Motivation and Reward Management

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Motivationand Reward Management

• Kun András IstvánUniversity of Debrecen, Hungary
• Faculty of Economics and Business Administration

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The main question ishow to achieve high work
performance?
Work performance is affected by

• Job characteristics and (physical) work
  environment
• Abilities and skills
• The willingness to perform

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Misbeliefs on motivation

• Motivation is the willingness to contribute to
  the oganisational goals
• Motivation is a kind of ability
• Motivation is connected directly to money
• With motivation every job performance problem can
  be solved
• Motivation depends on the employee

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What is Motivation? (Robbins 2009)

• The processes that account for an individuals
  intensity, direction and persistence of effort
  toward attaining a goal.
• Intensity (effort) how hard a person tries
• Direction what a person is trying to do (Is it
  one that benefits the organization?)
• Persistence how long the effort is maintained

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Motive and Motivation
MOTIVATION is a set of processes that moves a
person toward a goal. MOTIVE is a need or a want
that causes us to act (energises us).
Need Some internal state that makes certain
outcomes appear attractive.
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Classic process of motivation

• Effort a measure of intensity (how hard a person
  is trying)
• The greater the tension, the greater the effort
  (Robbins)

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Abilites, motivation and performance

• ' A driving force within individuals by which
  they attempt to achieve some goal in order to
  fulfil some need or expectation' (Mullins, 1993)
• Performance (a X m)
• Job performance is a function of ability (a)
• and motivation (m)

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What is motivating?

• Motivating others to have others doing efforts
  towards a goal. It usually means the
  sychronization of their goals or needs with the
  goals of the organisation.
• Motivating ourselves setting the direction
  independently and then taking actions to ensure
  that we get there.

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Source http//www.ineedmotivation.com/blog/wp-con
tent/uploads/2008/07/pp30580motivation-posters.jpg
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Intrinsic and Extrinsic Motivation (Herzberg)

• Intrinsic Motivation the source of motivation
  comes from inside the performer (from his/her
  beliefs, values, attitudes). Responsibility,
  autonomy etc.
• Long-lasting effect (high persistency)
• Extrinsic Motivation comes from outside of the
  performer. Money, promotion, coertion,
  punishment
• Immediate and powerful, but usually not persistent

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Intrinsic vs. Extrinsic Motivation (Lepper,
1988)

• Intrinsic Motivation is when an individual takes
  on an activity
• For its own sake
• For the enjoyment it provides
• For the knowledge gained
• For the feelings of accomplishment it brings
• Extrinsic Motivation is when an individual
  performs
• In order to gain some kind of reward
• In order to avoid some kind of punishment
  separate from the activity

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Theories of motivation (Armstrong 2005)

• Instrumentality theory rewards and punishments
  serve as the means of ensuring people behave in a
  desired way (operant conditioning Skinner
  taylorism).
• Content (needs) theories explain the specific
  factors that motivate people (the content of
  motivation consists of needs). Not all needs are
  equally important at a given time, and goals and
  needs has a complex relationship). (Maslow,
  Herzberg?, McClelland?)
• Process (cognitive) theories focuses on the
  psychological processes that affects motivation.
  (Expectancy, Goal, Equity theories)

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Two ways of extrinsic motivation carrot and
stick
Source http//www.krishnade.com/blog/2010/drive/
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Maslows Hierarchy of Needs

• Five (later eight) major categories of needs
• Applied generally
• Hierarchy some needs are more fundamental than
  others.
• A higher level of needs can be activated only if
  the below level is satisfied.
• No level can be bypassed.
• A level once satisfied looses its motivating
  power.

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Maslows Hierarchy of Needs(original model)
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Jekaterina Zenkova
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Maslows hierarchy with 8 needs
Cognitive knowledge, meaning, to explore,self
awarenessAesthetic beauty, form, symmetry,
order.
Self-transcendence to connect to something
beyond the ego, or to help others find
self-fulfillment and realize their potential.
Self-trancendence
Self-actualization
Cognitive Needs
Aesthetic Needs
Esteem Needs
Social Needs
Safety Needs
Physiological Needs
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Two-Factor Theory of Herzberg
(extrinsic)
(intrinsic)
Hygiene factors affectjob dissatisfaction
Motivator factors affectjob satisfaction

• Quality of supervision
• Pay
• Company policies
• Physical working conditions
• Relations with others
• Job security

• Promotional opportunities
• Opportunities for personal growth
• Recognition
• Responsibility
• Achievement

High
High
Job Dissatisfaction
Job Satisfaction
0
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Herzbergs Two-Factor Theory

• Managers who seek to eliminate factors that can
  create job dissatisfaction may bring about peace
  but not necessarily motivation.
• If a manager wants to motivate people on their
  jobs, she or he should emphasize factors
  associated with the work itself or outcomes
  directly derived from it.
• Satisfaction and dissatisfaction are not related
  (not equal, nor opposite)
• Managers should provide opportunities for
  employees to maximise the satisfiers (motivators)
• Keep the Hygiene factors (demotivators) to a
  minimum
• Underlies that both financial (hygiene) and
  non-financial (motivator) rewards should be
  provided.

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Satisfiers Motivators Intrinsic Factors
Percentage frequency for factors affecting
extreme satisfaction (1,753 events)
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Dissatisfaction Hygiene Extrisic Factors
Percentage frequency for factors affecting
extreme dissatisfaction (1,844 events)
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McGregors Theory X and Theory Y

• Theory X
• Inherent dislike for work and will attempt to
  avoid it
• Must be coerced, controlled or threatened with
  punishment
• Will avoid responsibilities and seek formal
  direction
• Place security above all factors and will display
  little ambition

• Theory Y
• View work as being as natural as rest or play
• Will exercise self-direction and self-control if
  committed to objectives
• Commitment to objectives is directly related to
  the rewards associated with their achievement
• Can learn to accept, even seek, responsibility
• Can make innovative decisions on their own

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McClelland's Theory of Needs

• Need for achievement (nAch) - drive to excel
• Need for power (nPow) - the need to make others
  behave in a way they would not have behaved
  otherwise
• Need for affiliation (nAff) - the desire for
  friendly and close interpersonal relationships

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McClelland's Theory of Needs

• High achievers prefer jobs with personal
  responsibility, feedback, and intermediate
  degree of risk.
• High achievers are not necessarily good managers.
• Affiliation and power closely related to
  managerial success
• Employees can be trained to stimulate their
  achievement need.

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What motivates a university student?(based on a
motivation concept by Hunt J. W.)
women
men
Comfort
Structu-red work
Personal relations
Respect, status
Power
Self-actualiza-tion
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Expectancy Theory
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Expectancy Theory

• Effort-performance relationship
• the probability perceived by the individual that
  exerting a given amount of effort will lead to
  performance.
• Performance-reward relationship
• the degree to which the individual believes that
  performing at a particular level will lead to the
  attainment of a desired outcome.
• Reward-personal goals relationship
• the degree to which organisational rewards
  satisfy an individuals personal goals or needs
  and the attractiveness of those potential rewards
  for the individual.

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Simple Numeric Example on Expectancy Theory

• Assumptions
• A given project-work needs some effort
• little effort has an opportunity cost of 100
• great effort has an opportunity cost of 200
• With little effort, the chance to be successful
  is 50, with great effort it is 80.
• If the project succeeds, the company gives us a
  500 bonus, if it fails, we get nothing.
• Our discount rate is 10 to the time of
  rewarding.
• Is it any worth making a great effort (are we
  motivated)?

• The expected present value of the greater effort
  0.8(500/1.1)-0.5 (500/1.1) 136.36
• The motivation in terms of money
  136.36-10036.36

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Goal-Setting Theory

• Goal Setting Theory is based on people being
  motivated if they set their own targets
• Specific goals lead to increased performance.
• Difficult (but achievable) goals, when accepted,
  result in higher output than easy goals.
• Self-generated feedback is a more powerful
  motivator than externally generated feedback.
• Influences on goal-performance relationship
• Commitment
• Task characteristics
• (National and/or organisational) culture

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Management by Objectives (MBO)

• Converts overall organizational objectives into
  specific objectives for work units and
  individuals
• Common ingredients
• Goal specificity
• Participation in decision making
• Explicit time period
• Performance feedback

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Equity Theory

• People are better motivated if treated equitably
• Employees weigh what they put into a job
  situation (input) against what they get from it
  (outcome).
• Then they compare their input-outcome ratio with
  the input-outcome ratio of relevant others.

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Possible inputs and outputs

• INPUTS
• Performance
• Education
• Organisational Level
• Tenure/Seniority
• Demographic features

• OUTPUTS
• Social Reward
• Benefits
• Recognition
• Actual Pay
• Perks

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Equity Theory
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Choices when perceived inequity

1. Change their inputs
2. Change their outcomes
3. Distort perceptions of self
4. Distort perceptions of others
5. Choose a different referent
6. Leave the field

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Forms of justice
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Expectancy-based Extended Model of Motivation
Porter and Lawler
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Job satisfaction

• The (individual) attitudes and feelings people
  have about their work. Positive and favourable
  attitudes towards the job indicate job
  satisfaction.
• Morale a group variable related to the degree to
  which group members feel attracted to their group
  and desire to remain a member of it.

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Factors affecting job satisfaction

• Intrinsic and
• extrinsic motivating factors,
• Quality of supervision,
• Social relationships within the workgroup,
• Work performance.

• Empirical findings (Purcell et al.)
• career opportunities,
• job influence,
• teamwork,
• job challenge.

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Job satisfaction and performance

• Common belief positive correlation

• Empirical evidence no or very little correlation

• High performace can produce job satisfaction, but
  job satisfaction is unlikely to produce high
  performance
• Satisfied workers are not necessarily productive
  workers and productive workers are not
  necessarily satisfied ones.

• BUT performance improvement can be achieved by
  giving people the opportunity to perform, and
  rewarding them according to their goals (needs).

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Why then job satisfaction is important?

• Motivation increases job performance,
• Job satisfaction does not.
• BUT
• People want to be satisfied with their work, and
  if they are not satisfied,
• they will leave the job, even if they are
  motivated to high performance.

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Modifiers of satisfaction-performance relation
(Alan Wilson, Jacob Frimpong 2004)
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The Job Characteristics Model

• Proposes that any job can be described in terms
  of five core job dimensions
• Skill variety
• Task identity
• Task significance
• Autonomy
• Feedback

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The Job Characteristics Model
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Motivating Potential Score (MPS)
Skill variety Task Identity Task significance
MPS
3
x Autonomy x Feedback
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How can jobs be Redesigned?

• Job Rotation or Cross-training the periodic
  shifting of an employee from one task to another
• Job Enlargement increasing the number and
  variety of tasks
• Job Enrichment increasing the degree to which
  the worker controls the planning, execution and
  evaluation of the work

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Guidelines for Enriching a Job
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Implications for Managers

• Recognize individual differences
• Use goals and feedback
• Allow employees to participate in decisions that
  affect them
• Link rewards to performance
• Check the system for equity

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Reward management
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Rewarding Employees

• Major strategic rewards decisions
• What to pay employees
• How to pay individual employees
• What benefits to offer
• How to construct employee recognition programs

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What to pay

• Need to establish a pay structure
• Balance between
• Internal equity the worth of the job to the
  organization
• External equity the external competitiveness of
  an organizations pay relative to a pay elsewhere
  in its industry
• A strategic decision with trade-offs

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Definition of Reward Management

• This management discipline is concerned with the
  formulation and implementation of strategies and
  policies, the purposes of which are to reward
  employees fairly, equitably and consistently in
  accordance with their value to the organisation.
• It deals with design, implementation and
  maintenance of reward systems (processes,
  practices, procedures) that aim to meet the needs
  of both the organisation and its stakeholders.

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Philosophy of Reward Management

• Strategic sense long-term focus it must be
  derived from the business strategy
• Total Reward approach considering all approaches
  of reward (financial or not) as a coherent whole
  integration with other HRM strategies
• Differential reward according to the contribution
  
• Fairness, equity, consistency, transparency

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Economic theories (partially) explaining pay
levels

• Supply and Demand labor market factors
• Efficiency wage theory attraction of better
  employees, motivation, reducing fluctuation leads
  to high wages
• Human Capital theory productivity differences
• Principal Agent Theory inequality in the
  information leads to agency costs
• The effort bargain collective bargaining

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Total Reward (Armstrong 2009)

• All types of reward
• Non-financial as well as financial,
• Indirect as well as direct,
• Extrinsic as well as intrinsic.
• Each element is developed, implemented and
  treated as an integrated and coherent whole.

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Components of Total Reward (Armstrong 2009)
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The 4Ps of Reward

• Pay
• Salary, bonus, shares, etc.
• Praise
• Positive feedback, commendation,
  staff-of-the-year award, etc.
• Promotion
• Status, career elevation, secondment, etc.
• Punishment
• Disciplinary action, withholding pay, or
  criticism, etc

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Derivation of Total Reward
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Strategic Reward Management

• Where do we want our reward practices to be in a
  few years time? (vision)
• How do we intend to get there? (means)

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Reward Strategy

• A declaration of intent that defines what the
  organisation wants to do in the longer term to
  develop and implement reward policies, practices
  and processes that will further the achievement
  of its business goals and meet the needs of the
  stakeholders.
• It gives a framework to other elements of reward
  management.

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The structure content of a Reward strategy

• Environment analysis
• Macro-level social, economical, demographic
• Industrial level
• Micro-level competitors
• Analysis of the inner environment strategy,
  job evaluation, financial conditions
• Gap-analysis
• Guiding principles
• Broad-bush reward strategy
• Specific reward initiatives

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Job-evaluation

• A systematic process
• For defining the relative worth/ size of jobs/
  roles within an organisation
• For establishing internal relativities
• For designing an equitable grade structure and
  grading jobs in the structure
• To give an input for reward considerations

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Dimensions of job evaluation

• Relative or measured to an absolute scale
• Relative compares jobs to one another within the
  company
• Absolute compares to an independent, external
  measure
• Analytical or non-analytical (global)
• Analytical measures factors or elements of the
  jobs
• Non-analytical measures the job as a whole

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Types of Job Evaluation (Armstrong 2009)
Analytical job evaluation (point-factor rating or
analytical matching) decisions on the relative
value or size of jobs are based on an analysis of
the degree to which various defined elements or
factors are present in the form of demands on the
job holder
Non-analytical job evaluation (job classification
or ranking) whole jobs are described and
compared to slot them into a defined grade or
place them in a rank order or without analysing
them into their elements
Market pricing jobs are placed in pay
structures entirely on the basis of
external relativities, ie market rates (NB a
method of pricing jobs but not job evaluation as
usually defined)
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Wage gaps

• Wage gaps can occur in companies using
  international benchmarking in job evaluation. The
  cause is simple
• The market of top managers is usually
  international they earn international wages, or
  they leave the firm
• The market of workers with little or no
  qualification is local in (nearly) every case
  they earn local wages.
• In poor countries this can lead to enermous wage
  gaps between the top and bottom employees.

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Types of Job Evaluation
Non-analytical Evaluation Analytical Evaluation
Whole job ranking Points rating
Paired comparisons Proprietary schemes
Job classification
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Job Evaluation Scoring (Armstrong 2009)
Factor Level 1 Level 2 Level 3 Level 4 Level 5 Level 6
Expertise 20 40 80 100 120
Decisions 20 40 60 100 120
Autonomy 20 40 80 100 120
Responsibility 20 40 80 100 120
Interpersonal skills 20 40 60 80 120
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80
60
60
100
Total score 360
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Components of Total Remuneration

• Base pay Base pay is the fixed compensation paid
  to an employee for performing specific job
  responsibilities.  It is typically paid as a
  salary, hourly (or in some situations piece
  rate). There is a tendency towards market
  orientation and the increasing role of
  qualifications.
• Contingent pay Individual contingent pay relates
  financial rewards to the
• individual performance, organisation or team
  performance,
• competence,
• service,
• contribution or
• skill of individual employees.
• Consolidated pay built into the base pay
• Variable pay provided in the form of cash
  bonuses (increasing role nowadays).
• Employee benefits Elements of remuneration given
  in addition to the various forms of cash pay.

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Contingent pay

• Individual contingent pay is a good motivator
  (but to what extent?) for those who receive it.
• It attracts and retains better workers.
• It makes labour related expenditures more
  flexible.
• It can demotivate those who dont receive it
  (depends on performance measurement)
• Can act against quality and teamwork.

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Types of individual contingency pays

• Performance-related increases basic pay or
  bonuses related to assessment of performance
• Competence related Pay increases related to the
  level of competence
• Contribution-related pay is related both to
  inputs and outputs
• Skill-based pay is related to acquisition of
  skills
• Service-related pay is related to service-time

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Team based pay

• Pay is related to team performance
• It can encourages teamwork, loyalty and
  co-operation
• It can be demotivating on individual level
  (encourages social loafing)

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Organisaton-wide schemes

• Profit-Sharing Plans organization-wide programs
  that distribute compensation based on an
  established formula designed around profitability
• Gain Sharing compensation based on sharing of
  gains from improved productivity
• Employee Stock Ownership Plans (ESOPs) plans in
  which employees acquire stock, often at
  below-market prices

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Employee benefits

• Attractive and competitive total remuneration
• Provide for the personal needs
• Increase commitment toward the organisation
• Tax-efficient

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Main types of Employee benefits

• Pension schemes
• Personal (and family) security different types
  of insurances
• Financial assistance loans, house purchase
  schemes, discount on company services
• Personal needs holidays, child care, recreation
  facilities, career breaks
• Company cars and petrol
• Intangible benfits quality of working life
• Other benefits mobile phones, notebooks
• Cafeteria systems

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The Hungarian Three Pillar Pension System

• First pillar Mandatory Tax-financed Public
  Universal Pension
• Second Pillar Mandatory Private Pension Funds
• Third pillar Funded Voluntary Pension
• Health Insurane Funds
• Tax allowance after expenditures on certain goods

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Definition of the psychological contract

• The perceptions of both parties to the
  employment relationship, organization and
  individual, of the reciprocal promises and
  obligations implied in that relationship
• The state of the psychological contract is
  concerned with whether the promises and
  obligations have been met, whether they are fair
  and their implications for trust.

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The Psychological Contract Framework (David Guest)
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Total remuneration in recession

• It a good chance to rethink and renew the
  remuneration system
• Share of contingeny payment should increase
• Empoyer benefits, that dont need short term
  expenditure will increase
• Company car
• Saturday-year (freetime)
• Share-options

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Thank you for your attention!

• andras.kun_at_econ.unideb.hu