1. Goal Setting, Performance Management, and Rewards
Chapter Six
Goal Setting, Performance Management, and Rewards

2. Describe goal setting and relate it to motivation.
Chapter Objectives
Describe goal setting and relate it to motivation.
Discuss performance management in organizations.
Identify the key elements in an effective organizational reward system.
Describe the issues and processes involved in managing reward systems.
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3. Goal Setting and Motivation
A very useful method of enhancing employee performance.
Two Purposes of Goals:
They provide a useful framework for managing motivation since employees can set their own goals.
Goals are an effective control device; control is the monitoring by management of how well the organization is performing.
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4. Goal-Setting Theory Social Learning Theory
Provides insights into why and how goals can motivate behavior.
The research of Edwin Locke and his associates most clearly established the utility of goal-setting theory in a motivational context.
Locke’s Goal Setting Theory assumes behavior is a result of conscious goals and intentions.
By setting goals for employees, a manager should be able to influence their behavior.
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5. Components of Goal Setting Theory
Goal Difficulty
The extent to which a goal is challenging and requires effort
Goal Specificity
The clarity and precision of a goal
Goal Acceptance
The extent to which a person accepts a goal
Goal Commitment
The extent to which an individual is personally interested in reaching a goal
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6. Figure 6.1: The Goal-Setting Theory
Reference: Goal-Setting Motivational Technique That Works by Gary P. Latham et al. Reprinted from Organizational Dynamics, Autumn, 1979, Latham et al: “The Goal-Setting Theory of Motivation” with permission from Elsevier Science
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7. Broader Perspectives on Goal Setting
Management by Objectives
A collaborative goal-setting process through which organizational goals cascade down throughout the organization.
A successful MBO program starts with top managers establishing overall goals for the organization.
After these goals have been met, managers and employees throughout the organization collaborate to set subsidiary goals.
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8. Evaluation and Implications of Goal-Setting Theory
Research has demonstrated fairly consistently that goal difficulty and specificity are closely associated with performance.
Other elements of the theory, such as acceptance and commitment, have been studied less frequently.
A few studies have shown the importance of acceptance and commitment, but little is currently known about how people accept and become committed to goals.
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9. Evaluation and Implications of Goal-Setting Theory (continued)
The popularity of MBO stems from its many strengths.
It clearly has the potential to motivate employees because it helps implement goal-setting theory on a systematic basis throughout the organization.
MBO also has pitfalls:
Lack of top management support
Overemphasis on quantitative goals
Excessive paperwork and record keeping
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10. Performance Management in Organizations
Performance measurement, or performance appraisal, is the process by which a manager:
Evaluates an employee’s work behaviors by measurement and comparison with previously established standards
Documents the results
Communicates the results to the employee
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11. Figure 6.2: The Performance Management System
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12. Figure 6.3: Purposes of Performance Management
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13. Performance Management Basics
The Appraiser
In most appraisal systems, the employee’s primary evaluator is the supervisor.
Problems occur in this area when:
The supervisor has incomplete or distorted information about the employee’s performance.
The supervisor has a limited understanding of the technical knowledge involved in an employee’s job.
Possible solutions:
a multiple-rater system that incorporates the ratings of several people familiar with the employee’s performance
360 degree feedback
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14. Performance Management Basics (continued)
Frequency of the Appraisal
An organization usually conducts performance appraisals on a regular basis, typically once a year.
Annual performance appraisals are convenient for administrative purposes such as recordkeeping and scheduling.
Measuring Performance
Some of the most popular methods for evaluating individual performance are graphic rating scales, checklists, essays or diaries.
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15. Individual Rewards in Organizations
The reward system consists of all organizational components, including people, processes, rules and procedures, and decision-making activities, involved in allocating compensation and benefits to employees in exchange for their contributions to the organization.
Rewards constitute many of the inducements organizations provide to employees as their part of the psychological contract.
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16. Roles, Purposes, and Meanings of Rewards
The purpose of the reward system in most organizations is to attract, retain, and motivate qualified employees.
An organization must develop its philosophy of compensation based on its own conditions and needs, and this philosophy must be defined and built into the reward system.
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17. Additional Information About Rewards
Surface value of a reward – the objective meaning or worth
Symbolic value of a reward – the subjective and personal meaning or worth
Types of Rewards:
Base Pay (Money)
Incentives
Indirect Compensation (Benefits)_
Perquisites
Awards
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18. Types of Rewards Base Pay Incentive Systems
For most people, the most important reward for work is the pay they receive.
Incentive Systems
Plans that allow employees to earn additional compensation in return for certain types of performance
Piecework programs
Gain-sharing programs
Bonus system
Long-term compensation
Merit pay plans
Profit-sharing plans
Employee stock option plans
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19. Types of Rewards (continued)
Indirect Compensation
Another major component of the compensation package is indirect compensation, also commonly referred to as the employee benefit plan.
Payment for time not worked
Social security contributions
Unemployment compensation
Disability and workers’ compensation benefits
Life and health insurance programs
Pension or retirement plans
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20. Types of Rewards (continued)
Perquisites
Special privileges awarded to selected members of an organization, usually top managers.
Awards
At many companies, employees receive awards for a variety of accomplishments:
Seniority
Perfect attendance
Zero defects
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21. Managing Reward Systems
Linking Performance to Rewards
For managers to take full advantage of the symbolic value of pay, employees must perceive that their rewards are linked to their performance.
Some reward systems are standardized across employees (where wage increases are based on longevity on the job) and some reward systems are strictly tied to individual performance.
Most organizations try to develop a reward system somewhere between these two extremes.
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22. Table 6.1: Issues to Consider in Developing Reward Systems
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23. Flexible Reward Systems
A flexible reward system allows employees to choose the combination of benefits that best suits their needs:
A younger worker might prefer to have especially strong health care coverage with few deductibles.
A worker with a few years of experience might want more child care benefits.
A mid-career employee with greater financial security might want more time off with pay.
An older worker might want more rewards dedicated to his/her retirement plan.
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24. Other Issues Pertaining to Pay Systems
Participative Pay Systems
In keeping with the current trend toward involving workers in organizational decision making, employee participation in the pay process is also increasing.
Open Salary Information
A company’s policy of making exact salary amounts public knowledge (such as state governments).
Pay Secrecy
A company’s policy of making no information available to employees regarding other employees’ salaries, average or percentage raises, or salary ranges.
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25. Expatriate Compensation
Organizations that ask employees to accept assignments in foreign locations must usually adjust their compensation levels to account for differences in cost of living and similar factors.
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26. Figure 6.4: The Expatriate Compensation Balance Sheet
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