Chapter 1-7: Employee Motivation Theories
Understanding Motivation
Core Concepts of Motivation
Simplest Form: The willingness to do something to satisfy a need. For example, going to university to satisfy the need for a great job and a rewarding career.
Formal Definition: The processes that account for your intensity, direction, and persistence of effort towards attaining a goal.
Fundamental Human Dimension: Motivation is rooted in the basic human drive to maximize pleasure and minimize pain.
Model Perspective: There is no single perfect model that universally explains motivation. We examine various theories to understand their relative value.
Maslow's Hierarchy of Needs
Origin: Proposed by Maslow in a 1943 paper titled "A Theory of Human Motivation."
Core Idea: Unsatisfied needs are motivating for people; satisfied needs do not motivate. This means that once a need is fulfilled, it no longer drives behavior until it becomes unsatisfied again.
Universal Needs: Research validates the existence of some universal human needs.
Hierarchy Structure (Pyramid):
Physiological Needs (Bottom): Basic survival needs for all human beings, such as water, oxygen, shelter, food, and warmth. Once satisfied, these needs no longer motivate.
Safety and Security Needs: The need for personal and financial security, health, and well-being. fostering a sense of stability and protection.
Loving and Belonging Needs: The need for social connection, affection, and acceptance, including relationships with family and friends.
Self-Esteem Needs: The need for respect, recognition, achievement, and a sense of worth, leading to confidence and self-efficacy.
Self-Actualization Needs (Top): Being all that you can be; realizing one's full potential, which represents growth and self-fulfillment.
Critique: While groundbreaking, Maslow's assumption that people only move up the hierarchy has been questioned. People can move up and down the pyramid, especially during economic crises (e.g., losing homes/jobs moves individuals down).
Douglas McGregor's Theory X and Theory Y
Premise: A manager's perception of their employees significantly affects employee motivation and overall performance.
Theory X (Manager's Perception): Managers with this mindset view employees as:
Lazy and disliking work.
Avoiding responsibility.
Seeking formal direction rather than self-initiating.
Primarily seeking job security.
Having little ambition or desire for career advancement.
Motivated by fear and punishment (the "stick" approach), requiring close control and micromanagement.
Theory Y (Manager's Perception): Managers with this mindset view employees as:
Self-motivated and ambitious.
Viewing work as a natural and desirable part of life.
Capable of exercising self-control and self-direction.
Seeking and accepting responsibility.
Making innovative decisions.
Motivated by rewards (the "carrot" approach), both intrinsic and extrinsic.
Reality: There's no hard evidence that either theory X or Y is universally true. Most managers are a blend of both; few are purely X or Y.
Connection to "Pygmalion in Management": This article supports McGregor's idea that manager perceptions matter. When management has high expectations for employees, they tend to achieve high performance because managers' behaviors (communication, resources, support) align with these expectations. This creates a self-fulfilling prophecy where employees, feeling supported and believed in, rise to meet expectations.
Herzberg's Two-Factor Theory (Motivation-Hygiene Theory)
Perspective: Focuses on the employee's attitude and feelings about work, not the manager's perception and is one of the most requested articles on Harvard Business Review.
Core Idea: An employee's attitude directly influences their success or failure (i.e., whether they are motivated or unmotivated). Factors leading to positive feelings are motivating factors, and factors leading to negative feelings are hygiene factors.
Two Distinct Factors: Herzberg argued that motivating factors and hygiene factors are not opposite ends of the same spectrum but are distinct and separate.
Hygiene Factors (Demotivating Factors): These are extrinsic to the employee and relate to the job environment. Their absence or inadequacy leads to dissatisfaction and unmotivation, but their presence does not necessarily lead to high motivation.
Quality of supervision (e.g., demeaning boss that would joke, "your reward for doing a job well done is you get to keep your job for another day").
Pay (after a certain level, additional pay has diminishing motivational returns, for very wealthy individuals, more pay doesn't motivate).
Company policies (can make work difficult and affect effectiveness).
Physical working conditions (closet-like office).
Relationships with others within the organization.
Job security.
Motivating Factors: These are intrinsic to the employee and relate to the nature of the work itself. Their presence leads to satisfaction and motivation. These factors make employees feel good about their work.
Opportunities for promotion (moving up the corporate ladder).
Opportunities for personal and professional growth.
Recognition for work done.
Responsibility.
Achievement.
Management Implications:
To increase motivation, management should focus on the nature of the work and incorporate motivating factors.
To reduce dissatisfaction, management should focus on improving the job environment by addressing hygiene factors.
Simple Model for Organizational Effectiveness: Treating employees well leads to employees treating customers well, which in turn leads to the customers treating the corporation well. This model, however, requires a long-term perspective from companies. (short-term thinking often prevails).
Job Characteristics Model of Motivation
Core Idea: Certain job characteristics lead to critical psychological states, which in turn affect work outcomes.
Five Key Job Characteristics:
Skill Variety: The degree to which a job requires a variety of different skills and talents. Venture capital role: involves evaluating companies, handling crises for portfolio companies, and managing acquisitions/IPOs, offering diverse challenges daily. vs. repetitive data entry-level investment banker might spend 60-70 hours a week crunching numbers in Excel, leading to low skill variety and potential demotivation.
Task Identity: The degree to which a job requires completion of a whole and identifiable piece of work from beginning to end (e.g., designing an entire product vs. only crunching numbers for a part of a project).
Task Significance: The degree to which a job has a substantial impact on the lives or work of other people inside or outside the organization. The greater the perceived impact, the more motivated an individual tends to be.
Autonomy: The degree to which a job provides substantial freedom, independence, and discretion to the individual in scheduling the work and determining the procedures. Individuals to learn from mistakes and figure out how to achieve goals. (e.g., self-directed problem-solving vs. micromanagement).
Feedback: The degree to which carrying out the work activities provides the individual with direct and clear information about the effectiveness of their performance (regular, valuable feedback for improvement).
Three Critical Psychological States (Desired Outcomes):
Experienced meaningfulness of the work.
Experienced responsibility for outcomes of the work.
Knowledge of the actual results of the work activities.
Goal: By affecting these characteristics and states, the model aims to improve organizational performance through motivated and satisfied employees.
Equity Theory
Principle: Employees seek fairness in the workplace. They compare their inputs (effort, time, skills) and outputs (rewards, pay, recognition) with those of others.
Response to Inequity: If an employee perceives inequity (e.g., putting in more effort for the same rewards, or putting in equal effort for fewer rewards), they may:
Adjust their inputs (e.g., reduce effort).
Adjust their outputs (e.g., seek more rewards).
Distort their perceptions (e.g., rationalize the inequity).
Choose a different comparison referent.
Leave the organization.
Edward Deming's Theory Z (Total Quality Management - TQM)
Historical Context: Introduced in the 1980s, not widely adopted in the U.S. initially, but highly popularized in Japan.
Core Philosophy: Building quality into all processes of an organization from the beginning ensures quality outcomes. "If you start with quality, you're gonna end with quality." meaning that good inputs and processes yield good outputs, while poor inputs produce poor outcomes.
Employee Treatment: A key component of TQM is treating employees like royalty.
Benefits: Leads to highly productive employees, greater employee longevity, high morale, and job satisfaction.
Overall Impact: Ultimately results in better organizational performance (reinforces the simple model: treat employees well $
ightarrow$ customers well $
ightarrow$ corporation well).
Example: SAS Corporation, which genuinely treats its employees exceptionally well, demonstrating remarkable results.
Employee Recognition Programs
Purpose: A powerful tool to motivate employees by formally acknowledging and rewarding high performance or behavior that goes above and beyond expectations.
Mechanism: Reinforces desired behaviors, encouraging employees to repeat them, formal acknowledgment for excellent work.
Examples: "Employee of the Month" plaques, premier parking spots, mentions in company newsletters.
Critiques: Such programs can sometimes be susceptible to management manipulation (e.g., favoritism or owners recognizing family members).
Employee Stock Option Plans (ESOPs)
Objective: To encourage employees to act more like owners, increasing job satisfaction, motivation, and wealth generation for employees.
Application: Offered by various entity types including public companies, private companies (like HEB), startup companies, limited liability corporations, and partnerships.
Definition of an Option: The right to purchase stock at a fixed price (the "option price" or "strike price") over a predefined period. This is a right, not an obligation, and actual ownership is not immediate.
Example: If granted an option to buy stock at 1/share, and the stock later trades at 101/share, the employee can exercise the option and profit by 100. With 100,000 options, this results in a 9,900,000 profit ( (101 - 1) imes 100,000 ).
Four Critical Elements of ESOPs:
Option: As defined above, it's a right, not an obligation, and actual ownership is not immediate. It’s the opportunity to buy shares at a predetermined price in the future.
Vesting Period: A mechanism to promote employee longevity. Options are granted gradually over a period (e.g., over 4 years, 25,000 options granted each year, for a total of 100,000 options). This prevents immediate departure after a significant stock price increase.
Trigger: The point at which an employee becomes eligible to participate in the ESOP. Commonly, this is after one year of employment.
Option Price:
Public Companies: Often the share price at the time the options are granted, which is predetermined and known upfront.
Private Companies: Typically set by the board of directors, often related to the price of the last financing round, sometimes with a slight discount.
Number of Shares: Varies significantly by organization size. In large corporations, it might be a tiny fraction (0.00000001%); in startups, it can be a meaningful percentage (e.g., National Instruments insiders owned 28%
of the company before acquisition).Employee Expectations and Advice:
Do Your Homework: For public companies, ESOP details are disclosed in SEC documents. For private companies, this information is not public.
Common Structure: Expect a 4-year vesting period and 1-year eligibility before participation.
Negotiate: Try to tie stock options to performance goals and objectives. Be willing to trade short-term bonuses for long-term stock opportunities, given their potential for wealth generation.
Motivation's Dependence on Company Performance: ESOPs are highly motivating when the company performs well and stock prices rise. Conversely, if stock prices fall below the option price (e.g., Dell example where options were at 50/share but stock traded at 11/share), employees become highly demotivated because exercising the option would result in a loss.
Value Proposition Example (Sales Representative):This demonstrates the win-win potential for both employees and employers.
Trigger: Meeting sales quota.
Incentive: 0.10 worth of options for every 1.00 of revenue generated above quota.
Scenario: If a sales rep generates 100,000 revenue above quota, this translates to 10,000 worth of options (100,000 imes 0.10).
Company Impact: Assuming a 10% net income level (typical for Nasdaq companies), 100,000 in revenue yields 10,000 in net income. With an average Price-to-Earnings (PE) ratio of 25 (Nasdaq average), this 10,000 in additional net income translates to a 250,000 increase in the company's stock price (10,000 imes 25).
Conclusion: The 10,000 worth of options given to the sales rep resulted in a 250,000 increase in company value, demonstrating the significant win-win potential of ESOPs for both employees and employers.
Daniel Pink and the "Candle Problem"
Briefly referenced as a different perspective on motivation, suggesting that there is no singular universal way to motivate employees, and that traditional motivators may not always be effective for complex tasks.