421CHAPTER 15 Motivation and rewards Learning objectives What is motivation? What are the different types of individual needs? What are the process theories of motivation and why is self-efficacy so important? What role does reinforcement play in motivation? What are the trends in motivation and remuneration? 422 Being wooed at Sitback At Sydney-based web-design company Sitback, a variety of different rewards have been tried in motivating the company's generation Y staff. Sitback's owner, Paul Armstrong, tried giving his best employees a monthly prize — from a box of fruit to a bottle of wine. On another occasion, he moved to a system of voting, in which every employee got to vote for who they thought should be the employee of the month. None of these seemed to sustain staff morale and motivation for long. Ready to try something different, Armstrong was alerted to the web-based recognition system Wooboard. Every employee is given a maximum of two 'woos' a day — something like a 'high five' — to award to colleagues who they feel are going out of their way to work hard, improve the business, and do things beyond those normally expected in the workplace. Once a fortnight, the office stops to award a prize to the employee with the highest number of 'woos'. A digital producer at Sitback, 25-year-old Karen Huby, says that the use of woos has created an 'atmosphere of gratitude' in the office, encouraging individuals to do even more to continue to win woos in the future. Companies can subscribe to Wooboard for as little as $1 a user per month. The founder of Wooboard, Mick Liubinskas, states that while Wooboard is only one possibility for motivating people, the fact that employees reduce their 'wooing' over time could reveal that leaders need to lighten things up by bringing pizzas in for lunch or doing something else to lighten the tension at work. The company has already signed 30 major organisations to use Wooboard and hopes to generate a trillion woos by 2020!1 Early adopters of the Wooboard technology, as well as the products of its competitors, include BHP Billiton, Westpac and Telstra. Providing online systems for recognising great performance and motivating staff are part of a broader trend to take gaming technologies to the workplace.2 While Wooboard may appear to be a fad that won't last for long, perhaps it's just possible that generation Y employees (those born in the 1980s and 1990s) are comfortable moving from one fad to another since they embrace change, new ideas, new technologies and new innovations. Only time will tell if Wooboard achieves the 1 trillion woos it hopes for.3 Question Do you think that 'wooing' will catch on at many organisations? Does it matter if wooing is just another motivational fad? 423 INTRODUCTION Why do some people work enthusiastically, often doing more than required to turn out extraordinary performance? Why do others hold back and do the minimum needed to avoid reprimand or termination? How can a team leader or manager build a high-performance work setting? What can be done to ensure that the highest possible performance is achieved by every person in every job on every workday? These questions are, or should be, asked by managers in all work settings. Good answers begin with a true respect for people, with all of their talents and diversity, as the human capital of organisations. The best managers already know this. The work cultures they create invariably reflect an awareness that 'productivity through people' is an essential ingredient of long-term organisational success. It is easy to say as a leader or in a mission statement that 'people are our most important asset'. But the proof comes with backing such a statement up with actions that support it. This means consistently demonstrating that the organisation is committed to people and that it offers a truly 'motivational' work environment. In this sense, however, human nature is always both fascinating and challenging. The human side of the workplace becomes complicated as the intricacies of human psychology come into play with daily events and situations. At a packaging plant, for example, senior executive Kevin Kelley learned that a supervisor was starting to retire on the job. The man had worked his 20 years and felt it was time to slow down. He was unresponsive to gentle 'nudging' from co-workers and managers. But when Kelley politely confronted him with the facts, saying, 'We need your talent, your knowledge of those machines', the supervisor responded with new vigour in his work and earned the praise of his peers. For his part, Kelley believes in employee involvement and claims that one of the best motivators is information on the company's competitive environment. With information comes the motivation to work hard and keep the company competitive.4 What is motivation? This chapter contains many ideas on how managers exercise leadership in ways that encourage other people to work hard in their jobs. The concept of motivation is central to this goal. The term is used in management theory to describe forces within the individual that account for the level, direction and persistence of effort expended at work. Simply put, a highly motivated person works hard at a job; an unmotivated person does not. A manager who leads through motivation does so by creating conditions under which other people feel consistently inspired to work hard. A highly motivated workforce is indispensable to the achievement of sustained high-performance results. Motivation and rewards A reward is a work outcome of positive value to the individual. A motivational work setting is rich in rewards for people whose performance accomplishments help meet organisational objectives. In management, it is useful to distinguish between two types of rewards, extrinsic and intrinsic. Extrinsic rewards are externally administered. They are valued outcomes given to someone by another person, typically a supervisor or higher level manager. Common workplace examples are pay bonuses, promotions, time off, special assignments, office 424fixtures, awards and verbal praise. In all cases, the motivational stimulus of extrinsic rewards originates outside of the individual; the rewards are made available by another person or by the organisational system.5 Intrinsic rewards, on the other hand, are self-administered. They occur 'naturally' as a person performs a task and are, in this sense, built directly into the job itself. The major sources of intrinsic rewards are the feelings of competency, personal development and self-control people experience in their work.6 In contrast to extrinsic rewards, the motivational stimulus of intrinsic rewards is internal and does not depend on the actions of some other person. Being self-administered, they offer the great advantage and power of 'motivating from within'. An air traffic controller, for example, says, 'I don't know of anything I'd rather be doing. I love working the airplanes'.7 Intrinsic rewards are particularly important for motivating knowledge workers, those who come to work to use their minds rather than engaging solely in repetitive or routine work.8 Since knowledge work is common to so many professions and occupations these days, learning how to motivate via the use of intrinsic rewards is now more important than ever. Rewards and performance Like so many aspects of management, effectively linking rewards and performance is easier said than done. After all, we are dealing with complex human beings who possess individual desires, needs, and dreams, as well as complex organisations that confront constantly changing internal and external environments, challenges and threats. There are many possible ways to creatively link rewards and performance in the contemporary workplace; that is, to establish performance-contingent rewards. To take full advantage of the possibilities, however, managers must respect diversity and individual differences, clearly understand what people want from work and allocate rewards to satisfy the interests of both individuals and the organisation. Michael Vavakis, vice-president of human resources for Hewlett-Packard Asia–Pacific, suggests that we must move beyond 'one size fits all' approaches to motivation and rewards, and, instead, embrace the 'I'. In this age of personal empowerment and freedom, typified by the rise of weblogs and social networking sites such as MySpace and Facebook, Vavakis argues that 'employees will increasingly become individuals within a team as opposed to simply being part of a team'. HP has sought to creatively respond to this philosophy by customising the rewards that employees may receive in recognition of their efforts. They may choose between cash, gifts, and an array of services in personalising their rewards to suit their individual needs and desires. While it is difficult to personalise an entire rewards system in this way, adapting elements of such systems to individual needs makes good sense if our 'I's' are to be truly satisfied.9 Critical analysis Individuals will have differing needs for intrinsic and extrinsic rewards. The balance between them will also change over time. What can organisational leaders do to best meet this shifting balance? It is often said that you can't motivate people. Instead, you can only create an environment in which they may choose to motivate themselves. Do you agree? Why or why not? 425 globalisation Indian firms bribe staff with live telecasts India took on Pakistan in the cricket World Cup final on 2 April 2011, and Indian firms were expecting employees to call in sick or take half days off on this 'unofficial holiday'. In a bid to curb absenteeism, companies offered bribes such as snacks, drinks and live telecasts of the match to their employees. Ernst & Young, Aviva Life Insurance, SBI Mutual Fund, India Infoline and Fox-Star gave away freebies to avoid absenteeism, and some screened the match (which India won). Managers believed these initiatives would work as a team-building exercise and would increase productivity. In addition, they probably reasoned that without the incentive of being able to watch the match at work, a high proportion of their staff would simply not turn up! CEO of Birla Sun Life AMC, A Balasubramaniam, said 'We are going to follow a flexible approach on the day. We are making provisions for employees to view the match in office, but work must not be affected'.10 Content theories of motivation Among the available insights into the complex process of motivation, the content theories of motivation help us to understand human needs and how people with different needs may respond to different work situations. The process theories of motivation offer additional insights into how people give meaning to rewards and then respond with various work-related behaviours. The reinforcement theory of motivation focuses attention on the environment as a major source of rewards and influence on human behaviour. We will examine each of these three broad theories in turn, including examples of each, beginning with content theories. Most discussions of motivation begin with the concept of individual needs — the unfulfilled physiological or psychological desires of an individual. Content theories of motivation use individual needs to explain the behaviours and attitudes of people at work. The basic logic is straightforward. People have needs. They engage in behaviours to obtain extrinsic and intrinsic rewards to satisfy these needs. Although each of the following theories discusses a slightly different set of needs, all agree that needs cause tensions that influence attitudes and behaviours. Good managers and leaders establish conditions in which people are able to satisfy important needs through their work. They also take action to eliminate work obstacles that interfere with the satisfaction of important needs. Salaries and benefits are important sources of need satisfaction. In countries that emphasise individualism, rewards are usually linked closely to individual performance. In countries organised more strongly around groups (family or work), reward systems generally emphasise group and team performance and downplay individual performance.11 426 Hierarchy of needs theory The theory of human needs developed by Abraham Maslow was introduced in chapter 5 as an important foundation of the history of management thought. According to his hierarchy of human needs, lower order needs are physiological, safety and social concerns, and higher order needs are esteem and self-actualisation concerns.12 Whereas lower order needs are desires for social and physical wellbeing, the higher order needs represent a person's desires for psychological development and growth. Maslow offers two principles to describe how these needs affect human behaviour. The deficit principle states that a satisfied need is not a motivator of behaviour. People are expected to act in ways that satisfy deprived needs; that is, needs for which a 'deficit' exists. The progression principle states that a need at one level does not become activated until the next lower level need is already satisfied. People are expected to advance step-by-step up the hierarchy in their search for need satisfactions. At the level of self-actualisation, the more these needs are satisfied, the stronger they are supposed to grow. According to Maslow, a person should continue to be motivated by opportunities for self-fulfilment as long as the other needs remain satisfied. Although research has not verified the strict deficit and progression principles just presented, Maslow's ideas are very helpful for understanding the needs of people at work and for determining what can be done to satisfy them. His theory advises managers to recognise that deprived needs may negatively influence attitudes and behaviours. By the same token, providing opportunities for need satisfaction may have positive motivational consequences. Figure 15.1 illustrates how managers can use Maslow's ideas to better meet the needs of the people with whom they work. Note that the higher order self-actualisation needs are served entirely by intrinsic rewards. The esteem needs are served by both intrinsic and extrinsic rewards. Lower order needs are served solely by extrinsic rewards. FIGURE 15.1 Opportunities for satisfaction in Maslow's hierarchy of human needs 427 For some people, satisfying their lower order needs is enough, or needs to be if they are to earn their way. Consider 35-year-old driller Matt Brown as he downs a cold beer at the Rock Inn and Hotel in the mining town of Kalgoorlie, 600 kilometres east of Perth, Western Australia. The average pay for miners is $2113 a week (almost double the average Australian wage), and many earn more than $5000 a week. While he is able to return home every few weeks, the work has cost him his relationship with his girlfriend. In fact, at Kalgoorlie, there are 23 unmarried men in their 40s for each single woman in the town. Says Brown, 'For a lot of us, it's the money. If you want to work, there's a job here for you.' So, for Matt Brown it is the lower order needs — those for financial security and for a roof over his head — that trump self-actualisation and, to a fair degree, also triumph over his social needs, at least as far as the opposite sex is concerned.13 ERG theory One of the most promising efforts to build on Maslow's work is the existence, relatedness and growth (ERG) theory proposed by Clayton Alderfer.14 This theory collapses Maslow's five needs categories into three. Existence needs are desires for physiological and material wellbeing. Relatedness needs are desires for satisfying interpersonal relationships. Growth needs are desires for continued psychological growth and development. Alderfer's ERG theory also differs from Maslow's theory in other respects. This theory does not assume that lower level needs must be satisfied before higher level needs become activated. According to ERG theory, any or all of these three types of needs can influence individual behaviour at a given time. Alderfer also does not assume that satisfied needs lose their motivational impact. ERG theory thus contains a unique frustration–regression principle, according to which an already satisfied lower level need can become reactivated and influence behaviour when a higher level need cannot be satisfied. Alderfer's approach offers an additional means for understanding human needs and their influence on people at work. Two-factor theory Another framework for understanding the motivational implications of work environments is the two-factor theory of Frederick Herzberg.15 The theory was developed from a pattern identified in the responses of almost 4000 people to questions about their work. When questioned about what 'turned them on', they tended to identify things relating to the nature of the job itself. Herzberg calls these satisfier factors. When questioned about what 'turned them off', they tended to identify things relating more to the work setting. Herzberg calls these hygiene factors. As shown in Figure 15.2 (overleaf), the two-factor theory associates hygiene factors, or sources of job dissatisfaction, with aspects of job context. That is, 'dissatisfiers' are considered more likely to be a part of the work setting than of the nature of the work itself. The hygiene factors include things such as working conditions, interpersonal relations, organisational policies and administration, technical quality of supervision and base wage or salary. It is important to remember that Herzberg's two-factor theory argues that improving the hygiene factors, such as by adding piped music or implementing a no-smoking policy, can make people less dissatisfied with these aspects of their work. But they would not in themselves contribute to increases in satisfaction. That requires attention to an entirely different set of factors and managerial initiatives. 428 FIGURE 15.2 Herzberg's two-factor theory To really improve motivation, Herzberg advises managers to give proper attention to the satisfier factors. As part of job content, the satisfier factors deal with what people actually do in their work. By making improvements in what people are asked to do in their jobs, Herzberg suggests that job satisfaction and performance can be raised. The important satisfier factors include such things as a sense of achievement, feelings of recognition, a sense of responsibility, the opportunity for advancement and feelings of personal growth. The founder of experiences provider RedBalloon, Naomi Simson, seeks to respond to these needs at her Sydney office. To make work more enjoyable for her relatively young employees, the office is designed in an open-plan layout with splashes of red — the colour associated with the company — on the walls. Simson's dog trots around the office, and staff have access to regular further development opportunities. According to Simson, at the core of her approach lies a philosophy that seeks to balance both hygiene factors and satisfiers: Employees are the new customers. We honour our people. We listen to them the same way as we do our customers and in so doing they can create amazing experiences for our customers. I know if we're having fun, our customers will have fun … It's not a namby-pamby thing. We challenge people, we set them big games.16 Scholars have criticised Herzberg's theory as being method-bound and difficult to replicate.17 For his part, Herzberg reports confirming studies in countries located in Europe, Africa, the Middle East and Asia.18 Other studies indicate that there is, at best, limited support for the theory. One study undertaken in New Zealand, for instance, found that the quality of supervision and interpersonal relationships were significant causes of satisfaction and motivation, but these are hygiene factors (associated with dissatisfaction) in the Herzberg model. Nonetheless, the model remains popular around the world, perhaps because of its simplicity and the intuitive appeal of its concepts.19 At the very least, the two-factor theory remains a useful reminder that there are two important aspects of all jobs: job content — what people do in terms of job tasks; and job context — the work setting in which they do it. Herzberg's advice to managers is still timely: always correct poor context to eliminate actual or potential sources of job dissatisfaction, and be sure to build satisfier factors into job content to maximise opportunities for job satisfaction. The two-factor theory also cautions managers not to expect too much by way of motivational improvements from investments in such things as special office fixtures, attractive lounges for breaks, and even high base salaries. Instead, it focuses on the nature of the job itself and directs attention towards things such as responsibility and opportunity for personal growth and development. These directions are very consistent with themes in the contemporary workplace. 429 Acquired needs theory In the late 1940s, David McClelland and his colleagues began experimenting with the Thematic Apperception Test (TAT) as a way of examining human needs. The TAT asks people to view pictures and write stories about what they see. The stories are then content analysed for themes that display individual needs.20 From this research, McClelland identified three needs that are central to his approach to motivation. Need for achievement (nAch) is the desire to do something better or more efficiently, to solve problems, or to master complex tasks. Need for power (nPower) is the desire to control other people, to influence their behaviour, or to be responsible for them. Need for affiliation (nAff) is the desire to establish and maintain friendly and warm relations with other people. According to McClelland, people acquire or develop these needs over time as a result of individual life experiences. In addition, he associates each need with a distinct set of work preferences. Managers are encouraged to recognise the strength of each need in themselves and in other people. Attempts can then be made to create work environments responsive to them. People high in the need for achievement, for example, like to put their competencies to work, take moderate risks in competitive situations and are willing to work alone. As a result, the work preferences of people with a high need for achievement include individual responsibility for results, achievable but challenging goals and feedback on performance. Through his research McClelland concludes that success in top management is not based on a concern for individual achievement alone. It requires broader interests that also relate to the needs for power and affiliation. People high in the need for power are motivated to behave in ways that have a clear impact on other people and events. They enjoy being in control of a situation and being recognised for this responsibility. A person with high need for power prefers work that involves control over other people, has an impact on people and events, and brings public recognition and attention. Importantly, McClelland distinguishes between two forms of the power need. The need for 'personal' power is exploitative and involves manipulation for the pure sake of personal gratification. This type of power need is not successful in management. In contrast, the need for 'social' power is the positive face of power. It involves the use of power in a socially responsible way, one that is directed towards group or organisational objectives rather than personal ones. This need for social power is essential to managerial leadership. People high in the need for affiliation seek companionship, social approval and satisfying interpersonal relationships. They take a special interest in work that involves interpersonal relationships, work that provides for companionship and work that brings social approval. McClelland believes that people very high in the need for affiliation alone may not make the best managers. For these managers, the desire for social approval and friendship may complicate managerial decision-making. There are times when managers and leaders must decide and act in ways that other people may disagree with. To the extent that the need for affiliation interferes with someone's ability to make these decisions, managerial effectiveness will be sacrificed. Thus, the successful executive, in McClelland's view, is likely to possess a high need for social power that is greater than an otherwise strong need for affiliation. Questions and answers on content theories Figure 15.3 (overleaf) shows how the human needs identified by Maslow, Alderfer, Herzberg and McClelland compare with one another. Although the terminology varies, there is a lot of 430common ground. The insights of the theories can and should be used together to add to our understanding of human needs in the workplace. By way of summary, the following questions and answers further clarify the content theories and their managerial implications.21 FIGURE 15.3 Comparison of Maslow's, Alderfer's, Herzberg's and McClelland's motivation theories How many different individual needs are there? Research has not yet identified a perfect list of individual needs at work. But, as a manager, you can use the ideas of Maslow, Alderfer, Herzberg and McClelland to better understand the various needs that people may bring with them to the work setting. Can a work outcome or reward satisfy more than one need? Yes, work outcomes or rewards can satisfy more than one need. Pay is a good example. It is a source of performance feedback for the person with a high need for achievement. It can be a source of personal security for someone with strong existence needs. It can also be used indirectly to obtain things that satisfy social and ego needs. Is there a hierarchy of needs? Research does not support the precise five-step hierarchy of needs postulated by Maslow. It seems more legitimate to view human needs as operating in a flexible hierarchy, such as the one in Alderfer's ERG theory. However, it is useful to distinguish between the motivational properties of lower order and higher order needs. How important are the various needs? Research is inconclusive as to the importance of different needs. Individuals vary widely in this regard. For example, money may be an important reward, but studies show that it may not be the main motivator for many employees. A New Zealand study of more than 600 people found that being able to contribute to organisational decisions, learn new things and confront exciting challenges, and having appropriate freedom and autonomy top the list of workplace motivators.22 People may also value needs differently at different times and at different ages or career stages. A number of writers have argued that the needs of baby boomer employees (those born in the years 1946 to 1964, following World War II) are significantly different from those of generation X and generation Y employees. Baby boomers tend to be loyal and ambitious, value job status and security, and believe in process over outcomes. Generation X (born between 1965 and 1978) tend to be resourceful, individualistic, irreverent and difficult to retain, given their preference for new career challenges and disdain for organisational hierarchies. In a recent survey, they listed job satisfaction, recognition and diversity of work/special projects as the three most important elements they desired in a job. Generation Y (born between 1978 and 1994) are characterised by their information technology savvy and even greater idealism than generation X. Their focus on individuality will make traditional 'one size fits all' approaches to motivation even more outdated than they are today.23 This is another reason that managers should use the insights of all the content theories to understand the differing needs of people at work. 431 Are these theories equally relevant across cultures? Significant differences between cultures make the relevance of some elements of the content theories potentially questionable. The concept of achievement, so important to McLelland's acquired needs theory, is almost impossible to translate into languages other than English. People from non-Western cultures may also find difficulty in understanding a highly Westernised concept such as self-actualisation, since other needs may be more important for them. The highly individual notion of self-actualisation may simply be irrelevant for such people, as they place greater value on security, relationships or physical needs. Critical analysis It has been argued that the term 'self-actualisation' does not readily translate in the languages of some cultures. Is this a problem? If Herzberg thinks that an employee's base wage and salary is little more than a hygiene factor, why do university students normally rate money as their number one motivator? Process theories of motivation Although the details vary, each of the content theories described in the previous section can help managers better understand individual differences and deal positively with workforce diversity. Another set of theories, the process theories, adds to this understanding. The equity, expectancy and goal-setting theories each offer advice and insight on how people actually make choices to work hard or not, based on their individual preferences, the available rewards and possible work outcomes. Equity theory The equity theory of motivation is best known through the work of J. Stacy Adams.24 It is based on the logic of social comparisons and the notion that perceived inequity is a motivating state. That is, when people believe that they have been unfairly treated in comparison to others, they will be motivated to eliminate the discomfort and restore a perceived sense of equity to the situation. The classic example is pay. The equity question is: In comparison with others, how fairly am I being compensated for the work that I do? According to Adams's equity theory, people who perceive that they are being treated unfairly in comparison with others will be motivated to act in ways that reduce the perceived inequity. Figure 15.4 (overleaf) shows how the equity dynamic works in the form of input-to outcome comparisons. Equity comparisons are especially common whenever managers allocate extrinsic rewards, such as remuneration, benefits, preferred job assignments and work privileges. The comparison points may be co-workers in the group, workers elsewhere in the organisation and even people employed by other organisations. Perceived inequities occur whenever people feel that the rewards received for their work efforts are unfair, given the rewards others appear to be getting for their work efforts. Adams predicts that people will try to deal with perceived negative inequity, the case where the individual feels disadvantaged in comparison with others, by: changing their work inputs by putting less effort into their jobs changing the rewards received by asking for better treatment changing the comparison points to make things seem better changing the situation by leaving the job. 432 FIGURE 15.4 Equity theory and the role of social comparison The research on equity theory has largely been accomplished in the laboratory. It is most conclusive with respect to perceived negative inequity. People who feel underpaid, for example, experience a sense of anger. This causes them to try to restore perceived equity to the situation by pursuing one or more of the actions described in the list, such as reducing current work efforts to compensate for the missing rewards or even resigning from the job.25 By the same token, there is evidence that the equity dynamic occurs among people who feel overpaid. This time the perceived inequity is associated with a sense of guilt. The attempt to restore perceived equity may involve, for example, increasing the quantity or quality of work, taking on more difficult assignments, or working overtime. Equity theory is another good reminder that people behave according to their perceptions. Here, the issue is the way rewards are perceived by their recipients. What influences individual behaviour is neither the reward's absolute value nor the manager's intentions. Rather, the recipient's perceptions of the reward in its social context determine motivational outcomes. Rewards perceived as equitable should have a positive result on satisfaction and performance; those perceived as inequitable may create dissatisfaction and cause performance problems. It is every manager's responsibility to ensure that any negative consequences of the equity comparison are avoided, or at least minimised, when rewards are allocated. Informed managers anticipate perceived negative inequities whenever especially visible rewards such as pay or promotions are allocated. Instead of letting equity concerns get out of hand, they carefully communicate the intended value of rewards being given, clarify the performance appraisals on which they are based and suggest appropriate comparison points. As mentioned earlier, pay is a common source of equity controversies in the workplace, and its significance should never be underestimated. In addition to the general equity issues involved, two additional equity situations deserve special consideration. First is the issue of gender equity. Research indicates that average earnings in Australia are around $78000 for men but only $62000 for women.26 Male managers earn around $13500 more than female managers in equivalent positions.27 This difference is most evident in occupations traditionally dominated by men, such as the legal professions, but it also includes occupations where females have traditionally held most jobs, such as teaching. Second is the issue of comparable worth. This is the concept that people doing jobs of similar value based on required education, training and skills (such as nursing and accounting) should receive similar pay. Advocates of comparable worth claim that it corrects historical pay inequities and is a natural extension of the 'equal-pay-for-equal-work' concept. Critics claim that 'similar value' is too difficult to define and that the dramatic restructuring of wage scales would have a negative economic impact on society as a whole. 433 A growing issue of workplace equity concerns the massive salaries paid to company CEOs and other senior managers. Some employees feel it is simply unfair that their own wage or salary seems so small compared with that of their organisation's leader. This issue will be discussed in more detail later in the chapter. Expectancy theory Victor Vroom introduced to the management literature another process theory of work motivation that has made an important contribution.28 The expectancy theory of motivation asks a central question: What determines the willingness of an individual to work hard at tasks important to the organisation? In response to this question, expectancy theory suggests that 'people will do what they can do when they want to do it'. More specifically, Vroom suggests that the motivation to work depends on the relationships between the three expectancy factors depicted in figure 15.5 and described here. Expectancy is a person's belief that working hard will result in a desired level of task performance being achieved (this is sometimes called effort–performance expectancy). Instrumentality is a person's belief that successful performance will be followed by rewards and other potential outcomes (this is sometimes called performance–outcome expectancy). Valence is the value a person assigns to the possible rewards and other work-related outcomes. FIGURE 15.5 Elements in the expectancy theory of motivation Expectancy theory posits that motivation (M), expectancy (E), instrumentality (I) and valence (V) are related to one another in a multiplicative fashion: M = E × I × V. In other words, motivation is determined by expectancy times instrumentality times valence. This multiplier effect among the expectancy factors has important managerial implications. Mathematically speaking, a zero at any location on the right-hand side of the equation (that is, for E, I or V) will result in zero motivation. Managers are thus advised to act in ways that maximise all three components of the equation — expectancy (people must believe that if they try they can perform), instrumentality (people must perceive that high performance will be followed by certain outcomes) and valence (people must value the outcomes). Not one of these factors can be left unattended. Suppose, for example, that a manager is wondering whether the prospect of earning a promotion will be motivational to a subordinate. A typical assumption is that people will be motivated to work hard to earn a promotion. But is this necessarily true? Expectancy theory predicts that a person's motivation to work hard for a promotion will be low if any one or more of the following three conditions apply. First, if expectancy is low, motivation will suffer.434 The person may feel that he or she cannot achieve the performance level necessary to get promoted. So, why try? Second, if instrumentality is low, motivation will suffer. The person may lack confidence that a high level of task performance will result in being promoted. So, why try? Third, if valence is low, motivation will suffer. The person may place little value on receiving a promotion. It simply isn't much of a reward. So, once again, why try? Expectancy theory makes managers aware of such issues. It can help them better understand and respond to different points of view in the workplace. As shown in figure 15.6, the management implications include being willing to work with each individual to maximise his or her expectancies, instrumentalities and valences in ways that support organisational objectives. Stated a bit differently, a manager should work with others to clearly link effort and performance, confirm performance–outcome relationships and reward performance with valued work outcomes. FIGURE 15.6 Managerial implications of expectancy theory Goal-setting theory Another process theory, as described by Edwin Locke, focuses on the motivational properties of task goals.29 The basic premise of this goal-setting theory is that task goals can be highly motivating — if they are properly set and if they are well managed. Goals give direction to people in their work. Goals clarify the performance expectations between a supervisor and subordinate, between co-workers, and across subunits in an organisation. Goals establish a frame of reference for task feedback. Goals also provide a foundation for behavioural self-management.30 In these and related ways, Locke believes goal setting can enhance individual work performance and job satisfaction. To achieve the motivational benefits of goal setting, research by Locke and his associates indicates that managers and team leaders must work with others to set the right goals in the right ways. The key issues and principles in managing this goal-setting process are described in Manager's notepad 15.1, and 'participation' is an important element. The degree to which the person expected to do the work is involved in setting the performance goals can influence his or her satisfaction and performance. Research indicates that a positive impact is most likely to occur when the participation allows for increased understanding of specific and difficult goals and provides for greater acceptance and commitment to them. Along with participation, the opportunity to receive feedback on goal accomplishment is also essential to motivation. 435 Manager's notepad 15.1 How to make goal setting work for you Set specific goals. They lead to higher performance than generally stated ones, such as 'Do your best'. Set challenging goals. When viewed as realistic and attainable, more difficult goals lead to higher performance than do easier goals. Build goal acceptance and commitment. People work harder for goals they accept and believe in; they resist goals forced on them. Clarify goal priorities. Make sure that expectations are clear as to which goals should be accomplished first and why. Provide feedback on goal accomplishment. Make sure that people know how well they are doing in respect to goal accomplishment. Reward goal accomplishment. Don't let positive accomplishments pass unnoticed; reward people for doing what they set out to do. The concept of management by objectives (MBO) is a good illustration of a participative approach to joint goal setting by supervisors and subordinates. The MBO process helps to unlock and apply the motivational power of goal-setting theory. In addition to MBO, managers should be aware of the participation options. It may not always be possible to allow participation when selecting exactly which goals need to be pursued, but it may be possible to allow participation in the decisions about how to best pursue them. Furthermore, the constraints of time and other factors operating in some situations may not allow for participation. In these settings, research suggests that workers will respond positively to externally imposed goals if the supervisors assigning them are trusted and if the workers believe they will be adequately supported in their attempts to achieve them. Self-efficacy theory Closely related to both the expectancy and goal-setting approaches to motivation is self-efficacy theory, also referred to as social learning theory. Based on the work of psychologist Albert Bandura, the notion of self-efficacy refers to a person's belief that she or he is capable of performing a task.31 You can think of self-efficacy using terms such as confidence, competence and ability. From a manager's perspective, the major insight of self-efficacy theory is that anything done to boost feelings of confidence, competence and ability among people at work is likely to pay off with increased levels of motivation. SELF-EFFICACY DYNAMICS The essence of self-efficacy theory is that, when people believe themselves to be capable, they will be more motivated to work hard at a task. But self-efficacy is not an undifferentiated feeling of confidence, according to Bandura. Rather, it is a capability-specific belief in one's competency to perform a task. The link between Bandura's ideas, elements of Vroom's expectancy theory, and Locke's goal-setting theory should be clear. With respect to Vroom, a person with higher self-efficacy will have higher expectancy that he or she can achieve a high level of task performance; this increases motivation. With respect to Locke, self-efficacy links with a person's willingness to set challenging performance goals. In both respects, managers who help create feelings of self-efficacy in others should be boosting their motivation to work. 436 ENHANCING SELF-EFFICACY According to Bandura's work, there are four major ways in which self-efficacy can be enhanced.32 First is enactive mastery — when a person gains confidence through positive experience. The more you work at a task, so to speak, the more your experience builds and the more confident you become at doing it. Second is vicarious modelling — basically, learning by observing others. When someone else is good at a task and we are able to observe how they do it, we gain confidence in being able to do it ourselves. Third is verbal persuasion — when someone tells us or encourages us that we can perform the task. Hearing others praise our efforts and link those efforts with performance successes is often very motivational. Fourth is emotional arousal — when we are highly stimulated or energised to perform well in a situation. A good analogy for arousal is how athletes get 'psyched up' and highly motivated to perform in key competitions. POSITIVE PSYCHOLOGICAL CAPITAL A concept known as PsyCap, or psychological capital, is defined by Fred Luthans and his colleagues as 'an individual's positive psychological state of development'. This positive state is composed of (1) high personal confidence and self-efficacy in working on a task, (2) optimism about present and future success, (3) hope and perseverance in pursuing goals and adjusting them as needed, and (4) resiliency in responding to setbacks and problems. A briefings report from the Gallup Leadership Institute points out that psychological capital deals with 'who you are' and 'who you are becoming'. They contrast this with human capital ('what you know') and social capital ('who you know'). It also summarises studies that address the measurement of PsyCap, and the impact of PsyCap on work attitudes and performance. In samples of management students and managers, researchers report success with a training intervention designed to raise the level of PsyCap for participants. When performance measures were taken among the manager samples, increases in performance were associated with the PsyCap gains. In comparing the costs of the training intervention with the performance gains, the researchers calculated the return on investment as 270 per cent. Overall conclusions for this stream of research are that the measurement of PsyCap is reliable and valid, and that PsyCap is positively related to individual performance and satisfaction.33 Critical analysis Many organisations formally advise employees not to divulge details of their remuneration with their co-workers. In terms of equity theory, is this effective advice? Self-efficacy appears to be a very Western-oriented concept, focusing as it does on the individual. Is it possible that more collectivist and group-orientated cultures have a similar concept that focuses on groups? Undertake some research to determine if this is so. Reinforcement theory of motivation The content and process theories described so far use cognitive explanations of behaviour. They are concerned with explaining 'why' people do things in terms of satisfying needs, resolving felt inequities, and/or pursuing positive expectancies and task goals. 437Reinforcement theory, in contrast, views human behaviour as determined by its environmental consequences. Instead of looking within the individual to explain motivation and behaviour, it focuses on the external environment and the consequences it holds for the individual. The basic premises of the theory are based on what E. L. Thorndike called the law of effect — behaviour that results in a pleasant outcome is likely to be repeated; behaviour that results in an unpleasant outcome is not likely to be repeated.34 Reinforcement strategies Psychologist B. F. Skinner popularised the concept of operant conditioning as the process of applying the law of effect to control behaviour by manipulating its consequences.35 You may think of operant conditioning as learning by reinforcement. In management the term is often discussed with respect to organisational behaviour modification (OB Mod), the application of operant conditioning techniques to influence human behaviour in the workplace.36 The goal of OB Mod is to use reinforcement principles to systematically reinforce desirable work behaviour and discourage undesirable work behaviour (see figure 15.7). FIGURE 15.7 Applying reinforcement strategies: case of total quality management Four strategies of reinforcement are used in operant conditioning. Positive reinforcement strengthens or increases the frequency of desirable behaviour by making a pleasant consequence contingent on its occurrence. For example, a manager nods to express approval to someone who makes a useful comment during a staff meeting. Negative reinforcement increases the frequency of or strengthens desirable behaviour by making the avoidance of an unpleasant consequence contingent on its occurrence. For example, a manager who has been nagging a worker every day about tardiness does not nag when the worker comes to work on time one day. Punishment decreases the frequency of or eliminates an undesirable behaviour by making an unpleasant consequence contingent on its occurrence. For example, a manager issues a written reprimand to an employee who reports late for work one day. Extinction decreases the frequency of or eliminates an undesirable behaviour by making the removal of a pleasant consequence contingent on its occurrence. For example, a manager observes that a disruptive employee is receiving social approval from co-workers; the manager counsels co-workers to stop giving this approval. 438 An example of how these four reinforcement strategies can be applied in management is shown in figure 15.7. The supervisor's goal in the example is to improve work quality as part of a total quality management program. Note how the supervisor can use each of the strategies to influence continuous improvement practices among employees. Note, too, that the strategies of both positive and negative reinforcement strengthen desirable behaviour when it occurs. The punishment and extinction strategies weaken or eliminate undesirable behaviours. Positive reinforcement Among the reinforcement strategies, positive reinforcement deserves special attention. It should be a central part of any manager's motivational strategy. The multilevel marketing sector is one of the best examples of the successful use of this approach. Amway has long provided recognition pins for its distributors as they reach new levels of success, and companies such as Nutrimetics and Tupperware provide company cars to their best performers. All managers would do well to understand two important laws of positive reinforcement. First, the law of contingent reinforcement states: For a reward to have maximum reinforcing value, it must be delivered only if the desired behaviour is exhibited. Second, the law of immediate reinforcement states: The more immediate the delivery of a reward after the occurrence of a desirable behaviour, the greater the reinforcing value of the reward. Managers should use these laws to full advantage in the everyday pursuit of the benefits of positive reinforcement. The power of positive reinforcement can be mobilised through a process known as shaping. This is the creation of a new behaviour by the positive reinforcement of successive approximations to it. The timing of positive reinforcement can also make a difference in its impact. A continuous reinforcement schedule administers a reward each time a desired behaviour occurs. An intermittent reinforcement schedule rewards behaviour only periodically. In general, a manager can expect that continuous reinforcement will elicit a desired behaviour more quickly than will intermittent reinforcement. Also, behaviour acquired under an intermittent schedule will be more permanent than will behaviour acquired under a continuous schedule. One way to succeed with a shaping strategy, for example, is to give reinforcement on a continuous basis until the desired behaviour is achieved. Then an intermittent schedule can be used to maintain the behaviour at the new level. diversity Employee engagement and motivation According to Kirk Fisher of the consulting company Workplace Training Advisory Australia, 'a sense of autonomy, mastery over their career path and meaningful relationships all help employees feel engaged at work'.37 By being 'engaged', employees are committed to their organisations, its goals, and their work. They demonstrate higher productivity and greater levels of organisational citizenship behaviours — those things that characterise staff who 'go the extra mile'. However, recent surveys show troubling levels of employee engagement in Australia. A survey of over 3000 employees conducted by the Australian Institute of Management found that more than one-third of those surveyed agreed with the statement 'I could be putting more effort and input into my current role'. Forty per cent of respondents indicated that they did not feel appreciated by their employer.38 Another survey, by the worldwide Gallup Organization, found that only 30 per cent of employees had any real idea about what their organisations were trying to achieve!39 439 So, what can managers do to engage their people? Zrink Lovrencic of the Great Place to Work Institute in Sydney says that managers need to trust their employees; communicate with them honestly and transparently; take the time to listen to their staff; use a flat structure to minimise the number of intermediate levels between those at the top of the organisation and those further down; provide flexibility in how and when work is performed; and demonstrate a commitment to sustainability and corporate social responsibility.40 Question If we know what makes people feel engaged at work, why don't organisations and their managers 'just do it'? Punishment As a reinforcement strategy, punishment attempts to eliminate undesirable behaviour by making an unpleasant consequence the result of its occurrence. To punish an employee, for example, a manager may deny the individual a valued reward, such as verbal praise or merit pay, or administer an unpleasant outcome, such as a verbal reprimand or pay reduction. Like positive reinforcement, punishment can be done poorly or it can be done well. Unfortunately, it may often be done poorly. Remember, too, that punishment can be combined with positive reinforcement. Ethical issues in reinforcement The use of OB Mod and reinforcement techniques in work settings has produced many success stories of improved safety, decreased absenteeism and tardiness, and increased productivity.41 But there are also debates over both the results and the ethics of controlling human behaviour. Opponents are concerned that use of operant conditioning principles ignores the individuality of people, restricts their freedom of choice and ignores the fact that people can be motivated by things other than externally administered rewards. Advocates, however, attack these criticisms. They agree that reinforcement involves the control of behaviour, but they argue that control is part of every manager's job. The real question may not be whether it is ethical to control behaviour but whether it is ethical not to control behaviour well enough so that the goals of both the organisation and the individual are well served. Even as research continues, the value of reinforcement techniques seems confirmed. This is especially true when they are combined with the insights of the other motivation theories discussed in this chapter.42 Critical analysis Provide your own example to demonstrate the difference between negative reinforcement and extinction. Some people think that encouraging others is nice but doesn't make up for an increase in salary or a promotion. What do you think? 440 Manager's notepad 15.2 The ten foundations of motivation Moving widely across our theories of motivation, Shawn Doyle argues that managers and leaders should keep the following tips in mind: provide a purpose for what people do encourage people to be passionate about what they do provide continuous opportunities for learning and development both have a mentor and act as a mentor understand what motivates your people and act on this reward their people appropriately for their achievements keep the long-term big picture in mind while managing a day at a time never allow complacency — continuous improvement is required regularly evaluate progress aim for balance across life's elements.43 Motivation and remuneration By way of summary, figure 15.8 offers an integrative view of motivation that takes advantage of insights from each of the theoretical perspectives discussed so far. It shows how they can be combined into one model of motivational dynamics in the workplace. In this figure motivation leads to effort that, when combined with appropriate individual abilities and organisational support, leads to performance. The motivational impact of any rewards received for this performance depends on equity and reinforcement considerations. Ultimately, satisfaction with rewards should lead to increased motivation to work hard in the future. FIGURE 15.8 An integrated approach to motivational dynamics Of the motivation issues that can be discussed within this framework, perhaps none receives as much attention as the special case of remuneration.44 There are many advantages, both individual and organisational, to be gained from a truly motivational remuneration scheme. In general, the success of any such system lies in its ability to apply the alternative motivation theories in positive and credible ways. In practice, however, the link between motivation and remuneration is usually very complicated. 441 Pay for performance The notion of paying people for their performance is consistent with the equity, expectancy and reinforcement theories.45 Formally defined, merit pay is a remuneration system that awards pay increases in proportion to individual performance contributions. By allocating pay increases in this way, managers are attempting to recognise and positively reinforce high performers and encourage them to work hard for similar accomplishments in the future. They are also attempting to remind low performers of their lack of achievement and send a signal that they must do better in the future. The concept of merit pay is a logical extension of the motivation theories. In principle, at least, it makes sense to reward people in proportion to their work contributions. Because of the difficulty of actually linking pay with performance in a truly contingent and equitable manner, however, merit pay does not always achieve the desired results. A successful merit pay system must have a solid foundation in agreed-upon and well defined 'performance measures'. Any weakness in the performance appraisal methods can undermine a merit pay system, and lack of consistency in applying merit pay at all levels of the organisation can jeopardise its credibility. There is concern today, for example, that CEO pay isn't adequately linked to performance. Magazines such as BRW and Fortune regularly report on the issue of CEO remuneration, and it has been the subject of a Productivity Commission report in Australia, which revealed that the average annual remuneration for CEOs of the top 20 companies in Australia is almost $10 million — or 150 times average earnings.46 The impression of some is that CEOs are well rewarded no matter how well the company performs. For example, after recording a $291 million annual loss, failed telecommunications company One.Tel paid directors Jodee Rich and Brad Keeling a $6.9 million bonus on top of their $500000 salaries. The bonus was based on the company's sharemarket value at the time, rather than on profits. One.Tel appears to have been struggling during the period in which the bonuses were paid and the company collapsed just months later. When One.Tel's investors, customers, and the general public claimed mismanagement, Rich and Keeling offered to return their bonuses. Their pain may not have been too great, however, since they had earlier shared more than $50 million when James Packer and Lachlan Murdoch bought into the company.47 Contrast the One.Tel example with a recent decision made by Nicholas Moore, CEO of the Macquarie Group. After a 52 per cent decline in profits saw Macquarie's net profit decline for the first time in 17 years, Moore gave himself a 99 per cent pay cut, reducing his annual salary from $26.7 million to $290756. Other Macquarie executives also had their remuneration slashed, with Moore noting that the savage reductions were part of the bank's broader remuneration structure, which directly linked payment to profit. 'My pay-packet and the pay-packets of all Macquarie Group executives are based on the underlying profitability of the organisation', he commented.48 Phil Chronican, the CEO of ANZ Bank, recently claimed that public concern about the very high salaries paid to executives in the finance and banking sectors was misplaced and an example of 'bank bashing'. According to Chronican, executives like himself are subject to potentially short careers at the highest level, and are paid so well because of the risks that they take, the returns that they make for shareholders, their heavy responsibility for the welfare of their employees, and their obligation to ensure that customer service is of the highest possible quality.49 On the other hand, business writer David James argues that the salaries paid to banking executives both before and after the global financial crisis reveal a very weak link, if any, between remuneration and organisational performance. Many executives have continued to receive massive salaries and enormous bonuses whether the 442fortunes of their companies have risen or fallen. James quotes consultancy director Martin Lawrence, whose view is that the argument linking the level of executive remuneration to the size of the organisations being led is, at best, questionable. Says Lawrence, 'You could actually argue that it is easier to run those companies (since) the risk is not a real risk, not in the way ordinary people understand it. In public companies (that is, companies listed on the share market), you become spectacularly wealthy or wealthy; they are the choices'.50 Consider also a radical performance-related pay scheme now being used at one of Australia's largest companies, Wesfarmers. While the company's managing director, Richard Goyder, earned $6.9 million in 2010, the head of Coles Supermarkets, a company owned by Wesfarmers, received $15.6 million.51 The reason for this seems to be that Goyder and his board of directors would rather pay a 'star performer' as much as they need to in order to grow the entire organisation. One would think that Goyder would benefit from this strategy in the longer term via an increase in the value of the many shares that they would hold in the company. One trend among the efforts to improve pay for performance systems is the use of 'double hurdles'. One hurdle may continue to be traditional performance targets such as defined goals for new sales, customer retention or cost control. An increasingly common second hurdle compares the company's total shareholder return with that of the overall stockmarket or a select group of comparison companies. This ensures that executives are not rewarded simply for achieving targets that other companies may also be achieving in a growing market or a buoyant economy, but for guiding the company to better performance relative to the market and competitors.52 Not everyone believes in merit pay. John Whitney, author of The Trust Factor, suggests that pay for performance may not work very well. While pointing out that market forces should determine base pay, Whitney believes that organisations can benefit by making the annual merit increase an equal percentage of base salaries from one employee to the next. This communicates a universal sense of importance and helps to avoid frustrations and complaints when merit increases are tied to performance differences. Says Whitney: 'Quibbling over whether someone should get a 4.7 per cent raise or 5.1 per cent is a colossal waste of time'.53 globalisation Adapting rewards to local contexts Many employees would happily take their manager up on the reward of a return flight to New Zealand. Smart global companies recognise that cultural differences create motivational differences in their local offices. While New Zealand and Australia are generally viewed as culturally similar, Air New Zealand's general manager in Australia, John Harrison, recognises that cultural differences may be significant. So, when he aimed to achieve a record profit from the Australian office, Harrison offered Australian staff the option of an iPod or a free return to flight to New Zealand if they reached their targets, something the company had never done before. Seventy per cent of staff gladly took the iPod when they achieved the record. At the Australian offices of US-based software company NetApp Australia, employees get to celebrate the traditional all-afternoon and all-evening Christmas party. Another unique option for NetApp's Australian employees is an additional five days paid leave for community service activities. Wine and spirits manufacturer Diageo Australia encourages 443its staff to work an extra 30 minutes from Monday to Thursday during summer months, enabling them to clock-off for the week at 3pm on Friday afternoons. Also understanding that Australian white-collar workers like to take regular breaks and often enjoy indulging in sweet foods, Diageo provides spontaneous three-minute massages and boxes of Krispy Kreme doughnuts for local employees.54 Question What rewards would you suggest to keep young employees motivated? Incentive remuneration systems Today, employees at all levels in more and more organisations are benefiting from various special incentive remuneration systems. Examples include pay for knowledge, bonus pay plans, profit-sharing plans, gain-sharing plans and employee share ownership plans.55 Some companies reward employees with overseas trips. For example, a Taiwanese insurance company rewarded 2000 of its best insurance agents with a three-day visit to Australia. The agents patted Australian animals brought to the Sydney Opera House, visited Koala Park, undertook a Bridge Climb and enjoyed the music of a 60-piece marching band.56 As you consider the descriptions that follow, however, remember that any incentive remuneration system will work only as well as its implementation. The well-known remuneration scholar and consultant Edward Lawler, for example, tells of this experience.57 While consulting for a furniture manufacturer, he became convinced that a 'gain sharing' incentive plan would be helpful and thus advised the factory manager on starting one. The manager proceeded only reluctantly, claiming, 'These guys are already paid enough … they should be happy to have a job'. Says Lawler: 'Although the program was somewhat successful, the manager's continuing tendency to call it an "employee bribe program" definitely limited its success'. PAY FOR KNOWLEDGE In addition to paying for performance, some organisations now emphasise paying for knowledge. A concept called skills-based pay, for example, pays workers according to the number of job-relevant skills they master. Many government departments and agencies reward their people in this way. The government of the Australian Capital Territory, for instance, has developed a framework that incorporates more than 200 individual competency units, 21 qualifications and an overall assessment regime that seeks to link rewards to the skills, competencies and qualifications of its employees.58 Skills-based pay systems are common in self-managing teams where part of the 'self-management' includes responsibilities for the training and certification of co-workers in job skills. BONUS PAY Bonus pay plans provide one-off or lump-sum payments to employees based on the accomplishment of specific performance targets or some other extraordinary contribution, such as an idea for work improvement. They typically do not increase base salary or wages. Bonuses have been most common at the executive level, but they are now being used more extensively. Bonuses are not always inevitable, and are raised or cut in line with company performance. PROFIT SHARING Profit-sharing plans distribute to some or all employees a proportion of profits earned by the organisation during a stated performance period. The exact amount typically varies 444according to the level of profits and each person's base remuneration and/or length of service. Profit-sharing schemes have long been common in professions such as accounting and law and are becoming increasingly common elsewhere. GAIN SHARING Gain-sharing plans extend the profit-sharing concept by allowing groups of employees to share in any savings or 'gains' realised through their efforts to reduce costs and increase productivity. Specific formulas are used to calculate both the performance contributions and gain-sharing awards. The classic example is the Scanlon plan, which usually results in 75 per cent of gains being distributed to workers and 25 per cent being kept by the company. Recognising that each work situation is different, there is a general move away from predefined formulas to custom-designed approaches that reinforce the link between pay and performance for specific work groups.59 EMPLOYEE SHARE OWNERSHIP Employee share ownership plans (ESOPs) involve employees in ownership through the purchase of shares in the companies that employ them. Whereas formal ESOPs are often used as financing schemes to save jobs and prevent business closures, share ownership by employees is an important performance incentive. It can be motivating to have an ownership share in your place of employment. An approach to employee ownership through share options gives the option holder the right to buy shares at a future date at a fixed price. This links ownership directly with a performance incentive, since employees holding share options presumably are motivated to work hard to raise the price of the company's shares. When the price has risen they can exercise their option and buy the shares at a discount, thus realising a financial gain. Share options are most common in senior executive remuneration, but their use is spreading to include lower level employees. Many of the most admired companies in the Asia–Pacific region offer share options to their workforces. At Flight Centre, more than 50 per cent of all employees bought shares in the company when they were initially offered during 1995. By mid 2009, the share price was still trading above 9 dollars, a significant increase from its listing price of 75 cents. One of the issues to be considered with share options, however, relates to their risk. If a company's shares perform poorly, the options it is offering as a performance incentive are worth less; their motivational value is largely eliminated. When the technology companies experienced a downturn in the stockmarket, for example, many employees were disappointed with incentive pay that was tied to share options. Many firms experienced turnover problems as talented employees resigned to pursue other and more promising opportunities. As a result, there was a resurgence of interest in adding cash bonuses to the incentive remuneration packages. In an industry where human capital is paramount for success, the most progressive employers responded. This discussion leaves us with the question of whether money motivates more than other incentives such as job satisfaction or the opportunity to develop meaningful relationships at work. There is no final answer. There are as many ways of designing motivation, incentive and reward systems as there are individuals who work under such systems. Dexter Dunphy and Tyrone Pitsis of the University of Technology, Sydney, argue that greed is the most common of the 'seven deadly sins' in Western organisations. Effective managers, they suggest, recognise that they do not make decisions about rewards and incentives in a vacuum. Such decisions should reflect the broader responsibilities of managers to their stakeholders and environments. Considered in this light, our traditional rewards systems are potentially very blunt instruments for creating high-performance organisations and 445corporate cultures. If we place material rewards at the forefront of employee thinking, we should not be surprised if employee behaviour therefore focuses on what is to be rewarded rather than what is to be desired. For these reasons, becoming the kind of manager who can develop and refine an approach to motivation that reflects the complexity of individuals and organisations is one of the most significant challenges you will face in your career. counterpoint Can money be trumped? While many senior executives appear to be paid sums of money out of proportion to their contributions, thousands of small and medium-sized enterprises (SMEs) in Australia and New Zealand do not have such rewards strategies as an option. In fact, many small business owners can face years of hard slog and toil before they can even take a modest wage or salary from their business. At SNP Security, however, providing other benefits led to a massive reduction in employee turnover. Through offering additional on-the-job training and free classes in English for its highly multicultural workforce, SNP Security reduced its loss of staff from 22 per cent (of all staff leaving during the course of a year) to 14 per cent. In another example, the Perth office of law firm Allens Arthur Robinson encourage staff to leave work at lunch time each Friday to undertaken volunteer work in their local communities. Nonetheless, it is probable that such benefits are only part of the alternative to paying high salaries. According to research, the number one reason that individuals leave their organisation is dissatisfaction with their boss — leadership counts!60 Question Why do you think that money is often not the major reason that employees leave organisations? Critical analysis In order to survive in a very challenging industry, Sydney's Belvoir St Theatre pays every employee the same amount. From the general manager to the box-office staff, everyone is paid just over $25 an hour.61 Identify two or three advantages and disadvantages of this rewards system. The average pay of CEOs among leading publicly listed companies increased from 18 times the average adult weekly earnings of all employees to more than 63 times average earnings over a recent 15-year period.62 Why might this be cause for concern among the broader community? Multinational companies usually keep salaries at similar levels between countries to ensure consistency. On the other hand, the buying power of a dollar and the cost of living can be very different from one country to another. What can multinational companies do to eliminate such inequities? 446 SUMMARY What is motivation? Motivation involves the level, direction and persistence of effort expended at work; simply put, a highly motivated person works hard. Extrinsic rewards are given by another person; intrinsic rewards derive naturally from the work itself. To maximise their motivational impact, rewards should be allocated in ways that respond to both individual and organisational needs. The three major types of motivation theories are the content, process and reinforcement theories. What are the different types of individual needs? Maslow's hierarchy of human needs suggests a progression from lower order physiological, safety and social needs to higher order ego and self-actualisation needs. Alderfer's ERG theory identifies existence, relatedness and growth needs. Herzberg's two-factor theory points out the importance of both job content and job context factors in satisfying human needs. McClelland's acquired needs theory identifies the needs for achievement, affiliation and power, all of which may influence what a person desires from work. Managers should respect individual differences and diversity to create motivating work environments. What are the process theories of motivation and why is self-efficacy so important? Adams's equity theory recognises that social comparisons take place when rewards are distributed in the workplace. People who feel unfairly treated are motivated to act in ways that reduce the sense of inequity; perceived negative inequity may result in someone working less hard in the future. Vroom's expectancy theory states: Motivation = Expectancy × Instrumentality × Valence. Expectancy theory encourages managers to make sure that any rewards offered for motivational purposes are both achievable and individually valued. Locke's goal-setting theory emphasises the motivational power of goals; people tend to be highly motivated when task goals are specific rather than ambiguous, difficult but achievable and set through participatory means. Self-efficacy has become an increasingly important concept for managers and leaders because it encompasses the contemporary trend towards individuals focusing on their own self-confidence, competence and mastery. By acknowledging the importance of self-efficacy, managers can create work environments in which individuals will choose to motivate themselves. By modelling expected behaviours, giving employees the chance to learn new skills in safe environments, encouraging their people, and adding an emotional dimension to their communications, organisational leaders can encourage the development of an individual's feelings of self-efficacy. What role does reinforcement play in motivation? Reinforcement theory recognises that human behaviour is influenced by its environmental consequences. The law of effect states that behaviour followed by a pleasant consequence is likely to be repeated; behaviour followed by an unpleasant consequence is unlikely to be repeated. Reinforcement strategies used by managers include positive reinforcement, negative reinforcement, punishment and extinction. Positive reinforcement works best when applied according to the laws of contingent and immediate reinforcement. 447 What are the trends in motivation and remuneration? The area of remuneration provides a good test of a manager's ability to integrate and apply the insights of all motivation theories. Pay for performance, in the form of merit pay plans, ties pay increases to improvements in performance. Various incentive remuneration programs, such as bonuses, gain sharing and profit sharing, allow workers to benefit materially from improvements in profits and productivity. Pay-for-knowledge systems typically link pay to the mastery of job-relevant skills. Key terms expectancy extinction extrinsic rewards higher order needs hygiene factors instrumentality intrinsic rewards law of effect lower order needs merit pay motivation need for achievement (nAch) need for affiliation (nAff) need for power (nPower) needs negative reinforcement operant conditioning organisational behaviour modification (OB Mod) positive reinforcement punishment satisfier factors self-efficacy shaping skills-based pay valence Key theories content theories of motivation hierarchy of needs theory ERG theory two-factor theory acquired needs theory process theories of motivation equity theory expectancy theory goal-setting theory self-efficacy theory reinforcement theory of motivation an integrated model of motivational dynamics Applied activities What types of preferences do people high in the need for achievement bring with them to the workplace? Why is participation important to goal-setting theory? What is motivation to work? What is the managerial significance of Herzberg's distinction between factors in the job content and job context? How can a manager combine the powers of goal setting and positive reinforcement to create a highly motivational environment for workers with high needs for achievement? Career readiness activities Recommended individual and group learning activities from the end-of-text Career Readiness Workbook for this chapter include: Research and presentation projects Project 6 — Controversies in CEO pay — 'is it too high?' Project 7 — Fringe benefits — 'how can they be managed?' Exercises in teamwork Exercise 6 — What do you value in work? Exercise 19 — Remuneration and benefits debate Interactive Study Guide resources A range of management skills assessments, key concept modules and videos is available on the Interactive Study Guide that accompanies this text. Regional research Adrian Medhurst and Simon Albrecht, 'Salespeople Engagement and Performance: A Theoretical Model', Journal of Management and Organization, vol. 17, issue 3 (2011), pp. 398–411. Abstract Sales performance is widely regarded as an important index of individual and organisational performance. Sales employees require access to organisational and job resources as well as personal resources in order to function effectively. An individual-level salesperson performance model is proposed that draws from the motivational process represented in the Job Demands-Resources Model.63 Organisational and job resources are conceptualised in terms of employee involvement climate.64 Personal resources are conceptualised in terms of employees' 448psychological capital.65 The model delineates how employee involvement climate influences engagement; how psychological capital influences performance; how employee involvement climate and psychological capital interact to influence employee engagement; and how, in turn, engagement impacts salesperson performance. The model will potentially prove useful to human resource managers, organisational development practitioners, and sales managers aiming to up-skill and more fully involve and engage their salespeople in order to optimise salesperson performance.