Week-2.8
Learning Objectives
After studying this chapter, you should be able to:
1 Describe the job characteristics model and the way it motivates by changing the work environment.
2 Compare the main ways jobs can be redesigned.
3 Explain how specific alternative work arrangements can motivate employees.
4 Describe how employee involvement measures can motivate employees.
5 Demonstrate how the different types of variable-pay programs can increase employee motivation.
6 Show how flexible benefits turn benefits into motivators.
7 Identify the motivational benefits of intrinsic rewards.
TELECOMMUTING? NO. EXTRA MATERNITY LEAVE? YES
Yahoo! CEO Marissa Mayer has received her fair share of media attention since taking over the reins of the aging tech giant. But the move that received the most attention so far was her decision to ban telecommuting practices at Yahoo!, citing the need for face-to-face contact to boost productivity. Mayer’s action bucks the recent trend of employees working more frequently from their homes—particularly among technology firms. For example, between 2005 and 2009, the Silicon Valley workforce—which includes employees at tech companies Google, Intel, Apple, and Oracle—grew by less than 10 percent, while telecommuting increased by nearly 130 percent.
Critics blasted Mayer’s decision, claiming that the move was anti-feminist and would hurt employees trying to achieve a greater balance between work and family. They also pointed out that Mayer, who gave birth to her first child shortly after taking the reins at Yahoo!, returned to work only 2 weeks later. The fact that she had a nursery built right next to her office only added fuel to their fire.
Not all Mayer’s moves have been at odds with ideals of work–family balance. Nine months after having her baby, Mayer announced that new mothers and fathers can take 8 weeks of paid leave, with mothers eligible for an additional 8 weeks. In addition, parents are provided with $500 to help with initial child care costs. The company said the decision was made “to support the happiness and well-being of Yahoos and their families.” Mayer’s former employer, Google, offers comparable benefits: 18 to 22 weeks of paid time for new mothers and 7 weeks for new fathers. Neither company comes close to Facebook, which offers mothers and fathers 4 paid months and $4,000 in “baby cash.”
Although the media has focused on Yahoo!’s work–family policies, Mayer seems to be focused on turning the company around. Only time will tell whether her decision will yield higher employee productivity or, perhaps, higher turnover.
Sources: J. Kotkin, “Marissa Mayer’s Misstep and the Unstoppable Rise of Telecommuting,” Forbes (March 26, 2013); J. Pepitone, “Marissa Mayer Extends Yahoo’s Maternity Leave,” CNNMoney.com (April 30, 2013); and C. Tkaczyk, “Marissa Mayer Breaks Her Silence on Yahoo’s Telecommuting Policy,” CNN Money (April 19, 2013), http://tech.fortune.cnn.com/2013/04/19/marissa-mayer-telecommuting/.
As we can see in the ongoing saga of Yahoo!, pay is not the only motivator for working individuals. Pay is a central means of motivation, but working conditions and benefits matter, too. The process of motivating employees is complex and, as the opening story indicates, people feel strongly about the implications of changes to their extrinsic or intrinsic benefits. The following self-assessment will provide information about how intrinsically motivating your job might be.
In Chapter 7, we focused on motivation theories. In this chapter, we start applying motivation concepts to practices because while it’s important to understand the underlying concepts, it’s even more important to see how, as a manager, you can use them.
What’s My Job’s Motivating Potential?
In the Self-Assessment Library (available in MyManagementLab), take assessment I.C.9 (What’s My Job’s Motivating Potential?) and answer the following questions. If you currently do not have a job, answer the questions for your most recent position.
How did you score relative to your classmates?
Did your score surprise you? Why or why not?
How might your results affect your career path?
Motivating by Job Design: The Job Characteristics Model
1 Describe the job characteristics model and the way it motivates by changing the work environment.
Increasingly, research on motivation focuses on approaches that link motivational concepts to changes in the way work is structured. Research in job design suggests the way the elements in a job are organized can increase or decrease effort and also suggests what those elements are. We’ll first review the job characteristics model and then discuss some ways jobs can be redesigned. Finally, we’ll explore alternative work arrangements.
job design
The way the elements in a job are organized.
The Job Characteristics Model
Developed by J. Richard Hackman and Greg Oldham, the job characteristics model (JCM) says we can describe any job in terms of five core job dimensions:1
job characteristics model (JCM)
A model that proposes that any job can be described in terms of five core job dimensions: skill variety, task identity, task significance, autonomy, and feedback.
Skill variety is the degree to which a job requires a variety of different activities so the worker can use specialized skills and talents. The work of a garage owner-operator who does electrical repairs, rebuilds engines, does bodywork, and interacts with customers scores high on skill variety. The job of a bodyshop worker who sprays paint 8 hours a day scores low on this dimension.
Task identity is the degree to which a job requires completion of a whole and identifiable piece of work. A cabinetmaker who designs a piece of furniture, selects the wood, builds the object, and finishes it to perfection has a job that scores high on task identity. A job scoring low on this dimension is operating a factory lathe solely to make table legs.
Task significance is the degree to which a job affects the lives or work of other people. The job of a nurse handling the diverse needs of patients in a hospital intensive care unit scores high on task significance; sweeping floors in a hospital scores low.
Autonomy is the degree to which a job provides the worker freedom, independence, and discretion in scheduling work and determining the procedures for carrying it out. A salesperson who schedules his or her own work each day and decides on the sales approach for each customer without supervision has a highly autonomous job. A salesperson who is given a set of leads each day and is required to follow a standardized sales script with potential customers has a job low on autonomy.
Feedback is the degree to which carrying out work activities generates direct and clear information about your own performance. A job with high feedback is assembling iPads and testing them to see whether they operate properly. A factory worker who assembles iPads but then routes them to a quality-control inspector for testing and adjustments receives low feedback from his or her activities.
skill variety
The degree to which a job requires a variety of different activities.
task identity
The degree to which a job requires completion of a whole and identifiable piece of work.
task significance
The degree to which a job has a substantial impact on the lives or work of other people.
autonomy
The degree to which a job provides substantial freedom and discretion to the individual in scheduling the work and in determining the procedures to be used in carrying it out.
feedback
The degree to which carrying out the work activities required by a job results in the individual obtaining direct and clear information about the effectiveness of his or her performance.
Exhibit 8-1 presents the job characteristics model (JCM). Note how the first three dimensions—skill variety, task identity, and task significance—combine to create meaningful work the incumbent will view as important, valuable, and worthwhile. Jobs with high autonomy give incumbents a feeling of personal responsibility for the results; if a job provides feedback, employees will know how effectively they are performing. From a motivational standpoint, the JCM proposes that individuals obtain internal rewards when they learn (knowledge of results) that they personally have performed well (experienced responsibility) on a task they care about (experienced meaningfulness).2 The more these three psychological states are present, the greater will be employees’ motivation, performance, and satisfaction, and the lower their absenteeism and likelihood of leaving. As Exhibit 8-1 also shows, individuals with a high growth need are more likely to experience the critical psychological states when their jobs are enriched—and respond to them more positively—than are their counterparts with a low growth need.
Exhibit 8-1 The Job Characteristics Model
Source: Adaptation of Job Characteristics Model, pp. 78–80 from J. Richard Hackman & Greg R. Oldham, Work Redesign, 1st Edition, © 1980. Adapted by permission of Pearson Education, Inc., Upper Saddle River, NJ.
We can combine the core dimensions into a single predictive index, called the motivating potential score (MPS) , and calculated as follows:
motivating potential score (MPS)
A predictive index that suggests the motivating potential in a job.
MPS = × Autonomy × Feedback
To be high on motivating potential, jobs must be high on at least one of the three factors that lead to experienced meaningfulness and high on both autonomy and feedback. If jobs score high on motivating potential, the model predicts motivation, performance, and satisfaction will improve, while absence and turnover will be reduced.
Much evidence supports the JCM concept that the presence of a set of job characteristics—variety, identity, significance, autonomy, and feedback—does generate higher and more satisfying job performance.3 But we can better calculate motivating potential by simply adding the characteristics rather than using the formula. Think about your job. Do you have the opportunity to work on different tasks, or is your day routine? Are you able to work independently, or do you constantly have a supervisor or co-worker looking over your shoulder? What do you think your answers to these questions say about your job’s motivating potential? Revisit your answers to the self-assessment at the beginning of this chapter, then calculate your MPS from the job characteristics model. You might try computing your MPS score two ways: using the traditional MPS formula, and simply adding the dimensions. Then compare.
A few studies have tested the job characteristics model in different cultures, but the results aren’t consistent. One study suggested that when employees were “other oriented” (concerned with the welfare of others at work), the relationship between intrinsic job characteristics and job satisfaction was weaker. The fact that the job characteristics model is relatively individualistic (it considers the relationship between the employee and his or her work) suggests job enrichment strategies may not have the same effects in collectivistic cultures as in individualistic cultures (such as the United States).4 However, another study suggested the degree to which jobs had intrinsic job characteristics predicted job satisfaction and job involvement equally well for U.S., Japanese, and Hungarian employees.5
How Can Jobs Be Redesigned?
2 Compare the main ways jobs can be redesigned.
“Every day was the same thing,” Frank said. “Stand on that assembly line. Wait for an instrument panel to be moved into place. Unlock the mechanism and drop the panel into the Jeep Liberty as it moved by on the line. Then I plugged in the harnessing wires. I repeated that for eight hours a day. I don’t care that they were paying me twenty-four dollars an hour. I was going crazy. I did it for almost a year and a half. Finally, I just said to my wife that this isn’t going to be the way I’m going to spend the rest of my life. My brain was turning to JELL-O on that Jeep assembly line. So I quit. Now I work in a print shop and I make less than fifteen dollars an hour. But let me tell you, the work I do is really interesting. The job changes all the time, I’m continually learning new things, and the work really challenges me! I look forward every morning to going to work again.”
The repetitive tasks in Frank’s job at the Jeep plant provided little variety, autonomy, or motivation. In contrast, his job in the print shop is challenging and stimulating. Let’s look at some of the ways to put JCM into practice to make jobs more motivating.
job rotation
The periodic shifting of an employee from one task to another.
Job Rotation
If employees suffer from over-routinization of their work, one alternative is job rotation , or the periodic shifting of an employee from one task to another with similar skill requirements at the same organizational level (also called cross-training). At Singapore Airlines, a ticket agent may take on the duties of a baggage handler. Extensive job rotation is among the reasons Singapore Airlines is rated one of the best airlines in the world.6 Many manufacturing firms have adopted job rotation as a means of increasing flexibility and avoiding layoffs. Managers at these companies train workers on all their equipment so they can move around as needed in response to incoming orders. Although job rotation has often been conceptualized as an activity for assembly line and manufacturing employees, many organizations use job rotation for new managers to help them get a picture of the whole business as well.7
Myth or Science? “Money Can’t Buy Happiness”
In addition to this clichéd statement, you’ve probably heard the alternative: that money does buy happiness. Those who say how much money you have has no bearing on your happiness often refer to the Easterlin paradox, named after the economist Richard Easterlin who argued that once basic financial needs have been met, more money doesn’t really do much to make a person happy. Other researchers point to data that agree with Easterlin’s assertion. For example, when Robert Kenny surveyed 165 households earning $25 million or more, most said their money is not always helpful. They worried about how their children would be treated by others and whether they would be motivated to be independent.
Does that mean we should stop making money because it will make us miserable? Not so fast. Recent research surveying a much broader set of people, including people in various countries, indicates the exact opposite: The more money, the better. Using data collected by the Gallup organization, economists Betsy Stevenson and Justin Wolfers of the University of Michigan found that people all over the world, from countries including the United States, Mexico, Britain, Brazil, France, Germany, Japan, India, Nigeria, Iran, and Russia, reported greater happiness as they grew richer. More interesting is the finding that the relationship between income and happiness doesn’t change for the very rich. So going from richer to richest increases happiness about as much as moving from the poorest to less poor. The authors say, “The relationship between well-being and income . . . does not diminish as incomes rise. If there is a satiation point, we are yet to reach it.”
The relationship between happiness and income also seems to be the same whether we look within a given country (you’re happier if you’re wealthier than your fellow citizens) or between countries (people from countries with higher per capita gross domestic product levels are happier than those from countries with lower levels).
Still, Stevenson and Wolfers caution against causal inferences. Income may contribute to happiness, but happiness may also contribute to higher income if those who are cheerful and pleasant get promoted more than those who are grumpy. Says Wolfers, “I suspect what’s actually going on is that income is a marker for something else. It may be that what really makes us happy is leading fulfilling lives. It’s not income per se, but it’s having a broad set of choices, including the choice to have a healthy income.”
Sources: R. Easterlin, “Does Economic Growth Improve the Human Lot? Some Empirical Evidence,” in P. A. David and M. W. Reder (eds.), Nations and Households in Economic Growth: Essays in Honor of Moses Abramovitz (New York: Academic Press, 1974); D. Kurtzleben, “Finally: Proof That Money Buys Happiness (Sort Of),” USNews.com (April 29, 2013); A. Novotney, “Money Can’t Buy Happiness,” Monitor on Psychology (July/August 2012), pp. 24–26; B. Stevenson and J. Wolfers, “Subjective Well-Being and Income: Is There Any Evidence of Satiation?” NBER Working Paper 18992 (April 2013); and “Money Can Buy Happiness,” Economist.com (May 2, 2013).
The strengths of job rotation are that it reduces boredom, increases motivation, and helps employees better understand how their work contributes to the organization. International evidence from Italy, Britain, and Turkey shows that job rotation is associated with higher levels of organizational performance in manufacturing settings.8 However, job rotation has drawbacks. Training costs increase, and moving a worker into a new position reduces productivity just when efficiency at the prior job is creating organizational economies. Work that is done repeatedly may become habitual and “routine,” which makes decision making more automatic and efficient. Job rotation creates disruptions when members of the work group have to adjust to new employees. And supervisors may have to spend more time answering questions and monitoring the work of recently rotated employees.
Job Enrichment
Job enrichment expands jobs by increasing the degree to which the worker controls the planning, execution, and evaluation of the work. An enriched job allows the worker to do a complete activity, increases the employee’s freedom and independence, increases responsibility, and provides feedback so individuals can assess and correct their own performance.9
job enrichment
The vertical expansion of jobs, which increases the degree to which the worker controls the planning, execution, and evaluation of the work.
How does management enrich an employee’s job? Exhibit 8-2 offers suggested guidelines based on the job characteristics model. Combining tasks puts fractionalized tasks back together to form a new and larger module of work. Forming natural work units makes an employee’s tasks create an identifiable and meaningful whole. Establishing client relationships increases the direct relationships between workers and their clients (clients can be internal as well as outside the organization). Expanding jobs vertically gives employees responsibilities and control formerly reserved for management. Opening feedback channels lets employees know how well they are doing and whether their performance is improving, deteriorating, or remaining constant.
Exhibit 8-2 Guidelines for Enriching a Job
Source: J. R. Hackman and J. L. Suttle (eds.), Improving Life at Work (Glenview, IL: Scott Foresman, 1977), p. 138. Reprinted by permission of Richard Hackman and J. Lloyd Suttle.
Another method for improving the meaningfulness of work is providing employees with mutual assistance programs.10 Employees who can help each other directly through their work come to see themselves, and the organizations for which they work, in more positive, pro-social terms. This, in turn, can increase employee affective commitment.
The evidence on job enrichment shows it reduces absenteeism and turnover costs and increases satisfaction, but not all programs are equally effective.11 A review of 83 organizational interventions designed to improve performance management showed that frequent, specific feedback related to solving problems was linked to consistently higher performance, but infrequent feedback that focused more on past problems than future solutions was much less effective.12 Some recent evidence suggests job enrichment works best when it compensates for poor feedback and reward systems.13 Work design may also not affect everyone in the same way. One recent study showed employees with a higher preference for challenging work experienced larger reductions in stress following job redesign than individuals who did not prefer challenging work.14
Relational Job Design
While redesigning jobs on the basis of job characteristics theory is likely to make work more intrinsically motivating to people, more contemporary research is focusing on how to make jobs more prosocially motivating to people. In other words, how can managers design work so employees are motivated to promote the well-being of the organization’s beneficiaries? Beneficiaries of organizations might include customers, clients, patients, and users of products or services. This view of job design shifts the spotlight from the employee to those whose lives are affected by the job that employee performs.15
One way to make jobs more prosocially motivating is to better connect employees with the beneficiaries of their work, for example, by relating stories from customers who have found the company’s products or services to be helpful. The medical device manufacturer Medtronic invites people to describe how Medtronic products have improved, or even saved, their lives and shares these stories with employees during annual meetings, providing a powerful reminder of the impact of their work. One study found that radiologists who saw photographs of patients whose scans they were examining made more accurate diagnoses of their medical problems. Why? Seeing the photos made it more personal, which elicited feelings of empathy in the radiologists.16
Even better, in some cases managers may be able to connect employees directly with beneficiaries. Researchers found that when university fundraisers briefly interacted with the undergraduates who would receive the scholarship money they raised, they persisted 42 percent longer, and raised nearly twice as much money, as those who didn’t interact with potential recipients.17 The positive impact of connecting employees was apparent even when they met with just a single scholarship recipient.
Why do these connections have such positive consequences? There are several reasons. Meeting beneficiaries firsthand allows employees to see that their actions affect a real, live person and that their jobs have tangible consequences. In addition, connections with beneficiaries make customers or clients more accessible in memory and more emotionally vivid, which leads employees to consider the effects of their actions more. Finally, connections allow employees to easily take the perspective of beneficiaries, which fosters higher levels of commitment.
You might be wondering whether connecting employees is already covered by the idea of task significance in job characteristics theory. However, some differences make beneficiary contact unique. For one, many jobs might be perceived to be high in significance, yet employees in those jobs never meet the individuals affected by their work. Second, beneficiary contact seems to have a distinct relationship with prosocial behaviors such as helping others. One study found that lifeguards who read stories about how their actions benefited swimmers were rated as more helpful by their bosses; this was not the case for lifeguards who read stories about the personal benefits of their work.18 The upshot? There are many ways you can design jobs to be more motivating, and the choice should depend on the outcome or outcomes you’d like to achieve.
Alternative Work Arrangements
3 Explain how specific alternative work arrangements can motivate employees.
Another approach to motivation is to alter work arrangements with flextime, job sharing, or telecommuting. These are likely to be especially important for a diverse workforce of dual-earner couples, single parents, and employees caring for a sick or aging relative.
Flextime
Susan is the classic “morning person.” She rises at 5:00 a.m. sharp each day, full of energy. However, as she puts it, “I’m usually ready for bed right after the 7:00 p.m. news.”
Susan’s work schedule as a claims processor at The Hartford Financial Services Group is flexible. Her office opens at 6:00 a.m. and closes at 7:00 p.m. It’s up to her how she schedules her 8-hour day within this 13-hour period. Because Susan is a morning person and also has a 7-year-old son who gets out of school at 3:00 p.m. every day, she opts to work from 6:00 a.m. to 3:00 p.m. “My work hours are perfect. I’m at the job when I’m mentally most alert, and I can be home to take care of my son after he gets out of school.”
Susan’s schedule is an example of flextime , short for “flexible work time.” Employees must work a specific number of hours per week but are free to vary their hours of work within certain limits. As in Exhibit 8-3, each day consists of a common core, usually 6 hours, with a flexibility band surrounding it. The core may be 9:00 a.m. to 3:00 p.m., with the office actually opening at 6:00 a.m. and closing at 6:00 p.m. All employees are required to be at their jobs during the common core period, but they may accumulate their other 2 hours before, after, or before and after that. Some flextime programs allow employees to accumulate extra hours and turn them into a free day off each month.
flextime
Flexible work hours.
Schedule 1
Percent Time: 100% = 40 hours per week
Core Hours: 9:00 A.M.–5:00 P.M., Monday through Friday (1 hour lunch)
Work Start Time: Between 8:00 A.M. and 9:00 A.M.
Work End Time: Between 5:00 P.M. and 6:00 P.M.
Schedule 2
Percent Time: 100% = 40 hours per week
Work Hours: 8:00 A.M.–6:30 P.M., Monday through Thursday (1/2 hour lunch)
Friday off
Work Start Time: 8:00 A.M.
Work End Time: 6:30 P.M.
Schedule 3
Percent Time: 90% = 36 hours per week
Work Hours: 8:30 A.M.–5:00 P.M., Monday through Thursday (1/2 hour lunch)
8:00 A.M.–Noon Friday (no lunch)
Work Start Time: 8:30 A.M. (Monday-Thursday); 8:00 A.M. (Friday)
Work End Time: 5:00 P.M. (Monday-Thursday); Noon (Friday) Schedule 4
Percent Time: 80% = 32 hours per week
Work Hours: 8:00 A.M.–6:00 P.M., Monday through Wednesday (1/2 hour lunch)
8:00 A.M.–11:30 A.M. Thursday (no lunch) Friday off
Work Start Time: Between 8:00 A.M. and 9:00 A.M.
Work End Time: Between 5:00 P.M. and 6:00 P.M.
Exhibit 8-3 Possible Flextime Staff Schedules
Flextime has become extremely popular. According to a recent survey, a majority (53 percent) of organizations now offer some form of flextime.19 And this is not just a U.S. phenomenon. In Germany, for instance, 73 percent of businesses offer flextime, and such practices are becoming more widespread in Japan as well.20 In fact, in Germany, Belgium, the Netherlands, and France, by law, employers are not allowed to refuse an employee’s request for either a part-time or a flexible work schedule as long as that request is reasonable, such as to care for an infant child.21
Claimed benefits include reduced absenteeism, increased productivity, reduced overtime expenses, reduced hostility toward management, reduced traffic congestion around work sites, elimination of tardiness, and increased autonomy and responsibility for employees—any of which may increase employee job satisfaction.22 But what’s flextime’s actual record?
Photo 8-1 Jobs at FedEx involved in the physical transport of packages are not suitable for telecommuting. But in operating one of the world’s largest telecommunications networks for recording and tracking shipments, FedEx provides many computer-based jobs for telecommuters who help the firm process more than 20 million transactions daily.
Most of the evidence stacks up favorably. Flextime tends to reduce absenteeism and frequently improves worker productivity,23 probably for several reasons. Employees can schedule their work hours to align with personal demands, reducing tardiness and absences, and they can work when they are most productive. Flextime can also help employees balance work and family lives; it is a popular criterion for judging how “family friendly” a workplace is.
Flextime’s major drawback is that it’s not applicable to every job or every worker. It works well with clerical tasks for which an employee’s interaction with people outside his or her department is limited. It is not a viable option for receptionists, sales personnel in retail stores, or people whose service jobs require them to be at their workstations at predetermined times. It also appears that people who have a stronger desire to separate their work and family lives are less prone to take advantage of opportunities for flextime.24 Overall, employers need to consider the appropriateness of both the work and the workers before implementing flextime schedules.
Job Sharing
Job sharing allows two or more individuals to split a traditional 40-hour-a-week job. One might perform the job from 8:00 A.M. to noon and the other from 1:00 P.M. to 5:00 P.M., or the two could work full but alternate days. For example, top Ford engineers Julie Levine and Julie Rocco engaged in a job-sharing program that allowed both of them to spend time with their families while working on the time-intensive job of redesigning the Explorer crossover. Typically, one of the pair would work late afternoons and evenings while the other worked mornings. They both agreed that the program worked well, although making such a relationship work required a great deal of time and preparation.25
job sharing
An arrangement that allows two or more individuals to split a traditional 40-hour-a-week job.
Only 12 percent of large organizations now offer job sharing, a decline from 18 percent in 2008.26 Reasons it is not more widely adopted are likely the difficulty of finding compatible partners to share a job and the historically negative perceptions of individuals not completely committed to their jobs and employers.
Job sharing allows an organization to draw on the talents of more than one individual for a given job. It also opens the opportunity to acquire skilled workers—for instance, women with young children and retirees—who might not be available on a full-time basis. From the employee’s perspective, job sharing increases flexibility and can increase motivation and satisfaction when a 40-hour-a-week job is just not practical. But the major drawback is finding compatible pairs of employees who can successfully coordinate the intricacies of one job.27
An employer’s decision to use job sharing is often based on economics and national policy. Two part-time employees sharing a job can be less expensive than one full-time employee, but experts suggest this is not the case because training, coordination, and administrative costs can be high. In the United States, the national Affordable Care Act may create an incentive for companies to increase job sharing arrangements in order to avoid the fees employees must pay the government for full-time employees.28 Many German and Japanese29 firms have been using job sharing—but for a very different reason. Germany’s Kurzarbeit program, which is now close to 100 years old, has kept employment levels from plummeting throughout the economic crisis by switching full-time workers to part-time job sharing work.30
Telecommuting
It might be close to the ideal job for many people. No commuting, flexible hours, freedom to dress as you please, and few or no interruptions from colleagues. It’s called telecommuting , and it refers to working at home at least 2 days a week on a computer linked to the employer’s office.31 (A closely related term—the virtual office—describes working from home on a relatively permanent basis.) As noted in the opening vignette, telecommuting has been a popular topic lately as a result of companies such as Yahoo! (and Best Buy) eliminating this form of flexible work.32
telecommuting
Working from home at least two days a week on a computer that is linked to the employer’s office.
Source: Bureau of Labor Statistics, Table 6 from Economic News Release, “American Time Use Survey Summary” (June 20, 2013), www.bls.gov/news.release/atus.t06.htm.
The U.S. Department of the Census estimated there was a 25 percent increase in self-employed home-based workers from 1999 to 2005 and a 20 percent increase in employed workers who work exclusively from home.33 One recent survey of nearly 500 organizations found that 57 percent of organizations offered telecommuting, with 36 percent allowing employees to telecommute at least part of the time and 20 percent allowing employees to telecommute full-time, and these percentages have remained relatively stable since 2008.34 Well-known organizations that actively encourage telecommuting include AT&T, IBM, American Express, Sun Microsystems, and a number of U.S. government agencies.35
What kinds of jobs lend themselves to telecommuting? There are three categories: routine information-handling tasks, mobile activities, and professional and other knowledge-related tasks.36 Writers, attorneys, analysts, and employees who spend the majority of their time on computers or the telephone—including telemarketers, customer-service representatives, reservation agents, and product-support specialists—are natural candidates. As telecommuters, they can access information on their computers at home as easily as in the company’s office.
There are several potential benefits of telecommuting. They include a larger labor pool from which to select, higher productivity, less turnover, improved morale, and reduced office-space costs. A positive relationship exists between telecommuting and supervisor performance ratings, but any relationship between telecommuting and potentially lower turnover intentions has not been substantiated in research to date.37 Beyond the benefits to organizations and its employees, telecommuting has potential benefits to society. One study estimates that, in the United States, if people telecommuted half the time, carbon emissions would be reduced by approximately 51 metric tons per year. Environmental savings could also come about from lower office energy consumption, fewer traffic jams that emit greenhouse gasses, and fewer road repairs.38
However, there are also several downsides. The major one for management is less direct supervision of employees. In today’s team-focused workplace, telecommuting may make it more difficult to coordinate teamwork and can reduce knowledge transfer in organizations.39 From the employee’s standpoint, telecommuting can offer a considerable increase in flexibility and job satisfaction—but not without costs.40 For employees with a high social need, telecommuting can increase feelings of isolation and reduce job satisfaction. And all telecommuters are vulnerable to the “out of sight, out of mind” effect.41 Employees who aren’t at their desks, who miss meetings, and who don’t share in day-to-day informal workplace interactions may be at a disadvantage when it comes to raises and promotions because they’re perceived as not putting in the requisite “face-time.”
The Social and Physical Context of Work
Robin and Chris both graduated from college a couple years ago with degrees in elementary education and became first-grade teachers in different school districts. Robin immediately confronted a number of obstacles: Several long-term employees were hostile to her hiring, there was tension between administrators and teachers, and students had little interest in learning. Chris had a colleague who was excited to work with a new graduate, students who were excited about academics, and a highly supportive principal. Not surprisingly, at the end of the first year, Chris had been a considerably more effective teacher than Robin.
The job characteristics model shows most employees are more motivated and satisfied when their intrinsic work tasks are engaging. However, having the most interesting workplace characteristics in the world may not always lead to satisfaction if you feel isolated from your co-workers, and having good social relationships can make even the most boring and onerous tasks more fulfilling. Research demonstrates that social aspects and work context are as important as other job design features.42 Policies such as job rotation, worker empowerment, and employee participation have positive effects on productivity, at least partially because they encourage more communication and a positive social environment.
Some social characteristics that improve job performance include interdependence, social support, and interactions with other people outside of work. Social interactions are strongly related to positive moods and give employees opportunities to clarify their work role and how well they are performing. Social support gives employees greater opportunities to obtain assistance with their work. Constructive social relationships can bring about a positive feedback loop as employees assist one another in a “virtuous circle.”
The work context is also likely to affect employee satisfaction. Hot, loud, and dangerous work is less satisfying than work conducted in climate-controlled, relatively quiet, and safe environments. This is probably why most people would rather work in a coffee shop than a metalworking foundry. Physical demands make people physically uncomfortable, which is likely to show up in lower levels of job satisfaction.
To assess why an employee is not performing to his or her best level, see whether the work environment is supportive. Does the employee have adequate tools, equipment, materials, and supplies? Does the employee have favorable working conditions, helpful co-workers, supportive work rules and procedures, sufficient information to make job-related decisions, and adequate time to do a good job? If not, performance will suffer.
Employee Involvement
Employee involvement is a participative process that uses employees’ input to increase their commitment to the organization’s success. The logic is that if we engage workers in decisions that affect them and increase their autonomy and control over their work lives, they will become more motivated, more committed to the organization, more productive, and more satisfied with their jobs. These benefits don’t stop with individuals—when teams are given more control over their work, morale and performance increases.43
employee involvement
A participative process that uses the input of employees and is intended to increase employee commitment to an organization’s success.
Employee involvement programs differ among countries.44 A study of four countries, including the United States and India, confirmed the importance of modifying practices to reflect national culture.45 While U.S. employees readily accepted employee involvement programs, managers in India who tried to empower their employees were rated low by those employees. These reactions are consistent with India’s high power–distance culture, which accepts and expects differences in authority. 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.46 Another study conducted in China, however, showed that involvement increased employees’ thoughts and feelings of job security, enhancing their well-being.47
Examples of Employee Involvement Programs
Let’s look at two major forms of employee involvement—participative management and representative participation—in more detail.
Participative Management
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. Participative management has, at times, been promoted as a panacea for poor morale and low productivity. For participative management to be effective, followers must have trust and confidence in their leaders. Leaders should refrain from coercive techniques and instead stress the organizational consequences of decision making to their followers.48
participative management
A process in which subordinates share a significant degree of decision-making power with their immediate superiors.
Photo 8-2 At Wegmans Food Markets, subordinates share a significant degree of decision-making power with their immediate superiors. Wegmans believes that involving employees, like the store chef shown here, in making decisions that affect their work and please customers leads to higher job satisfaction and productivity.
Source: AP Photo/Jacquelyn Martin.
Studies of the participation–performance relationship have yielded mixed findings.49 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.50 A careful review of research at the individual level shows participation typically has only a modest influence on employee productivity, motivation, and job satisfaction. Of course, this doesn’t mean participative management can’t be beneficial under the right conditions. However, it is not a sure means for improving performance.
Representative Participation
Almost every country in western Europe requires companies to practice representative participation , called “the most widely legislated form of employee involvement around the world.”51 Its 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.
representative participation
A system in which workers participate in organizational decision making through a small group of representative employees.
4 Describe how employee involvement measures can motivate employees.
The two most common forms are works councils and board representatives.52 Works councils are groups of nominated or elected employees who must be consulted when management makes decisions about employees. Board representatives are employees who sit on a company’s board of directors and represent employees’ interests.
The influence of representative participation on working employees seems to be minimal.53 Works councils are dominated by management and have little impact on employees or the organization. While participation might increase the motivation and satisfaction of employee representatives, there is little evidence this trickles down to the employees they represent. Overall, “the greatest value of representative participation is symbolic. If one is interested in changing employee attitudes or in improving organizational performance, representative participation would be a poor choice.”54
Linking Employee Involvement Programs and Motivation Theories
Employee involvement draws on a number of the motivation theories we discussed in Chapter 7 . Theory Y is consistent with participative management and Theory X with the more traditional autocratic style of managing people. In terms of two-factor theory, employee involvement programs could provide intrinsic motivation by increasing opportunities for growth, responsibility, and involvement in the work itself. The opportunity to make and implement decisions—and then see them work out—can help satisfy an employee’s needs for responsibility, achievement, recognition, growth, and enhanced self-esteem. Extensive employee involvement programs clearly have the potential to increase employee intrinsic motivation in work tasks. And giving employees control over key decisions, along with ensuring that their interests are represented, can enhance feelings of procedural justice.
Using Rewards to Motivate Employees
5 Demonstrate how the different types of variable-pay programs can increase employee motivation.
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 2006 study found that while 45 percent of employers thought pay was a key factor in losing top talent, 71 percent of top performers called it a top reason.55
Given that pay is so important, will the organization lead, match, or lag the market in pay? How will individual contributions be recognized? In this section, we consider (1) what to pay employees (decided by establishing a pay structure), (2) how to pay individual employees (decided through variable-pay plans and skill-based pay plans), (3) what benefits and choices to offer (such as flexible benefits), and (4) how to construct employee recognition programs.
What to Pay: Establishing a Pay Structure
There are many ways to pay employees. The process of initially setting pay levels entails balancing internal equity—the worth of the job to the organization (usually established through a technical process called job evaluation)—and external equity—the external competitiveness of an organization’s pay relative to pay elsewhere in its industry (usually established through pay surveys). Obviously, the best pay system pays what the job is worth (internal equity) while also paying competitively relative to the labor market.
Some organizations prefer to pay above the market, while some may lag the market because they can’t afford to pay market rates, or they are willing to bear the costs of paying below market (namely, higher turnover as people are lured to better-paying jobs). Some companies who have realized impressive gains in income and profit margins have done so partially by holding down employee wages, such as Comcast, Walt Disney, McDonald’s, and AT&T.56
Pay more, and you may get better-qualified, more highly motivated employees who will stay with the organization longer. A study covering 126 large organizations found employees who believed they were receiving a competitive pay level had higher morale and were more productive, and customers were more satisfied as well.57 But pay is often the highest single operating cost for an organization, which means paying too much can make the organization’s products or services too expensive. It’s a strategic decision an organization must make, with clear trade-offs.
In the case of Walmart, it appears that its strategic decision has not been working as of late. While annual growth in U.S. stores has slowed to around 1 percent, one of Walmart’s larger competitors, Costco, has grown around 8 percent. The average worker at Costco made approximately $45,000 in 2011, compared to approximately $17,500 for the average worker at Walmart-owned Sam’s Club. Costco’s strategy is that they will get more if they pay more—higher wages are resulting in increased employee productivity and reduced turnover.
How to Pay: Rewarding Individual Employees Through Variable-Pay Programs
“Why should I put any extra effort into this job?” asked Anne Garcia, a fourth-grade elementary schoolteacher in Denver, Colorado. “I can excel or I can do the bare minimum. It makes no difference. I get paid the same. Why do anything above the minimum to get by?” Comments like Anne’s have been voiced by schoolteachers for decades because pay increases were tied to seniority. Recently, however, a number of states have revamped their compensation systems to motivate people like Anne by tying teacher pay levels to results in the classroom in various ways, and other states are considering such programs.58
A number of organizations are moving away from paying solely on credentials or length of service. Piece-rate plans, merit-based pay, bonuses, profit sharing, gainsharing, 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. Earnings therefore fluctuate up and down.59
variable-pay program
A pay plan that bases a portion of an employee’s pay on some individual and/or organizational measure of performance.
Photo 8-3 Following the widespread adoption of variable-pay plans in businesses and government agencies, many schools are moving toward rewarding teachers with bonuses for individual performance. The teacher shown here can earn a bonus based on her performance rather than only on her seniority or academic degrees.
Source: AP Photo/David J. Phillip.
Variable-pay plans have long been used to compensate salespeople and executives. Globally, around 80 percent of companies offer some form of variable-pay plan. In Latin America, more than 90 percent of companies offer some form of variable-pay plan. Latin American companies also have the highest percentage of total payroll allocated to variable pay, at nearly 18 percent. European and U.S. companies are relatively lower, at about 12 percent.60 When it comes to executive compensation, Asian companies are outpacing Western companies in their use of variable pay.61
Recent research shows that 26 percent of U.S. companies have either increased or plan to increase the proportion of variable pay in employee pay programs, and another 40 percent have already recently increased the proportion of variable pay.62 Unfortunately, not all employees see a strong connection between pay and performance. The results of pay-for-performance plans are mixed; context and the receptivity of the individual to the plans play a large role. A recent study of 415 companies in South Korea suggested that group-based pay-for-performance plans can have a strong positive effect on organizational performance.63
The fluctuation in variable pay is what makes these programs attractive to management. It turns part of an organization’s fixed labor costs into a variable cost, thus reducing expenses when performance declines. When the U.S. economy encountered a recession in 2001 and again in 2008, companies with variable pay were able to reduce their labor costs much faster than others.64 When pay is tied to performance, the employee’s earnings also recognize contribution rather than being a form of entitlement. Over time, low performers’ pay stagnates, while high performers enjoy pay increases commensurate with their contributions.
Let’s examine the different types of variable-pay programs in more detail.
Piece-Rate Pay
The piece-rate pay plan has long been popular as a means of compensating production workers with a fixed sum for each unit of production completed. A pure piece-rate plan provides no base salary and pays the employee only for what he or she produces. Ballpark workers selling peanuts and soda are frequently paid this way. If they sell 40 bags of peanuts at $1 each for their earnings, their take is $40. The harder they work and the more peanuts they sell, the more they earn. The limitation of these plans is that they’re not feasible for many jobs. Surgeons earn significant salaries regardless of their patients’ outcomes. Would it be better to pay them only if their patients fully recover? It seems unlikely that most would accept such a deal, and it might cause unanticipated consequences as well (such as surgeons avoiding patients with complicated or terminal conditions). So, although incentives are motivating and relevant for some jobs, it is unrealistic to think they can constitute the only piece of some employees’ pay.
piece-rate pay plan
A pay plan in which workers are paid a fixed sum for each unit of production completed.
Merit-Based Pay
A merit-based pay plan pays for individual performance based on performance appraisal ratings. A main advantage is that people thought to be high performers can get bigger raises. If designed correctly, merit-based plans let individuals perceive a strong relationship between their performance and their rewards.65
merit-based pay plan
A pay plan based on performance appraisal ratings.
Most large organizations have merit pay plans, especially for salaried employees. Merit pay is slowly taking hold in the public sector. Most government employees are unionized, and the unions that represent them have usually demanded that pay raises be based solely on seniority. Claiming a new era of accountability, however, New Jersey Governor Chris Christie recently implemented merit pay for teachers. The Newark teachers union approved the plan, which included funding from Facebook CEO Mark Zuckerberg.66 In another unusual move, New York City’s public hospital system, instead of granting automatic annual raises, pays doctors based on how well they reduce costs, increase patient satisfaction, and improve the quality of care.67
A move away from merit pay, on the other hand, is coming from some organizations that don’t feel it separates high and low performers enough. “There’s a very strong belief and there’s evidence and academic research that shows that variable pay does create focus among employees,” said Ken Abosch, a compensation manager at human-resource consulting firm Aon Hewitt. Even those companies that have retained merit pay are rethinking the allocation.68
Although you might think a person’s average level of performance is the key factor in merit pay decisions, recent research indicates that the projected level of future performance also plays a role. One study found that National Basketball Association players whose performance was on an upward trend were paid more than their average performance would have predicted. The upshot? Managers may unknowingly be basing merit pay decisions on how they think employees will perform, which may result in overly optimistic (or pessimistic) pay decisions.69
Despite their intuitive appeal, merit pay plans have several limitations. One is that they are typically based on an annual performance appraisal and thus are only as valid as the performance ratings. Another limitation is that the pay-raise pool fluctuates on economic or other conditions that have little to do with individual performance. One year, a colleague at a top university who performed very well in teaching and research was given a pay raise of $300. Why? Because the pay-raise pool was very small. Yet that is hardly pay-for-performance. Finally, unions typically resist merit pay plans. Relatively few teachers are covered by merit pay for this reason. Instead, seniority-based pay, where all employees get the same raises, predominates.
Bonuses
An annual bonus is a significant component of total compensation for many jobs. Among Fortune 100 CEOs, the bonus (mean of $1.01 million) generally exceeds the base salary (mean of $863,000). But bonus plans increasingly include lower-ranking employees; many companies now routinely reward production employees with bonuses in the thousands of dollars when profits improve. The incentive effects of performance bonuses should be higher than those of merit pay because, rather than paying for performance years ago (that was rolled into base pay), bonuses reward recent performance. When times are bad, firms can cut bonuses to reduce compensation costs. Workers on Wall Street, for example, saw their average bonus drop by more than a third in 2012 as their firms faced greater scrutiny.70
bonus
A pay plan that rewards employees for recent performance rather than historical performance.
Photo 8-4 Chinese Internet firm Tencent Holdings rewards employees with attractive incentives that include cash bonuses for lower-ranking employees. The young men shown here were among 5,000 employees who received a special bonus tucked in red envelopes and personally handed out by Tencent’s CEO and co-founder Pony Ma.
Source: Imaginechina via AP Images.
This example also highlights the downside of bonuses: Employees’ pay is more vulnerable to cuts. This is problematic when bonuses are a large percentage of total pay or when employees take bonuses for granted. “People have begun to live as if bonuses were not bonuses at all but part of their expected annual income,” said Jay Lorsch, a Harvard Business School professor. KeySpan Corp., a 9,700-employee utility company in New York, tried to combine yearly bonuses with a smaller merit-pay raise. Elaine Weinstein, KeySpan’s senior vice president of HR, credits the plan with changing the culture from “entitlement to meritocracy.”71
Recent research has shown that the way bonuses and rewards are categorized also affects peoples’ motivation. Dividing rewards and bonuses into multiple categories—even if those categories are meaningless—makes people work harder. Why? Because they are more likely to feel as if they “missed out” on a reward if they don’t receive one from each category. Although admittedly a bit manipulative sounding, taking rewards and bonuses and splitting them into categories may increase motivation.72
Skill-Based Pay
Skill-based pay (also called competency-based or knowledge-based pay) is an alternative to job-based pay that bases pay levels on how many skills employees have or how many jobs they can do.73 For employers, the lure of skill-based pay plans is increased flexibility of the workforce: Staffing is easier when employee skills are interchangeable. Skill-based pay also facilitates communication across the organization because people gain a better understanding of each other’s jobs. One study found that across 214 different organizations, skill-based pay was related to higher levels of workforce flexibility, positive attitudes, membership behaviors, and productivity.74 Another study found that over 5 years, a skill-based pay plan was associated with higher levels of individual skill change and skill maintenance.75 These results suggest that skill-based pay plans are effective in achieving their stated goals.
skill-based pay
A pay plan that sets pay levels on the basis of how many skills employees have or how many jobs they can do.
What about the downsides? People can “top out”—that is, they can learn all the skills the program calls for them to learn. This can frustrate employees after they’ve been challenged by an environment of learning, growth, and continual pay raises. Plus, skill-based plans don’t address the level of performance but only whether someone can perform the skill. Perhaps reflecting these weaknesses, one study of 97 U.S. companies using skill-based pay plans found that 39 percent had switched to a more traditional market-based pay plan 7 years later.76
Profit-Sharing Plans
A profit-sharing plan distributes compensation based on some established formula designed around a company’s profitability. Compensation can be direct cash outlays or, particularly for top managers, allocations of stock options. When you read about executives like Oracle’s Larry Ellison, the top-earning U.S. CEO, earning $96.2 million, much of it ($90.7 million) comes from stock options previously granted based on company profit performance.77 Or, take Facebook’s Mark Zuckerberg, who despite accepting a $1 salary, made a whopping $2.3 billion in 2012 after cashing out 60,000 stock options.78 Of course, the vast majority of profit-sharing plans are not so grand in scale. Jacob Luke, age 13, started his own lawn-mowing business after getting a mower from his uncle. Jacob employs his brother, Isaiah, and friend, Marcel Monroe, and pays them each 25 percent of the profits he makes on each yard. Profit-sharing plans at the organizational level appear to have positive impacts on employee attitudes; employees report a greater feeling of psychological ownership.79
profit-sharing plan
An organization-wide program that distributes compensation based on some established formula designed around a company’s profitability.
Gainsharing
Gainsharing 80 is a formula-based group incentive plan that uses improvements in group productivity from one period to another to determine the total amount of money allocated. Its popularity seems narrowly focused among large manufacturing companies, although some health care organizations have experimented with it as a cost-saving mechanism. Gainsharing differs from profit sharing in tying rewards to productivity gains rather than profits, so employees can receive incentive awards even when the organization isn’t profitable. Because the benefits accrue to groups of workers, high performers pressure weaker ones to work harder, improving performance for the group as a whole.81
gainsharing
A formula-based group incentive plan.
Employee Stock Ownership Plans
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. Companies as varied as Publix Supermarkets and W. L. Gore & Associates are now more than 50 percent employee-owned.82 But most of the 10,000 or so ESOPs in the United States are in small, privately held companies.83
employee stock ownership plan (ESOP)
A company-established benefits plan in which employees acquire stock, often at below-market prices, as part of their benefits.
Research on ESOPs indicates they increase employee satisfaction and innovation.84 But their impact on performance is less clear. ESOPs have the potential to increase employee job satisfaction and work motivation, but employees need to psychologically experience ownership.85 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.86
ESOP plans for top management can reduce unethical behavior. CEOs are more likely to manipulate firm earnings reports to make themselves look good in the short run when they don’t have an ownership share, even though this manipulation will eventually lead to lower stock prices. However, when CEOs own a large amount of stock, they report earnings accurately because they don’t want the negative consequences of declining stock prices.87
Evaluation of Variable Pay
Do variable-pay programs increase motivation and productivity? Studies generally support the idea that organizations with profit-sharing plans have higher levels of profitability than those without them.88 Profit-sharing plans have also been linked to higher levels of employee affective commitment, especially in small organizations.89 One study found that whereas piece-rate pay-for-performance plans stimulated higher levels of productivity, this positive affect was not observed for risk-averse employees. Thus, economist Ed Lazear seems generally right when he says, “Workers respond to prices just as economic theory predicts. Claims by sociologists and others that monetizing incentives may actually reduce output are unambiguously refuted by the data.” But that doesn’t mean everyone responds positively to variable-pay plans.90
An Ethical Choice Sweatshops and Worker Safety
The United States, as well as many other countries, has come a long way in terms of worker safety and compensation. The number of worker-related injuries has decreased substantially over generations, and many employees earn better wages. Unfortunately, the same cannot be said for other parts of the world.
To keep costs down, many companies and their managers turn to developing nations, where people are willing to work for low pay and no benefits. The poor, often unregulated working conditions of manual labor “sweatshops” are common, especially in the garment industry. However, three recent accidents in Bangladesh are raising ethical questions about using this type of labor. In November 2012, a fire at the Tazreen Fashion factory that made low-cost garments for U.S. stores, including Walmart, killed 112 workers. In April 2013, the collapse of Rana Plaza, home to a number of garment factories, killed more than 1,100 workers. And in May 2013, a fire at the Tung Hai Sweater Company killed 8 workers. An investigation of the Rana Plaza incident revealed that the building had been constructed without permits, using poor materials. Although workers there reported seeing and hearing cracks in the structure of the building, they were ordered back to work. Because these individuals work in top-down management structures without participative management opportunities, and do not have unions to represent them, their concerns were not heeded.
Although pulling completely out of countries such as Bangladesh may only hurt individuals there who rely on this work to make a living, managers should take steps to raise safety standards. Some companies, such as PVH, owner of Tommy Hilfiger and Calvin Klein, as well as Tchibo, a German retailer, have signed the legally binding “IndustriALL” proposal, which requires manufacturers to conduct building and fire-safety inspections regularly and to make their findings public. Many other companies have not signed, and it remains to be seen if this standard will effect real change for the workers, at least in terms of their safety. Some companies are attracted to countries with sweatshops precisely because they lack regulation and oversight and offer workers willing to work for less than $50 a month. Managers thus face a decision about whether to spend extra effort and money to ensure safe and equitable working conditions for all of their workers, either at home or abroad.
Sources: J. O’Donnell and C. Macleod, “Latest Bangladesh Fire Puts New Pressure on Retailers,” USA Today (May 9, 2013), www.usatoday.com; and T. Hayden, “Tom Hayden: Sweatshops Attract Western Investors,” USA Today (May 17, 2013), www.usatoday.com.
You’d probably think individual pay systems such as merit pay or pay-for-performance work better in individualistic cultures such as the United States or that group-based rewards such as gainsharing or profit sharing work better in collectivistic cultures. Unfortunately, there isn’t much research on the issue. One recent study did suggest that employee beliefs about the fairness of a group incentive plan were more predictive of pay satisfaction in the United States than in Hong Kong. One interpretation is that U.S. employees are more critical in appraising a group pay plan, and therefore, it’s more critical that the plan be communicated clearly and administered fairly.91
Flexible Benefits: Developing a Benefits Package
Show how flexible benefits turn benefits into motivators.
Todd E. is married and has three young children; his wife is at home full-time. His Citigroup colleague Allison M. is married too, but her husband has a high-paying job with the federal government, and they have no children. Todd is concerned about having a good medical plan and enough life insurance to support his family in case it’s needed. In contrast, Allison’s husband already has her medical needs covered on his plan, and life insurance is a low priority. Allison is more interested in extra vacation time and long-term financial benefits such as a tax-deferred savings plan.
A standardized benefits package would be unlikely to meet the needs of Todd and Allison well. Citigroup could, however, cover both sets of needs with flexible benefits.
Consistent with expectancy theory’s thesis that organizational rewards should be linked to each individual employee’s goals, flexible benefits individualize rewards by allowing each employee to choose the compensation package that best satisfies his or her current needs and situation. These plans replace the “one-benefit-plan-fits-all” programs designed for a male with a wife and two children at home that dominated organizations for more than 50 years.92 Fewer than 10 percent of employees now fit this image: About 25 percent are single, and one-third are part of two-income families with no children. Flexible benefits can accommodate differences in employee needs based on age, marital status, spouses’ benefit status, and number and age of dependents.
flexible benefits
A benefits plan that allows each employee to put together a benefits package individually tailored to his or her own needs and situation.
Photo 8-5 Accounting firm Ernst & Young has a culture of flexibility that includes flexible benefit plans to meet specific individual needs of its diverse work force. Employees like Gregston Chu in EY’s security operations can choose benefits that accommodate needs based on age, marital, and parental status, and age of dependents.
Source: AP Photo/The Honolulu Advertiser, Bruce Asato.
The three most popular types of benefits plans are modular plans, core-plus options, and flexible spending accounts.93 Modular plans are predesigned packages or modules of benefits, each of which meets the needs of a specific group of employees. A module designed for single employees with no dependents might include only essential benefits. Another, designed for single parents, might have additional life insurance, disability insurance, and expanded health coverage. Core-plus plans consist of a core of essential benefits and a menulike selection of others from which employees can select. Typically, each employee is given “benefit credits,” which allow the purchase of additional benefits that uniquely meet his or her needs. Flexible spending plans allow employees to set aside pretax dollars up to the dollar amount offered in the plan to pay for particular benefits, such as health care and dental premiums. Flexible spending accounts can increase take-home pay because employees don’t pay taxes on the dollars they spend from these accounts.
Today, almost all major corporations in the United States offer flexible benefits. And they’re becoming the norm in other countries, too. A recent survey of 211 Canadian organizations found that 60 percent offer flexible benefits, up from 41 percent in 2005.94 And a similar survey of firms in the United Kingdom found that nearly all major organizations were offering flexible benefits programs, with options ranging from private supplemental medical insurance to holiday trading, discounted bus travel, and child care vouchers.95
Intrinsic Rewards: Employee Recognition Programs
7 Identify the motivational benefits of intrinsic rewards.
Laura makes only $8.50 per hour working at her fast-food job in Pensacola, Florida, and the job isn’t very challenging or interesting. Yet Laura talks enthusiastically about the job, her boss, and the company that employs her. “What I like is the fact that Guy [her supervisor] appreciates the effort I make. He compliments me regularly in front of the other people on my shift, and I’ve been chosen Employee of the Month twice in the past six months. Did you see my picture on that plaque on the wall?”
Organizations are increasingly recognizing what Laura knows: Important work rewards can be both intrinsic and extrinsic. Rewards are intrinsic in the form of employee recognition programs and extrinsic in the form of compensation systems. In this section, we deal with ways in which managers can reward and motivate employee performance.
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. Some research suggests financial incentives may be more motivating in the short term, but in the long run it’s nonfinancial incentives.96
A few years ago, 1,500 employees were surveyed in a variety of work settings to find out what they considered the most powerful workplace motivator. Their response? Recognition, recognition, and more recognition. As illustrated in Exhibit 8-4, Phoenix Inn, a West Coast chain of small hotels, encourages employees to smile by letting customers identify this desirable behavior and then recognizing winning employees with rewards and publicity.
Exhibit 8-4
glOBalization! Outcry Over Executive Pay Is Heard Everywhere
Executive compensation has always been a hot topic in the media, especially following the financial crisis on Wall Street in 2008. Public outrage has flared over annual salaries, stock options, and bonuses in the millions for CEOs. In fact, it is hard to go a day without hearing or reading about executive compensation in the United States. However, the United States is not alone.
In Great Britain, for example, the total average pay of CEOs increased by 33 percent in 2010, while companies’ average market value grew by 24 percent. And a study by the London School of Economics found that a 10 percent increase in a company’s market value was associated with a 0.2 percent increase in worker pay but a 3 percent increase in the chief executive’s pay. Public anger over the disparity in compensation has led Prime Minister David Cameron to back calls by investors to have more control over executive pay packages. Large packages, he said, understandably “made people’s blood boil.”
In China, CEOs are paid much less. When the Industrial and Commercial Bank of China made a whopping $38.5 billion in net profits in 2012, its chairman, Jiang Jianqing, was paid $185,000. That’s less than 1 percent of what Lloyd Blankfein, CEO of Goldman Sachs, received. Yet Mr. Jianqing’s compensation made him the highest paid among his peers running China’s other large banks.
Despite the fact the Chinese executives are among the lowest paid relative to CEOs in other developed countries, their pay levels are still controversial. Like the public in the United States and Britain, the Chinese public is angered over the large inequalities between CEOs and workers. However, many Chinese academics and analysts argue that CEOs in China are paid too little, making it difficult to create pay-for-performance systems that better match company profits with compensation.
Sources: S. Rabinovitch, “China’s Bosses Criticised Over High Pay,” Financial Times.com (2013); and J. Werdigier, “In Britain, Rising Outcry Over Executive Pay That Makes ‘People’s Blood Boil,’” The New York Times (January 23, 2012), p. B5.
An obvious advantage of recognition programs is that they are inexpensive because praise is free!97 As companies and government organizations face tighter budgets, nonfinancial incentives become more attractive. Everett Clinic in Washington State uses a combination of local and centralized initiatives to encourage managers to recognize employees.98 Employees and managers give “Hero Grams” and “Caught in the Act” cards to colleagues for exceptional accomplishments at work. Part of the incentive is simply to receive recognition, but there are also drawings for prizes based on the number of cards a person receives. Managers are trained to use the programs frequently and effectively to reward good performance. Multinational corporations like Symantec Corporation have also increased their use of recognition programs. Centralized programs across multiple offices in different countries can help ensure that all employees, regardless of where they work, can be recognized for their contribution to the work environment.99 Another study found that recognition programs are common in Canadian and Australian firms as well.100
Despite the increased popularity of employee recognition programs, critics argue they are highly susceptible to political manipulation by management. 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. However, in most jobs, the criteria for good performance aren’t self-evident, which allows managers to manipulate the system and recognize their favorites. Abuse can undermine the value of recognition programs and demoralize employees.
Summary
As we’ve seen in the chapter, the study of what motivates individuals is ultimately key to organizational performance. 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. Employee participation also can increase employee productivity, commitment to work goals, motivation, and job satisfaction.
