Pay, Careers, and Changing Employment Relationships

Pay, Careers, and Changing Employment Relationships
Understanding and Managing Organizational Behavior Chapter 8 Sixth Edition Jennifer M. George & Gareth R. Jones Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 8-1

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
Learning Objectives Describe the determinants and types of psychological contacts and what happens when they are broken Appreciate the two major roles of performance appraisal Understand the different kinds and methods of performance appraisal Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Learning Objectives Appreciate the importance of merit pay and the choices organizations face in using pay to motivate employees Understand the importance of careers, different kinds of careers, and effective career management Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Changing Employment in Tough Economic Times
How do tough economic times change the nature of the employment relation? Employees reluctant to change jobs Employees acquire more workload Employees scared of losing job When companies lay off employees, those who survive the layoff often find their workload increased. Employees who lose their jobs during a recession are often advised to obtain additional education and training to help them find new jobs. This does not always work though. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Psychological Contract
An employee’s perception of his or her exchange relationship with an organization, outcomes the organization has promised to provide to the employee, and contributions the employee is obligated to make to the organization A psychological contract is a good way to think about the exchange relationship between an employee and an organization. Psychological contracts are perceptual in nature. Hence, they can be subject to errors and biases and also can be somewhat idiosyncratic. Having said this, though, does little to diminish the impact psychological contracts have on employee motivation. Psychological contracts refer to the perceived exchange relationship between an employee and an organization in terms of reciprocal promises or obligations. Given the prevalence of reciprocity norms in the United States and other countries such as China, Singapore, and Belgium, organizations and the people within them generally seek to abide by psychological contracts. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Sources of Information
Direct communication from coworkers and supervisors Observations of what actually transpires in the organization Written documents Individuals form psychological contracts by piecing together information from a variety of sources to determine what is expected of them, and what they can expect from the organization in return. Direct communication begins from the time the employee first interviews for a position. It continues throughout. Research suggests that to promote motivation, satisfaction, and retention of employees organizations should provide prospective employees with realistic job previews. A realistic job preview is an honest assessment of the advantages and disadvantages of a particular job and working in a particular organization. Employees observe how they are treated, how their coworkers are treated, and what kinds of decisions are made and in what manner, how managers behave, and how outcomes are distributed. Documents describing compensation and benefit policies, performance appraisal processes, and career development can be used in forming psychological contracts Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Determinants of Psychological Contracts
Exhibit 8.1 Direct Communication Observation Written Documents Psychological Contract Psychological contracts can begin to form before a prospective employee even joins an organization. During recruitment, managers will share information about the firm. Managers should provide a realistic job preview during the interview process. A realistic job preview is an honest assessment of the advantages and disadvantages of a particular job and working in a particular organization. Once employees are on the job, they continue to receive direct communication from organizational members that helps them to form their psychological contracts. Employees observe how other employees behave and how they are treated by the organization. Employees also observe the nature of, and manner in which, important decisions are made. Written documents that affect the psychological contract include employee handbooks, organizational policies, and human resource documents. The company Website may also provide information for an employee’s psychological contract. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Types of Psychological Contracts
Exhibit 8.2 Transactional Contracts: Short term Narrow and specific Limited promises and obligations Relational Contracts: Long term General and evolving Extensive and broad promises and obligations These are the two types of psychological contracts. In transactional contracts, individuals focus primarily on extrinsic outcomes such as pay. Contingent workers have transactional psychological contracts. Relational contracts imply a mutual commitment on the part of both parties. Extrinsic outcomes are still important but there are also intrinsic factors involved. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Consequences of Broken Contracts
Poor motivation and performance Negative moods and emotions Job dissatisfaction Intent to quit The larger the perceived violation of the psychological contract, the more intense the potential negative reactions. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Performance Appraisal
Encourage high levels of employee motivation and performance Provide accurate information to be used in managerial decision making These are the two overarching goals of performance appraisals. All approaches to motivation depend on the accurate assessment of an employee’s performance. Performance appraisals give employees the feedback necessary for intrinsic motivation. Performance appraisals provide managers with the information needed to decide how to distribute outcomes such as pay and promotion and how to improve the performance of employees who are not performing as highly as they should be. It can provide employees and supervisors with information for career planning. It may also signal areas in which employees need to improve and skills they may need to develop to meet their career goals. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Information Provided to Employees
Level of contribution Accuracy of tasks and direction Performance appraisals give employees feedback that contributes to intrinsic motivation! The performance appraisal lets employees know if they are contributing at the appropriate level. It also provides feedback on whether employees are working in the right direction and doing the right tasks to help meet organizational goals. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Information Functions
Developmental purposes Evaluative, decision-making purposes Managers can use the information gained from performance appraisal for two main purposes: Developmental purposes such as determining how to motivate an employee to perform at a high level, evaluating which of an employee’s weaknesses can be corrected by additional training, and helping an employee formulate appropriate career goals. Evaluative, decision-making purposes such as deciding whom to promote, how to set pay levels, and how to assign tasks to individual employees. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Developing a Performance Appraisal System
Exhibit 8.3 Choice 1: The mix of formal and informal appraisals Choice 2: What factors to evaluate Choice 3: Methods of appraisal There are a number of choices managers must make in order to develop an effective performance appraisal system. The first choice is to determine what mix of formal and informal appraisals to use. Formal systems are usually conducted on a fixed schedule such as every six months or once a year. If employees need more frequent feedback, informal appraisals can supplement formal ones. Informal feedback is also useful for correcting inappropriate behavior early. Informal appraisals vary in form and content. Formal appraisals ensure that performance gets assessed periodically along the dimensions important to an organization. Ideally, an organization should use both informal and formal appraisals. Traits, behaviors, and results are the three basic types of information that can be assessed. This is discussed further in a later slide. The measures managers use to appraise performance can be either objective or subjective. These are discussed on a later slide. Although a supervisor usually appraises performance, others may appraise employee performance as well. These other people are discussed on a later slide. Choice 4: Who appraises performance Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Factors to Evaluate Traits Results Behaviors Traits are personal characteristics deemed relevant to job performance. Using traits to assess performance has several disadvantages. Traits alone are often poor predictors of performance. Traits do not have clear-cut relationships with actual behaviors performed on the job. The use of traits cannot motivate employees because it focuses on relatively enduring characteristics that cannot be changed in the short term. When behaviors are used to appraise performance, the focus is on the actual behaviors or actions an employee displays on the job. Relying on behaviors to assess performance is especially useful when how employees perform their jobs is important because it lets them now what they should do differently on the job. One potential problem with relying on behaviors to assess performance is that sometimes the same level of performance can be achieved through different behaviors. When results are used to appraise performance, the focus is not on what employees do on the job but on the effects of their behaviors or their actual output. When there are many ways to achieve the same results and which avenue an employee chooses is not important, results can be a useful way of assessing performance. Using results alone to assess performance has disadvantages. Results are not always under an employee’s control. Employees could also become so results oriented that they become pressured into unethical practices. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Methods of Appraisal Objective: Numerical counts based on fact Subjective: Perceptions based on traits, behaviors, and results Objective measures are primarily used when results are the focus of performance appraisal. Examples of objective measures are number of sales, growth in sales, number of client meetings, and so on. Subjective measures are based on individuals’ perceptions and can be used for appraisals based on traits, behaviors, and results. Because they are based on perceptions, they are vulnerable to biases. Typically, when subjective measures are used, managers identity specific dimensions of performance that are important to the job. Then they develop some kind of rating scale to measure or assess an individual’s standing on each dimension. Three of the most popular rating scales are graphic rating scales, behaviorally anchored rating scales, and behavioral observation scales. These are depicted in the upcoming slides. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Graphic Rating Scale Exhibit 8.4a When a graphic rating scale is used, the rater assesses the performance of an employee along one or more continua with clearly specified intervals. Graphic rating scales are popular because they are relatively easy to construct and use. One potential disadvantage is that different raters may disagree about the meaning of the scale points. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Behaviorally Anchored Rating Scale
Exhibit 8.4b A behaviorally anchored rating scale attempts to overcome the problem by careful definition of what each scale point means. Examples of specific work-related behaviors correspond to each scale point. One potential problem with behaviorally anchored rating scales is that sometimes employees exhibit behaviors corresponding to more than one point on the scale. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Behavioral Observation Scale
Exhibit 8.4c A behavior observation scale overcomes the problem of employees exhibiting behaviors corresponding to more than one scale point by not only describing specific behaviors but also asking raters to indicate the frequency with which an employee performs the behaviors. This method tends to be more time consuming than the last though. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Who Appraises Performance?
Supervisors Self-appraisals Peer appraisals Subordinate appraisals Customer/client appraisals Multiple raters Supervisors do appraise performance in most organizational settings. They are generally the most familiar with their subordinates’ behavior and are responsible for motivating subordinates to perform at acceptable levels. Sometimes, self-appraisals, peer appraisals, subordinate appraisals, customer/client appraisals, and multiple raters are also used to appraise performance. Self-appraisal can be advantageous because an employee is likely to be familiar with his or her own level of performance. However, most people consider themselves to be above average. Peer appraisals are given by an employee’s coworkers. Peers are often familiar with performance levels but may be reluctant to provide accurate appraisals. Subordinate appraisals are given to a manager by the people he or she supervises. These should be anonymous so that subordinates do not need to fear retaliation. In a 360-degree appraisal, an employee’s performance is evaluated by a variety of people who are in a position to evaluate the employee’s performance. They are most commonly used for managers. 360-degree appraisal Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Problems and Biases Harshness, leniency, and average tendency biases Knowledge-of-predictor bias Stereotypes Primacy effect Contrast effect Halo effect Similar-to-me effect Problems and biases can be particularly troublesome for subjective performance appraisals. Awareness of potential problems can help to prevent them from leading to an inaccurate appraisal of someone’s performance. Stereotypes are a type of schema built around some distinguishing, and often highly visible characteristic such as race, gender, or age. A primacy effect occurs when initial pieces of information that people have about a person have an inordinately large effect on how that person is perceived. A contract effect occurs when people’s perceptions of a person are influenced by their perception of others in an organization. A halo effect occurs when people’s general impression of a person influences their perceptions on specific dimensions. The similar-to-me effect occurs when people perceive others who are similar to themselves more positively than they perceive those who are dissimilar. Harshness, leniency, and average tendency biases refer to supervisors who tend to be overly harsh, overly lenient, or tend to rate everyone about average. Knowledge-of-predictor bias means that perceptions of a person are influenced by knowing the person’s standing on a predictor of performance. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

OB Today: Acknowledging High Performers During a Recession
Giving gift cards for high performers shows them that they are appreciated. Sending Thank You s to show graditute. Giving employees more flexible working conditions. Jenny Miller, engineering manager for Rockwell Collins, had just gone through a 8% layoff in her company. The employees that remained got increased workloads by 15%. Thanksgiving holiday came around and Miller needed some employees to work through the Holiday. 20 employees volunteered and Miller gave them all a $100 gift card as a thank you for helping. Elise Lelon, owner of a consulting firm in New York, realized she would not be able to give any raises in To make up for this, she gave employees the option of working from home, more flexible work hours, and higher status job titles. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Merit Pay Plans Use when Individual performance can be accurately assessed Employees are highly independent Distribute by Salary increase Bonuses A plan that bases pay on performance is often called a merit pay plan. When pay is not based on merit, it might be based on the particular job an employee has in an organization or on an employee’s tenure in the organization. Merit pay is likely to be much more motivational than pay that is not based on performance. Merit pay plans tend to be used most heavily in the upper levels in organizations, but is effective for employees at lower levels too. It is also being used in other countries. If employees are highly interdependent, an individual-based pay-for-performance plan is not an option. Rather, managers can implement a group or organizational level pay-for-performance plan in which employees’ pay levels depend on how well their group or organization as a whole performs. Bonus plans tend to have a greater impact on motivation than do salary increase plans for three reasons. First, the absolute level of a person’s salary is based largely on factors not related to current performance. Increases in salary levels based on current performance tend to be small in comparison to the total amount of the salary. Second, current salary increases may be only partially based on performance such as when across-the-board cost-of-living raises or market adjustments are given to all employees. Third, organizations rarely cut salaries so salary levels across employees tend to vary less than do performance levels. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Individual-Based Merit Pay Plans
Piece-rate pay Commission pay With commission pay, often used in sales positions, salaries are a percentage of sales. Salary levels in full commission plans fluctuate directly in proportion to sales that are made. Salespeople in a partial commission plan receive a fixed salary plus an amount that varies with sales. The maximum motivational impact is obtained when pay is based solely on performance as in a full commission plan. Employees operating under such a plan, though, are not likely to develop any kind of team spirit. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Gain-Sharing Plans Employees receive share of profits or saved expenses Encourages camaraderie and team spirit Discourages personal motivation Types Scanlon plan Profit sharing Gain-sharing plans are pay plans that are linked strictly to organizational performance rather than individual performance. Employees are given a certain share of profits that the organization makes or a certain share of expenses that are saved during a specified time period. The Scanlon plan, developed by James Scanlon in the 1920s, focuses on reducing costs. Departmental and organization-wide committees are established to evaluate and implement cost-saving suggestions provided by employees. Employees are motivated to make suggestions, participate on the committees, and help implement the suggestions because a portion of the cost savings realized is distributed back to all employees. Employees participating in profit-sharing plans receive a certain share of an organization’s profits. Profit-sharing plans that give employees their share of profits in cash tend to be more successful than programs that use some sort of deferred payment. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Pay Differentials and Comparable Worth
Gender Age Race Women earn approximately 74 cents for every dollar earned by men. Some of the gender gap in rates may be due to overt discrimination or to the fact that some men have more experience and better qualifications. Also, jobs that women have traditionally held (such as nurse or teacher) have lower pay rates than jobs that men have traditionally held even though the jobs may require similar levels of skill and may be of equal value to an organization. Pay differentials have the potential to adversely affect the motivation of high-performing women who perceive that they are not receiving as much pay as the job is worth (equity theory). Further, pay differentials based on gender, age, race, ethnic background, or any other nonperformance characteristic is unethical. The principle of comparable worth suggests that jobs of equivalent value to an organization should carry the same pay rates regardless of differences in the nature of work itself and regardless of the personal characteristics of the persons performing the work. Pay rates should be determined by factors such as effort, skill, and responsibility on a job and not by whether one type of person or another usually performs the job. It has been difficult to put the comparable worth principle into practice. Another pay differential receiving attention lately is the difference between pay received by those at the very top of an organization and the many employees under them. Leadership level Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Types of Careers Steady-state Spiral Linear Transitory A career can be defined as the sum of work-related experiences throughout one’s lifetime. A career includes the number and types of jobs a person has had as well as the different organizations a person has worked for. There are four categories of careers. Steady-state careers reflect a one-time commitment to a certain kind of job that is maintained throughout one’s working life. In a linear career, a person progresses through a sequence of jobs and each job entails progress over the prior one in terms of responsibility, skills needed, level in the hierarchy of an organization, and so on. In a spiral career, a person holds different types of jobs that build on one another but tend to be fundamentally different. A person with a transitory career changes jobs frequently and each job is different from the one before. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Career Stages Exhibit 8.6 Preparation for Work Organizational Entry Early Career Mid-Career Although each person’s career is unique, there are certain career stages that at least some people seem to progress through. More often than not, these stages are experienced in different organizations. The boundaryless career captures the idea that careers are not tied to a single organization and that people will have a variety of kinds of work experiences in different organizations over the course of their careers. Preparation for work involves acquiring the necessary knowledge, skills, education, and training. During the second stage, people try to find a job that will be a good start to their chosen career. The early career stage starts once a person has obtained a job in a chosen career. There are two steps in this stage. The first step is establishment, during which newcomers are motivated to learn how to perform their jobs, what is expected of them, and more generally how to fit in. The second step is achievement. They are motivated to accomplish something worthwhile and make a significant contribution to the organization. Employees in mid-career have generally been in the workforce between 20 and 35 years and face the challenge of remaining productive. A career plateau is a position from which the chances of being promoted into a higher-level position within an organization or obtaining a position with more responsibility in another organization become very small. The late career stage extends as long as a person’s career is active. Late Career Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Contemporary Career Challenges
Ethical career management Career management that supports diversity Career management in an era of dual-career couples Exhibit 8.7 contains a short ethics quiz that provides some examples of behaviors that supervisors may request subordinates to perform that may be unethical. The increasing diversity of the workforce means that managers have to make sure that diverse members of an organization are given the career opportunities they deserve. Organizations have to take into account the fact that the dual-career couple is now the norm rather than the exception. Individual employees cannot make career decisions that entail relocating to another state without considering the needs of the entire family. To help modern families manage their careers effectively, organizations can take several steps. Organizations can limit unnecessary moves and travel. Organizations can use flexible working arrangements to allow their members time off when needed. Organizations can have on-site day care centers. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning Dissemination or sale of any part of this work (including on the WorldWideWeb) will destroy the integrity of the work and is not permitted. The work and materials from it should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

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