it then usually invests in developing them so that they can make more contributions to the firm’s performance. Extra Example: Chaparral Steel requires new employees without a high school diploma to commit to three years of training (both general education and job-related), which takes place two nights a week for two hours a night. High school graduates must commit to two years of job-related training on the same schedule. A. Training and Development Training involves teaching operational or technical employees how to do the job for which they were hired. Development consists of teaching managers and professionals the skills needed for both present and future jobs. 1. Assessing training needs is the first step in developing a training plan. Assessment determines what training is needed. 2. Managers must then select the methods they will use for training. Most companies use a mix of methods. a) For training in factual information, lectures and reading are appropriate. Interpersonal skills require role play or case discussion. Physical skills are best taught through actual or simulated practice. Extra Example: American Airlines uses a mock airplane cabin to train its flight crews. Trainers play the roles of passengers, observe how flight crew members handle various assignments and problems, and then provide feedback. Extra Example: American Airlines also uses flight simulators to help train its pilots, especially for emergency situations. b) Web-based training is popular because it is easy to disseminate and update and can present a mix of content. However, online training is not a good option for teaching interpersonal or physical skills. c) Larger corporations are creating corporate universities, or self-contained training facilities. Teaching Tip: Many business schools have on-site management or executive development centers. Among the most noteworthy are those at Northwestern, Stanford, the University of Pennsylvania, and the University of Michigan. Note whether your school has a center or conducts similar programs for managers. 3. Managers should evaluate the effectiveness of training to ensure that training translates into improved performance on the job. B. Performance Appraisal Performance appraisal is a formal assessment of how well an employee is doing his or her job. Teaching Tip: Most colleges and universities use teaching evaluations at the end of the semester. Note for your students that this is a form of performance appraisal through which they are evaluating your performance as a teacher. Extra Example: Disney and American Express each use a performance appraisal system in which supervisors randomly monitor calls between customer service representatives and customers. The supervisors note positive and negative aspects of how representatives handle various calls and provide feedback to them after the calls have been completed. 1. Common appraisal methods usually fall into one of two types: objective and judgmental. a) Objective measures use actual output, sales, or other concrete measures of performance. b) Judgmental methods require a manager to subjectively rate or rank the employees who report to him or her. One very useful judgmental method is the Behaviorally Anchored Rating Scale (BARS), which identifies relevant performance dimensions and then generates anchors that describe an observable behavior. Teaching Tip: Note the BARS displayed in Figure 8.3. Point out to your students that the anchors reflect example behaviors for each scale point. Contrast this figure with the graphic rating scale shown in Figure 8.2. Explain to students how the use of realistic behaviors in the BARS example increases the validity of the measure, as compared to the simple graphic scale. Extra Example: An extension of the BARS that some firms are trying is called a Behavioral Observation Scale, or BOS. Like BARS, a BOS uses behavioral anchors but also provides an assessment of the frequency with which various behaviors are exhibited by the employee. Teaching Tip: If possible, obtain a copy of a graphic rating scale that is used to measure performance. Display it for your students, noting how it is used and its strengths and weaknesses. Group Exercise: Have small groups of students develop sample graphic rating scales that you could use to assess their performance. 2. In any kind of rating or ranking system, errors or biases can occur. The best way to offset these errors is to ensure that a valid rating system is developed at the outset and then to train managers how to use it. a) Recency error can occur when an evaluator makes a judgment based on only the most recent performance. b) Halo error occurs when an evaluator allows the worker’s performance in one aspect of the job to extend to all aspects. c) One way to limit errors is the use of 360-degree feedback. This is a performance appraisal system in which managers are evaluated by everyone around them—their boss, their peers, and their subordinates—giving a more complete picture of true performance. C. Performance Feedback Performance feedback is the final step in the performance appraisal system. Individuals meet privately with their supervisor and discuss the appraisal. Teaching Tip: Providing performance feedback is often a difficult undertaking for many managers. This is especially true when the feedback is negative and/or when there are strong personal feelings (either positive or negative) between the supervisor and the subordinate. IV. Maintaining Human Resources A. Determining Compensation Compensation is the financial remuneration given by the organization to its employees in exchange for their work. 1. The wage-level decision is a management policy decision about whether the firm wants to pay above, at, or below the going rate for labor in the industry or the geographic area. Extra Example: Wal-Mart has a corporate policy of never paying anyone only the minimum wage. Even if the difference is only a token amount (perhaps only 25 cents an hour more), the firm wants its employees to know they are being paid more than the legal minimum. 2. The wage structure decision is an attempt to place a value on a job and then group together the jobs that have similar values. This is frequently accomplished with the use of a job evaluation—an attempt to assess the worth of each job relative to other jobs. There are a variety of ways to perform a job evaluation, such as rating or ranking. 3. Individual wage decisions follow the wage-level and wage structure decisions and concern how much to pay each employee in a particular job. Extra Example: Professional sports teams provide a good source of examples to illustrate individual wage decisions. Some players, like Tom Brady of the New England Patriots, are paid millions of dollars, while others, such as third-string defensive backs, are paid much less. 4. The Internet is changing compensation patterns, because the technology makes it easy for both managers and employees to determine an appropriate compensation. B. Determining Benefits Benefits are things of value other than compensation that the organization provides to its workers. 1. Benefits typically include sick leave, vacation, holidays, and unemployment compensation. 2. Benefits cost organizations an amount equal to about one-third of their cash compensation. 3. Cafeteria benefits plans allow workers to choose additional benefits, on top of some basic benefits provided to all. Thus, a working parent can add daycare benefits, while a childless worker may choose more vacation time instead. Teaching Tip: Summarize for students the kinds of benefit options that are provided to faculty at your college or university. Management Update: Benefits costs—especially for health care—are becoming an increasingly critical area of concern for many organizations. As a result, many are moving to HMOs and other managed health care arrangements. V. Managing Workforce Diversity A. The Meaning of Diversity Diversity exists in a group or organization when its members differ from one another along one or more important dimensions, such as age, gender, or ethnicity. Teaching Tip: Note the various observable dimensions of diversity that are present in your classroom. Note the additional dimensions that may exist but that are not observable (religion, dietary preferences, political beliefs, etc.). Teaching Tip: Stress the fact that diversity is a continuum. No group will be absolutely diverse because people will always have something in common. At the same time, since no two people are exactly the same, some diversity will always be present in every group. Teaching Tip: Note the ethnic, age, and gender composition of local television news teams. B. The Impact of Diversity Extra Example: Today, 60.6 million people in the United States (21 percent of the population) speak a language other than English at home. This percentage is up from 14 percent in 1990. In ten states—Arizona, California, Florida, Hawaii, Nevada, New Jersey, New Mexico, New York, Rhode Island, and Texas—the rate is more than 20 percent, as compared to seven states in 1990. Of those who do not speak English, two-thirds speak Spanish. (Source: U.S. government census of 2010) 1. Diversity can be a competitive advantage because firms that cope with diversity will generally have higher productivity and lower turnover and absenteeism, leading to lower costs. They will also become known as good employers and will better understand different market segments. Finally, diverse organizations will be more creative and innovative. Extra Example: Some firms are finding that they can improve their effectiveness by seeking and hiring older workers. B&Q, a chain of 280 hardware stores in Britain, found that when it staffed a store with only employees over the age of 50, absenteeism dropped 39 percent and inventory control improved substantially. 2. There are various ways in which diversity can lead to conflict. Some of these include the perception of favoritism due to diversity, misunderstandings due to diversity, differences in culture that cause embarrassment or uneasy feelings, and fear of individuals who are different. Group Exercise: Have students watch a movie like Nine-to-Five, Gung Ho, Beverly Hills Cop, Batteries Not Included, Disclosure, or Rising Sun. Have them note the causes and consequences of diversity-related conflict. Discussion Starter: Ask students how they would feel about managing workers older than themselves. Ask them how they would feel about working for a boss younger than themselves. Discussion Starter: If you are willing to elicit controversy, ask students for examples of conflict they have experienced that resulted from diversity. Extra Example: Many organizational surveys reveal that white males believe that their employers are already doing “enough” or “too much” to help women and minorities. C. Managing Diversity in Organizations 1. Individual strategies for managing diversity include understanding the nature of diversity. Differences cause people to act differently and managers must be aware of this fact. People in diverse organizations should try to understand the perspectives of others. Tolerance is needed when a behavior of people from other cultures is not enjoyed by others who must witness it. Communication is important for all members of the organization. Extra Example: Some firms today designate a top executive to be responsible for diversity. For example, Grand Metropolitan, IBM, ExxonMobil, and Union Carbide all have managers who play this role. In some cases, diversity is only one part of the manager’s charge, while in other cases it is the manager’s sole responsibility. Global Connection: IBM has also used its diversity savvy very effectively in Japan. A few years ago, the firm was finding it difficult to attract and retain qualified employees for its Japanese operations. IBM began recruiting from an untapped source of employees—older women who had left the workforce to start a family. At the time, it was traditional for such women not to return to work. IBM found that many were actually interested in restarting their careers if only offered the chance. Extra Example: In 2006, Indira Nooyi became the CEO of PepsiCo. Ms. Nooyi was born in India and completed her education in the United States. Discussion Starter: Some people view diversity as a fundamental management issue today. Others see it as a faddish issue mostly relevant to ideas associated with political correctness. Ask students for their views. 2. Organizational approaches to managing diversity include policies that affect how people are treated and how employees perceive the organization’s approach to diversity. Flexible organizational practices can also be used to manage diversity. Diversity training is training designed to better enable members of an organization to function in a diverse workplace. VI. Managing Labor Relations Labor relations is the process of dealing with employees who are represented by an employee association (a union). Managing labor relations is an important part of HRM. A. How Employees Form Unions 1. Employees must be interested in having a union. 2. Employees must indicate their interest by signing authorization cards. If 30 percent or more sign cards, then an election can be held after the bargaining unit has been determined. 3. The National Labor Relations Board holds a secret-ballot election. 4. If a simple majority agrees to the union, it becomes certified. 5. The union recruits members, elects officers, and begins collective bargaining. Teaching Tip: Note for your students the relative strength and importance of unions in local and regional business. For example, unions tend to be stronger and more prevalent in the North and Northeast and less prevalent in the South and Southwest. B. Collective Bargaining Collective bargaining is the process of agreeing on a satisfactory labor contract between management and a union. Labor contracts are enforced by the grievance procedure. If an employee feels mistreated, he or she files a grievance. Then successively higher levels of the organization attempt to correct the problem. VII. New Challenges in the Changing Workplace A. Managing Knowledge Workers Knowledge workers are employees whose contributions to an organization are based on what they know. They are skilled and educated professionals who usually like to work independently. 1. Knowledge workers are increasingly in demand as technical fields grow in importance, but a global shortage has led to higher pay and low retention rates. 2. Knowledge workers must keep their skills current with continuous training. 3. Knowledge workers have high starting salaries and, often, signing bonuses. However, turnover is high because knowledge workers can dramatically increase their pay by moving to another firm. B. Contingent and Temporary Workers 1. A contingent worker is anyone not employed on a permanent or full-time basis. They include independent contractors, on-call workers, temporary workers, and contract and leased employees. Currently, about 10 percent of the U.S. workforce fits into this category. 2. Use of these workers increases flexibility, but also makes planning more challenging and can be very costly. Contingent workers might be less effective performers, or might be difficult to integrate into the firm’s labor force. Discussion Starter: Ask students what kinds of part-time and contingent jobs they are familiar with. Have them compare and contrast permanent part-time jobs with contingent jobs (independent contractor, on-call, temporary, contract and leased). Chapter 9 Basic Elements of Individual Behavior in Organizations Part VI of the book, “Leading,” covers the third basic managerial function, the leading process. It consists of five chapters. Chapter 9 introduces basic elements of individual behavior in organizations. Chapter 10 covers employee motivation, while Chapter 11 is devoted to leadership. Interpersonal processes and communication are the topics of Chapter 12, and Chapter 13 covers group and team processes in organizations. CHAPTER SUMMARY Chapter 9 covers the basic elements of individual behavior in organizations. The major topics covered in the chapter are the foundations for understanding individual behavior, personality, attitudes, perception, stress, creativity, and workplace behaviors. LEARNING OUTCOMES After studying this chapter, students should be able to: 1. Explain the nature of the individual–organization relationship. 2. Define personality and describe personality attributes that affect behavior in organizations. 3. Discuss individual attitudes in organizations and how they affect behavior. 4. Describe basic perceptual processes and the role of attributions in organizations. 5. Discuss the causes and consequences of stress and describe how it can be managed. 6. Describe creativity and its role in organizations. 7. Explain how workplace behaviors can directly or indirectly influence organizational effectiveness. The opening vignette profiles several instances—a customer service representative, a police sergeant, a store manager—of people who have filed lawsuits against their employer for essentially making them work without pay. The vignette points out that in a service environment, the boundary between hourly and salaried employees is less clear than in a manufacturing context. Because of this, the relationships between workers and their employers are growing increasingly complex. •Management Update: Have students talk about work situations where they felt that they had to work additional hours without pay. It may be a good idea to look at a few of them to stimulate this discussion. LECTURE OUTLINE I. Understanding Individuals in Organizations A. The Psychological Contract A psychological contract is the overall set of expectations held by an individual with respect to what he or she will contribute to the organization and what the organization will provide in return. •Teaching Tip: Discuss with your students the nature of the psychological contract that exists between you as the instructor and them as students. 1. Individual contributions include such things as effort, skills, ability, time, and loyalty. •Discussion Starter: Ask students to suggest jobs that require unusual skills or abilities to perform effectively. 2. Organizational inducements include pay, career opportunities, job security, and status. 3. Companies must ensure that the contributions and inducements are in balance; that is, that they are getting value from their employees and that they are offering appropriate rewards. •Discussion Starter: Solicit student ideas regarding unusual or novel individual contributions and/or organizational inducements that might be part of a psychological contract. B. The Person-Job Fit Person–job fit is the extent to which the contributions made by the individual match the inducements offered by the organization. Person–job fit may be imperfect due to a number of reasons. 1. Organizational selection procedures are imperfect. 2. Both people and organizations change. 3. Each individual is unique, so accurate assessments are difficult. •Discussion Starter: Ask students to discuss how psychological contracts and person–job fit are related to individual differences that may cause one person to fit into an organization while another person will not fit into that same organization. •Group Exercise: Have small groups of students discuss with one another what they would consider to be a “perfect” job. Ask them to identify the similarities and differences among the various jobs suggested. •Discussion Starter: Ask students if they can recall any instances where they observed one person who really liked a particular job and another person who strongly disliked the same job. Ask them to speculate on why the differences occurred. C. The Nature of Individual Differences Individual differences are personal attributes that vary from one person to another. Individual differences lead to differing behavior among individuals. In assessing individual differences, organizations must be sure to consider the situation, or context, in which the behavior occurs. II. Personality and Individual Behavior Personality traits represent some of the most fundamental sets of individual differences in organizations. Personality is the relatively permanent set of psychological and behavioral attributes that distinguish one person from another. •Discussion Starter: Ask students if they agree or disagree with the assertion that an individual’s personality is formed at a young age. Managers should strive to understand basic personality attributes and the ways they can affect people’s behavior in organizational situations. However, individuals are not very skilled at accurately assessing these complex traits, so managers should not overestimate their ability to do so. A. The “Big Five” Personality Traits The “Big Five” personality model is a popular personality framework based on five key traits. High performing individuals in organizations tend to be high on agreeableness, conscientiousness, openness, and extraversion, while also scoring low on neuroticism. 1. Agreeableness is a person’s ability to get along with others. 2. Conscientiousness refers to the person’s ability to manage multiple tasks and meet deadlines. Highly conscientious people tend to be careful, responsible, organized, and self-disciplined. Those who are low on conscientiousness are more disorganized, careless, and less self-disciplined. 3. Neuroticism is the extent to which a person is excitable, insecure, reactive, and subject to mood swings. Those low on neuroticism are poised, calm, resilient, and secure. 4. Extraversion is a person’s comfort level with relationships. Extraverts are sociable, talkative, and assertive, while introverts are less open to new relationships. 5. Openness is a person’s flexibility of beliefs, wide range of interests, and willingness to accept change. People low on openness are less curious and creative. B. The Myers-Briggs Framework Based on the work of Carl Jung, the Myers-Briggs Type Indicator (MBTI) assesses personality along four key dimensions. 1. Extraversion (E) versus Introversion (I). Extraverts get energy from being around other people, while Introverts need solitude to recharge. 2. Sensing (S) versus Intuition (N). The Sensing type prefers concrete things, while Intuitives prefer abstract concepts. 3. Thinking (T) versus Feeling (F). Thinking individuals base their decisions more on logic and reason, while Feeling individuals base their decisions more on feelings and emotions. 4. Judging (J) versus Perceiving (P). People who are the Judging type enjoy completion or finishing a task, while Perceiving types enjoy the process and open-ended situations. •Teaching Tip: Direct students to the interpersonal skill-building exercise for this chapter for more information about the Myers-Briggs framework and for an online assessment tool. C. Other Personality Traits at Work 1. Locus of control is the degree to which individuals believe that their own behavior has a direct impact on what happens to them. An internal locus of control is the belief that success or failure results from one’s own behavior. An external locus of control is the belief that success or failure results from fate, chance, luck, or the behavior of others. •Extra Example: Most successful top managers appear to have an internal locus of control. •Discussion Starter: Ask students whether they think they tend to have an internal or an external locus of control. •Teaching Tip: Many different questionnaires exist that purport to measure locus of control. Obtain a copy of one of these and have your students complete it. Be careful not to make actual attributions based on in-class results. Rather, use the results to discuss the nature of locus of control and whether or not students see the results as being valid. 2. Self-efficacy is an individual’s beliefs about her or his capabilities to perform a task. 3. Authoritarianism is the extent to which an individual believes that power and status differences are appropriate within hierarchical social systems like organizations. •Discussion Starter: Ask students whether they see themselves as having high or low levels of authoritarianism. •Discussion Starter: Ask students to comment on their relative levels of self-esteem and risk propensity. 4. Machiavellianism is behavior directed at gaining power and controlling the behavior of others. 5. Self-esteem is the extent to which a person believes that he or she is a worthwhile and deserving individual. 6. Risk propensity is the degree to which an individual is willing to take chances and make risky decisions. •Discussion Starter: Ask students to identify various jobs where different levels of self-esteem and risk propensity would seem to be most relevant and least relevant. D. Emotional Intelligence Another way to think about personality at work is the concept of emotional intelligence, or EQ. Persons with high EQ seem to be more successful and effective at work. There are five dimensions of EQ. 1. Self-awareness refers to a person’s capacity for being aware of how they are feeling. 2. Managing emotions refers to a person’s capacities to ensure that feelings do not interfere with getting things accomplished. 3. Motivating oneself refers to a person’s ability to remain optimistic in the face of failure. 4. Empathy refers to a person’s ability to understand how others are feeling. 5. Social skill refers to a person’s ability to get along with others. III. Attitudes and Individual Behavior Attitudes are complexes of beliefs and feelings that people have about specific ideas, situations, or other people. •Group Exercise: Have students think of attitudes that they have held for a long time, and then discuss what kinds of things might be necessary to get them to change those attitudes. Also ask them to identify attitudes that they have changed and to note why those changes took place. Attitudes have three components—the affective, cognitive, and intentional components. •Extra Example: To illustrate the three components of an attitude, select a given attitude that a student might hold (e.g., positive attitude toward a particular academic department). Illustrate its three parts (e.g., I like that department; the professors do a good job and the courses they teach are relevant; I will take another course from that department). Cognitive dissonance results when an individual experiences conflict among the components of his or her own attitudes. •Extra Example: Students may experience cognitive dissonance as part of their academic programs. For example, when they begin taking courses in their intended major, they may decide that they do not like that field after all. Ask students if they ever experienced anything like this. A. Work-Related Attitudes 1. Job satisfaction or dissatisfaction is an attitude that reflects the extent to which an individual is gratified by or fulfilled in his or her work. 2. Organizational commitment is an attitude that reflects an individual’s identification with and attachment to the organization itself. •Teaching Tip: Point out to students that organizations undergoing downsizing risk undermining the organizational commitment of their workers. This has happened at firms such as Levi’s. In contrast, Southwest Airlines, with its no-layoffs policy, does an enviable job of creating and maintaining high levels of organizational commitment and job involvement among its workers. B. Affect and Mood in Organizations Positive affectivity is a tendency to be relatively upbeat and optimistic, have an overall sense of well-being, see things in a positive light, and seem to be in a good mood. Negative affectivity is a tendency to be generally downbeat and pessimistic, see things in a negative way, and seem to be in a bad mood. IV. Perception and Individual Behavior A. Basic Perceptual Processes Perception is the set of processes by which an individual becomes aware of and interprets information about the environment. 1. Selective perception is the process of screening out information that we are uncomfortable with or that contradicts our beliefs. •Extra Example: Note that if the morning news featured a headline story about a big increase in tuition at your school, most students would be aware of it. However, assuming that is not the case, fewer students can recall the day’s top news stories because they are less relevant to them. •Discussion Starter: Ask students to identify specific examples, other than those in the text, to illustrate positive and negative examples of selective perception. 2. Stereotyping involves categorizing or labeling people on the basis of a single attribute. •Discussion Starter: Ask students to identify specific examples, other than those in the text, to illustrate positive and negative examples of stereotyping. B. Perception and Attribution Attribution is a mechanism through which we observe behavior and then attribute causes to it. Attribution occurs as a result of three factors. 1. Consensus occurs when other people in the same situation behave the same way. 2. Consistency occurs when the same person behaves in the same way at different times. 3. Distinctiveness occurs when the same person behaves in the same way in other situations. V. Stress and Individual Behavior Stress is an individual’s response to a strong stimulus, called a stressor. Stress occurs when demands exceed resources. Not all stress is bad. Fortunate circumstances can cause stress, and a moderate level of stress may serve as an appropriate motivator. A. Stress generally follows a cycle referred to as the General Adaptation Syndrome, or GAS. 1. The first stage in the GAS is alarm, during which individuals feel panic and stress rises. This period tends to be relatively brief. 2. The second stage is resistance, during which individuals confront and attempt to control the stress circumstances. This period may go on for a long time. If the individual is successful at this stage, the third stage is not reached. 3. The third stage is exhaustion, which is reached when the individual cannot make further efforts at control and chooses to give up. 4. An individual’s susceptibility to, and response to, stress are partially determined by personality. Type A individuals are competitive, devoted to work, and have a strong sense of time urgency. Type B individuals are less competitive, less devoted to work, and have a weaker sense of time urgency. •Discussion Starter: Ask students whether they consider themselves to be Type A or Type B. •Discussion Starter: Note that the Type A/B distinction parallels the discussion of individual differences earlier in this chapter. Compare Type A/B personalities in terms of their locus of control, self-esteem, and other personality-based differences. B. Causes and Consequences of Stress 1. Work-related stressors fall into one of four categories. a) Task demands are associated with the task itself. •Extra Example: The job of telemarketer is one with a high level of task demands-related stress. Such workers must follow a prescribed script to sell products, are under intense pressure to make lots of calls, and often encounter abrupt, negative reactions from the people they call. b) Physical demands are stressors associated with the job setting. c) Role demands associated with expected behaviors can also cause stress. •Extra Example: When an executive reported for work at the US Bank of Washington on a recent holiday, he noted that he was the 100th manager to sign in for work that day—a holiday when the bank was officially closed. d) Interpersonal demands are stressors associated with relationships that confront people in organizations. 2. Moderate stress may have positive consequences, but too much stress creates negative consequences. a) Behaviorally, stress may lead to detrimental or harmful actions, such as smoking, alcoholism, overeating, drug abuse, accident proneness, and violence. •Extra Example: While stress can initiate workplace violence, the fact that violence has occurred subsequently increases stress for other employees. b) Psychological consequences of stress include sleep disturbances, depression, family problems, and sexual dysfunction. c) Medical consequences of stress include heart disease, stroke, headaches, backaches, ulcers, and skin conditions. •Global Connection: The Japanese use the word karoshi to refer to death from overwork. Some experts estimate that karoshi claims as many as 30,000 people a year in that country. d) A negative consequence for business is burnout, a feeling of exhaustion that may develop when someone experiences too much stress for an extended period of time. D. Managing Stress 1. Individuals manage stress through exercise, relaxation, improved time management, and support groups. •Extra Example: Prayer and meditation are increasingly being used by individuals to manage stress. •Discussion Starter: Ask students how they manage their own stress. 2. Organizations can help employees cope with stress through wellness, stress management, health promotion, and fitness programs. •Extra Example: On September 11, 2001, terrorists attacked the Pentagon and the World Trade Center, buildings that contained thousands of workers on that Tuesday morning. These attacks, and the aftermath, dramatically raised stress in workplaces around the United States for several years after the event. •Extra Example: Some companies have come to realize that stress is caused not only by the work they require of their employees, but also by the lack of control they give workers over how to perform their jobs. Thus, providing more autonomy may also be a useful technique for controlling stress. VI. Creativity in Organizations Creativity is the ability of an individual to generate new ideas or to conceive of new perspectives on existing ideas. A. The Creative Individual Common attributes of creative individuals are many. 1. Background experiences play a role. Creative individuals were often raised in an environment in which creativity was nurtured. 2. Individuals who are open, attracted to complexity, energetic, independent, and self-confident tend to be more creative. 3. An individual’s power to think intelligently and to analyze situations and data effectively can result in greater creativity. Creative people are generally very skilled at both divergent and convergent thinking. Divergent thinking is a skill that allows people to see differences between situations, phenomena, or events. Convergent thinking is a skill that allows people to see similarities between situations, phenomena, or events. B. The Creative Process Individual creative activity (though not all of it) tends to progress through a series of stages. 1. Preparation begins the process through formal education, training, and on-the-job experience. 2. Incubation is a period of less intense conscious concentration during which the knowledge and ideas acquired during preparation mature and develop. 3. Insight, a spontaneous breakthrough, occurs when the creative person achieves a new understanding of some problem or situation. 4. Verification is the phase where the determination is made of the validity or truthfulness of the insight. C. Enhancing Creativity in Organizations Managers who want to enhance and promote creativity can do so by making it a part of the organization’s culture, often through explicit goals. Another important part of enhancing creativity is to reward creative successes while being careful not to punish creative failures. VII. Types of Workplace Behavior Workplace behavior is a pattern of action by the members of an organization that directly or indirectly influences organizational effectiveness. A. Performance behaviors are the total set of work-related behaviors that the organization expects the individual to display. Performance behaviors are diverse and may be difficult to assess. B. Withdrawal behaviors include absenteeism and turnover. Absenteeism occurs when an individual does not show up for work. Turnover occurs when people quit their jobs. •Discussion Starter: Ask students to recall examples of when they were absent from work for reasons that their employer might not have thought of as being legitimate. •Discussion Starter: Ask students who have quit one or more previous jobs to recall what caused them to do so. C. Organizational citizenship is the behavior of individuals that makes a positive overall contribution to the organization. Typically, these behaviors are directed more at helping others or facilitating achievement of goals through indirect means, rather than performance of job-related tasks. •Teaching Tip: Emphasize to students that citizenship goes beyond strict productivity. •Extra Example: Note that the person making the highest grade on a test may be the top performer. However, that same person may not always be in class, may contribute little to class, and may come in late or leave early. Someone else, however, may attend class more regularly, participate in class discussion more often, always be in class on time, and be willing to sit past class ending time for a few minutes while you finish an important point. This individual may be a better organizational citizen. D. Dysfunctional Behaviors Dysfunctional behaviors are those that detract from, rather than contribute to, organizational performance. They include absenteeism, turnover, theft, sabotage, sexual and racial harassment, politicized behavior, and workplace violence. Chapter 10 Managing Employee Motivation and Performance CHAPTER SUMMARY This chapter deals with employee motivation. The key topics discussed include the nature of motivation and content, process, and reinforcement perspectives on motivation. Popular motivation strategies are then illustrated, followed by a description of how organizations use reward systems to motivate employees. LEARNING OUTCOMES After studying this chapter, students should be able to: 1. Characterize the nature of motivation, including its importance and basic historical perspectives. 2. Identify and describe the major content perspectives on motivation. 3. Identify and describe the major process perspectives on motivation. 4. Describe reinforcement perspectives on motivation. 5. Identify and describe popular motivational strategies. 6. Describe the role of organizational reward systems in motivation. In the opening case, the employee relations practices (in particular, health care) at Whole Foods Market (WFM) are described. WFM made the inaugural list of Fortune’s “100 Best Companies to Work For” list in 1998 and has been on that list ever since. Clearly, the company puts employees at the top of their priorities. However, their health benefits plan appears to have stirred up quite a controversy. Management Update: Every year Fortune identifies the 100 best companies to work for in America. The annual Fortune article also describes specifically what these companies do to make the workplace more enjoyable and stress free. Discussion Starter: Using students’ work experience, pose the following question as a way to start a class debate: are happy employees more productive, or are productive employees happier than others? LECTURE OUTLINE I. The Nature of Motivation Motivation is the set of forces that causes people to behave in certain ways. Teaching Tip: Note that motivation reflects behavioral choices—people choose to work hard, to do just enough to get by, or to do nothing. Individual performance is generally determined by motivation (desire to do the job), ability (capability to do the job), and environment (resources needed to do the job). While the last two can be controlled by the manager, the first cannot. Discussion Starter: Ask students to recall instances in which they have done an exceptionally good job and to then describe the respective roles of motivation, ability, and environment in that performance. Interesting Quote: “If overpaid, many [workers] will work irregularly and tend to become more or less shiftless, extravagant, and dissipated.” (F.W. Taylor, Shop Management, Harper & Brothers Publishers, 1911, p. 27) Extra Example: Carnation Milk used to use the slogan “our milk comes from contented cows.” This slogan essentially mirrors the human relations school of employee behavior, in which satisfied employees are more productive. II. Content Perspectives on Motivation Content perspectives are approaches that try to answer the question, “What factors in the workplace motivate people?” Content perspectives deal with the first part of the motivation process: needs and need deficiencies. A. The Needs Hierarchy Approach Teaching Tip: Many students will have covered Maslow in other courses (e.g., psychology, marketing, etc.). You might consider asking for a show of hands and skimming or skipping this material if all your students have already covered it. Maslow’s hierarchy of needs asserts that people are motivated to satisfy five need levels: 1. Physiological needs (food, air) 2. Security needs (housing, a job) 3. Belongingness needs (love, affection) 4. Esteem needs (self-image, self-respect) 5. Self-actualization needs (being all you can be) Interesting Quote: “I used to do things for my people because I would try to protect them, but I realized I was doing them a disservice. I was not giving them the opportunity to fail or achieve success, which is something my bosses had always given me.” (Marnie Quinn, middle manager at Ford; quoted in Fortune, April 10, 1989, p. 54) Maslow suggested that people will remain at one level until that need is satisfied and then move up to the next level and that people will not regress to earlier levels. Group Exercise: Have students work in small groups and identify ways in which people might satisfy each of the five need levels in Maslow’s hierarchy. Extra Example: Maslow based his theory on research conducted on monkeys, then college students, and then mental patients. B. The Two-Factor Theory The two-factor theory of motivation asserts that satisfaction (affected by motivating factors) and dissatisfaction (affected by hygiene factors) are not at opposite ends of one continuum, but that they are each on a different continuum. Therefore, for managers to ensure no dissatisfaction, they must provide hygiene factors; but to satisfy and thus motivate, they must provide motivation factors. Hygiene factors include pay, working conditions, appropriate supervision, and job security. Motivation factors include achievement, recognition, responsibility, and opportunity for advancement. Discussion Starter: Herzberg asserts that pay in and of itself does not motivate performance. At the same time, pay may be a motivator as a symbol of a person’s worth or value to an organization. Solicit students’ opinions about this idea. Discussion Starter: Note that the two-factor theory suggests that people can be satisfied and dissatisfied at the same time. Ask students whether or not they accept this premise. Discussion Starter: Ask students to critique Maslow’s hierarchy of needs and the two-factor theory, discussing how they, as future managers, might apply one or the other in a work setting. C. Individual Human Needs Individual human needs play a role in motivation as well. Three in particular have been the focus of research. 1. The need for achievement is the desire to accomplish a goal or task more effectively than in the past. 2. The need for affiliation consists of a desire for human companionship and acceptance. 3. The need for power gives workers the desire to be influential in a group and to control one’s environment. Discussion Starter: Ask students to assess their own needs for achievement, affiliation, and power. Extra Example: Michael Dell, founder of Dell Computers, clearly has a high need for achievement and may have a strong need for power as well. III. Process Perspectives on Motivation Process perspectives focus on why people choose certain behavioral options to fulfill their needs and how they evaluate their satisfaction after they have attained these goals. Teaching Tip: Emphasize to students the “how” aspect of the process perspectives on motivation. A. Expectancy Theory Expectancy theory, developed by Victor Vroom, suggests that motivation depends on how much we want something and how likely we think we are to get it. Teaching Tip: Victor Vroom, one of the best known expectancy theorists, also developed an important approach to leadership, discussed in Chapter 11. 1. Effort-to-performance expectancy is the individual’s perception of the probability that effort will lead to high performance. A high effort-to-performance expectancy will increase motivation. 2. Performance-to-outcome expectancy consists of the individual’s perception of the probability that performance will lead to a specific outcome. A high performance-to-outcome expectancy will increase motivation. Discussion Starter: Ask students to recall an instance in which they did not pursue something they wanted because they felt they had little or no chance of achieving it. 3. Individuals recognize that their behavior will result in outcomes (consequences of behaviors in an organizational setting, usually rewards). Also, each outcome has an associated valence (an index of how much an individual desires a particular outcome; the attractiveness of the outcome to the individual). If they want the outcome, the valence is positive. If they do not want it, the valence is negative. The valence is zero if they are indifferent to the outcome. If an individual has a high valence for the outcomes, motivation will increase. 4. The Porter-Lawler extension to expectancy theory suggests that high performance may lead to satisfaction based on the rewards given for high performance. If an individual views the rewards as equitable for the performance, he or she is satisfied. The Porter-Lawler extension reverses the causality implied by expectancy theory, in which satisfaction leads to performance. According to Porter-Lawler, performance leads to satisfaction. 5. To use expectancy theory as a motivating tool, managers need to figure out the outcomes wanted by each employee, determine performance levels needed to reach organizational goals, link outcomes and performance, look for conflicting expectancies, make sure rewards are large enough, and make the system equitable to all. Teaching Tip: Ask students how they think the university motivates its various types of workers. If students are familiar with a company near the university, you could discuss that company instead. B. Equity Theory Equity theory is based on the notion that people are motivated to seek social equity in the rewards they receive for performance. To determine equity, a person compares his or her ratio of outcomes (pay, recognition) and inputs (time, experience) to someone else’s. The results can be a feeling of equitable rewards, too few rewards, or too many rewards. Those who feel underrewarded may reduce their inputs or ask for an increase in their outcomes in order to establish equity. Those who feel overrewarded may increase their effort or rationalize the differences away. Discussion Starter: Equity theory predicts that if people believe that they are being overpaid, they will take some action to reduce their feelings of inequity. Ask students what they think about this prediction. Discussion Starter: Have students recall situations in which they have felt both equity and inequity. Then ask them to diagram each instance in terms of its outcomes and inputs and those of a comparison other. To use equity theory as a motivating tool, managers need to realize that rewards for performance must be deemed fair. Also, managers must consider the “other” to whom the comparisons are made. If the comparison person is not appropriate, inequity may be felt. Teaching Tip: Note the similarities between the equity process and the notion of psychological contracts, as discussed in Chapter 9. Extra Example: An excellent example of equity theory occurs at the beginning of each new NFL season. Top draft choices fresh out of college will sign big contracts and disgruntled veterans will almost immediately start calling for their own contracts to be renegotiated. C. Goal-Setting Theory The goal-setting theory of motivation assumes that behavior is a result of conscious goals and intentions. By setting goals for people in the organization, a manager should be able to influence their behavior. 1. Appropriate goal setting requires appropriate levels of goal difficulty and goal specificity. Goal difficulty is the extent to which a goal is challenging and requires effort. Goal specificity is the clarity and precision of the goal. Motivating goals are specific and of moderate difficulty, neither too challenging nor too easy to attain. 2. The expanded goal-setting theory of motivation includes goal difficulty and goal specificity, plus two additional factors. Motivation is high when goal acceptance and commitment are high. a) Goal acceptance is the extent to which a person accepts a goal as his or her own. b) Goal commitment is the extent to which a person is interested in reaching the goal. IV. Reinforcement Perspectives on Motivation The reinforcement theory asserts that behavior that results in rewarding consequences is likely to be repeated, whereas behavior that results in punishing consequences is less likely to be repeated. A. Kinds of Reinforcement in Organizations 1. Positive reinforcement strengthens desired behavior by giving a reward after the behavior is performed. Praise, promotion, and pay increases are all examples of positive reinforcement. 2. Avoidance strengthens the desired behavior by allowing the employee to avoid a negative consequence if a certain behavior is exhibited. Avoidance occurs, for example, when an employee attends required meetings to avoid the negative consequences of skipping the meeting. 3. Punishment weakens undesired behavior by providing an undesirable consequence after a person exhibits the unwanted behavior. Reprimands and other disciplinary measures are examples of punishment. 4. Extinction weakens a behavior by not providing reinforcement of any kind when the behavior is exhibited. A manager who ignores frivolous emails from subordinates in order to encourage them to quit sending the messages is using extinction. B. Providing Reinforcement in Organizations The frequency of reinforcement is just as important as the kind of reinforcement. While it is desirable for managers to respond to every instance of desired or undesired behavior, this is not usually possible. Therefore, managers should choose an appropriate schedule to deliver reinforcement. 1. A fixed-interval schedule provides reinforcement at fixed intervals of time, regardless of behavior. An example is the U.S. military system of giving promotion in ranks to officers after a set number of years of service. This schedule tends to provide the least motivation because reinforcement does not depend on performance. 2. A variable-interval schedule provides reinforcement at varied and unpredictable time intervals. This is a very popular schedule for managers who give occasional reinforcement. This schedule is more motivating than a fixed-interval schedule because workers do not know when the reinforcement will occur and so they must keep performance high at all times. 3. A fixed-ratio schedule gives reinforcement after a fixed number of behaviors, regardless of time. Piecework compensation is one type of fixed-ratio schedule. This motivates fairly well, although it can encourage workers to work quickly without regard to the quality of their output. 4. A variable-ratio schedule varies the number of behaviors needed for each reinforcement. This is very motivating because each performance increases the chances of reinforcement. However, it can be difficult to constantly monitor performance for each worker. Teaching Tip: Explain the role of reinforcement in the classroom as you provide grades, verbal compliments, criticisms, etc., in response to student behavior. Teaching Tip: Also note the reinforcing consequences that student behaviors have on instructors. For example, good class attendance and student enthusiasm provide positive reinforcement for instructors. Organizational behavior modification, or OB Mod, is a technique for applying the concepts of reinforcement theory in organizational settings. Behavior that should be increased and decreased are identified and tied to specific kinds of consequences. Group Exercise: Have student groups design a motivational system that a manager might use that is based on the concepts and principles of reinforcement. V. Popular Motivational Strategies A. Empowerment and Participation Empowerment and participation represent important methods that managers can use to enhance employee motivation. Empowerment is the process of enabling workers to set their own work goals, make decisions, and solve problems within their sphere of responsibility and authority. Participation is the process of giving employees a voice in making decisions about their own work. B. Alternative Forms of Working Arrangements Many organizations today are also experimenting with a variety of alternative work arrangements. 1. A compressed work schedule is working a full forty-hour week in fewer than the traditional five days. 2. Flexible work schedules, or flextime, allow employees to select, within broad parameters, the hours they work. 3. Job sharing allows two part-time employees to share one full-time job. 4. Telecommuting allows employees to spend part of their time working off-site, usually at home. VI. Using Reward Systems to Motivate Performance An organizational reward system is the formal and informal mechanisms by which employee performance is defined, evaluated, and rewarded. Organizational rewards can have a number of benefits. Rewards can lead to positive attitudes when they are perceived as equitable and valued by the employee. Rewards can reinforce behaviors that should be repeated and discourage those that should not be repeated. If employees realize that valued rewards are linked to performance, motivation will increase. A. Merit Reward Systems Merit pay refers to pay awarded to employees on the basis of the relative value of their contributions to the organization. Merit pay plans base as least some meaningful portion of compensation on merit. The most common type of merit pay plan is the annual raise. B. Incentive Reward Systems Incentive systems attempt to reward employees in proportion to what they do. Incentive systems have the advantage of rewarding employees for high performance while not becoming a part of an individual’s base salary, encouraging continued high performance over time. 1. A piece-rate incentive plan is used when an organization pays an employee a certain amount of money for every unit she or he produces. This is the simplest type of incentive system. 2. Individual incentive plans reward individual performance at the time when high performance occurs. 3. Sales commissions, in which an agent is paid a percentage of his or her sales over a period of time, are another type of incentive pay. 4. Other types of incentives include nonmonetary incentives such as additional time off or a company-paid vacation. Global Connection: Workers in Japan receive an average of 25 percent of their total pay in the form of flexible bonuses. In the United States, the average is only 1 percent. C. Team and Group Incentive Reward Systems 1. Gainsharing programs are designed to share the cost savings from productivity improvements with employees. Gainsharing aligns employee and corporate interests. 2. A Scanlon plan is similar to gainsharing programs, but the percentage of award is very high, typically two-thirds or more of the savings, and the award is given to all workers, not just those who made the improvements. 3. One-time team incentives may be awarded as a proportion of each employee’s base salary, or the same dollar amount may be given to each worker. 4. Nonmonetary rewards may be given at the group level. 5. Profit sharing creates a pool of money for annual employee bonuses, based on corporate profits. Rewards may be given at the end of a time period or kept in an account until retirement. 6. Employee stock ownership plans (ESOPs) are a means of gradually making employees owners of a significant share of the company. A portion of stock is transferred to employees as the company builds up profits. D. Executive Compensation Typically, top managers have a different compensation plan than do the rest of a firm’s employees. 1. Base salary is a guaranteed payment, but it is only one component of executive compensation. 2. Incentive pay for executives usually includes annual bonuses, based on performance. Incentive percentages are often specified in advance. 3. A stock option plan is established to give senior managers the option to buy company stock in the future at a predetermined fixed price. a) If executives are effective, then stock price should rise, and the managers may buy the stock at bargain prices. The options are worthless, however, if stock price falls. b) Options are popular because their cost to the organization is low and they align the interests of managers and stockholders. c) Disadvantages of options include the potential manipulation of stock price by unscrupulous executives, new accounting changes under consideration which may require options to be treated as an expense item on an income statement, and the fact that options are not a reward when the stock price is falling. 4. Executives also usually receive many other types of compensation, including club memberships, use of company apartments and planes, low- or no-interest loans, and so on. 5. There are two important criticisms of executive compensation in the United States today. a) Many feel that executive compensation, averaging over $1 million, is simply too high, particularly in comparison to the salary of workers. b) There often seems to be little relationship between the performance of the organization and the compensation paid to its senior executives. E. New Approaches to Performance-Based Rewards 1. Some organizations are allowing employees to have a greater say in how rewards are determined and allocated. 2. Some firms customize rewards to each individual employee’s needs. Cross-Reference: Note the relevance of designing reward systems to various theories of motivation as discussed throughout earlier sections of this chapter. Instructor Manual for Fundamentals of Management Ricky W. Griffin 9781285849041, 9780357039168