Motivating Employee Performance Through Rewards Chapter 6 Motivating Employee Performance Through Rewards

Chapter Learning Objectives After studying this chapter you should be able to: Describe goal setting and relate it to motivation. Discuss performance management in organizations. Identify the key elements in understanding individual rewards in organizations. Describe the issues and processes involved in managing reward systems. © 2012 South-Western, a part of Cengage Learning

Goal Setting and Motivation Purposes of Setting Goals in Organizations To provide a useful framework for managing motivation to enhance employee performance To serve management as a control device for monitoring of how well the organization is performing Goal A desirable objective Self-Efficacy The extent to which we believe we can accomplish our goals even if we failed to do so in the past © 2012 South-Western, a part of Cengage Learning

Goal Setting and Motivation (cont’d) Goal Setting Theory (Locke) Assumes that behavior is a result of conscious goals and intentions, therefore goals influence behavior (performance) Goal Characteristics Goal difficulty The extent to which a goal is challenging, requires effort, and is attainable Goal specificity The clarity and precision of a goal © 2012 South-Western, a part of Cengage Learning

Expanded Goal Setting Theory (Lock and Latham) The Goal-Setting Process Goal-directed effort is a function of goal attributes: Goal difficulty Goal specificity Goal acceptance: the extent to which a person accepts a goal as his/her own Goal commitment: the extent to which a person is interested in reaching a goal © 2012 South-Western, a part of Cengage Learning

6.1 The Goal-Setting Theory of Motivation Source: Reprinted from ORGANIZATIONAL DYNAMICS, Autumn 1979, Gary P. Latham et al., "The Goal-Setting Theory of Motivation", Copyright 1979, with permission from Elsevier. © 2012 South-Western, a part of Cengage Learning

Broader Perspectives on Goal Setting Management by Objectives (MBO) A collaborative goal-setting process through which organizational goals cascade down throughout the organization Requires customizing to each organization Can be effective for managing reward systems where the manager has individual interactions with each employee © 2012 South-Western, a part of Cengage Learning

Goal Setting: Evaluation and Implications Research has shown that: Goal difficulty and specificity are closely associated with performance. Goal-setting theory may focus too much on short-run considerations. MBO has the potential to motivate because it helps implement goal-setting theory on a systematic basis throughout the organization. MBO has a tendency to overemphasize quantitative goals to enhance verifiability. © 2012 South-Western, a part of Cengage Learning

Performance Management in Organizations The Nature of Performance Management Performance measurement (or appraisal) process: Evaluating an employee’s work behaviors by measurement and comparison with previously established standards Documenting the results Communicating the results to the employee Performance Management System Comprises the processes and activities involved in performance appraisals © 2012 South-Western, a part of Cengage Learning

6.2 The Performance Management System © 2012 South-Western, a part of Cengage Learning

6.3 Purposes of Performance Measurement © 2012 South-Western, a part of Cengage Learning

Performance Management Basics Who is to do the appraisals? How often are the appraisals to be done? How is performance to be measured? Issues in Performance Measurement © 2012 South-Western, a part of Cengage Learning

Performance Management: The Process The Appraiser: Alternatives The direct supervisor Multiple-rater systems (including self-evaluation) 360-degree feedback A system in which people receive performance feedback from those on all sides of them in the organization (boss, colleagues, peers, subordinates) Frequency of Appraisals Determined by convenience for administrative purposes, cultural appropriateness, and relevance © 2012 South-Western, a part of Cengage Learning

Performance Management: The Process (cont’d) Measuring Performance Considerations Desired decisions to be made based on outcome Instruments must be valid, reliable, and free of bias Choices of measurement methods Graphic rating scales, checklists, essays/diaries, behaviorally anchored rating scales, forced-choice systems Comparative methods such as ranking, forced distribution, paired comparisons, multiple raters © 2012 South-Western, a part of Cengage Learning

Individual Rewards in Organizations Reward System Consists of all organizational components involved in allocating compensation and benefits to employees in exchange for their contribution to the organization including: People Processes Rules Procedures Decision-making activities © 2012 South-Western, a part of Cengage Learning

Rewards’ Purposes, Roles, and Meanings To attract, retain, and motivate qualified employees Roles of compensation structures To be equitable and consistent To be a fair reward for the individual’s contribution To be competitive in the external labor market Meanings of rewards Surface value: objective meaning or worth of reward Symbolic value: subjective and personal meaning or worth of reward © 2012 South-Western, a part of Cengage Learning

Types of Individual Rewards Compensation Package The total array of money (wages, salary, commission), incentives, benefits, perquisites, and awards provided by the organization Base Pay Symbolizes an employee’s worth Can improve motivation and performance if part of an effectively planned and managed pay system Is a major cost of doing business Can reduce turnover and increase morale when well-designed © 2012 South-Western, a part of Cengage Learning

Types of Individual Rewards (cont’d) Incentive Pay Systems Plans in which employees can earn additional compensation in return for certain types of performance Piecework programs Gain-sharing programs Bonus systems Long-term compensation Merit pay plans Profit-sharing plans Employee stock option plans © 2012 South-Western, a part of Cengage Learning

Individual Rewards (cont’d) Indirect Compensation (Employee Benefits) Payment for time not worked Social Security contributions Unemployment compensation Disability and workers’ compensation benefits Life and health insurance programs Pensions or retirement plans © 2012 South-Western, a part of Cengage Learning

Individual Rewards (cont’d) Perquisites Special privileges awarded to selected members of an organization, usually top managers Add to the status of their recipients and thus may increase job satisfaction and reduce turnover Other Awards Rewards for seniority, perfect attendance, zero defects (quality work), cost reduction suggestions © 2012 South-Western, a part of Cengage Learning

6.1 Issues to Consider in Developing Reward Systems © 2012 South-Western, a part of Cengage Learning

Managing Reward Systems Linking Performance and Rewards Employee perception of link between pay and performance results in symbolic value of pay Flexible Reward Systems Allows employees to choose the combination of benefits that best suits their needs Increases both employee satisfaction with benefits and administrative costs for the employer Participative Pay Systems Employees are involved in the design and/or administration of their compensation system © 2012 South-Western, a part of Cengage Learning

Managing Reward Systems (cont’d) Pay Secrecy Employer makes no information available to employees regarding other employees’ salaries, percentage raises, salary ranges and requires employees to not reveal their compensation Expatriate Compensation Compensation packages of employees on overseas assignments must be adjusted to account for differences in costs of living and working conditions in working aboard versus their home base © 2012 South-Western, a part of Cengage Learning

6.4 The Expatriate Compensation Balance Sheet © 2012 South-Western, a part of Cengage Learning

Organizational Behavior in Action After reading the chapter: How would you motivate employees when their original goal is now impossible to achieve? On which aspects of the MBO process would it be beneficial for college course advisors to be trained? Are both surface and symbolic values associated with course grades? On a scale of 1 (weak) to 10 (strongly), how strongly linked are course grades to the actual performance capabilities of most students? © 2012 South-Western, a part of Cengage Learning