1. Employee involvement programs differ among countries.
a. A study of four countries, including the United States and India, confirmed the
importance of modifying practices to reflect national culture.
i. While U.S. employees readily accepted employee involvement programs,
managers in India who tried to empower their employees were rated low by
those employees.
ii. These reactions are consistent with India’s high power-distance culture, which
accepts and expects differences in authority.
iii. Similarly, Chinese workers who were very accepting of traditional Chinese
values showed few benefits from participative decision making, but workers
who were less traditional were more satisfied and had higher performance
ratings under participative management.
B. Examples of Employee Involvement Programs
1. Participative management
a. Common to all participative management programs is joint decision making, in
which subordinates share a significant degree of decision making power with their
immediate superiors.
b. Participative management has, at times, been promoted as a panacea for poor
morale and low productivity.
c. But for it to work, employees must have trust and confidence in their leaders.
d. Leaders should refrain from coercive techniques and instead stress the
organizational consequences of decision making to employees.
e. Studies of the participation–performance relationship have yielded mixed
findings.
i. Organizations that institute participative management do have higher stock
returns, lower turnover rates, and higher estimated labor productivity,
although these effects are typically not large.
ii. Research at the individual level shows participation typically has only a
modest influence on employee productivity, motivation, and job satisfaction.
iii. This doesn’t mean participative management can’t be beneficial under the
right conditions. But it is not a sure means for improving performance.
2. Representative participation
a. Most countries in Western Europe require companies to practice participative
management.
b. The goal is to redistribute power within an organization, putting labor on a more
equal footing with the interests of management and stockholders by letting
workers be represented by a small group of employees who actually participate.
c. The two most common forms:
i. Works councils: groups of nominated or elected employees who must be
consulted when management makes decisions involving personnel.
ii. Board representatives: employees who sit on a company’s board of directors
and represent the interests of employees.
d. The influence of representative participation on working employees seems to be
mixed, but generally an employee would need to feel his or her interests are well
represented and make a difference to the organization in order for motivation to
increase.
i. Thus, representative participation as a motivational tool is surpassed by more
direct participation methods.
II. Using Rewards to Motivate Employees
A. Introduction
1. As we saw in Chapter 3, pay is not a primary factor driving job satisfaction. However,
it does motivate people, and companies often underestimate its importance in keeping
top talent.
a. One study found that while 45% of employers thought pay was a key factor in
losing top talent, 71% of top performers called it a top reason.
B. What to Pay: Establishing the Pay Structure
1. Complex process that entails balancing internal equity and external equity.
2. Some organizations prefer to pay leaders by paying above market.
3. Paying more may net better-qualified and more highly motivated employees who may
stay with the firm longer.
C. How to Pay: Rewarding Individual Employees Through Variable-Pay Programs
1. Introduction
a. A number of organizations are moving away from paying solely on credentials or
length of service.
b. Piece-rate plans, merit-based pay, bonuses, profit sharing, gain sharing, and
employee stock ownership plans are all forms of a variable-pay program, which
bases a portion of an employee’s pay on some individual and/or organizational
measure of performance.
2. Variable-pay plans have long been used to compensate salespeople and executives.
a. Globally, around 80% of companies have some form of variable-pay plan.
b. Unfortunately, most employees still don’t see a strong connection between pay
and performance.
c. The fluctuation in variable pay is what makes these programs attractive to
management.
i. It turns part of an organization’s fixed labor costs into a variable cost, thus
reducing expenses when performance declines.
ii. When the U.S. economy encountered a recession in 2001 and 2008,
companies with variable pay were able to reduce their labor costs much faster
than others.
iii. When pay is tied to performance, the employees’ earnings also recognize
contribution rather than being a form of entitlement.
iv. Over time, low performers’ pay stagnates, while high performers enjoy pay
increases commensurate with their contributions.
3. Piece-rate pay plans—workers are paid a fixed sum for each unit of production
completed.
a. A pure piece-rate plan provides no base salary and pays the employee only for
what he or she produces.
b. Although incentives are motivating and relevant for some jobs, it is unrealistic to
think they can constitute the only piece of some employees’ pay.
4. Merit-based pay plans—based on performance appraisal ratings.
a. Main advantage is that it allows employers to differentiate pay based on
performance.
b. Creates perception of relationships between performance and rewards.
c. Most large organizations have merit pay plans, particularly for salaried
employees.
d. Despite their intuitive appeal, merit pay plans have several limitations.
i. One is that they are typically based on an annual performance appraisal and
thus, are only as valid as the performance ratings.
ii. Another limitation is that the pay-raise pool fluctuates on economic or other
conditions that have little to do with individual performance.
iii. Finally, unions typically resist merit pay plans.
5. Bonuses—becoming a wider used system in many organizations.
a. An annual bonus is a significant component of total compensation for many jobs.
b. Bonus plans increasingly include lower-ranking employees; many companies now
routinely reward productive employees with bonuses in the thousands of dollars
when profits improve.
c. Bonus plans have a clear upside, they are motivating for workers.
6. Profit-sharing plans
a. Profit sharing plans are organization-wide programs that distribute
compensation based on some established formula centered around a company’s
profitability.
b. Compensation can be direct cash outlays or, particularly for top managers,
allocations of stock options.
c. Profit-sharing plans at the organizational level appear to have positive impacts on
employee attitudes; employees report a greater feeling of psychological
ownership.
7. Employee stock ownership plans
a. An employee stock ownership plan (ESOP) is a company-established benefit
plan in which employees acquire stock, often at below-market prices, as part of
their benefits.
b. Research on ESOPs indicates they increase employee satisfaction and innovation.
i. ESOPs have the potential to increase employee job satisfaction and work
motivation, but employees need to psychologically experience ownership.
(a) That is, in addition to their financial stake in the company, they need to be
kept regularly informed of the status of the business and have the
opportunity to influence it in order to significantly improve the
organization’s performance.
ii. ESOP plans for top management can reduce unethical behavior.
8. Evaluation of variable pay
a. Do variable-pay programs increase motivation and productivity?
i. Generally, yes, but that doesn’t mean everyone is equally motivated by them.
III. Using Benefits to Motivate Employees
A. Flexible benefits: developing a benefits package
1. Flexible benefits individualize rewards by allowing each employee to choose the
compensation package that best satisfies his or her current needs and situation.
2. Flexible benefits can accommodate differences in employee needs based on age,
marital status, spouses’ benefit status, and number and age of dependents.
3. Today, almost all major corporations in the United States offer flexible benefits.
a. They’re becoming the norm in other countries too.
4. But are flexible benefits more motivating than traditional plans? It’s difficult to tell.
a. Some organizations that have moved to flexible plans report an increased
employee retention, job satisfaction, and productivity. However flexible benefits
may not substitute for higher salaries when it comes to motivation.
b. Furthermore, as more organizations worldwide adopt flexible benefits, the
individual motivation they produce will decrease (the plans will be seen as a
standard work provision).
B. Intrinsic Rewards: Employee Recognition Programs
1. Organizations are increasingly recognizing that important work rewards can be both
intrinsic and extrinsic.
a. Rewards are intrinsic in the form of employee recognition programs and extrinsic
in the form of compensation systems.
i. Employee recognition programs range from a spontaneous and private
thank-you to widely publicized formal programs in which specific types of
behavior are encouraged and the procedures for attaining recognition are
clearly identified.
ii. Some research suggests financial incentives may be more motivating in the
short term, but in the long run, it’s nonfinancial incentives.
iii. A few years ago, research found that recognition, recognition, and more
recognition was key to employee motivation.
iv. An obvious advantage of recognition programs is that they are inexpensive,
since praise is free!
b. Despite the increased popularity of employee recognition programs, critics argue
they are highly susceptible to political manipulation by management.
i. When applied to jobs for which performance factors are relatively objective,
such as sales, recognition programs are likely to be perceived by employees as
fair.
ii. However, in most jobs, the criteria for good performance aren’t self-evident,
which allows managers to manipulate the system and recognize their
favorites.
iii. Abuse can undermine the value of recognition programs and demoralize
employees.
IV. Using Intrinsic Rewards to Motivate Employees
A. Intrinsic Rewards: Employee Recognition Programs
1. Organizations are increasingly recognizing that important work rewards can be both
intrinsic and extrinsic.
a. Rewards are intrinsic in the form of employee recognition programs and
extrinsic in the form of compensation systems.
b. Despite the increased popularity of employee recognition programs, critics argue
they are highly susceptible to political manipulation by management.
i.
V. Summary and Implications for Managers
A. Understanding what motivates individuals is ultimately key to organizational
performance.
B. Employees whose differences are recognized, who feel valued, and who have the
opportunity to work in jobs that are tailored to their strengths and interests will be
motivated to perform at the highest levels.
C. Employee participation can also increase employee productivity, commitment to work
goals, motivation, and job satisfaction.
D. However, we cannot overlook the powerful role of organizational rewards in influencing
motivation.
E. Pay, benefits, and intrinsic rewards must be carefully and thoughtfully designed in order
to enhance employee motivation toward positive organizational outcomes. Specific
implications for managers are below:
1. Recognize individual differences. Spend the time necessary to understand what’s
important to each employee. Design jobs to align with individual needs and maximize
their motivation potential.
2. Use goals and feedback. You should give employees firm, specific goals, and they
should get feedback on how well they are faring in pursuit of those goals.
3. Allow employees to participate in decisions that affect them. Employees can
contribute to setting work goals, choosing their own benefits packages, and solving
productivity and quality problems.
4. Link rewards to performance. Rewards should be contingent on performance, and
employees must perceive the link between the two.
5. Check the system for equity. Employees should perceive that experience, skills,
abilities, effort, and other obvious inputs explain differences in performance and
hence in pay, job assignments, and other obvious rewards.
Myth or Science?
“Money Can’t Buy Happiness”
This exercise contributes to:
Learning Objective: Demonstrate how the different types of variable-pay programs can increase employee
motivation
Learning Outcome: Describe the major theories of motivation and relate them to organizational performance
AASCB: Ethical understanding and reasoning; Reflective thinking
Along with this clichéd statement, you’ve probably heard that money does buy happiness.
Both may be true. Economist Richard Easterlin argued that once basic financial needs have been
met, more money doesn’t really do much to make a person happy. Researchers set the limit at
around $75,000, recently prompting one CEO to give away all his earnings above that amount to
his employees.
This is by no means the last word, nor a directive to be unhappy until you make $75,000 and no
happier afterward. More recent research worldwide indicates the exact opposite: The more
money, the better. The authors said, “If there is a satiation point, we are yet to reach it.” Given
these mixed findings, the relationship between happiness and income is probably not direct. In
fact, other research suggests your level of income is less important than how you spend it. Think
about why you may be motivated by money. Do you envision the number of zeroes in your bank
account increasing? Probably not. You’re probably more motivated by what you can buy with the
money than by the money itself. From research, we know:
• Giving money away makes people happier than spending it on themselves. In one study,
students were given money and told to either give it away or spend it on themselves. Then the
study asked people to give away their own money. Either way, people were happier giving away
the money, even if the givers were relatively poor. What seems to matter is not the amount, but
how much impact you think your donation will have on others.
• People are happier when they spend money on experiences rather than products. Research
professor Thomas Gilovich says we think to ourselves, “I have a limited amount of money, and I
can either go there, or I can have this. If I go there, it’ll be great, but it’ll be over in no time. If I
buy this thing, at least I’ll always have it. That is factually true, but not psychologically true. We
adapt to our material goods.”
• People are happier when they buy time . . . but only if they use it well. Outsource tasks when
you can, for instance, and “think of it as ‘windfall time’ and use it to do something good,” says
researcher Elizabeth Dunn.
Saying that money brings more happiness when spent on our experiences (and the time to do
them) may seem counterintuitive until we think about it closely. What did you think of your cell
phone when you bought it compared to what you think of it now? Chances are you were
interested and engaged when you bought it, but now it is an everyday object.