problem 5 - pay & rewards Flashcards
what is expectancy theory?
expectations about behavior–outcome relationships shape the motivation to act
applies in the situation where an individual is confronted with the necessity or the opportunity to make a choice among alternative courses of action
expectancy theory
what are the 3 cognitions of expectancy theory
3 cognitions will jointly determine the employee’s choice:
1. the probability that a particular level of effort leads to a specific performance level
2. the probability that this performance level causes the attainment of particular outcomes
3. the attractiveness of these outcomes
the alternative that gets the highest subjective utility for the employee is eventually chosen
motivation = Valence x Instrumentality x Expectancy
expectancy theory
how do the cognitions relate to compensation
lawler (1971): applied the last two components to compensation → the relative importance of pay to an individual is a function of:
* the extent to which compensation is perceived to provide a means to satisfy particular needs (i.e. to reach particular goals)
* the importance of these needs (or goals) to the individual
more compensation is seen as ‘essential’ to gain more recognition, to get more security, to learn more about one’s own level of achievement + the more these needs are important/attractive to a person
= the more important compensation is
expectancy theory
pay-for-performance systems
instrumentality perception → the employee’s or manager’s belief that a particular performance outcome is related to a specified amount of pay
this belief is also affected by the quality of feedback, trust in the system, self-efficacy and several other variables
instrumentality belief is much lower when a salary system with performance bonuses is applied than when a system of hourly wages exists
organizational behavior modifcation model
(skinner 1969)
behavior is a function of its contingent consequences
5 steps for changing performance behavior–consequences linkages:
1. the identification of observable critical performance-related behaviors
2. the measurement of those behaviors’ baseline frequencies
3. the analysis of antecedents and contingent consequences of these behaviors
4. the intervention to increase the frequencies of these behaviors
5. the test whether frequencies have increased
= a consequence is reinforcing when it strengthens a behavior–consequence linkage and increases its frequency
organizational behavior modification
reinforcements: feedback & pay
pay may be reinforcing as it is tied directly and frequently to preceding performance behavior
partial reinforcement → causes stronger behavior to occur
continuous reinforcement (everytime behavior happens) VS variable reinforcement (only sometimes)
* CR often resulted in high perf, but in some instances only when workers were still inexperienced
* VR caused higher perf in some and lower performance in other settings compared to CR
goal setting theory
specifies the conditions under which an individual is motivated to perform on a high level
generally, 4 conditions are crucial for high performance to occur:
1. goals should be set at a high, difficult level
2. specfic goals
3. regular feedback
4. employees must accept these goals
various additional moderating (ability, commitment) and mediating (persistence, task-specific strategies) variables
goal setting theory
self-set goals & self efficacy
main determinants of motivation for high performance: self-set goals and self-efficacy
* similar to expectancy theory in that pay-for-performance only motivates to act if the individual believes that this action for getting extra pay is feasible
* bonus pay→higher level of goal commitment
* inconclusive whether goals and self-efficacy mediate pay effects
* ppl with moderate goals did best under a bonus system that paid only for goal success
goal setting theory
bartol & locke’s threefold approach to pay-for-performance
for people with difficult goals all-or-none bonuses should be used → although this kind of bonus might increase the negative effects of failure, it might challenge highly motivated individuals to find new methods to reach their goals
degree of success should be paid → performance pay is increasing proportionally as performance is getting better
when self-set goals apply, rewards may be determined afterwards - e.g. based upon the value of achieved performance to the organization
equity & justice: adam’s equity model
an individual tries to achieve balance between their inputs and outcomes relative to their perception of the input–outcome ratio of a referent
inputs: have LT investments & ST costs - e.g. eduction, abilities & effort
outcomes: task performance, recognition, compensation, and critique
a feeling of equity results when the person’s perceived input–outcome ratio is equal to the person’s perception of the referent’s ratio
adam’s equity model
dissonance & retaliation
inequity or dissonance manifests itself in the case of an unequal balance between ratios
when dissonance occurs → person will try to restore the balance - difficult to predict which strategy will be chosen bcuz a condition of ‘under-reward’ elicits different emotions than an ‘over-reward’ condition
retaliation → may occur when unfairness is perceived
less commitment, theft, illness - depends on personality
equity & justice
interaction between the different types of justice
procedural justice: perceived fairness of the formal procedures a company is using
interactional justice: perceived quality of interpersonal relations and treatments going along with these formal procedures
distributive justice: perceived fairness of rewards received
distributive dissatisfaction → retaliation will occur when either procedural or interactional justice is low
if either procedural or interactional justice is high → no retaliation will take place
cognitive evalutation theory
intrinsic motivation: results from 2 basic human needs - the need to be competent + the need for an internal locus of causality of behavior
intrinsic motivation = looking for challenge
extrinsic rewards can affect instrinsic motivation
cognitive evaluation theory
effects of extrinsic rewards on intrinsic motivation
when an employee is faced with an extrinsic reward like pay-for-performance → any outcome may have 1 of 3 properties:
1. informational: outcome informs the person about their competence level → IM is continued
2. controlling: outcome is perceived as controlling the person (by a source external to him or her) → IM decreases since the locus of causality is now externally attributed
3. motivational: outcome contains a negative feedback message. skills and competencies are poor → IM decreases
cognitive evaluation theory
effect of nature of reward on instrinsic motivation
the nature of a particular reward determines whether IM is going to be affected - 5 different kinds:
1. unexpected pay → does not affect IM
2. pay that is not task-contingent (i.e. pay for participating in a activity) → does not reduce IM
3. task-contingent pay → neg effect
4. performance-contingent pay → reduces IM
5. verbal rewards → increase IM
reflection theory
the development and maintenance of self-identity is an essential characteristic of the human being
compensation constitutes an important domain of information, the meanings of which are considered to be vital to a person’s self-identity
compensation has no informational value and meaning on ‘its own’ - it acquires sig through reflecting info about events in other fields
reflection theory
4 categories of meaning
- motivational properties: (from expectancy theory) pay is meaningful to the extent that pay is considered to be instrumental to satisfy a person’s motives or goals
- relative position: refers to the regulatory character of work - distinguishes two aspects: feedback about task goals set & social comparative
- control: relates to the network of people and material means a person is dependent upon → pay reflects the exertion of control by & upon a person
- spending: addresses the goods and services actually purchased through pay → pay reflects the extent to which motives and goals have been met through pay + the ease or hardship with which this occurred
agency theory
addresses the relationship between a principal (more powerful) and an agent (less powerful)
* the principal’s concern is that an agent is abiding to the principal’s interests
* behavior-based contract → pay dependent on performance - only when performance can be measured
* outcome-based contract → based on the outcomes - when it might be too expensive to monitor the agent’s actions (pay-for-performance system)
meso & macro level theories
resource dependence model: the amount of control business units, groups or temporary coalitions have on compensation is dependent upon the resources they are able to provide or withhold → the more resources the bigger the pay
tournament theory: conceives the company as an arena - members compete against one another in order to get a higher position → fixed pay per position in hierarchy
neoclassical labor market theory: the effective wage rate of an occupation depends on the point on the curve where labor supply (people looking for employment) and labor demand (vacant positions) meet
= the more labor supply is abundant, the lower the wages are, etc
efficiency wage model: not set wages by market but pay levels should be set at a higher level
which attracts more qualified employees and managers
jenkins et al (1998)
proponents and opponents
(meta-analysis - financial incentives & performance)
proposition that financial incentives improve performance has both its proponents and opponents
proponents: consider financial incentives to be a potent influence, arguably the most potent influence, on employee performance and other desired behaviors
* convey symbolic meaning beyond their monetary value → they meet multiple human needs and serve multiple functions
* also supplement intrinsic rewards - people need money
opponents: most significant argument against financial incentives concerns the detrimental effects of money on intrinsic motivation
* they control employee behavior externally, reducing self-determination and intrinsic motivation
* money is not a motivator - financial incentives may reduce job dissatisfaction, but they do not motivate
jenkins et al (1998)
method
(meta-analysis - financial incentives & performance)
39 studies included
moderators:
* setting – bc previous findings show stronger results in laboratory settings than others
* task type (extrinsic, intrinsic)
* theoretical framework – because the impact of financial incentives is typically examined within a theoretical framework
jenkins et al (1998)
results
(meta-analysis - financial incentives & performance)
relationship between financial incentives and performance quality is insignificant
relationship between financial incentives and performance quantity is significant
moderators
* setting consistently moderated the financial incentives-performance relationship
* task type – ambiguous → may not moderate relationship
* theoretical framework - varies
jenkins et al (1998)
conclusion
(meta-analysis - financial incentives & performance)
financial incentives were not related to performance quality but were related to performance quantity
supports expectancy (most supported), reinforcement, and goal-setting theories - does not support cognitive evaluation theory
moderators:
* setting - moderated the relationship - strongest relationships were observed in experimental simulations, followed by field experiments and lab experiments
* task type - expected this to moderate the strength of the relationship but it DID NOT
* theoretical framework - affected the strength of observed relationships
overall, this study underscores the generalizable pos relationship between financial incentives and performance (quantity)
economics of personnel & HR managemennt
fixed hiring costs
fixed hiring costs = extra costs associated with recruiting, hiring, orientation, and training
* expected termination costs can be anticipated and factored in at the hiring decision
* incentive for employers to pay off the costs by working their employees intensely and for long hours
* turnover is costly – rather overwork current employees
fixed or quasi-fixed costs can have important implications for various aspects of the personnel function
* deter hirig of new employees
* reluctant to hire minority groups
* use nonstandard or contingent employment
* employers may utilize overtime and pay an overtime wage premium or pay high salaries for ‘‘commitment’’
* labor hoarding
economics of personnel & HR managemennt
deffered compensation
deferred compensation: firms often pay deferred in the sense that workers are ‘underpaid’ relative to their productivity when they are young, in return for being ‘overpaid’ relative to their productivity when they are older
may be a rational compensation policy for various reasons:
* discourage turnover and hence repay quasi-fixed costs
* may induce work effort, honesty, commitment
* requires only periodic monitoring of performance
* loyalty – losing the overpaid status in last year isn’t worth leaving
economics of personnel & HR managemennt
pensions & mandatory retirement
pensions and mandatory retirement are integral parts of the personnel function that facilitate deferred compensation with its desirable features
* in deferred compensation systems where wages exceed productivity for older workers - has to be a termination date to the contractual arrangement
* mandatory retirement: can be regarded as such a termination date indicating that the particular contractual arrangement is now over
* pension can motivate early retirement and penalize late retirement
economics of personnel & HR managemennt
compensation & tournament prizes
prizes are fixed in advance and contestants compete for the prizes on the basis of their performance relative to other contestants
* prize creates pos incentives for the holder to sustain it + pos incentives amongst all players
* but can also have adverse effects - i.e. reduce cooperative behavior & encourage sabotage
economics of personnel & HR managemennt
teams, cooperation & egalitarian pay structures
in structuring prize money for tournaments, consideration has to be given to the spread amongst prizes
* too small a spread → reduces the incentive to put effort to win the prize
* too large a spread → reduces the incentive to enter the contest if there is no chance of winning the prize
* optimal degree of pay inequality depends on the type of behavior the firm wants to encourage & the ability to monitor performance
economics of personnel & HR managemennt
option values
option value = the value of the right to exercise an option at a future date - e.g. value of the right to work an additional year & therefore recieve the pay & benefits
* OV associated with promotion opportunities can be an important consideration for motivating employees
* organization that provides few promotion opportunities may have to pay higher salaries to compensate for the lack of such promotion opportunities
economics of personnel & HR managemennt
compensating wage premiums
nonwage aspects of a job, and converting them into a monetary equivalent
* done for characteristics like risk, unpleasant working conditions, layoff probabilities, etc
* ‘pay for points’ - used in equal pay for work of equal value
economics of personnel & HR managemennt
asymmetric information: layoffs, strikes & up-or-out rules
asymmetric information: company may not disclose all information to the employee
* employees may engage in an end-game strategy, being able to extract high wages from the dying firms
* employers have an incentive to bluff and plead an inability to pay so as to elicit wage concessions
* strikes: costly for the firm → elicits truth telling
* up-or-out rules → employees are evaluated and either promoted with pay increases, or terminated
economics of personnel & HR managemennt
raiding & the winner’s curse
an organization that raids another organization may have to worry about the winner’s curse: getting the employee they want only when the prior organization have made a mistake (wrong evaluation of the employee)
* organization that was raided presumably has better ‘‘inside’’ info on the employee and yet did not match the outside offer
* but could be that they actually just couldnt match the offer
economics of personnel & HR managemennt
monopsony market structure
monopsonist = dominant firm in the local labor market
* firm becomes the wage setter
* if the firm raises wages to attract additional workers, it has to pay that higher wage to its existing workforce
* firm will persistently report vacancies because it would like to hire more workers at the wage it pays, but it will not raise wages to fill those vacancies
economics of personnel & HR managemennt
fairness
- job security: fair but may also reduce change and training junior employees
- reducing noise, arbitrariness, bias and favoritism: fair – but may reduce competition
- generous early retirement buyouts - seem fair for long-term employees, but also can preserve a firm’s reputation
- layoffs and up-or-out rules - seem unfair but serve a pos function even for risk-averse
- superstar salaries may seem unfair – but are highly motivating
