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Chapter 6

Motivating
Employee
Performance
Through
Rewards

© 2012 South-Western, a part of Cengage Learning Prepared by Charlie Cook


All rights reserved. The University of West Alabama
Chapter Learning Objectives
After studying this chapter you should be able to:
1. Describe goal setting and relate it to motivation.
2. Discuss performance management in organizations.
3. Identify the key elements in understanding individual
rewards in organizations.
4. Describe the issues and processes involved in
managing reward systems.

© 2012 South-Western, a part of Cengage Learning 6–2


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 6–3


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 6–4


Expanded Goal Setting Theory
(Lock and Latham)
• The Goal-Setting Process
– Goal-directed effort is a function of goal attributes:
1. Goal difficulty
2. Goal specificity
3. Goal acceptance: the extent to which a person accepts a
goal as his/her own
4. Goal commitment: the extent to which a person is
interested in reaching a goal

© 2012 South-Western, a part of Cengage Learning 6–5


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 6–6
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 6–7


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 6–8


Performance Management in Organizations

• The Nature of Performance Management


– Performance measurement (or appraisal) process:
1. Evaluating an employee’s work behaviors by
measurement and comparison with previously established
standards
2. Documenting the results
3. 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 6–9


6.2 The Performance Management System

© 2012 South-Western, a part of Cengage Learning 6–10


6.3 Purposes of Performance Measurement

© 2012 South-Western, a part of Cengage Learning 6–11


Performance Management Basics

Issues
Issuesin
inPerformance
Performance
Measurement
Measurement

How
Howoften
oftenare
are How
Howis
is
Who
Whoisisto
todo
do the
theappraisals
appraisals performance
performanceto
to
the
theappraisals?
appraisals? to
tobe
bedone?
done? be
bemeasured?
measured?

© 2012 South-Western, a part of Cengage Learning 6–12


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 6–13


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 6–14


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 6–15


Rewards’ Purposes, Roles, and Meanings

• Purposes
– 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 6–16


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 6–17


Types of Individual Rewards (cont’d)
• Incentive Pay Systems 1. Piecework programs
– Plans in which employees 2. Gain-sharing
can earn additional programs
compensation in return 3. Bonus systems
for certain types of 4. Long-term
performance compensation
5. Merit pay plans
6. Profit-sharing plans
7. Employee stock
option plans

© 2012 South-Western, a part of Cengage Learning 6–18


Individual Rewards (cont’d)

• Indirect Compensation (Employee Benefits)


1. Payment for time not worked
2. Social Security contributions
3. Unemployment compensation
4. Disability and workers’ compensation benefits
5. Life and health insurance programs
6. Pensions or retirement plans

© 2012 South-Western, a part of Cengage Learning 6–19


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 6–20


6.1 Issues to Consider in Developing Reward Systems

© 2012 South-Western, a part of Cengage Learning 6–21


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 6–22


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 6–23


6.4
The Expatriate
Compensation
Balance Sheet

© 2012 South-Western, a part of Cengage Learning 6–24


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 6–25