Robbins: Organizational Behavior Chapter Seven

MOTIVATION: FROM CONCEPT TO APPLICATIONS

LEARNING OBJECTIVES
After studying this chapter, students should be able to:

1. Identify the four ingredients common to MBO programs.

2. Explain why managers might want to use employee involvement programs.
3. Contrast participative management with employee involvement.
4. Define quality circles.
5. Explain how ESOPs can increase employee motivation.
6. Contrast gainsharing and profit sharing.
7. Describe the link between skill-based pay plans and motivation theories.
8. Explain how flexible benefits turn benefits into motivators.
9. Contrast the challenges of motivating professional employees versus low-skilled employees.
10. Contrast the challenges in motivating professional employees with temporary workers.

CHAPTER OVERVIEW

We have presented a number of motivation theories and applications in this and the previous chapter. While it is
always dangerous to synthesize a large number of complex ideas into a few simple guidelines, the following
suggestions summarize the essence of what we know about motivating employees in organizations.

Recognize individual differences. Employees have different needs. Do not treat them all alike. Moreover, spend
the time necessary to understand what is important to each employee. This will allow you to individualize goals,
level of involvement, and rewards to align with individual needs.

Use goals and feedback. Employees should have hard, specific goals, as well as feedback on how well they are
faring in pursuit of those goals.

Allow employees to participate in decisions that affect them. Employees can contribute to a number of
decisions that affect them: setting work goals, choosing their own benefits packages, solving productivity and
quality problems, and the like. This can increase employee productivity, commitment to work goals, motivation,
and job satisfaction.

Link rewards to performance. Rewards should be contingent on performance. Importantly, employees must
perceive a clear linkage. Regardless of how closely rewards are actually correlated to performance criteria, if
individuals perceive this relationship to be low, the results will be low performance, a decrease in job satisfaction,
and an increase in turnover and absenteeism statistics.

Check the system for equity. Rewards should also be perceived by employees as equating with the inputs they
bring to the job. At a simplistic level, this should mean that experience, skills, abilities, effort, and other obvious
inputs should explain differences in performance and, hence, pay, job assignments, and other obvious rewards.

WEB EXERCISES

At the end of each chapter of this instructor’s manual you will find suggested exercise and ideas for researching
the WWW on OB topics. The exercises “Exploring OB Topics on the Web” are set up so that you can simply
photocopy the pages, distribute them to your class, and make assignments accordingly. You may want to assign
the exercises as an out-of-class activity or as lab activities with your class. Within the lecture notes the graphic
will note that there is a WWW activity to support this material.

The chapter opens introducing Ricardo Semler whose father handed him a nearly bankrupt business when he
was just 22 years old. Ricardo decentralized the management structure and used employee involvement
strategies to simulate motivation and create a place where people want to come to work. The company has

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experienced 24 percent average annual growth over the last 20 years and turnover of less than one percent.
Semler boasts that he has taken top management out of managing the company.

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CHAPTER NOTES:

Management by Objectives

A. What Is MBO? Notes:

1. Management by objectives emphasizes participatively set goals that are

tangible, verifiable, and measurable. It is not a new idea. It originated more
than 50 years ago.
2. MBO’s appeal lies in its emphasis on converting overall organizational
objectives into specific objectives for organizational units and individual
members. MBO operationalizes objectives by devising a process by which
objectives cascade down through the organization. (Exhibit 7-1).
3. Four ingredients common to MBO programs are: goal specificity, participative
decision-making, an explicit time period, and performance feedback.
4. Goal specificity:
• The objectives in MBO should be concise statements of expected
accomplishments. Example – To cut departmental costs by seven percent,
to improve service by ensuring that all telephone orders are processed
within 24 hours of receipt, or to increase quality by keeping returns to less
than one percent of sales.
5. Participative decision making:
• The objectives in MBO are not unilaterally set by the boss and then
assigned to employees.
• The manager and employee jointly choose the goals and agree on how
they will be measured.
6. An explicit time period:
• Each objective has a specific time period in which it is to be completed.
• Typically three months, six months, or a year

7. Performance feedback
• MBO seeks to give continuous feedback on progress toward goals so that
workers can monitor and correct their own actions.

B. Linking MBO and Goal-Setting Theory

1. Goal-setting theory demonstrates that:

• Hard goals result in a higher level of individual performance than do easy
goals.
• Specific hard goals result in higher levels of performance than no goals at
all or generalized goals.
• Feedback on one’s performance leads to higher performance.
2. MBO directly advocates specific goals and feedback.
• Implies that goals must be perceived as feasible
• Is most effective when the goals are difficult enough to require stretching
3. The only area of possible disagreement with goal setting theory is participation
—MBO strongly advocates it. Goal-setting theory—assigning goals to
subordinates—frequently works just as well participation.
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C. MBO in Practice Notes:

1. Reviews of studies suggest that MBO is a popular technique—it is used in

business, health care, educational, government, and nonprofit organizations.
2. MBO’s popularity should not be construed to mean that it always works.
• Where it has failed, the problems rarely lie with MBO’s basic components.
• Rather, factors such as unrealistic expectations regarding results, lack of
top-management commitment, and an inability or unwillingness by
management to allocate rewards based on goal accomplishment are the
cause.

Instructor Note: At this point in the lecture you may want to introduce the TEAM EXERCISE – Goal Setting
Task found in the text and at the end of these chapter notes. The purpose of the exercise is to learn how to write
tangible, verifiable, measurable, and relevant goals as might evolve from an MBO program.

Employee Recognition Programs

A. What Are Employee Recognition Programs?

1. Employee recognition programs consist of personal attention, expressing

interest, approval, and appreciation for a job well done. They can take
numerous forms.
2. The best ones use multiple sources and recognize both individual and group
accomplishments.

B. Linking Recognition Programs and Reinforcement Theory

1. Fifteen-hundred employees were surveyed in a variety of work settings about

what they considered to be the most powerful workplace motivator. Their
response was “recognition!”
2. Consistent with reinforcement theory, rewarding a behavior with recognition
immediately following that behavior is likely to encourage its repetition.
3. Recognition can take many forms:
• Personally congratulate an employee.
• Send a handwritten note or an e-mail message.
• “Bragging Boards,” etc.

C. Employee Recognition Programs in Practice

1. Most organizations are under severe cost pressures, which is why recognition
programs are particularly attractive. Recognizing an employee’s superior
performance often costs little or no money.
2. One of the most well known and widely used recognition devices is the use of
suggestion systems. Employees offer suggestions for improving processes or
cutting costs and are recognized with small cash awards.
3. The Japanese have been especially effective at making suggestion systems
work. A typical high performing Japanese plant generates 47 suggestions per
employee a year and pays approximately the equivalent of U.S. $35 per
suggestion.

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Employee Involvement Programs

A. What Is Employee Involvement? Notes:

1. Employee involvement has become a catchall term to cover a variety of

techniques. It encompasses employee participation or participative
management, workplace democracy, empowerment, and employee ownership.
2. Employee involvement is a participative process that uses the entire capacity of
employees and is designed to encourage increased commitment to the
organization’s success.
3. The underlying logic is that by involving workers in those decisions that affect
them and by increasing their autonomy and control over their work lives,
employees will become more motivated, more committed to the organization,
more productive, and more satisfied with their jobs.
4. Participation and employee involvement are not synonyms. Participation is a
more limited term and is a subset within the larger framework of employee
involvement.

B. Examples of Employee Involvement Programs

1. Four forms of employee involvement are participative management,

representative participation, quality circles, and employee stock ownership
plans.
2. Participative management:
• The distinct characteristic common to all participative management
programs is that subordinates actually share a significant immediate
degree of decision-making power with their superiors.
• It has been promoted as a panacea for poor morale and low productivity.
However, it is not appropriate for every organization. For it to work, there
must be adequate time to participate, the issues in which employees get
involved must be relevant to their interests, employees must have the
ability (intelligence, technical knowledge, communication skills) to
participate, and the organization’s culture must support employee
involvement.
• Why would management want to share its decision-making power with
subordinates?
a. Managers often do not know everything their employees do.
b. Better decisions
c. Increased commitment to decisions
d. Intrinsically rewarding employees makes their jobs more interesting
and meaningful
• Dozens of studies have been conducted but the findings are mixed. It
appears that participation typically has only a modest influence on
productivity, motivation, and job satisfaction.
3. Representative participation:
• Almost every country in Western Europe has some type of legislation
requiring it. It is the most widely legislated form of employee involvement
around the world.

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B. Examples of Employee Involvement Programs (cont.) Notes:

• The goal is to redistribute power within an organization, putting labor on a

more equal footing with the interests of management and stockholders.
• The two most common forms:
a. Works councils link employees with management. They are groups of
nominated or elected employees who must be consulted when
management makes decisions involving personnel.
b. Board representatives are employees who sit on a company’s board of
directors and represent the interests of the firm’s employees.
c. In some countries, large companies may be legally required to make
sure that employee representatives have the same number of board
seats as stockholder representatives.
d. The overall influence seems to be minimal. The evidence suggests that
works councils are dominated by management and have little impact
on employees or the organization.
• If one were interested in changing employee attitudes or in improving
organizational performance, representative participation would be a poor
choice.
4. Quality circles (See Exhibit 7-3):
• Quality circles are probably the most widely discussed and undertaken
formal style of employee involvement. Originally begun in the United
States and exported to Japan in the 1950s, the quality circle became quite
popular in North America and Europe during the 1980s.
• A quality circle consists of a work group of eight to ten employees and
supervisors who have a shared area of responsibility. Key components
are:

a. They meet regularly on company time to discuss their quality problems,

investigate causes of the problems, recommend solutions, and take
corrective actions.
b. They take over the responsibility for solving quality problems and they
generate and evaluate their own feedback.
c. Management typically retains control over the final implementation
decision.
• A review of the evidence indicates that they are likely to positively affect
productivity, however, they tend to show little or no effect on employee
satisfaction.
• The failure of many quality circle programs to produce measurable benefits
has also led to a large number of them being discontinued.
• One author offers two possible explanations for their disappointing results:
a. First is the little bit of time (usually just an hour per week) that actually
deals with employee involvement. That does not translate to much
impact on the job.
b. Second, the ease of implementing quality circles often worked against
them. The lack of planning and top-management commitment often
contributed to quality circle failures.

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B. Examples of Employee Involvement Programs (cont.) Notes;

5. Employee stock ownership plans:

• Employee ownership can mean any number of things. Most common is
ESOPs which are company-established benefit plans in which employees
acquire stock as part of their benefits.
• In the typical ESOP, an employee stock ownership trust is created.
Companies contribute either stock or cash to buy stock for the trust and
allocate the stock to employees.
• Employees usually cannot take physical possession of their shares or sell
them as long as they are still employed at the company.

• The research indicates that they increase employee satisfaction, but their
impact on performance is less clear.

6. The evidence consistently indicates that it takes ownership and a participative

style of management to achieve significant improvements in an organization’s
performance.

Instructor Note: At this point in the lecture you may want to introduce the POINT-COUNTER POINT – The
Power of Stock Options As A Motivator found in the text and at the end of these chapter notes. A suggestion for a
class exercise follows the introduction of the material.

C. Linking Employee Involvement Programs and Motivation Theories :

1. Employee involvement draws on a number of the motivation theories previously

discussed:
• Theory Y is consistent with participative management. Theory X aligns
with the more traditional autocratic style of management.
• Two-factor theory—employee involvement programs could provide intrinsic
motivation.
• Employee involvement is compatible with ERG theory and efforts to
stimulate the achievement need.

D. Employee Involvement Programs in Practice

1. Germany, France, Holland, and the Scandinavian countries have firmly

established the principle of industrial democracy in Europe. Other nations,
including Japan and Israel, have traditionally practiced some form of
representative participation.
2. Participative management and representative participation were much slower
to gain ground in North American organizations. Employee involvement
programs that stress participation have become the norm.
3. The names of companies that have used quality circles read like a Who’s Who
of Corporate America. But the success of quality circles has been far from
overwhelming. In recent years, many organizations have adopted more
comprehensive team-based structures.
4. ESOPs have become the most popular form of employee ownership. They
have grown to around 10,000, covering approximately 10 million employees.

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Variable Pay Programs

A. What Are Variable-Pay Programs? Notes:

1. Variable Pay Programs can take the form of piece-rate plans, wage incentives,
profit sharing, bonuses, and gainsharing.
2. A portion of an employee’s pay is based on some individual and/or
organizational measure of performance. Unlike more traditional base-pay
programs, variable pay is not an annuity—there is no guarantee.
3. The fluctuation in variable pay programs makes them attractive to
management. The organization’s fixed labor costs turn into a variable cost
reducing expenses when performance declines. Also, tying pay to performance
recognizes contribution rather than being a form of entitlement.
4. Four widely used programs are piece-rate wages, bonuses, profit sharing, and
gain sharing:
• Piece-rate wages
a. Around for nearly a century
b. Popular as a means for compensating production workers
c. Workers are paid a fixed sum for each unit of production completed.
d. A pure piece-rate plan—the employee gets no base salary and is paid
only for production. For example: Selling peanuts in ballparks works
this way.
e. Modified piece-rate plan—employees earn a base hourly wage plus a
piece-rate differential.
• Bonuses
a. These can be paid exclusively to executives or to all employees.
b. Increasingly, bonus plans are taking on a larger net within
organizations to include lower-ranking employees to reward production
and increased profits.
• Profit-sharing plans
a. Organization wide programs that distribute compensation based on
some established formula designed around a company’s profitability
b. Direct cash outlays or, particularly in the case of top managers,
allocated as stock options
• Gainsharing
a. This is a formula-based group incentive plan.
b. Improvements in group productivity—from one period to another—
determine the money allocated.
c. Gainsharing and profit sharing are similar but not the same thing. It
focuses on productivity gains rather than profits.
d. Gainsharing rewards specific behaviors that are less influenced by
external factors. Employees in a gainsharing plan can receive
incentive awards even when the organization is n0t profitable.
2. Variable-pay programs are generally successful in increasing motivation and
productivity. Studies generally support that organizations with profit-sharing
plans have higher levels of profitability than those without.

Instructor Note: At this point in the lecture you may want to introduce the CASE INCIDENT – The 401k Blues
found in the text and at the end of these chapter notes. A suggestion for a class exercise follows the introduction
of the material.

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A. What Are Variable-Pay Programs? (cont.) Notes:

6. Gain sharing has been found to improve productivity in a majority of cases and
often has a positive impact on employee attitudes. For example:
• An American Management Association study of 83 companies.
• On average, grievances dropped 83 percent, absences fell 84 percent, and
lost-time accidents decreased by 69 percent.
7. The downside of variable pay is its unpredictability.
• Depending how your variable pay is determined, company downturns can
cut income.
• Moreover, people begin to take repeated annual performance bonuses for
granted.

B. Linking Variable-Pay Programs and Expectancy Theory

1. Variable pay is probably most compatible with expectancy theory predictions.

Individuals should perceive a strong relationship between their performance
and the rewards they receive if motivation is to be maximized.
2. The evidence supports the importance of this linkage:
• Group and organization-wide incentives reinforce and encourage
employees to sublimate personal goals for the best interests of their
department or the organization.
• Group-based performance incentives are also a natural extension for
building a strong team ethic.

C. Variable-Pay Programs in Practice

1. Variable pay is rapidly replacing the annual cost-of-living raise. This is because
of its motivational power and cost implications, avoiding the fixed expense of
permanent salary boosts.
2. This pay strategy has been practiced in managerial levels for the last 10 or so
years. The new trend has been expanding this practice to non-managerial
employees.
3. Variable-pay plans are becoming increasingly popular: Seventy-eight percent
of U.S. companies have some form of variable pay plan with rank and file
workers. Even Japan has introduced these programs—a recent survey found
that 21.8 percent of Japanese companies now use such pay systems.
4. Gain sharing’s popularity seems to be narrowly focused among large,
unionized manufacturing companies.
5. Common concerns among firms that have not introduced performance-based
compensation programs are:

Instructor Note: At this point in the lecture you may want to introduce the ETHICAL DILEMMA EXERCISE – Are
American CEO’s Paid Too Much? box found in the text and at the end of these chapter notes. A suggestion for a
class exercise follows the introduction of the material.

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C. Variable-Pay Programs in Practice (cont.) Notes:

• What should constitute performance, and how it should be measured?

• Overcoming the historical attachment to cost-of-living adjustments and the
belief that they have an obligation to keep all employees’ pay in step with
inflation.
• Salary scales keyed to what the competition is paying, etc.
• From the employees’ standpoint, the major concern is a potential drop in
earnings.

Instructor Note: At this point in the lecture you may want to introduce the OB IN THE NEWS – Pay for
Performance at Siebel Systems box found in the text and below. A suggestion for a class exercise follows the
introduction of the material below.

OB IN THE NEWS – Pay for Performance at Siebel Systems

Executives at Siebel Systems, the sales automation software firm headquartering in San Mateo,
California, understand how rewards shape behavior. They have scrapped their traditional system of rewarding
their sales people solely on the basis of how well they achieve their sales targets. They have replaced it with a
new motivation system that broadens the definition of sales performance to include building long-term customer
satisfaction.
Siebel considers building long-term customer relationships to be its top priority. Says the company’s vice
president of technical services, Steve Mankoff: “[If reps] close a contract with a customer, continue to follow up
with that customer, and make sure that customer is successful, chances are that customer will come back for
more. In any given quarter, 45 to 60 percent of our business is from repeat customers.”
So now nearly 40 percent of each salesperson’s incentive compensation is based on their customer’s
reported satisfaction with service and implementation of the products they have purchased. To determine how
well its salespeople are doing, Siebel regularly surveys customers on the responsiveness of its sales
organization, the sales consultant’s ability to integrate a customer’s requirements with Siebel’s software solutions,
the rep’s knowledge of the products and of the customer’s project, and ease of purchasing and contracting.
By broadening pay for performance from just generating sales to also including customer satisfaction,
Siebel is getting its sales force to focus on the needs of its customers. “It works,” says Mankoff. “Our loyalty rate
among customers is in the 96 to 99 percent range.”

Source: E. Zimmerman, “Quota Busters,” Sales & Marketing Management, January 2001, pp. 59–63.

Class Exercise:

1. Ask students to break into small groups. Their assignment will be to develop customer retention/loyalty
strategies for a landscape design and installation business. (These strategies can be any number of things
such as: calling a customer after a patio installation, calling to offer additional products and services, holding
free gardening seminars, having a booth at the annual home and garden sales, and providing a free monthly
newsletter by email to customers.)

2. Once they have developed their strategy, ask them to determine which of these strategies applies to the sales
staff for the company. Then have them develop criteria for rewarding salespeople for engaging in these
behaviors. Or, they may choose to reward the salesperson in another way after repeat business occurs such
as giving an extra commission bonus when an existing customer reorders.

3. Discuss the strategies they came up with as a class. Was this an easy or difficult task? Why did they make
the choices they made. Ask if they would be willing to be evaluated on those criteria and how much of their
pay should be subject to those alternative criteria.

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Skilled-Based Pay Plans

A. What Are Skill-Based Pay Plans? Notes:

1. Skill-based pay is an alternative to job-based pay. It is sometimes called

competency-based pay or knowledge-based pay.
2. Competency-based pay sets pay levels on the basis of how many skills
employees have or how many jobs they can.
3. The appeal, from management’s perspective is flexibility:
• Filling staffing needs is easier when employee skills are interchangeable.
• Organizations today require more generalists and less specialists.
• It facilitates communication across the organization because people gain a
better understanding of others’ jobs.
• It lessens dysfunctional “protection of territory” behavior.
• Additionally, it helps meet the needs of ambitious employees who confront
minimal advancement opportunities.
• It appears to lead to performance improvements.
4. Downside of skill-based pay:
• People can “top out,” learning all the skills the program calls for them to
learn.
• Skills can become obsolete. Organizations paying for skills they no longer
need.
• Skill-based plans do not address level of performance.

B. Linking Skill-Based Pay Plans to Motivation Theories

1. Skill-based pay plans are consistent with several motivation theories.

• ERG theory—because they encourage employees to learn, expand their
skills, and grow
• Achievement need—paying people to expand their skill levels, high
achievers will find their jobs more challenging
• Reinforcement theory—by encouraging employees to develop their
flexibility, to continue to learn, to cross-train, to be generalists rather than
specialists, and to work cooperatively with others in the organization.
2. Skill-based pay may additionally have equity implications. When employees
make their input-outcome comparisons, skills may provide a fairer input
criterion for determining pay than factors such as seniority or education.

C. Skill-Based Pay in Practice

1. A number of studies conclude that skill-based pay is expanding and that it

generally leads to higher employee performance and satisfaction.
2. The increased use of skills as a basis for pay is strongest among organizations
facing aggressive foreign competition and those with short product life cycles.
3. Skilled-based pay appears to be an idea whose time has come. Your market
value is now based on what you skill set is.

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Flexible Benefits

A. What Are Flexible Benefits? Notes:

1. The idea is to allow each employee to choose a benefit package that is

individually tailored to his/her own needs and situation.
2. Average fringe benefits equal approximately 40% of salary. Traditional benefit
programs were designed for a male with a wife and two children at home.
2. Less than 10 percent of employees now fit this stereotype. Traditional
programs do not tend to meet their needs: Some facts:
• Twenty-five percent of today’s employees are single.
• A third are part of two-income families without any children.
4. An organization sets up a flexible spending account for each employee, usually
based on some percentage of his or her salary, and then a price tag is put on
each benefit. There are three basic types of programs:
• Modular Plans: pre-designed with each module put together to meet the
needs of a specific group of employees.
• Core-plus Plans: a core of essential benefits and a menu like selection of
other benefit options.
• Flexible Spending Plans: employees set aside a specific dollar amount for
benefits tax-free and draw against the account for medical and dental
services as needed.

B. Linking Flexible Benefits and Expectancy Theory

1. Flexible benefits turn the benefits’ expenditure into a motivator. Approximately

13 percent of large and medium sized U.S. companies have flexible benefits
plans.
2. Consistent with expectancy theory’s thesis that organizational rewards should
be linked to each individual employee’s goals, flexible benefits individualize
rewards by allowing each employee to choose the compensation package that
best satisfies his/her current needs.

C. Flexible Benefits in Practice

1. Benefit for employees is the flexibility. It is attractive because they can tailor
their benefits and levels of coverage to their own needs.
2. From the organization’s standpoint, it often produces savings. Once in place,
costly increases often have to be substantially absorbed by the employee.
3. Drawbacks from the employee’s standpoint is that the costs of individual
benefits often go up, so fewer total benefits can be purchased.
A. Drawbacks for the organization are that these plans are more
cumbersome for management to oversee, and administering the programs
is often expensive.

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Special Issues in Motivation

A. Motivating Professionals Notes:

1. The typical employee today is more likely to be a highly trained professional

with a college degree than a blue-collar factory worker.
• They receive a great deal of intrinsic satisfaction from their work.
• They tend to be well paid.
2. Professionals are typically different from nonprofessionals.
• They have a strong and long-term commitment to their field of expertise.
• Their loyalty is more often to their profession than to their employer.
• They need to regularly update their knowledge, and their commitment to
their profession.
• They rarely define their workweek in terms of 8 to 5 and five days a week.
3. What motivates professionals?
• Money and promotions typically are low on their priority list. They tend to
be well paid, and they enjoy what they do.
• Job challenge tends to be ranked high. They like to tackle problems and
find solutions.
• Professions value support.
• The place a high value on skill development opportunities.
4. Implications
• Provide them with ongoing challenging projects.
• Give them autonomy to follow their interests and allow them to structure
their work.
• Reward them with educational opportunities.
• Also reward them with recognition.
5. An increasing number of companies are creating alternative career paths for
their professional and technical people, allowing employees to earn more
money and status, without assuming managerial responsibilities.

B. Motivating Contingent Workers

1. Approximately 6 million Americans, or 4.9 percent of those with jobs,

considered themselves as part of the contingent workforce. These include part-
timers, on-call workers, short-term hires, temps, day laborers, independent
workers, and contractors.
2. Their common denominator is that they do not have the stability or security
permanent employees have. As such, they do not identify with the
organization or display the commitment that other employees do.
B. There is no simple solution for motivating temporary employees. Those
who prefer the freedom of their temporary status and professionals
who do not want the demands of a permanent job seem to be
considerably more people than originally thought. Recent estimates
show that 33–77 percent of contingent workers have voluntarily
chosen this status.

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C. Motivating Contingent Workers (cont.) Notes:

4. What will motivate involuntarily temporary employees?

• An opportunity for permanent status.
• The opportunity for training—they are eager to develop salable skills.
• From an equity standpoint, you should also consider the repercussions of
mixing permanent and temporary workers where pay differentials are
significant.

C. Motivating the Diversified Workforce

1. The needs of women, singles, immigrants, the physically disabled, senior

citizens, and others from diverse groups are not the same as a married white
American male with three dependents.
2. If you are going to maximize your employees’ motivation, you have got to
understand and respond to this diversity.
3. The key word to guide you should be flexibility. Be ready to design work
schedules, compensation plans, benefits, physical work settings, and the like
to reflect your employees’ varied needs.

D. Motivating Low-Skilled Service Workers

1. One of the most challenging motivation problems are in industries such as

retailing and fast food. These jobs are filled with people with limited skills and
education. Often the pay level is little more than minimum wage.
2. Traditional approaches for motivating these people have focused on providing
more flexible work schedules and filling these jobs with teenagers and retirees
whose financial needs are less. This has met with less than enthusiastic
results.
3. Unless pay and benefits are significantly increased, high turnover probably has
to be expected in these jobs. This can be somewhat offset by widening the
recruiting net, making these jobs more appealing, and raising pay levels.

E. Motivating People Doing Highly Repetitive Tasks

1. Motivating individuals in these jobs can be made easier through careful

selection.
2. People vary in their tolerance for ambiguity. Many individuals prefer jobs that
have a minimal amount of discretion and variety.
3. Standardized jobs should also be the first considered for automation.
4. Many standardized jobs, especially in the manufacturing sector, pay well.
• This makes it relatively easy to fill vacancies.
• You may not be able to do much more than try to make a bad situation
tolerable by creating a pleasant work climate.

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QUESTIONS FOR REVIEW

1. Relate goal-setting theory to the MBO process. How are they similar? Different?
Answer – Management by objectives emphasizes participatively set goals that are tangible, verifiable, and
measurable. It is not a new idea. Linking MBO and goal-setting theory:
Goal-setting theory demonstrates that:
• Hard goals result in a higher level of individual performance than do easy goals.
• Specific hard goals result in higher levels of performance than no goals at all or generalized
goals.
• Feedback on one’s performance leads to higher performance.
MBO
• Directly advocates specific goals and feedback.
• Implies that goals must be perceived as feasible.
• Is most effective when the goals are difficult enough to require stretching.
The only area of possible disagreement is participation.
• MBO strongly advocates it.
• Goal-setting theory—assigning goals to subordinates frequently works just as well as
participation.

2. What is an ESOP? How might it positively influence employee motivation?

Answer – ESOPs are company-established benefit plans in which employees acquire stock as part of their
benefits. In the typical ESOP, an employee stock ownership trust is created. Companies contribute either
stock or cash to buy stock for the trust and allocate the stock to employees. Employees usually cannot take
physical possession of their shares or sell them as long as they are still employed at the company. The
research indicates that ESOPs increase employee satisfaction, but their impact on performance is less clear.
One study compared 45 ESOPs against conventional companies. The ESOPs outperformed the conventional
firms both in terms of employment and sales growth, but other studies have shown disappointing results. The
evidence consistently indicates that it takes ownership and a participative style of management to achieve
significant improvements in an organization’s performance.

3. Explain the roles of employees and management in quality circles.

Answer – Probably the most widely discussed and undertaken formal style of employee involvement is
management in quality circles. It is a work group of eight to ten employees and supervisors who have a
shared area of responsibility. They meet regularly on company time to discuss their quality problems,
investigate causes of the problems, recommend solutions, and take corrective actions. They take over the
responsibility for solving quality problems, and they generate and evaluate their own feedback. Management
typically retains control over the final implementation decision. Exhibit 7-3 describes a typical quality circle
process.

4. What are the pluses of variable-pay programs from an employee’s viewpoint? From management’s
viewpoint?
Answer – Variable pay offers bigger rewards and ties rewards to work. For management, it reduces cost
because pay is tied to productivity and eliminates or reduces permanent increases in labor costs.

5. Contrast job-based and skill-based pay.

Answer – Rather than job title defining one’s pay (as in job-based pay), one’s competency (or the number
and level of skills one has) determines pay levels.

6. What is gain sharing? What explains its recent popularity?

Answer – This is a formula-based group incentive plan. Improvements in group productivity—from one period
to another—determine the money allocated. Gain sharing and profit sharing are similar but not the same
thing. Gainsharing rewards specific behaviors that are less influenced by external factors. Employees in a
gainsharing plan can receive incentive awards even when the organization is not profitable.

Studies generally support that organizations with profit-sharing plans have higher levels of profitability than
those without. Gain sharing has been found to improve productivity in a majority of cases and often has a
positive impact on employee attitudes.

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7. What motivates professional employees?

Answer – The typical employee today is more likely to be a highly trained professional with a college degree
than a blue-collar factory worker. They receive a great deal of intrinsic satisfaction from their work. They tend
to be well paid.

What motivates professionals? Money and promotions typically are low on their priority list. Job challenge
tends to be ranked high. They like to tackle problems and find solutions. Provide them with ongoing
challenging projects. Give them autonomy to follow their interests, and allow them to structure their work.
Reward them with educational opportunities, and also reward them with recognition. An increasing number of
companies are creating alternative career paths for their professional and technical people, allowing
employees to earn more money and status, without assuming managerial responsibilities.

8. What motivates contingent employees?

Answer – In 1995, approximately six million Americans, or 4.9 percent of those with jobs, considered
themselves as part of the contingent workforce. Temporary workers also are typically provided with little or no
health care, pensions, or similar benefits. There is no simple solution for motivating temporary employees.

What will motivate involuntarily temporary employees? An opportunity for permanent status. The opportunity
for training. From an equity standpoint, you should also consider the repercussions of mixing permanent and
temporary workers where pay differentials are significant.

9. Is it possible to motivate low-skilled service workers? Discuss.

Answer – It is one of the most challenging motivation problems in industries such as retailing and fast food.
Traditional approaches for motivating these people have focused on providing more flexible work schedules,
and filling these jobs with teenagers and retirees whose financial needs are less has met with less than
enthusiastic results. Unless pay and benefits are significantly increased, high turnover probably has to be
expected in these jobs. This can be somewhat offset by widening the recruiting net, making these jobs more
appealing, and raising pay levels.

10. What can you do, as a manager, to increase the likelihood that your employees will exert a high level of
effort?
Answer – Check the system for equity. Rewards should also be perceived by employees as equating with the
inputs they bring to the job. At a simplistic level, this should mean that experience, skills, abilities, effort, and
other obvious inputs should explain differences in performance and, hence, pay, job assignments, and other
obvious rewards.

QUESTIONS FOR CRITICAL THINKING

1. Identify five different criteria by which organizations can compensate employees. Based on your knowledge
and experience, do you think performance is the criterion most used in practice? Discuss.
Answer – Seniority, position, merit, skill, and productivity/performance. Students’ responses will vary;
generally, there is a great deal of discussion of performance pay in the literature and among managers. The
key issue is whether employees perceive the compensation-performance linkage, regardless of what
management implements.

2. “Recognition may be motivational for the moment but it does not have any staying power. It is an empty
reinforcer. Why? Because when you go the grocery store, they do not take recognition as a form of payment!”
Do you agree or disagree? Discuss.
Answer – Students’ answers may vary more due to the personalities than facts. Some people never forget
being recognized once, others look for continual recognition. Keys to remember in the discussion include the
following: The best recognition programs use multiple sources and recognize both individual and group
accomplishments. Employees consider recognition to be the most powerful workplace motivator. Consistent
with reinforcement theory, rewarding a behavior with recognition immediately following that behavior is likely
to encourage its repetition.

3. “Performance cannot be measured, so any effort to link pay with performance is a fantasy. Differences in
performance are often caused by the system, which means the organization ends up rewarding the

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circumstances. It is the same thing as rewarding the weather forecaster for a pleasant day.” Do you agree or
disagree with this statement? Support your position.

Answer – Performance measurement can be difficult depending on the type of job being evaluated. The key
is to try to control for those factors that employees cannot control, measure, and reward those that employees
can control. Also, building in base income in an incentive system helps smooth the dips that come due to
factors beyond employee control.

4. It is an indisputable fact that there has been an explosive increase in the difference between the average U.S.
worker’s income and those of senior executives. In 1980, the average CEO made 42 times the average blue-
collar worker’s pay. In 1990, it was 85 times. In 2000, it had risen to 531 times. What are the implications of
this trend for motivation in organizations?
Answer – Student’s will have varying opinions on this. Given recent corporate scandals involving CEO’s
who took millions at the expense of employees’ retirement accounts they should take into account such
factors as trust, employee retention, productivity, efficiency, etc.

5. Your text argues for recognizing individual differences. It also suggests paying attention to members of
diversity groups. Is this contradictory? Discuss.
Answer – There is no inherent contradiction because both approaches seek to treat people as individuals.
Sensitivity to diversity is not sensitivity to a group, but to the individual within the group.

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POINT-COUNTERPOINT – The Power Of Stock Options As A Motivator

POINT

Stock options are being used as incentives for booksellers at Borders, clerks at Wal-Mart, box packers at
Pfizer, chemical-plant operators at Monsanto, baggage handlers at Delta Air Lines, and part-time espresso
servers at Starbucks.
Approximately 10 million U.S. employees currently receive options, roughly a 10-fold jump since 1992.
One study found that 39 percent of large U.S. companies now have stock option plans that cover all or a majority
of employees—from the CEO down to operatives. While plans vary, most are allocated as a percentage of annual
income and allow employees to buy their employer’s stock at a price below the fair market value.
Proponents of broad-based stock offer a long list of reasons to explain these plans’ popularity: They help
to: create a company-wide “ownership” culture by focusing employees’ attention on the employers’ financial
performance; create a pay-for-performance climate; foster pride of ownership; raise morale; encourage retention
of employees; attract new employees; and motivate front-line employees who interact with customers.
Starbucks’ experience provides insights into the power of stock options as a motivator. Their program
began in 1991. Each employee was awarded stock options worth 12 percent of his or her annual base pay. Every
October since then, high profits have allowed Starbucks to raise the grant to 14 percent of base pay. An employee
making $20,000 a year in 1991 could have recently cashed in his 1991 options alone for more than $70,000.
Starbucks’ management believes stock options allow employees to share both the ownership of the
company and the rewards of financial success. Management contends that it is working. The company’s CEO
says, “People started coming up with innovative ideas about how to cut costs, to increase sales, to create value.
Most important, they could speak to our customers from the heart, as partners in the business.”

This is based on “Starbucks’ Secret Weapon,” Fortune, September 29, 1997, p. 268; “Stock Options for the Ranks,” Business Week,
September 7, 1998, p. 22; and E. Ackerman, “Optionnaires, Beware!” U.S. News & World Report, March 6, 2000, pp. 36–38.

COUNTER POINT

Broad-based stock options sound terrific in theory. Motivation increases because employees see
themselves as owners, rather than merely workers. These options create the opportunity for moderately paid
employees to accumulate substantial savings. What is wrong with the theory? Several things.
First is the fact that options tend to be disproportionately allocated to managers. Because options are
typically distributed as a percent of base pay, managers get more of them because they make more money.
Senior executives also tend to get additional options based on company profitability or stock performance. This is
how someone like Gerald Levin, when he was CEO of AOL Time Warner, could make $152 million in one year
alone from his options. Such huge payoffs make the few thousand dollars a low level AOL Time Warner employee
gets from her options seem like “chump change.” This comparison is just as likely to anger or frustrate non-
managerial employees as it is to motivate them.
Second, stock options are poor motivators because they offer a weak link between employee effort and
rewards. How much impact can the average worker really have on the company’s stock price? Very little! The
decline in the price of high-tech stocks in 2000 and 2001 made a majority of stock options at these firms
worthless, yet this was a time when many employees of these high-tech firms were working harder than ever to
try to keep their companies alive.
Finally, stock options are great when a company is growing rapidly or during bull markets in stocks.
Starbucks’s plan proved very profitable for employees between 1991 and 2000 because the company grew
rapidly. Yet all companies are not growing, nor do stock markets go up forever. Stock options issued to
employees at companies like Cisco Systems, Amazon.com, Oracle, and eToys in the mid-1990s were essentially
worthless in the summer of 2002. When high-tech stocks imploded, so did thousands of employees’ dreams of
wealth and early retirement. Stock options may actually become demotivators when employees realize that they
are like a lottery, with very few big winners.

This is based on K. Capell, “Options for Everyone,” Business Week, July 22, 1996, pp. 80–84; P. Coy, “The Drawbacks of Stock-Option
Fever,” Business Week, December 13, 1999, p. 204; and D. Henry and M. Conlin, “Too Much of a Good Incentive?” Business Week, March 4,
2002, pp. 38–39.

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Teaching notes

1. This exercise will take some outside class research. A finance colleague or business librarian can probably
help. [An easy source of this data is Valueline in your university library. It lists stock prices for ten years in
chart form.]
2. Place students in teams of three. Show the teams the following list of companies and either have them
choose a company based on wanting to work for it or assign them a company to research.
• General Motors
• Intel
• Atmel
• Pifzer
• Oracle
3. Have students research the stock price of these companies in 1993, 1998, and currently.
4. Have the students assume they were given five percent of their salary in stock each year. Set a base salary
for the entire class for an entry-level position at all the companies for your region. While the companies would
hire at different salary levels you need one level for the calculations to be comparable.
5. Students should now use this data to calculate how much their stock options would be worth today if they
started in 1990 or 1995.
6. Use their discoveries as a starting point for further discussion of this Point-CounterPoint.
7. What are the implications for the students’ career choices and the use of ESOPs?

TEAM EXERCISE – Goal-Setting Task

Purpose: This exercise will help you learn how to write tangible, verifiable, measurable, and relevant goals as
might evolve from an MBO program.

Time: Approximately 20 to 30 minutes

Instructions:
1. Break into groups of three to five.
2. Spend a few minutes discussing your class instructor’s job. What does he or she do? What defines good
performance? What behaviors will lead to good performance?
3. Each group is to develop a list of five goals that, although not established participatively with your instructor,
you believe might be developed in an MBO program at your college. Try to select goals that seem most
critical to the effective performance of your instructor’s job.
4. Each group will select a leader who will share his or her group’s goals with the entire class. For each group’s
goals, class discussion should focus on their: (a) specificity, (b) ease of measurement, (c) importance, and (d)
motivational properties.

Teaching notes:
1. The exercise is self-explanatory.
2. Focus on the criteria in #4 first. Then correct any misperceptions students have of your job.
3. Use the discussion of any misperceptions to exemplify the difficulty of setting goals.

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ETHICAL DILEMMA EXERCISE – Are American CEOs Paid Too Much?

Critics have described the astronomical pay packages given to American CEO’s as “rampant greed.”
They note, for instance, that during the 1990s, corporate profits rose 108 percent. During this same period,
workers’ pay rose only 28 percent. Yet CEO pay rose 481 percent! In the year 2000, the average CEO of a major
American corporation made 531 times as much as the average factory worker. If the average production workers’
pay had increased at the same rate as CEO pay during this period, worker pay would be $110,399 today rather
than $29,267.
High levels of executive compensation seem to be widely spread in the United States. In 2000, for
instance, John Chambers of Cisco Systems took home $157.3 million; General Electric’s Jack Welch was paid
$122.6 million; and Coca-Cola’s Douglas Daft earned $91.7 million. These figures were for pay and exercised
stock options only. They do not include potentially hundreds of millions more from appreciated value of
unexercised stock options. Twenty-five years ago, an executive who earned a million dollars a year made
headlines. Now it’s “routine” for a senior executive at a large U.S. corporation to earn more than $1 million in
compensation.
How do you explain these astronomical pay packages? Some say this represents a classic economic
response to a situation in which the demand is great for high-quality top executive talent and the supply is low. Ira
Kay, a compensation consultant, says: “It is not fair to compare [executives] with hourly workers. Their market is
the global market for executives.” Other arguments in favor of paying executives $1 million a year or more are: the
need to compensate people for the tremendous responsibilities and stress that go with such jobs, the motivating
potential that seven- and eight-figure annual incomes provide to senior executives and those who might aspire to
be, the need to keep the best and the brightest in the corporate world rather than being enticed into investment
banking or venture capital firms, and the influence that senior executives have on a company’s bottom line.
Contrary to the global argument, executive pay is considerably higher in the United States than in most
other countries. In 1998, the most recent year for which data is available, American CEOs of industrial companies
with annual revenues of $250 million to $500 million made, on average, $1,072,400. Comparable figures for
Britain, France, Canada, Mexico, and Japan were, respectively, $645,540, $520,389, $498,118, $456,902, and
$420,855. All evidence suggests that this gap between American CEOs and those from other countries has only
grown since these data were calculated.
Critics of executive pay practices in the United States argue that CEOs choose board members whom
they can count on to support ever-increasing pay (including lucrative bonus and stock-option plans) for top
management. If board members fail to “play along,” they risk losing their positions, their fees, and the prestige and
power inherent in board membership. Is high compensation of U.S. executives a problem? If so, does the blame
for the problem lie with CEOs or with the shareholders and boards that knowingly allow the practice? Are
American CEO’s greedy? Are these CEO’s acting unethically? What do you think?

Source: Towers, Perrin, Worldwide Total Rewards 1998 (April 1998), p. 21; J. Greenfield, “Study Finds Inequities in CEO Pay, Worker Pay,
Profits,” The Working Stiff Journal, October 1999; L. Lavelle, “Executive Pay,” Business Week, April 16, 2001, pp. 76–80; and R. C.
Longworth, “CEO Pay 531 Times That of Workers; Study: Gap Grows Despite Downturn,” Chicago Tribune, August 28, 2001.

Teaching notes

1. This is an unending debate.

2. Consider assigning students to research the issue by looking at past issues of Forbes, Fortune, and the Wall
Street Journal, all of which have run stories on this issue in the last two years.
3. Also consider providing copies of the articles cited below and ask them to write a one-page summary position
paper on the issue.

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CASE INCIDENT -- The 401(k) Blues

For Ted Sims, it was a double whammy. First, Sims had 60 percent of his 401(k) retirement account in his
employer’s stock, Lucent Technologies. Between 1996 and 1999, Lucent stock rose 10-fold to $80 a share,
boosting his retirement nest egg to about $70,000. Then the stock’s price collapsed. In the fall of 2001, his Lucent
“nest egg” was worth around $31,000. If that were not bad enough news, Sims lost his job in one of the many job
cuts Lucent made following the meltdown in the telecommunications industry in 2000.
Ted Sims is not alone in his suffering. He has plenty of sympathy from former Enron employees like Marie
Thibaut. She spent 15 years as an administrative assistant at Enron in Houston. She dutifully put 15 percent of
her salary into a 401(k) plan, investing the entire amount in the company’s stock. When the company collapsed in
the winter of 2000, so did the 61-year-old divorcee’s retirement plans. The value of her Enron stock, which had
been worth close to $500,000, dropped to just $22,000.
Having a majority of one’s retirement savings in an employer’s stock is no longer unusual. Procter &
Gamble, Coca-Cola, Dell Computer, and McDonald’s are all firms at which more than 70 percent of employees’
401(k) assets are held in company stock. The price of these companies’ shares fell between 21 percent and 56
percent from April 2000 to April 2001.
Thirty years ago, this issue was irrelevant. Then, most employers offered defined benefit pension plans.
So, for instance, an employee retired from AT&T at age 65, with 30 years of service, making $55,000 a year, and
the company provided him with a guaranteed annual pension of around $24,000 for the rest of his life. This
changed in the early-1980s, with the creation of 401(k) programs—retirement savings plans that are funded by
employee contributions and (often) matching contributions from the employer. Most employers dropped their
pension plans and replaced with them 401(k) programs. The major benefits of these programs, in addition to
allowing funds to grow tax-free until they are withdrawn, was that they could be carried from employer to employer
should a participant change jobs and they allowed the employee some discretion in how the funds were invested.
Today, approximately 80 percent of eligible American workers participate in 401(k)s.
While financial planners routinely advise against putting more than 10 percent of one’s portfolio in one
stock, millions of employees routinely invest a much larger portion of their 401(k) assets in their employer’s stock.
Currently, for instance, 41 percent of 401(k) assets are invested in the stock of participants’ employers. Why this
lack of diversification? There seem to be at least four reasons. First, many employers give matching contributions
only in company stock. Second, companies often set age or tenure requirements that employees must meet
before they can sell company stock from matching contributions. Third, many employees believe that because
they work at a company, they are in a better position to predict its stock performance. And fourth, employees often
feel that investing in their employer’s stock is a way of showing company loyalty.
As long as a company’s stock was appreciating rapidly, putting “all your eggs in one basket” proved to be
an effective strategy, but in times of economic uncertainty, when major corporations like IBM, Polaroid, Eastman
Kodak, and Gillette can have their stock prices drop by 50 percent or more, employees who have a
disproportionate amount of their 401(k) assets in their employer’s stock risk absorbing large declines in their
retirement funds. One 52-year-old AT&T employee summed up his experience this way: “I put my retirement
money in AT&T stock because I knew the company and its record of dependability. They did not call it Ma Bell for
nothing. Now I have watched my retirement assets decline by more than 65 percent. I had planned on retiring
early—at age 55. It’s looking more like at least 62 now.”

Questions:

1. Consider the effects of having 40 percent or more of an employee’s retirement funds in the company’s stock
on his or her work motivation.
2. What are the advantages and disadvantages for companies having the bulk of their employees’ 401(k) funds
tied up in the company’s stock?
3. What ethical implications, if any, are there in a company matching an employee’s retirement contribution with
company stock?

Source: This case is based on P. J. Lim, “The 401(k) Blues Have Some Investors Rethinking Strategy,” U.S. News &World Report, April 2,
2001, pp. 52–54; “Don’t Bank 401(k) on Employer’s Stock,” USA Today.com, August 4, 2000; and J. Kahn, “When 401(k)s are KO’d,” Fortune,
January 7, 2002, p. 104.

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Exploring OB Topics on the World Wide Web

Search Engines are our navigational tool to explore the WWW. Some
commonly used search engines are:

www.goto.com
www.google.com
www.excite.com
www.lycos.com
www.hotbot.com
www.looksmart.com

1. Paying up is hard to do! Should the organization choose a skill based pay plan or pay-for-
performance? Start by comparing the two then making a recommendation as to why one would
be preferable over the other. Go to http://www.hrzone.com/topics/skill_based_pay.html to learn
more about skilled based plans. Go to http://www.p-management.com/articles/9910.htm to
learn how St. Elizabeth Hospital in Boston implemented a pay-for-performance plan. If you
were to make a recommendation as to strategy would be the most effective, which would you
choose? Why? (Hint: it will have to be linked to a motivational theory). Write a one page
reaction paper discussing your views.

2. From quality circles to TQM, getting employees involved is not a simple venture. The website
http://www.govexec.com/reinvent/articles/0797fqg2.htm discusses this issue and why America
did not have the same success as Japan with the concept. Once you’ve read this page click on
one of the related stories (e.g. Death of TQM). Write a short summary of both pages—key
points only—that can be used during a discussion of TQM.

3. What do workers really think when a concept like participative management is introduced at the
workplace? Go to: http://www.joanlloyd.com/articles/open.asp?art=376.htm to read the
response “Joan at Work” gave to an engineer who just wants to do a good job. Do you agree
with her assessment of why workers act as they do? What should management do to ease the
transition from the “old” way to the “new” way? Write a short (one page) paper offering your
ideas and bring to class.

4. What do worker’s want? Money? Probably, but other things too. Go to About.com to read an
assessment of what workers want at:
http://humanresources.about.com/library/weekly/aa083002a.htm
Write your own assessment of what motivational theories are at play in this article—just a
paragraph or two. Bring your assessment and the article to class for a group discussion.

5. Now that employees are participating, the next step is ownership, or ESOPs. Read about how
that can happen at http://www.nceo.org/library/growth.html . Do you think this is a good idea
for employees? Why or Why not. Write a short journal entry on the topic.

6. Self-esteem, self-efficacy, self-respect and self-actualization. Learn more about these terms
and how employers can foster these concepts in their employees at:

http://humanresources.about.com/library/weekly/aa081301a.htm

Write a journal entry or short paper about when you experienced an environment that
encouraged you to develop your potential. For example, it could be when you were involved in
an arts program, writing clinic, a club, a sports team, a class, etc. What motivated you when
you felt discouraged (or where simply tired and did not want to go that day)? Who was the
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“coach” who encouraged you, and how important of a role did that person have in your
success? What did you learn about yourself in the process? Do these skills transfer to other
areas of your life?

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