S17: People Mgmt: Incentives and performance mgmt -

intrinsic vs extrinsic motivation

intrinsic: "i do this bc i like it" no external reward

extrinsic: "i do this bc im paid to" external reward

what financial incentives do: 3 effects

-motivational effect: spark effort

-informational effect: turn attention to what org values

-selection effect: attract right people repel wrong people

income and happiness

-high income correlatee with happiness but long term, increased income doesnt correlate with increased income

Adaptation: treadmill effect

money is not important once u have enough to meet basic needs.

-a pay rise does make u happy but only for short time as u adapt to it (treadmill effect)

Loss aversion

-pain of loss 2x as strong as reward felt from a gain

woman higher likelihood of working fulltime if

husband of her sister earns more than her own husband

performance incentives

piece work program: earnings tied to units produced

gainsharing programs: cost reduction ideas

merit pay plans: pay raises

profit sharing plan: firms profits to workers

stock option: stocks

Maybe on test?

A call center uses the metric of average time per call when rewarding employees. What can be a possible behavioral consequence?

• To keep their average time low, employees are hanging up on customers when they thinkthat the call will take too long to answer.

2. In a department store, salespeople are rewarded based on their sales volume. What canbe a possible behavioral consequence?• The problem is, they are giving substantial discounts and pressuring customers to makeunnecessary purchases.

3. All factory employees receive a large bonus if there are no reported injuries for sixmonths. What can be a possible behavioral consequence?

• As a result, some employees hide their injuries so that they do not cause others to losetheir bonus.

• What are the reasons for the negative consequences of these bonus schemes? Modifythese schemes to solve the problems.

1. Hanging up on customers to keep call times low is never a good idea. Customer serviceshould be based on quality. Instead of relying on average time per call, perhaps ratingemployees on the quality of their customer interaction

.2. Rewarding employees either on sales volume or dollar amount or both can encouragesalespeople to pressure customers into unnecessary purchases. This is the reason thatmany stores have done away with commissions or sales-based bonuses. An alternativemethod may be rewarding employees on customer satisfaction. In other words, anemployee providing customers with sound advice and quality service would earn themfinancial rewards.

3. Injuries hurt employees as well as products. There should never be a policy that wouldsuppress injury reporting. Whenever someone gets injured on the job, the organizationshould objectively look at what happened and what can be done to prevent a similarincident in the future. Setting individual bonuses instead of allowing one person’s injuryto affect other employee bonuses would remove the social pressure to withholdinformation. Or, instead of zero accidents, employees may get bonuses for reducing thenumber of accidents. Reporting may not be affected if the goal is more achievable and ifthere are intermediate bonuses for different performance levels.

rewards produce temporary

compliance

-good for precise behavior but not lasting committment

-discourage extra role behavior

rewards focus people on more

rewards

-undermine intrinsic motivation

-work as a means not an end

reduction is rewards seen as

punishment

-breeds resentment

Econometrix study of 500 firms:

productivity growth before/after incentive plans.

-4% increase in productivity within year, but no increase decrease after.

pay and performance only bc linked under presence of

strong shareholders

tactical problems

-too small: irrelevant

-no clear performance standards

-not discriminatory enough: everyone gets the same

incentive plans are no

silver bullet

-can reinforce norms but fall short of being key source to motivate

-over used and under implented

-powerful when wll integrated.

absolute vs relative ranking appraisals

absolute:

-rating based on std applied to everyone

-scores on individual performance

relative: rating based on rank within all ratings

-scores dependent on individual performance measured against others

how to give effective feedback:

positive-improve-positive approach:

-focus on strengths

-then provide criticism

-end with reiteration of positive

how to give feedback pt 2

- focus on situation not person

-be specific

-comment on things that can be acted upon

-recommend how to improve