2. In this presentation theIn this presentation the
relationship betweenrelationship between
economic reward systemseconomic reward systems
andand organizational behaviororganizational behavior
will be discussed.will be discussed.
3. The chapter focusesThe chapter focuses;;
1.1. First on how incentives areFirst on how incentives are
combined with other parts ofcombined with other parts of
wage administration to build awage administration to build a
complete reward system thatcomplete reward system that
encourages motivation.encourages motivation.
4. 2.2. Then on, money as a meansThen on, money as a means
of rewarding employees,of rewarding employees,
motivational models applied tomotivational models applied to
pay, cost-reward comparisons,pay, cost-reward comparisons,
and behavioral considerations inand behavioral considerations in
performance appraisal.performance appraisal.
5. 3.3.Finally,Finally, onon incentive pay, anincentive pay, an
approach in which each worker’sapproach in which each worker’s
pay varies in relation to employeepay varies in relation to employee
or organizational performance.or organizational performance.
6. 1. A COMPLETE PROGRAM1. A COMPLETE PROGRAM
This program has three incentiveThis program has three incentive
foundationfoundationss;;
1. Base pay1. Base pay
2. Performance Reward2. Performance Rewardss
3. Profit Sharing3. Profit Sharing
* Each can contribute something to* Each can contribute something to
the employee’s economic satisfaction.the employee’s economic satisfaction.
7. 2.2. Money As a Means of RewardingMoney As a Means of Rewarding
EmployeesEmployees
Money is important to employees forMoney is important to employees for
a number of reasons.a number of reasons.
8. Certainly ,money is valuableCertainly ,money is valuable
because of the goods and servicesbecause of the goods and services
that it will purchase. All of us havethat it will purchase. All of us have
seen its importance as a statusseen its importance as a status
symbol for those who have it andsymbol for those who have it and
can thus save it, spend itcan thus save it, spend it
conspicuously, or give it awayconspicuously, or give it away
generously.generously.
9. Money has status value when it is beingMoney has status value when it is being
received and when it is being spent. Itreceived and when it is being spent. It
represents to employees what theirrepresents to employees what their
employer thinks of them. It is also anemployer thinks of them. It is also an
indication of one employee’s statusindication of one employee’s status
relative to that of other employees. Itrelative to that of other employees. It
has about as many values as it hashas about as many values as it has
possessors.possessors. (e.g. P135)(e.g. P135)
10. Application of the MotivationalApplication of the Motivational
ModelsModels
A useful way to think about money as aA useful way to think about money as a
reward is to apply it to some of thereward is to apply it to some of the
motivational models. Such as;motivational models. Such as;
DrivesDrives
NeedsNeeds
ExpectancyExpectancy
11. Additional Considerations in theAdditional Considerations in the
Use of MoneyUse of Money
Extrinsic and Intrinsic RewardsExtrinsic and Intrinsic Rewards::
Money is essentially an extrinsicMoney is essentially an extrinsic
reward rather than an intrinsic one, soreward rather than an intrinsic one, so
it is easily administered in behaviorit is easily administered in behavior
modification programs.modification programs.
12. However, it also has all the limitations
of extrinsic benefits. No matter how
closely management attaches pay to
performance, pay is still something that
originates outside the job and is useful
only away from the job. Therefore, it
tends to be less immediately satisfying
than intrinsic job rewards.
13. For example; the personal
satisfaction of a job well done is
a powerful motivator for many
people.
14. Organizational Behavior andOrganizational Behavior and
performance Appraisalperformance Appraisal
Organizations require consistent levelsOrganizations require consistent levels
of high performance from theirof high performance from their
employees in order to survive in aemployees in order to survive in a
highly competitive environment. Manyhighly competitive environment. Many
firms use some form of results-orientedfirms use some form of results-oriented
planning control systems.planning control systems.
15. 1. Objective Settings1. Objective Settings
2. Action Planning2. Action Planning
3. Periodic Reviews3. Periodic Reviews
4. Annual Evaluation4. Annual Evaluation
Managements by objectives (MBO) is aManagements by objectives (MBO) is a
cyclical process that often consists of fourcyclical process that often consists of four
steps as a way to attain desired performance.steps as a way to attain desired performance.
16. Performance appraisalPerformance appraisal plays a key roleplays a key role
in reward systems. It is the process of evaluatingin reward systems. It is the process of evaluating
the performance of employees, sharing thatthe performance of employees, sharing that
information with them, and searching for ways toinformation with them, and searching for ways to
improve their performance.improve their performance. Appraisal isAppraisal is
necessary in order to;necessary in order to;
1. allocate resources in a dynamic environment,1. allocate resources in a dynamic environment,
2. motivate and reward employees,2. motivate and reward employees,
3. give employees feedback about their work,3. give employees feedback about their work,
4. maintain fair relationship within groups,4. maintain fair relationship within groups,
5. coach and develop employees,5. coach and develop employees,
6. comply with regulations6. comply with regulations
17. Appraisal PhilosophyAppraisal Philosophy
The hallmarks of modern appraisalThe hallmarks of modern appraisal
philosophy are as follows;philosophy are as follows;
1.1. Performance Orientation,Performance Orientation,
2. Focus on Goals or Objectives2. Focus on Goals or Objectives
3. Mutual Goal Setting between3. Mutual Goal Setting between
Supervisor and EmployeeSupervisor and Employee
4. Clarification of Behavioral4. Clarification of Behavioral
ExpectationsExpectations
5. Extensive feedback Systems5. Extensive feedback Systems
18. Suggested Approaches for theSuggested Approaches for the
Appraisal InterviewAppraisal Interview
** Is knowledgeable about theIs knowledgeable about the
employee’s job,employee’s job,
* Has previously set* Has previously set
measurable performancemeasurable performance
standardsstandards
* Has gathered specific* Has gathered specific
evidence frequently aboutevidence frequently about
performanceperformance
** Seeks and uses inputs fromSeeks and uses inputs from
other observers in theother observers in the
organizationorganization
** Provides support,Provides support,
acceptance, and praise foracceptance, and praise for
talks well donetalks well done
* Listens actively to the* Listens actively to the
employee’s input andemployee’s input and
reactionsreactions
Appraisal interviews are most likely to be
successful when the appraiser;
19. ** Shares responsibility for outcomes andShares responsibility for outcomes and
offers future assistanceoffers future assistance
* Allows participation in the discussion* Allows participation in the discussion
* Sharply limits the amount of criticism to a* Sharply limits the amount of criticism to a
few major itemsfew major items
20. 360- Degree Feedback Programs360- Degree Feedback Programs
All appraisal systems build on theAll appraisal systems build on the
assumption that employees needassumption that employees need
feedback about their performance.feedback about their performance.
Feedback helps them know what to doFeedback helps them know what to do
and how well they are meeting their goals.and how well they are meeting their goals.
It shows that others are interested in whatIt shows that others are interested in what
they are doing. Assuming thatthey are doing. Assuming that
performance is satisfactory, feedbackperformance is satisfactory, feedback
enhances an employee’s self-image andenhances an employee’s self-image and
feeling of competence.feeling of competence.
21. In general, feedback shouldIn general, feedback should
focus onfocus on;;
** Specific jobSpecific job
behaviorsbehaviors
* Rely on objective* Rely on objective
data, rather thandata, rather than
subjective opinionssubjective opinions
and influencesand influences
** Be well-timed byBe well-timed by
being given soonbeing given soon
after a criticalafter a critical
event,event,
• * Be checked for* Be checked for
understanding byunderstanding by
the receiverthe receiver
22. 360- degree feedback360- degree feedback is theis the
process of systematically gatheringprocess of systematically gathering
data on a person’s skills, abilities, anddata on a person’s skills, abilities, and
behaviors from a variety of sources-behaviors from a variety of sources-
the manager, peers, subordinates,the manager, peers, subordinates,
and even customers or clients.and even customers or clients.
23. The 360-degree feedback systemThe 360-degree feedback system
works best if individuals matchworks best if individuals match
the data gathered with their ownthe data gathered with their own
self-assessments, for thisself-assessments, for this
approach encourages can dapproach encourages can doo
confrontation of one’s need forconfrontation of one’s need for
change.change.
24. However, 360-degree feedbackHowever, 360-degree feedback
programs can be time-consuming,programs can be time-consuming,
intimidating to the recipients, andintimidating to the recipients, and
expensive.expensive.
25. Appraisal ProblemsAppraisal Problems
• ConfrontationalConfrontational (because each party is trying to(because each party is trying to
convince the other that her/his view is more accurate)convince the other that her/his view is more accurate)
• EmotionalEmotional
• JudgmentalJudgmental (because the manager must evaluate(because the manager must evaluate
the employee’s behavior and results and this aspectthe employee’s behavior and results and this aspect
places the employee in a clearly subordinate position)places the employee in a clearly subordinate position)
CComplexomplex
Several behavioral problems inherent in theSeveral behavioral problems inherent in the
processprocess.. It can be;It can be;
26. Managerial EffectsManagerial Effects
Managerial Effects Conducting performanceManagerial Effects Conducting performance
appraisals also has substantial impact on theappraisals also has substantial impact on the
appraiser. On the positive side, a formalappraiser. On the positive side, a formal
appraisal system encourages managers to doappraisal system encourages managers to do
more analytical and constructive thinking aboutmore analytical and constructive thinking about
their employees.their employees.
The requirement of a face-to-face interviewThe requirement of a face-to-face interview
encourages managers to be more specific aboutencourages managers to be more specific about
identifying each employee’s abilities,identifying each employee’s abilities, interests,interests,
and motivation. Managers often begin toand motivation. Managers often begin to
perceive that each employee is truly differentperceive that each employee is truly different
and must be treated that way.and must be treated that way.
27. Realistically, however, managers sometimesRealistically, however, managers sometimes
avoid giving appraisals because they do notavoid giving appraisals because they do not
want to disrupt an existing smooth relationshipwant to disrupt an existing smooth relationship
with an employee by providing negativewith an employee by providing negative
feedback.feedback.
It is particularly difficult to deal with low-It is particularly difficult to deal with low-
performing employees, who may require moreperforming employees, who may require more
frequent monitoring and reviews.frequent monitoring and reviews.
In other cases , managers simply do not see anyIn other cases , managers simply do not see any
organizational rewards coming to them from theorganizational rewards coming to them from the
appraisal process. Where there is no extrinsic orappraisal process. Where there is no extrinsic or
intrinsic incentive to perform the task, managersintrinsic incentive to perform the task, managers
may neglect it entirelymay neglect it entirely (i.e. P 147)(i.e. P 147)
28. Incentives Linking Pay withIncentives Linking Pay with
PerformancePerformance
Incentive MeasureIncentive Measure
Amount of outputAmount of output
Quality of outputQuality of output
Success in reachingSuccess in reaching
goalsgoals
ExampleExample
Piece rates; salePiece rates; sale
commissioncommission
Piece rate only for piecesPiece rate only for pieces
meeting the standardmeeting the standard
commission only for salescommission only for sales
that are without badthat are without bad
debts.debts.
Bonus for selling anBonus for selling an
established number ofestablished number of
items during aitems during a
predetermined time spanpredetermined time span
29. Amount of profitAmount of profit
Cost efficiencyCost efficiency
Employee skillsEmployee skills
Profit sharingProfit sharing
Gain sharingGain sharing
Skill-based paySkill-based pay
Incentive Measure Example
30. AdvantagesAdvantages
Incentives provide several potentialIncentives provide several potential
employee advantages. A majoremployee advantages. A major
advantage is that they increaseadvantage is that they increase
employee beliefs (instrumentality) thatemployee beliefs (instrumentality) that
reward will follow high performance.reward will follow high performance.
Incentives also appear favorable fromIncentives also appear favorable from
the point of view equity theory. Thosethe point of view equity theory. Those
who perform better are rewarded more.who perform better are rewarded more.
31. Another advantage from theAnother advantage from the
employee’s point of view is thatemployee’s point of view is that
incentives are comparativelyincentives are comparatively
objective. They can be computedobjective. They can be computed
from the number of pieces, dollars,from the number of pieces, dollars,
or similar objective criteria.or similar objective criteria.
32. DifficultiesDifficulties
Potential equity is offset by other developmentsPotential equity is offset by other developments
that are perceived as inequities. In behaviorthat are perceived as inequities. In behavior
modification terms, certain unfavorablemodification terms, certain unfavorable
consequences exist alongside the favorableconsequences exist alongside the favorable
consequences of more pay, aconsequences of more pay, ass they tend tothey tend to
reduce the potential advantages of incentivereduce the potential advantages of incentive
pay.pay.
When workers make their cost-reward analyses,When workers make their cost-reward analyses,
they find that cost have risen along with rewards.they find that cost have risen along with rewards.
The result may be that the break-even point hasThe result may be that the break-even point has
changed very little, if at all.changed very little, if at all.
33. Wage Incentives
Basically Wage Incentives provide more
pay for more production. It nearly always
increases productivity while decreasing
unit labor costs. Therefore, the main
reason for using this, is clear. Ex: p 150
34. Profit Sharing
Profit Sharing is a system that distributes
to employee some portion of the profits of
business, either immediately or deferred
until a later date. Ex; p- 152
35. Gain Sharing
This is another useful group incentive.
Gain Sharing plan is a program that
establishes a historical base period of
organizational performance, measures
improvements and shares the gains with
employees on some formula basis. Ex: p-153
36. Skill-Based Pay
In contrast to salaries and wage
incentives, Skill-Based Pay rewards
individuals for what they know how to do.
Employees are paid for the range, depth
and types of skills in which they
demonstrate capabilities.
