Chapter 07 – Evaluation and Rewards Influence Behavior
Chapter Seven: Evaluation and Rewards Influence Behavior
Chapter Synopsis
This chapter addresses the use of rewards and their distribution in organizations by focusing on
performance evaluation, reinforcement theory, and rewards.
The chapter goes on to discuss individual rewards, defines intrinsic and extrinsic rewards, and
provides examples of each. Rewards must be administered, so the three major theoretical approaches
are presented: (1) positive reinforcement, (2) modeling and social imitation, and (3) expectancy.
The following sections examine how rewards affect organizational concerns, such as turnover,
performance, and commitment, and innovative reward systems (skill-based, broadbanding, concierge
services, team-based rewards, part-time benefits, Gainsharing, and Employee Stock Ownership Plans
(ESOP).
Learning Objectives
After completing this chapter, students should be able to:
1. Describe the purposes of performance evaluation.
2. Explain how feedback is used to evaluate performance.
3. Summarize the basic principles of reinforcement theory.
Key Terms
job performance—A set of employee work-related behaviors designed to accomplish
organizational goals.
extinction—The decline in the response rate because of nonreinforcement.
continuous reinforcement—A schedule that is designed to reinforce behavior every time the
behavior exhibited is correct.
modeling—A method of administering rewards in which employees learn the behaviors that are
desirable by observing how others are rewarded. It is assumed that behaviors will be imitated if the
observer views a distinct link between performance and rewards.
valence—The strength of a person’s preference for a particular outcome.
Lecture Outline
The Chapter outline is organized to correspond with the PowerPoint slides.
The chapter title slide may be used as a background to introduce the class.
Learning objectives
Review the chapter learning objectives. These will be reviewed on the last slide of the pack.
Introduction (1 of 2)
Organizations use a variety of rewards to attract and retain people and to motivate them to achieve their
examine the response of employees to rewards received in organizational settings. Additionally, we
present the role of rewards in organizational absenteeism, turnover, commitment, and job performance.
Rewards Impact…
To distribute these rewards equitably, it is necessary to evaluate employee performance. Thus, we begin
this chapter with a look at performance evaluation. Developing effective evaluation systems is just as
critical to organizational success as developing effective reward systems. Both systems represent efforts
to influence employee behavior. To achieve maximum effectiveness, it is necessary to carefully link
employee evaluation systems with reward systems. To distribute these rewards equitably, it is necessary
to evaluate employee performance.
Introduction (2 of 2)
Before individuals can be rewarded, there must be some basis for distributing rewards. Some rewards
may accrue to all individuals simply by virtue of their employment with the organization. These are
efforts to influence employee behavior. To achieve maximum effectiveness, it is necessary to carefully
link employee evaluation systems with reward systems.
Purposes of Evaluation
The basic purpose of evaluation, of course, is to provide information about work performance. More
specifically, however, such information can serve a variety of purposes. Some of the major ones are 1.
Provide a basis for reward allocation, including raises, promotions, transfers, layoffs, and so on. 2.
Identify high-potential employees. 3. Validate the effectiveness of employee selection procedures. 4.
have a developmental orientation. Evaluations with a judgmental orientation focus on past performance
and provide a basis for making judgments regarding which employee should be rewarded and how
effective organizational programs—such as selection and training—have been. Evaluations with a
developmental orientation are more concerned with improving future performance by ensuring
expectations are clear and by identifying ways to facilitate employee performance through training.
them, and a variety of other components
Focus of Evaluation
Effective performance evaluation is a continuous, ongoing process and, simply stated, involves asking
two questions: “Is the work being done effectively?” and “Are employee skills and abilities being fully
utilized?” The first question tends toward a judgmental orientation, while the second is more
developmental in nature. Generally, evaluations should focus on translating the position responsibilities
into each employee’s day–to-day activities.
When evaluating employee behavior, it is necessary to ensure not only that the focus of the appraisal
remains on job performance, but that it also has proper weighting of relevant behaviors. Relevancy, in
the context of performance evaluation, has three aspects: deficiency, contamination, and distortion.
evaluation.
Improving Evaluations
It has been suggested that performance evaluation is the most important employee-related function in an
organization.
A full treatment of performance evaluation problems and methods of overcoming them is beyond the
scope of our discussion here. We offer, however, the following suggestions for improving the
effectiveness of virtually any evaluation system. 1. Higher levels of employee participation in the
evaluation process lead to more satisfaction with the system. 2. Setting specific performance goals to be
met results in greater performance improvement than discussions of more general goals. 3. Evaluating
in the process, and they should be evaluated on how effectively they discharge this part of their own job
communicated to employees. 5. Performance evaluation feedback should not focus solely on problem
consequences.
Performance Evaluation Feedback
Upon the completion of a performance evaluation, the manager (evaluator) usually is expected to
provide feedback. The feedback session provides information concerning the rationale for the evaluation
to the individual. If possible, objective information is used to guide the evaluated employee to improve
or sustain performance. The need for feedback among people on and off the job is significant. People
want to know how they are doing, how they are being perceived by others, and how they can make
the most dreaded experiences of managers is delivering feedback to a poorly performing employee.
difficult. Giving a person bad news is just not a comfortable, enjoyable experience.
Purpose of Evaluation Feedback
Performance evaluation feedback can be instructional and/or motivational to the receiver (the evaluated
person). Feedback instructs when it points out areas for improvement and teaches new behavior.
Performance evaluation feedback is motivational when it provides a reward or promises a reward. A
supervisor informing a technician that her report is superb and will serve as an example of an
outstanding model is a form of reward via recognition. Receiving a compliment or sign of excellent
energizing.
Exhibit 7.1 Cognitive Feedback Model
Exhibit 7.1 presents a sample of feedback sources, individual characteristics, and cognitive evaluation
factors that have an impact on the eventual behavioral outcomes. People who possess high self-efficacy
are candidates for wanting feedback. They want to verify and validate their competency or self-efficacy.
valid.
360-Degree Approach to Feedback (1 of 3)
An increasing number of firms are using multisource feedback, instead of only a top-down feedback
program. A recent survey suggests that 90 percent of Fortune 1000 firms use some form of multisource
program. The increasing use of multi-source programs is the result of calls for more fairness, clarity, and
credibility in performance improvement programs. In a 360-degree program, evaluators could include
creditors, peers or team members, supervisors, subordinates, and the person. Anyone in the person’s full
domain (his or her circle or 360-degree range) could serve as an evaluator.
360-Degree Approach to Feedback (2 of 3)
As organizations attempt to improve the impact of their 360-degree feedback programs, several best
practices are being used: 1. Use 360-degree feedback primarily for individual development. This will
help increase the acceptance of the program by employees. 2. Integrate 360-degree feedback with other
models. When employees see senior managers receiving and acting on 360-degree feedback, they are
more likely to take the initiative seriously. 6. Use highly trained internal coaches to leverage the
investment. Coaches can help employees interpret results and create action plans for improvement. 7.
Evaluate the effectiveness or re
turn on investment of the process.
360-Degree Approach to Feedback (3 of 3)
Arguments in Favor of 360-Degree Feedback
Research evidence is still insufficient to support the use of a multisource, 360-degree performance
feedback program. The constant concern about fairness and credibility in evaluation is the major
argument in favor of 360-degree programs. Multiple raters have different viewpoints of a person’s
performance. A supervisor has a single-person’s perspective or overview. It is considered more
thorough and credible to have multiple views being expressed. There appears to be support among
evaluated persons for a 360-degree program. Employee acceptance is important in using any
management-initiated program.
manner, offers promise to managers who are interested and brave enough to receive information on how
Reinforcement Theory (1 of 4)
Learning experts believe that reinforcement is the most important principle of learning. Desirable or
reinforcing consequences (e.g., recognition in the feedback program of doing an excellent job) will
increase the strength of a behavior and increase its probability of being repeated. Undesirable or
punishment consequences will decrease the strength of a response and decrease its probability of being
repeated. Attempts to influence behavior through the use of rewards and punishments that are
consequences of the behavior are called operant conditioning. Operants are behaviors that can be
controlled by altering the consequences that follow them.
Reinforcement Theory (2 of 4)
Reinforcement is an extremely important principle of conditioning. Managers often use positive
Reinforcement Theory (3 of 4)
Punishment is defined as presenting an uncomfortable or unwanted consequence for a particular
behavioral response. It is an increasingly used managerial strategy. Some work-related factors that can
suppress behavior if used effectively, it is a controversial method of behavior modification in
organizations. It should be employed only after careful and objective consideration of all the relevant
aspects of the situation.
Reinforcement Theory (4 of 4)
Extinction means reducing unwanted behavior. When positive reinforcement for a learned response is
withheld, individuals will continue to practice that behavior for some period of time. However, after a
EXHIBIT 7.2 Reinforcement Schedules and Their Effects on Behavior
It is extremely important to properly time the rewards or punishments used in an organization. The
timing of these outcomes is called reinforcement scheduling. In the simplest schedule, the response is
reinforced each time it occurs. This is called continuous reinforcement .If reinforcement occurs only
after some instances of a response and not after each response, an intermittent reinforcement schedule is
being used. From a practical viewpoint, it is virtually impossible to reinforce continually every desirable
behavior. Consequently, in organizational settings, almost all reinforcement is intermittent in nature. An
intermittent schedule means that reinforcement does not occur after every acceptable behavior. The
assumption is that learning is more permanent when correct behavior is rewarded only part of the time.
Ferster and Skinner have presented four types of intermittent reinforcement schedules. Briefly, the four
are:
1. Fixed interval. A reinforcer is applied only when the desired behavior occurs after the passage of
a certain period of time since the last reinforcer was applied. An example would be to praise
positive performance only once a week and not at other times. The fixed interval is one week. 2.
Individual Rewards (1 of 2)
The main objectives of reward programs are: (1) to attract qualified people to join the organization, (2)
to keep employees coming to work, and (3) to motivate employees to achieve high levels of
performance.
Individual Rewards (2 of 2)
Performance results from a combination of the effort of an individual and the individual’s level of
informally by management, and two types of rewards can be distributed: intrinsic or extrinsic.
EXHIBIT 7.3 The Reward Process
Exhibit 7.3 presents a model that attempts to integrate satisfaction, motivation, performance, and
rewards. Reading the exhibit from left to right suggests that the motivation to exert effort is not enough
to cause acceptable performance. The rewards are evaluated by the individual, and to the extent, the
rewards are satisfactory and equitable, the individual achieves a level of satisfaction.
Lawler’s Conclusions
A significant amount of research has been done on what determines whether individuals will be satisfied
with rewards. Lawler has summarized five conclusions based on the behavioral science research
influenced by how satisfied employees are with both intrinsic and extrinsic rewards. 4. People differ in
the rewards they desire and in how important different rewards are to them. Individuals differ on what
rewards they prefer. 5. Some extrinsic rewards are satisfying because they lead to other rewards
Satisfaction & Rewards
The relationship between rewards and satisfaction is not perfectly understood, nor is it static. It changes
because people and the environment change. However, any reward package should (1) be sufficient to
satisfy basic needs (e.g., food, shelter, clothing), (2) be considered equitable, and (3) be individually
person since an individual will put forth little effort unless the reward has value. An intrinsic reward is
defined as one that is self-administered by the person. It provides a sense of satisfaction or gratification
and, often, a feeling of pride for a job well done. An extrinsic reward is initiated from outside the
person. Receiving praise from a supervisor is extrinsic or initiated by someone other than the person.
Both extrinsic and intrinsic rewards can have value.
Intrinsic and Extrinsic Rewards
Financial Rewards: Salary and Wages Money is a major extrinsic reward. It has been said, “Although it
is generally agreed that money is the major mechanism for rewarding and modifying behavior in
industry . . . very little is known about how it works.” To really understand how money modifies
behavior, the perceptions and preferences of the person being rewarded must be understood, a
challenging task for a manager.
Intrinsic Rewards
Completion The ability to start and finish a project or job is important to some individuals. These people
operate without being closely supervised.
Personal Growth, The personal growth of any individual, is a unique experience. An individual who is
experiencing such growth senses his or her development and can see how his or her capabilities are
encouraged to develop their skills.
Rewards Interact
The general assumption has been that intrinsic and extrinsic rewards have an independent and additive
influence on motivation. That is, motivation is determined by the sum of the person’s intrinsic and
extrinsic sources of motivation. This straightforward assumption has been questioned by several
researchers. Some have suggested that in situations in which individuals are experiencing a high level of
intrinsic rewards, the addition of extrinsic rewards for good performance may cause a decrease in
the extent to which the individual experiences self-administered intrinsic rewards.
Administering Rewards
Managers are faced with the decision of how to administer rewards. Three major theoretical approaches
to reward administration are (1) positive reinforcement, (2) modeling and social imitation, and (3)
expectancy.
Positive Reinforcement
In administering a positive reinforcement program, the emphasis is on the desired behavior that leads to
job performance rather than performance alone. The basic foundation of administering rewards through
positive reinforcement is the relationship between behavior and its consequences.
Modeling and Social Imitation
methods of administering rewards, requires managerial action.
Rewards Affect Organizational Concerns
Rewards affect employee perceptions, attitudes, and behavior in a variety of ways. In turn,
organizational efficiency and effectiveness are affected. Three important organizational concerns
influenced by rewards are turnover and absenteeism, performance, and commitment.
effectiveness.
Innovative Reward Systems
The typical list of rewards that managers can and do distribute in organizations has been discussed. We
all know that pay, fringe benefits, and opportunities to achieve challenging goals are considered rewards
by most people. It is also generally accepted that rewards are administered by managers through such
processes as reinforcement, modeling, and expectancies. Managers are experimenting with newer and
widely tested are skill-based pay, broadbanding, concierge services, team-based rewards, part-time
benefits, gain-sharing, and employee stock ownership plans.
EXHIBIT 7.4 Broadband Categories
An element of financial reward that organizations are having problems with is the system of grading.
Most systems have a large number of grades. The multiple grade approach is often out of alignment
with the flatter, more team-oriented organizational designs institutions are moving toward. To counter
this poor alignment, some firms are adopting what is called a banding or broadbanding approach.
Broadbanding involves reducing numerous pay grades to a relatively few broadband grades. An
example of broadbanding would be placing all managers into one band; all technicians into a second
band; all clerical personnel into a third band; and all part-time employees into a fourth and.
Broadbanding emphasizes titles, grades, and job descriptions as presented in Exhibit 7.4 . Rather than
concentrating on moving up a series of pay grades in a vertical system, employees could spend most, if
performance. This type of pay system allows a person who needs to develop new skills to be placed in a
lower band but continue to be paid more.
Line of Sight: The Key Issue
Promotions, increased pay, recognition for a job well done, or the opportunity to own a part of an
organization can be motivators if there is a clear line of sight between what the employee is doing and
the reward. Line of sight means that the employee perceives that there is a “real” linkage between his or
her performance and the rewards received. In the case of extrinsic rewards, organizations need to have
systems that clearly tie rewards to desired performance. Gain-sharing, stock options, and other extrinsic
systems must be built around the line-of-sight concept. Unfortunately, accomplishing a clear line of
sight is difficult. Merit-pay systems claim that they reward performance. Despite the notion of merit,
of pay secrecy suggests that line of sight is difficult to achieve. Secret pay actions cloud any line-of-
sight effort.
In Review, Can You…
Instructors may wish to refer to the learning objectives to facilitate a review of the chapter concepts.
Slide
Notes
Summary of Key Points
❑ Performance evaluation serves several major purposes, including (1) providing a basis for
reward allocation, (2) identifying high-potential employees, (3) validating the effectiveness
of employee selection procedures, (4) evaluating previous training programs, and (5)
facilitating future performance improvement.
❑ Feedback sessions should use objective information to help guide the evaluated employee to
improve or sustain performance.
❑ A useful model of individual rewards would include the suggestion that ability, skill, and
experience, in addition to motivation, result in various levels of individual performance. The
resulting performance is then evaluated by management, which can distribute two types of
rewards: intrinsic and extrinsic. These rewards are evaluated by the individual receiving them
and, to the extent that they result in satisfaction, motivation to perform is enhanced.
Organizational rewards can be classified as either extrinsic or intrinsic. Extrinsic rewards
include salary and wages, fringe benefits, promotions, and certain types of interpersonal
rewards. Intrinsic rewards can include such things as a sense of completion, achievement,
autonomy, and personal growth.
❑ Both extrinsic and intrinsic rewards can be used to motivate job performance. For this to
occur, certain conditions must exist: The rewards must be valued by the employee, and they
must be related to the level of job performance that is to be motivated.
.
Review and Discussion Questions
1. Evaluations can be either judgmental or developmental in nature. Give examples of when
one a manager should use each type.
Ans: Evaluations with a judgmental orientation focus on past performance and provide a basis for
making judgments regarding which employee should be rewarded and how effective organizational
2. Who should be included in a person’s 360-degree feedback when evaluating his/her
performance?
Ans: To increase fairness, clarity, and credibility, multiple-source evaluations are very useful.
3. What intrinsic rewards are important to you personally on a job and as a student?
Ans: Student answers will vary. Intrinsic rewards include feelings of accomplishment and
achievement, autonomy, and personal growth.
4. From a managerial perspective, why is it impractical to provide continuous reinforcement
in work environments? If it were practical, would it be a good idea? Explain.
Ans: It is impractical to provide continuous reinforcement because an effective program would
require exceptionally close monitoring of employee behavior and place heavy demands on the
5. The degree of employee satisfaction with the organization’s reward system will significantly
affect how successful the system is in influencing performance. Based on the research
literature, what do we know about what influences whether individuals will be satisfied with
the rewards they receive?
Ans: Lawler’s summary of research on individuals’ satisfaction with rewards reaches the following
conclusions:
6. What are the most important extrinsic rewards you receive from a job you currently hold
(or held in the past)?
7. The basic purpose of an evaluation is to provide information about work performance, but
the information can also be used for other purposes. Name five other uses for an employee
evaluation.
Ans: Any five of the following: (1) Can provide a basis for reward allocation, such as raises,
promotions, transfers, and layoffs. (2) Can identify high-potential employees. (3) Can validate the
8. Why are team-based reward systems becoming more widely used?
Ans: Team-based reward systems are becoming more widely used because more companies are
9. This chapter discusses a number of innovative reward systems. Can you suggest other
innovative approaches organizations might use? Identify potential problems with the
approaches you suggest and try to find ways of overcoming them.
Ans: Examples of innovative reward systems cited in the chapter include skill-based pay,
broadbanding, concierge services, team-based rewards, part-time benefits, gainsharing, and
10. The gap between women’s and men’s pay is still considerable. What steps should
employers and managers take in order to close this gap in a fair and consistent manner?
Ans: If everything is equal (e.g. seniority, performance, experience), then paying women less than
men for performing the same job is not only unethical, it is illegal. To prevent such a situation from
Exercise 7.1: Diagnosing a Work Performance Problem
Purpose
This exercise demonstrates a systematic way for managers and subordinates to collaboratively
identify the cause(s) of dissatisfaction and performance problems. It leads students through a step-
The Exercise in Class
This exercise can be effectively used as a take-home assignment. It requires 30-60 minutes to
complete, and more if the instructor assigns a paper summarizing the student’s thinking at each
step of the process, as well as conclusions (an excellent assignment). It involves reading a short
Exercise 7.2: Making Choices about Rewards
Purpose
This exercise helps illustrate individual differences in reward preferences, emphasizes the
importance of both intrinsic and extrinsic rewards, and enables students to explore the reasons
for the reward preferences of others.
The Exercise in Class
This activity is useful in assessing the relative value of specific intrinsic and extrinsic rewards
both with and among individuals. As an option in conducting the exercise, you have students
Case 7.1: The Politics of Performance Appraisal
1. Based on your view of the objectives of performance evaluation, evaluate the perspectives
about performance appraisal presented by the managers.
A: The various comments made by the managers in this discussion of performance evaluations
indicates multiple and different understandings of the purpose of performance evaluations. For one,
ratings are used to reward past performance; for another, to motivate future performance. One thinks
2. In your opinion, at what point does “fine-tuning” evaluations become unacceptable
distortion?
Students will disagree on this. One way you might personalize the issue of fine-tuning is to ask
3. Assume you are the vice president of personnel at Eckel Industries and that you are aware
that fine-tuning evaluations is a prevalent practice among Eckel managers. If you disagree
with this perspective, what steps would you take to reduce the practice?
To reduce fine-tuning, the vice president needs to improve the entire evaluation process, starting
with clarifying the purpose of the evaluation. The process should move toward greater specification
Teaching Hints and Tips
Lecture Ideas
1. Ask students to imagine that a philanthropist has given you $10,000 to distribute among the
students in your class. The only stipulation is that you must justify the amounts you give to
each student based on some sort of evaluation. Because you do not wish to be arbitrary or
C. Who should be responsible for gathering data for the evaluation?
D. How should the evaluation be administered?
E. What guidance will these steps provide the instructor in deciding on the relative
distribution of the money?
2. One way to spur student discussion concerning innovative approaches to rewards is to ask
students to think of other innovative ways to administer rewards that boost reward
effectiveness (employee satisfaction, motivation) without substantially boosting organizational
costs. Here are two approaches that have received attention in the rewards literature:
A. Lump sum salary increase: Often a raise in pay isn’t that satisfying or rewarding
because when broken down into weekly paychecks, the raise loses its visibility (a $1000
raise doesn’t look quite as glorious when administered as $15 a week). In the lump sum
salary increase program, workers who receive an annual pay raise can decide when they’ll
B. The continuous raise: In this program, an employee’s annual raise is distributed so that
each subsequent paycheck is a bit larger than the previous one. For example, an employee
who receives an annual 10 percent raise receives an increasing portion of the raise in
every subsequent paycheck so every paycheck is bigger; however, the total increase at the
3. While covering the section on extrinsic and intrinsic rewards pose the following question: “If a
subordinate does a good job and is highly praised by his or her supervisor, is this an example of an
extrinsic or intrinsic reward?” Most students are aware of the fact that extrinsic rewards are
administered externally, while intrinsic rewards come from performing the job and, as such, are self-
Project Ideas and Suggested Class Speakers
1. To further develop student understanding of intrinsic and extrinsic rewards, have students
select a past job they’ve held and prepare a brief written rewards profile focusing on:
Chapter 07 – Evaluation and Rewards Influence Behavior
a. The intrinsic and extrinsic rewards provided from the job;
2. Many students find the concept of reinforcement fascinating but think it does not apply to
them. To illustrate the effect of constant, immediate reinforcement set up this classroom
experience. Buy a large bag of penny candy (maybe several). Without announcing what you
plan to do, begin asking students questions. Each time a student answers a question, whether
correctly or not, give that student a piece of candy. Say nothing about what you are doing. Just
continue to distribute the candy as immediate reinforcement for participating in the classroom
3. One way to further develop student understanding of reinforcement theory and behavior
modification is to have them, on a group basis, research and prepare a report on a OB Mod