1. Unit 10 Performance Motivation and Rewards
© 2011 Cengage Learning

2. Introduction
What makes people happiest and most productive at work? Is it money, benefits, opportunities for growth, interesting work, or something else altogether? And if people desire different things, how can a company keep everyone motivated?
Those are the central questions that unit 10 (together with chapter 13), which focuses on motivation, will address. After explaining the basics of motivation, we will examine the details of a number of different motivational theories – equity theory, expectancy theory, reinforcement theory, and goal-setting theory. Each theory gives the manager a unique perspective on how to motivate employees to do their very best.

3. Main topics for class discussion
The main issue – how to manage performance motivation through financial and non-financial rewards. Specifically:
Discuss the factors that affect employee performance behavior
Discuss what managers can do to manage employee performance motivation
Use expectancy theory to understand the link between monetary rewards and employee performance effort.
Explain some of the widely used pay plans in the light of expectancy theory

4. Motivation: True or False?
I know what motivates me, so I know what motivates my employees.
Fear is a damn good performance motivator

5. Performance Behavior: a Model
Situational factors
Ability
Motivation (effort)
Direction Intensity Persistence
Employee behavior and results
The diagram displays a basic model of work motivation and performance. Managers often assume motivation to be the only determinant of performance when they say things such as “Your performance was really terrible last quarter. What’s the matter? Aren’t you as motivated as you used to be?” In fact, motivation is just one of many primary determinants of job performance, as shown in the diagram. In the literature the factors other than motivation are two: ability and situational factors. However, role perceptions are also a primary determinant of employee performance.
Role Perceptions

6. The terms in the model
Motivation is the willingness of a person that affects direction or a goal where an employee puts effort, intensity or the amount of effort allocated to the goal, and persistence or how long the effort continues.
Ability – the natural aptitudes and learned capabilities required to successfully complete a task.
Role perceptions – understanding the specifics, importance, and preferred behaviors of the tasks. Ways to improve are through clear job descriptions and coaching.
Situational factors – the conditions (e.g., organizational architecture) constraining or facilitating employee performance.

7. Intensity Persistence
Managing Employee Motivation
Needs
and
Drives
Extrinsic Reward
Work Effort
Direction
Intensity Persistence
Performance
Gratification
Goals,
expectations
and
feedback
Intrinsic Reward

8. Need Gratification and Motivation
Motivation begins with employee’s own needs and drives. Needs are mostly conscious deficiencies that energize or trigger behaviors to fulfill those needs; are either physical or psychological; and must be met for person’s survival and well-being.
Drives are instinct tendencies to seek particular goals and maintain internal stability. Examples are a drive to learn, to acquire, to bond, or to defend). For the most part, we are aware of our needs, where as drives operate under the surface to generate our emotions and sometime direct behavior. Needs are produced from our innate drives, but are strengthened or weakened through learning and social forces such as culture and childhood upbringing.
A person’s unmet need creates an uncomfortable, internal state of tension that must be resolved. People are thus motivated by unmet needs.
Managers must learn what those unmet needs are and address them.
Consider three well-known need theories (e.g., Maslow, Alderfer, and McClelland). In some significant sense, these are in conflict. Fortunately, empirical studies reveals two basic kinds of needs categories: lower-order needs (needs for safety and physiological and existence) and higher-order needs (belongingness, challenges and achievements and influence). These studies generally show that higher-order needs will not motivate people as long as lower-order needs remain unsatisfied.

9. Goal-setting and Feedback
According to goal-setting theory, people will be motivated to the extent that they accept specific and challenging goals and receive feedback that indicates their progress toward goal achievement.
In general, people are motivated to satisfy unfulfilled need.
Goal-setting improves role perceptions and consequently clarifies the direction of employee effort.
performance feedback improves role perceptions.
Job descriptions improve role perceptions
The basic model of motivation showed that individuals feel tension after becoming aware of an unfulfilled need. Once they experience tension, they search for and select courses of action that they believe will eliminate this tension. In other words, they direct their behavior toward something. This something is a goal. A goal is a target, objective, or result that someone tries to accomplish. Goal-setting theory says that people will be motivated to the extent to which they accept specific, challenging goals and receive feedback that indicates their progress toward goal achievement.
In general, people are motivated to satisfy unfulfilled need. A goal is a target, objective, or result that someone tries to reach. They search for and select courses of action that they believe will attain this goal and direct their behavior toward this goal.

10. Question
Raj, a new manager at Telecom International, in his first meeting at the company told his employees that the sales goals were significantly enhanced for this year and he expects all of his employees to buckle down and work hard to meet the goals. Raj’s instructions violates which of the aspects of effective goal-setting?
Precise and measurable
Equitable
Expectancy-oriented
Timely
Answer: A

11. Motivating with goal-setting theory
Assign employees specific and challenging goals (goal specificity and goal difficulty)
Make sure workers truly accept organizational goals (goal acceptance or commitment)
Provide frequent, specific, performance-related feedback (performance feedback)
Goal specificity is the extent to which goals are detailed, exact, and unambiguous. Specific goals, such as “I’m going to have a 3.0 average this semester,” are more motivating than general goals, such as “I’m going to get better grades this semester.” Goal difficulty is the extent to which a goal is hard or challenging to accomplish. Difficult goals, such as “I’m going to have a 3.5 average and make the Dean’s List this semester,” are more motivating than easy goals, such as “I’m going to have a 2.0 average this semester.” Goal acceptance, which is similar to the idea of goal commitment discussed in Chapter 4, is the extent to which people consciously understand and agree to goals. Performance feedback is information about the quality or quantity of past performance and indicates whether progress is being made toward the accomplishment of a goal.

12. Types of Rewards
An extrinsic reward is anything , financial or non-financial, received from someone for the recipient’s service (the performance of specific tasks or behaviors and valued by the recipient, such as bonuses and recognition.
An Intrinsic reward is a positive emotional experience resulting directly from the individual’s performance such as feeling of accomplishment, opportunities for personal growth, and learning a new task.
What are most important rewards?
These findings suggest two different kinds of rewards managers can use to manage employee performance motivation. Intrinsic rewards and extrinsic rewards. Both have their own merit and drawbacks but are equally important. The most important rewards were good benefits and health insurance, job security, a week or more of vacation (all extrinsic rewards), interesting work, the opportunity to learn new skills, and independent work situations (all intrinsic rewards). And employee preferences for intrinsic and extrinsic rewards appear to be relatively stable. Studies conducted over the last three decades have consistently found that employees are twice as likely to indicate that important and meaningful work matters more to them than what they are paid.

13. Expectancy Theory and Performance Effort
Outcome valence (the outcome’s positive or negative value of the employee)
E-P expectancy (probability that effort will result in a specific level of performance)
P-O expectancy (probability that performance will result in specific outcomes)
Outcome 1
(either + or -)
Motivation = valence (outcome value) x expectancy (e-p = probability) x instrumentality (p-o probability)
Effort
Performance
Outcome 2
(either + or -)

14. Motivating employees with expectancy theory
Systematically gather information to find out what employees want from their jobs
Measure performance (e.g., productivity, turnover, absenteeism) accurately and comprehensively and tie pay to the measured performance. In order words, take specific steps to link rewards to individual performance in a clear and understandable way.
Empower employees to make decisions if management really wants them to believe that their hard work and effort will lead to good performance.

15. Contingency principle and Pay plans
Wage and Salary
Competency-based pay
Performance-based Pay
Seniority-based pay
Contingency principle and Pay plans
Wage and salary for earning security that is especially in the short-run. For this reason, it can cause adverse selection and retention
Competency-based pay plan can help meet employee training need
Piece-rate and shared-pay plans strengthen performance in production, turnover, and recruitment
Seniority-based pay plans are especially useful for retention

16. Wage and Salary
Wage and salary, sometime called membership-based rewards, potentially attract job applicants, particularly those who desire predictable income or earnings security. Pay variation can hurt those whose income is limited.
Salary does not directly motivate job performance and. Good performers are lured to better-paying jobs.
They tend to reduce employee turnover but are more likely to reduce functional turnover rather than dysfunctional one.

17. Performance-based pay
Many real estate agents and other sales people typically earn commissions. Piece rate plans reward employee based on the number of outputs produced.
Many employees receive pay increases or bonuses based on a performance appraisal.
Many are also finding larger parts of their total paychecks determined by team more than individual results.

18. Competency-based rewards
Every job in the National Health Service (NHS), for example, is described in terms of its required skills and knowledge. Annual pay increases are based on how well employees meet the job’s KSA requirements.
Skill-based pay is a variant of the competency-based in which employees are paid for the number of skill modules mastered. Employees earn the base pay rate for being able to work in one job and earn more as they learn other skill modules.
Workforce flexibility and product quality and service tend to improve since employees with multiple skills are more likely to understand the work process and know how to improve it.

19. Measures of performance at the organization-level
The balanced scorecard (BSC) is a goal-oriented performance measurement system, which is sometime used to rewards typically executives for improving their performance on a composite of financial, customer, innovation, operational perspectives.
Profit-sharing, stock options, and ESOPs are examples of organization-level reward strategies for company-wide cooperation.
How effective are these rewards? Stock options, ESOPs, and BSCs tend to create an “ownership culture” in which employees feel aligned with the organization’s success.
Profit-sharing tends to create less ownership culture, but it has the advantage of automatically adjusting compensation reducing need for layoffs practices during recessions.

20. Empowerment and Performance
Employees experience more empowerment when:
Information and other resources are easily accessible
employee learning is valued
reasonable mistakes are viewed as a natural part of the learning process
Empowerment significantly Influences employee performance in production and reduces voluntary turnover.

21. Empowerment as a form of intrinsic reward
Empowerment is a psychological concept represented by 4 dimensions. Employees believe:
The work they do is important (meaningfulness)
They have freedom, interdependence, and discretion over their work activities (self-determination)
They are able to perform the work well and have a capability to grow with new challenges (competence)
They are active participants in the organization—their decisions and actions influence the company’s success (Impact).
Empowerment Influences performance in production and voluntary turnover. It also helps strengthen “employer brand.”