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Behavioural Framework for Compensation
1
BEHAVIOURAL FRAMEWORK
FOR COMPENSATION
COMPENSATION MANAGEMENT
Behavioural Framework for Compensation
2
OBJECTIVES At the end of this section students will be able to:
Account for the role of motivation in the design and development of compensation.
Distinguish between content and process theories of
motivation. Describe each of the main theories in each category of
motivation theory.
Use the theories to analyse relevant workplace situations
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MOTIVATION Three elements of motivation:
What’s important to a person
The offering of what’s important to an individual in exchange for some desired behaviour
The desired behaviour itself
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Employee’s preference Employee’s prefer pay systems that recognizes:
Individual performance Changes in cost of living Seniority Market
Cafeteria Style compensation
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The use of compensation for motivation To understand a person’s behaviour, one
needs to understand the person’s motivation
Two useful set of motivation theory are:
Content theories Process theories
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Content theories Focus on identifying and understanding
underlying needs, based on the common-sense notion that people behave in ways they think will help them satisfy their key needs.
Example: Need for survival
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Content theories Maslow Hierarchy of Needs
Herzberg’s Two-factor Theory
Job Characteristics Theory
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Content Theories Maslow Hierarchy of Needs
Five sets of needs – arrange in hierarchy
Lower level needs – must be satisfied first
A satisfied need no longer motivates behaviour
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Content Theories - Maslow
Self-Actualization
Ego or Esteem Needs
Social Needs
Safety/Security Needs
Survival/Physiological Needs
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Content Theories Maslow Hierarchy
Survival/Physiological needs
Basic life needs– air, shelter, water, food, sleep , sex
Safety/Security Needs Affection, home, affection, relationship, work group, family, society
Social Needs Love and belonging
Ego or Esteem Needs Self-esteem and also recognition from other
Self-Actualization Ultimate, becoming everything we are capable of becoming
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Content Theories Maslow’s Hierarchy of Needs
Essential Features Predictions about Performance-Based Pay
So What?
1. People are motivated by inner needs.
2. Needs form a hierarchy from most basic (food & shelter) to higher-order (e.g., self-esteem, love, self-actualization).
3. Higher-order needs become motivating after lower order needs have been met.
4. When needs are not met, they become frustrating
1. Base pay must be set high enough to provide individuals with the economic means to meet their basic living needs.
2. An at-risk program will not be motivating since it restricts employee’s ability to meet lower-order needs
3. Success-sharing plans may be motivating to the extent they help employees pursue higher-order needs.
1. Performance-based pay may be demotivating if it impinges upon employee’s capacity to meet daily living needs.
2. Incentive pay is motivating to the extent it is attached to achievement, recognition or approval
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Content Theories Herzberg's Two-factor Theory
Argues that:
Intrinsic factors influence work motivation - MOTIVATORS
Extrinsic factors influence job satisfaction - HYGIENE
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Content Theories Herzberg's Two-factor Theory
Fredrick Herzberg asked a sample of employees to list factors that:
made them feel good about their jobs Those that made them feel bad about their jobs
Factors differ in both listing Example of expected result:
high pay – feel good Low pay – unhappy
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Content Theories Herzberg's Two-factor Theory
Real Result:
Feel good factors – job content, mastering a difficult task, learning a new skill, completing a major job accomplishment
Feel bad factors - low pay, poor relationship with supervisor/co-workers, poor working conditions
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Content Theories Herzberg’s two-factor theory
Two factors: Hygiene – factors causing dissatisfaction -
EXTRINSIC
Motivators – INTRINSIC
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Content Theory Herzberg’s two-factor theory
Distinguishes between what is described as motivators and hygiene (or maintenance factors).
States that people seek to achieve hygiene needs because they would be dissatisfied without them.
Hygiene needs (maintenance factors) – if they are not present, good behaviour could not be maintained.
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Content Theory Herzberg’s two-factor theory
Hygiene factors can remove dissatisfaction but cannot motivate.
It only brings about short-term improvements in job attitudes
Example of hygiene factors: Working conditions, salary and job security, status,
relationship with subordinates – peers and supervisor, personal life, company policy and administration, salary,
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CONTENT THEORY Herzberg’s two-factor theory
Motivators – factors that truly motivates
Motivators are considered capable of producing long-term positive effects in job performance
Example: Recognition, promotion and achievement,
responsibility, advancement, personal growth and work itself
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Content Theories Herzberg's Two-factor Theory
Hygiene – compares to Maslow’s lower-order needs
Motivators – compares to Maslow’s higher-order needs
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Content Theories Herzberg’s Two-Factor Theory
Essential Features Predictions about Performance-based Pay
So What?
1. Employees are motivated by two types of motivators: hygiene factors and satisfiers
1. Base pay must be set high enough to provide individuals with the economic means to meet hygiene needs, but it cannot motivate performance
1. Pay level is important – must meet minimum requirements before performance-based pay can operate as motivator
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Content Theories Herzberg’s Two-Factor Theory
ESSENTIAL FEATURES PREDICTION ABOUT PERFORMANCE –BASE PAY
SO WHAT?
1. Hygiene or maintenance factors, in their absence, prevent behaviours, but in their presence cannot motivate performance. These are related to basic living needs, security and fair treatment.
1. Performance is obtained through rewards, payments in excess of that required to meet basic needs.
2. Performance-based pay is motivating to the extent it is connected with meeting employees’ needs for recognition, pleasure attainment, achievement and the like
1. Security plans will induce minimum, but not extra, performance, Success-sharing plans will be motivating. At-risk plans will be demotivating
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Content Theories Herzberg’s Two-Factor Theory
Essential Features Predications about Performance-Based Pay
So What?
3. Satisfiers , such as recognition, promotion and achievement motivate performance
4.Other factors such as interpersonal atmosphere, responsibility, type of work and working conditions influence the efficacy of performance-based pay
Other conditions in the working relationship influence the effectiveness of performance-based pay.
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Content Theories Job Characteristics Theory
Richard Hackman and Greg Oldham extended Herzberg’s work by attempting:
to identify the specific job characteristics that cause intrinsic motivation and
By developing a method to calculate the amount of intrinsic motivation in a particular job
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Content Theories Job Characteristics Theory
Jobs high in the following areas are enjoyed by people because of the satisfaction they derived from doing them rather than the extrinsic rewards they received from them.
Intrinsic motivators
Task identity Task significance Skill variety Job autonomy Job feedback
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Content Theories Job Characteristics Theory
Task Identity
The extent to which a worker performs a complete cycle of job activities
From start to finish
Task Significance
The perceived importance or social value of the job in the general scheme of things
Ex. Job of a lawyer carries more task significance than that of a street cleaner
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Content Theories Job Characteristics Theory
Skill Variety
The extent to which a substantial number of skills are required for task completion
Job Autonomy
The degree of freedom workers have in deciding how to perform their jobs
Job Feedback
The extent to which the job itself provides feedback on worker performance
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Content Theories Job Characteristics Theory
Originally felt that only employees with a high growth need would respond to the 5 areas identified
Most people wants it
Job enrichment – allows
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Content Theories Comparison of Content Theories and
their relationship to Managerial StrategiesManagerial
StrategyMaslow’s Needs Hierarchy
Herzberg’s Two-Factor Theory
Hackman/Oldham’s Job Characteristics Theory
High Involvement Self-ActualizationEgo or Esteem Needs
Motivators Intrinsic Characteristics
Human Relations Social Needs Hygienes Extrinsic Characteristics
Classical Safety/Security NeedsSurvival/Physiological Needs
Hygienes Extrinsic Characteristics
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Content Theories Money as a motivator
Salience of Needs (high or low)
The degree of urgency an individual attaches to the satisfaction of a particular need
The extent to which an individual will go to satisfy a particular need.
Personal Characteristics and Personal circumstances interact with basic human needs to determine need salience
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Content Theories Salience of Needs
Two key factors:
The amount of need deprivation The importance of the need
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Process Theories Process theories of motivation:
Expand on the Content Theories by describing how the motivation process works.
Focus on the exchange relationship between the employer and employee
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Process Theory Three Process theories are:
Expectancy Theory
Reinforcement Theory
Equity Theory
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Process Theories Process theories of motivation
Behavioural Scientist
found it easier to defend and support process-related theories.
Reward System designers
found it more helpful and useful than Content Theories because they treat motivation as a process
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Process Theories Expectancy Theory
Developed by Victor Vroom
Definition
States that individual are more likely to attempt to perform a particular behaviour if they believe that behaviour will lead to valued consequences and if they expect they can perform the behaviour
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Process Theories Expectancy Theory
In a work environment people evaluate the expected behaviour against the reward or compensation that management is prepared to offer in exchange for that behaviour
The employee would only be motivated to perform if the reward is seen as being personally valuable
Brings together worker motivation in interaction with the management function
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Process Theories Expectancy Theory
Assumes that employees will be motivated if they believe that:
There is a positive correlation between effort and performance
A desirable reward will result from satisfactory performance
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Process Theories Expectancy Theory
Assumes that employees will be motivated if they believe that contd. :
The reward received will satisfy an important need
The effort invested would be worthwhile once there is a strong desire to satisfy the need
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Process Theories Expectancy Theory
Is base on three beliefs
Valence Is the task worth doing? Do the rewards exceed the cost
Expectancy Am I actually able to do the task
Instrumentality Will I actually receive the rewards if I perform the task
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Process Theories Expectancy Theory
Valence
The Net Value (valence) of the consequences of the behaviour
Value of the outcome of the person versus indifference or aversion
Refers to the type and extent of the emotional attachment the individual has to a reward.
i.e. - How strongly does he/she feel about receiving an extrinsic reward (e.g. money, promotion, time-off) or an intrinsic reward (e.g. personal satisfaction)
Management must find out what employees value
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Process Theories Expectancy Theory
Expectancy
The perceived likelihood of actually being able to perform those behaviours (expectancy)
Employee assess how capable they are at doing a job and their confidence level corresponds to that assessment.
Management must identify the resources, training/supervision employees need to enhance their capability to perform.
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Process Theories Expectancy Theory
Instrumentality
Refers to the perception employees have- that once the job is performed, they will receive the promised reward.
Management must ensure that the promise of a reward is fulfilled in a timely fashion.
Employees belief….if I do better, I get a better reward
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PROCESS THEORIES EXPECTANCY THEORY
Essential Features Predictions about Performance-Based Pay
So What?
Motivation is the product of three perceptions:ExpectancyInstrumentalityValence
Expectancy is employee’s assessment of their ability to perform required job tasks
1. Job tasks and responsibilities should be clearly defined.
2. The pay-performance link is critical.
3. Performance-based pay returns must be large enough to be seen as rewards.
• Larger incentive payments are better than smaller ones.
• Line-of-sight is critical – employees must believe they can influence performance targets.
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Process Theory Expectancy theory
Essential Features Predictions about performance-based pay
So What?
Instrumentality is employee’s belief that requisite job performance will be rewarded by the organization
Valence is the value employee attached to the organization rewards offered for satisfactory job performance
People choose the behaviour that leads to the greatest reward.
Employee assessments of their own ability are important – organizations should be aware of training and resource needs required to perform at target levels.
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Process Theories Reinforcement Theory
Definition
States that a behaviour will be repeated if valued outcomes flow from that behaviour, or if performing the behaviour reduces undesirable outcomes
Distinguishes between positive reinforcement and negative reinforcement
Other names: Behavourism, Operant Conditioning, Behaviour Modification
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Process Theory Reinforcement Theory
Key Elements:
Learning is behavioural change
Behaviour is the result of an individual’s response to events taking place in one’s environment.
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Process Theory Reinforcement Theory
Key Elements contd.
The individual receives messages (stimuli) from the environment and these elicit responses from the individual.
With repeated occurrences of the stimulus-response (S-R) pattern, the individual is conditioned to respond in a particular way,
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Process Theory Reinforcement Theory
Positive When a reward follows a valued behaviour
Negative When an undesirable consequence occurs whenever the
valued behaviour does not occur
The closer in time the reward is to the behaviour the better
Unrewarded behaviours eventually disappear
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Process Theory Reinforcement Theory
Challenges:
Practical application of theory may be problematic – assumes that all desired behaviours are measurable
The theory considers only those rewards that the organization can control
What happens when reward stops? – will behaviour stop
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Process Theory Reinforcement Theory
Essential Features Predictions about Performance-Based Pay
So What?
Reward reinforce (i.e. motivate and sustain) performance.
Reward must follow directly after behaviours to be reinforcing.
Behaviour which are not rewarded will be discontinued
1. Performance-based payments must follow closely behind performance
2. Rewards must be tightly coupled to desired performance objectives
3. Withholding payments can be a way to discourage unwanted behaviours
Timing of payouts is very important
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Process Theory Equity Theory
Employees tend to compare the rewards they receive (outcomes) against the various elements that they bring to the task (inputs) in order to assess whether the exchange process is fair.
The Exchange ratio obtained is compared to the ratio of others performing the same or similar types of jobs
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Process Theory Equity Theory
Employees are motivated when they perceive that their outcomes are equal to their inputs.
If they perceive others are being paid more for the same task – negative reaction.
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Process Theory Equity Theory
Essential Features
Predictions about Performance-Based Pay
So What?
Employees are motivated when perceived outputs (i.e. pay) are equal to perceived inputs (e.g. effort, work behaviours)
1. The pay-performance link is critical; increases in performance must be matched by commensurate increases in pay
2. Performance inputs and expected outputs must be clearly defined and identified
1. Performance measures must be clearly defined and employee must be able to affect them through work behaviours
2. If payouts do not match expectations, employees will react negatively
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Process Theory
Equity TheoryEssential Features Predictions about Performance-Based pay
So What?
A disequilibrium in the output-to-input balance causes discomfort.
If employees perceive that others are paid more for the same effort, they will react negatively (e.g. shirk) to correct the output-to-input balance.
Employees evaluate the adequacy of their pay via comparisons with other employees
Fairness and consistency of performance-based pay across employees in an organisation is important.
Since employees evaluate their pay-effort balance in comparison to other employees, relative pay matters
Timing of payouts is very important
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Rewards Desired Reward Outcomes
Three key employee behaviours
Membership behaviour Occurs when employees decide to join and remain with a firm
Task behaviour Occurs when employees perform the tasks that have been
assigned to them.
Organizational citizenship behaviour Occurs when employees voluntarily undertake special
behaviours beneficial to the organization
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Rewards Desired Reward Outcomes
Three key employee attitudes
Job satisfaction The attitude one holds towards one’s job and
workplace, either positive or negative Leads to membership behaviour
Work motivation The attitude one holds toward good job performance Leads to task behaviour
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Rewards Desired Reward Outcomes
Three key employee attitudes contd.
Organizational identification A sense of shared goals, belongings and desire
to remain a member of the organization Leads to organizational citizenship behaviour
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Rewards Job Satisfaction
Job Satisfaction does not necessarily increase motivation Satisfied, happy workers are not necessarily more
productive workers
They are less likely to quit, be absent or submit grievance
They are more likely to be pleasant with other employees and customers
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Rewards The more complex the desired
behaviours – and the higher the performance level required – the more complex the reward system
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Rewards Causes of reward dissatisfaction
Violation of the psychological contract Expectation about the rewards offered by a given job and
the contributions necessary to perform the job
Perceived Inequity Employees base perceptions of equity (fairness) on a
comparison of their contributions/rewards ratio to the ratios of others perceived as similar
Personal valuation of the reward received Comparison of reward with relevant others
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Rewards Causes of reward dissatisfaction
Relative deprivation
Is perceived when: There is a discrepancy between the outcome they want and what
they actually receive They see that a comparison shows that others receive more than
they do Pass experience has led them to expect more than they now receive Future expectancies for achieving better outcomes are low They feel a sense that they are entitled to more They absolve themselves of personal responsibility for the lack of
better outcomes
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Rewards Lack of Organizational Justice
Distributive Justice
The perception that overall reward outcomes are fair Which is what equity theory is all about
Procedural Justice
The perception that the process for reward determination is fair.
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Rewards Procedural Justice is achieved if the Pay System meets
the following conditions, the pay system must be:
Flexible There must be procedures for employees to appeal pay
system decisions.
Consistent Procedures are applied uniformly to different jobs and time
periods
Free of bias Personal interests do not enter into application of the
procedures
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Rewards
Accurate Application of procedures must be based on factual
information
Ethical Accepted moral principles must guide application of the
procedures
Representative All affected employees must have an opportunity to
express their concerns, which are given serious consideration by the organization
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Rewards Consequences of Reward Dissatisfaction
Attempt to increase rewards
Find more rewarding job Acquire illicit rewards Demand higher pay/unionize Increase effort/performance Demand improved job duties
Attempt to reduce contributions
Demand reduced job duties Reduce effort/performance Increased absenteeism Find less demanding job
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Rewards Types of reward problems
Failure to produce desired behaviour
Production of desired behaviour and undesirable consequences
Production of reward dissatisfaction