Compensation, Merit Pay and Motivation Presented by: Ken Lee (Qian Li)

Organizations Motivate Join & Remain Perform assigned roles Act innovatively & spontaneously Types Of Behavior

Desired Behaviors & Rewards Desired Behaviors Organizations encourage Rewards Membership Reliable Role Innovative spontaneous activity Pay & Fringe Benefits Responsibility & Autonomy Social Affiliations Organization provide

Pay Membership Performance Cash Retirement plans life & health insurance indirect compensation Instrumental System Rewards Geared to Performance

Vroom’s Expectancy Theory Individuals who expect to receive a valued reward for high performance are more likely to strive for that level of performance than if they received no payoff . Theory of Pay for Performance

Vroom’s Expectancy Theory

Individuals who expect to receive a valued reward for high performance are more likely to strive for that level of performance than if they received no payoff .

Theory of Pay for Performance Sales in Private Sector PMRS Contingency Pay Schemes Salary Welfare Bonus

Design of Pay-for-performance Strategic Choices Structural Issues Process Issues

Structured Issues Structured Issues Measures of Performance Comprehensiveness of Criteria /Objectivity of Measures Salary vs Bonus Permanent Adjustment to Base Pay/One-time Bonus Level of Aggregation Individual/Program/Installation/Agency/Bureau Size of Payouts 3% is a good rule of thumb Administrative Convenience Frequency of Payout Hierarchy/ Subunits Number of Different Plans

Process Issues Participation in system design Employee involvement is likely to provide better Information about which plan designs are most attractive Obtaining legislative agreement with system objectives instrumental value, ongoing cost, distribution of rewards, risks Participation in system administration Establishment of employee oversight boards Effective due process.

Establishment of employee oversight boards

Effective due process.

Common Problems Deci (1975) Contingent pay is undesirable because it reduces intrinsic motivation and leads individuals to develop strategies to achieve rewards with minimal effort. Meyer (1975) The feedback implicit in merit pay awards undercuts that self-image, and the effect is to damage employee self-esteem, a factor important in individual and organizational productivity. Pearce, Stevenson and Perry (1985) Office productivity gradually improved over the period they had tested but that the merit pay intervention did not contribute to the trend.

Deci (1975)

Contingent pay is undesirable because it reduces intrinsic motivation and leads individuals to develop strategies to achieve rewards with minimal effort.

Meyer (1975)

The feedback implicit in merit pay awards undercuts that self-image, and the effect is to damage employee self-esteem, a factor important in individual and organizational productivity.

Pearce, Stevenson and Perry (1985)

Office productivity gradually improved over the period they had tested but that the merit pay intervention did not contribute to the trend.

Common Problems Invalid performance appraisals Performance cannot be accurately and completely measured. Employees complained performance appraisals have become "objective" by quantifying trivial features of jobs, result in meaningless appraisals. Manager felt that the criteria were not promoting improved individual performance or agency effectiveness Budget limits so that pay is controlled by holding down average employee performance ratings.

Performance cannot be accurately and completely measured.

Employees complained performance appraisals have become "objective" by quantifying trivial features of jobs, result in meaningless appraisals.

Manager felt that the criteria were not promoting improved individual performance or agency effectiveness

Budget limits so that pay is controlled by holding down average employee performance ratings.

Common Problems Dysfunctional competition Pay-for-performance systems are designed to reward individual. Contingent pay may discourage cooperation. Pay for performance may damage the self-esteem and loyalty of employees. Reduce the willingness of employees to work outside of their performance contract

Pay-for-performance systems are designed to reward individual.

Contingent pay may discourage cooperation.

Pay for performance may damage the self-esteem and loyalty of employees.

Reduce the willingness of employees to work outside of their performance contract

Common Problems Fixed budget results in underfunding of pay-for-performance programs. High performers have few chances for big rewards, and funds may be inadequate to recognize other deserving employees. Demoralizing effect of comparative ratings. One must increase one's relative ranking by displacing another. Lack of adequate financial rewards

Fixed budget results in underfunding of pay-for-performance programs.

High performers have few chances for big rewards, and funds may be inadequate to recognize other deserving employees.

Demoralizing effect of comparative ratings. One must increase one's relative ranking by displacing another.

What Works In The Public Sector Federal Government Salary plans that reward individual-level performance have generally not fared well among managers. Congress threatened to eliminate all appropriations for contingent pay, creating doubt about the viability of such systems in the federal government. Failure of merit pay systems to achieve expected results, new thinking about motivation and fiscal stress. State & Local Governments Unbelievably complicated paper-intensive. Simply poorly administered. Launched without adequate funding.

Federal Government

Salary plans that reward individual-level performance have generally not fared well among managers.

Congress threatened to eliminate all appropriations for contingent pay, creating doubt about the viability of such systems in the federal government.

Failure of merit pay systems to achieve expected results, new thinking about motivation and fiscal stress.

State & Local Governments

Unbelievably complicated paper-intensive.

Simply poorly administered.

Launched without adequate funding.

Reasons for Continuing Experimentation Failures involve designs predicated almost exclusively on an individual level of aggregation. Notion of "each according to his or her efforts“ is ingrained in the American political culture. Failures were predictable because the structure or administration of the system violated one or more principles of system design.

Guidelines Follow other "Gateway“ changes Best suited to organizations with supportive cultures Not be a leading but a lagging change Contingent upon the situation Many government jobs and the potential of more accurate and objective performance measurement. Situational factors including a jurisdiction’s fiscal realities. Employees’ participation facilitates patterns of interaction that are conducive to the success. Gradual implementation Significant time and effort must be devoted to designing and testing. Opportunity for organizational members to develop agreement. Develop a range of meaningful rewards the types of individuals attracted to the organization, the job itself, the work environment and changes in the external environment. Informal rewards.

Follow other "Gateway“ changes

Best suited to organizations with supportive cultures

Not be a leading but a lagging change

Contingent upon the situation

Many government jobs and the potential of more accurate and objective performance measurement.

Situational factors including a jurisdiction’s fiscal realities.

Employees’ participation

facilitates patterns of interaction that are conducive to the success.

Gradual implementation

Significant time and effort must be devoted to designing and testing.

Opportunity for organizational members to develop agreement.

Develop a range of meaningful rewards

the types of individuals attracted to the organization, the job itself, the work environment and changes in the external environment.

Informal rewards.

Thank You! Presented by: Ken Lee (Qian Li)