Management, Organizational Policies & Practices Dr. Amna Yousaf PhD (HRM) University of Twente, the Netherlands Lecture 12

Recap Lecture 11 Reinforcement Theory Equity Theory Justice and Equity Theory Expectancy Theory Job Characteristics Model How can Jobs be Redesigned? Alternative Work Arrangements Conclusions

Motivation: From Concepts to Applications (2) CHAPTER THREE Motivation: From Concepts to Applications (2) Lecture 12

Outline Employee Involvement Participative Management Representative Participation Quality Circles Linking Employee Involvement programs & Motivation Theories Using Rewards to Motivate Employees What to Pay: establishing a Pay Structure How to Pay: Rewarding individual Employees Through Variable-Pay Programs Piece-Rate Pay Merit Based Pay © 2007 Prentice Hall Inc. All rights reserved.

Outline Global Implications Bonuses Skill Based Pay Profit-sharing plans Gain –sharing Employee Stock Ownership Plans Global Implications © 2007 Prentice Hall Inc. All rights reserved.

What is Employee Involvement? Employee Involvement Program A participative process that uses the entire capacity of employees and is designed to encourage increased commitment to the organization’s success. © 2007 Prentice Hall Inc. All rights reserved.

Examples of Employee Involvement Programs Participative Management A process in which subordinates share a significant degree of decision-making power with their immediate superiors. MBO an Example © 2007 Prentice Hall Inc. All rights reserved.

Examples of Employee Involvement Programs (cont’d) Representative Participation Workers participate in organizational decision making through a small group of representative employees. Works Councils Groups of nominated or elected employees who must be consulted when management makes decisions involving personnel. Board Representative A form of representative participation; employees sit on a company’s board of directors and represent the interests of the firm’s employees. © 2007 Prentice Hall Inc. All rights reserved.

Representative Participation Does not enhance employee involvement Representative employee’s involvement and motivation may increase © 2007 Prentice Hall Inc. All rights reserved.

Examples of Employee Involvement Programs (cont’d) Quality Circle A work group of employees who meet regularly to discuss their quality problems, investigate causes, recommend solutions, and take corrective actions. Mixed results of enhanced productivity No effects on employee job satisfaction Being discontinued – band-wagon by management Limited employee involvement – one or two hours out of 40 hours of work © 2007 Prentice Hall Inc. All rights reserved.

Linking EI Programs and Motivation Theories Theory Y (Believing employees want to be involved) Employee Involvement Programs Two-Factor Theory (Intrinsic Motivation) ERG Theory (Employee Needs) © 2007 Prentice Hall Inc. All rights reserved.

Rewarding Employees: Four Aspects What to Pay (Internal vs. external equity) How to Pay (e.g Piece rate, merit based, bonuses, profit sharing, gain sharing, ESOPs, skill-based pay) What Benefits to Offer (e.g.,Flexible benefits) How to Recognize Employees © 2007 Prentice Hall Inc. All rights reserved.

Rewarding Employees: Four Aspects What to pay: Setting pay structures can be complex to organization Internal equity: worth of job to organization usually established through job evaluation External Equity: pay equity with reference to industry competitors Best pay systems attains strategic balance Pay leaders versus less payers (Wal-Mart – outsources to China) Pay more, get the best but what are the costs – small firm case – trade offs © 2007 Prentice Hall Inc. All rights reserved.

How to Pay: Rewarding Employees Variable Pay Programs A portion of an employee’s pay is based on some individual and/or organization measure of performance. Piece rate pay plans Profit sharing plans Gain sharing plans © 2007 Prentice Hall Inc. All rights reserved.

Rewarding Employees: Four Aspects Piece-rate Pay Plans Workers are paid a fixed sum for each unit of production completed. No base salary Not feasible for many jobs – footballer may not be ready to get piece-rate pay package from his league tied to every win Can lead to unethical behaviors such as cheating – Example of Sears © 2007 Prentice Hall Inc. All rights reserved.

Rewarding Employees: Four Aspects Merit Based Pay Unlike piece-rate pay plans which are linked to objective outcomes; these are linked to individual performance – performance ratings Can be motivating if designed correctly otherwise can cause unfairness perceptions in employees Employers increasing use these systems and keep high differentials between high and low performers Can be an important means of goal achievement ; not just a way to change wages Accuracy depends on accuracy of performance ratings Pay raise pool fluctuates based on economic conditions – can be sometimes demotivating for top performers © 2007 Prentice Hall Inc. All rights reserved.

Rewarding Employees: Four Aspects Bonuses For many jobs, bonuses important component of overall pay Net increasing to lower ranked jobs Advantage is bonuses reward employees for recent performance rather than past performance as in merit based pay Downside: employees may start viewing them only as pay; may not remain motivating © 2007 Prentice Hall Inc. All rights reserved.

Skill-Based Pay Plans Pay levels are based on how many skills employees have or how many jobs they can do. Benefits of Skill-based Pay Plans: Provides staffing flexibility. Facilitates communication across the organization. Lessens “protection of territory” behaviors. Meets the needs of employees for advancement (without promotion). Leads to performance improvements. © 2007 Prentice Hall Inc. All rights reserved.

Skill-Based Pay Plans (cont’d) Drawbacks of Skill-based Pay Plans: Lack of additional learning opportunities that will increase employee pay. Continuing to pay employees for skills that have become obsolete. Paying for skills which are of no immediate use to the organization. Paying for a skill, not for the level of employee performance for the particular skill. © 2007 Prentice Hall Inc. All rights reserved.

Linking Skill-based Plans and Motivation Theories Reinforcement Theory Skill Based Pay Plans Equity Theory ERG Theory (Growth) McClelland’s Need for Achievement © 2007 Prentice Hall Inc. All rights reserved.

Rewarding Employees: Four Aspects Profit-Sharing Plans Organization wide programs that distribute compensation based on some established formula designed around a company’s profitability. Can be direct case outlays or allocation of stock options to top managers Gain Sharing An incentive plan in which improvements in group productivity determine the total amount of money that is allocated. In gain sharing rewards are tied to productivity unlike profit sharing so employees can receive awards even when company profits are not too high © 2007 Prentice Hall Inc. All rights reserved.

Rewarding Employees: Four Aspects Employee Stock Ownership Plans (ESOPs) Company-established benefit plans in which employees acquire stock as part of their benefits at below market price. Increase employee satisfaction and motivation, however links with performance not clear Employees need have ownership feelings by keeping them updated on status of business and opportunity to exercise influence © 2007 Prentice Hall Inc. All rights reserved.

Variable Pay Programs & Motivation Profit-sharing programs and gain sharing programs reported to increased organizational performance, profitability, positive employee attitudes compared to organizations not having them Claims by sociologists that monetizing incentives undermines performance seem to be refuted by data Caution: Not every one responds alike to variable pay plans such as risk averse persons! © 2007 Prentice Hall Inc. All rights reserved.

© 2007 Prentice Hall Inc. All rights reserved.

Intrinsic Motivation: Employee Recognition Programs Intrinsic rewards: stimulate intrinsic motivation Can have long term effects Personal attention given to employee Approval & appreciation for a job well done Growing in popularity and usage Benefits of programs Fulfill employees’ desire for recognition Inexpensive to implement – can start with a Thank you note Encourages repetition of desired behaviors Drawbacks of programs Susceptible to manipulation by management for political motives especially where performance is not objective © 2007 Prentice Hall Inc. All rights reserved.

© 2007 Prentice Hall Inc. All rights reserved. E X H I B I T 7–2 From the Wall Street Journal, October 21, 1997. Reprinted by permission of Cartoon Features Syndicate. © 2007 Prentice Hall Inc. All rights reserved.

Global Implications Job Characteristics Model and Job Enrichment Model more applicable to individualistic culture as is more individual oriented Job enrichment strategies may not have same effect on collectivist cultures Caution: Conflicting findings – job involvement seems to work well in Japan and Hungary as well! Telecommuting Data on US and Europe available but not with rest of world: not tested on cultural dimensions © 2007 Prentice Hall Inc. All rights reserved.

Global Implications Variable pay Employee involvement Programs Do individual pay systems such as pay for performance work well for individual cultures while gain sharing and profit sharing as group based rewards work well for collectivist cultures? No empirical answer! Employee involvement Programs Seem to work well in individualistic cultures than collectivist cultures such as India where society is high power distance and accepts a high authority from managers! © 2007 Prentice Hall Inc. All rights reserved.

Implications for Managers In Order to Motivate Employees Recognize individual differences. Use goals and feedback. Allow employees to participate in decisions that affect them. Link rewards to performance. Check the system for equity. © 2007 Prentice Hall Inc. All rights reserved.

Check-Up: Motivation Applications Flexible benefits are recommended most strongly by __________ Theory. Expectancy theory suggests that individuals should be rewarded with something they value. © 2007 Prentice Hall Inc. All rights reserved.

Check-Up: Motivation Applications According to Expectancy Theory, a student will not be motivated to attend class if s/he doesn’t care about grades. What other kind of application might be plausible for a professor to implement as a reward theory in class? Use models from this chapter to discuss with a classmate and arrive at a suggestion. © 2007 Prentice Hall Inc. All rights reserved.

Thank You © 2007 Prentice Hall Inc. All rights reserved.