Managerial Psychology a Reason for Poor Incentives

8/16/2019 Managerial Psychology a Reason for Poor Incentives

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MANAGERIAL PSYCHOLOGY A REASON

FOR POOR INCENTIVES


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MANAGERIAL PSYCHOLOGY A REASON FOR

POOR INCENTIVES

Final term presentation

Submitted by

Azeem Dilawar

Jawwad

Submitted to: Sir Nazir Ahmed Sheikh

Course Instructor for

r!anisational "eha#iour


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MANAGERIAL PSYCHOLOGY A REASON FOR

POOR INCENTIVES

$% &esearch on employee compensation is sporadic and sparse%

'% A meta(analysis of )* years of research on +nancial incenti#esand performance yielded only ,- studies. about one per year/Jenkins. 0itra. 1upta. 2 Shaw. $--34%

,% $'** sessions at the '*$, annual meetin!s of the Society forIndustrial and r!anizational 5sycholo!y /SI54. only threeare related to compensation. rewards. or bene+t

)% f $$$ articles published in 5ersonnel 5sycholo!y in '**, 6'**7. only two

focused on compensation issues8 the parallel proportion wasse#en of )97 in

Journal of Applied 5sycholo!y/Cascio 2 A!uinis. '**34


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COMPENSATION PROBLEMATIC AREA

• ne. compensation is ar!uably one of the most critical

inuences /if not the most critical inuence4 on the ;ualityand e


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WHY MANAGERS PSYCHOLOGY IS RELATED TO

POOR INCENTIVES

• Dilute employee performance consideration factors

•

nly focus moti#ation• >?trinsic incenti#e bias

• underestimate the importance of freedom. respect. learnin!new

information and de#elopin! skills

the underminin! of intrinsic moti#ation. and the ne!lect of social

and relational

rewards

• 0ana!er@ s social ne!lect

• eak e?trinsic moti#ation

• >Bcacy


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WHY MANAGERS PSYCHOLOGY IS

RELATED TO POOR INCENTIVES

• underestimate the need for trainin! pro!rams. clear task

instructions. and other forms of support for employees%• mana!ers mi!ht layer on more rewards /or punishments4

• Contin!ency


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PSYCHOLOGICAL STAND POINT

• a psycholo!ical standpoint. compensation a


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COMPENSATION TRENDS

• 0any compensation decisions are not particularly e?pensi#e% It would. of courseincrease payroll costs to raise salaries for the entire workforce%

• n the other hand. the same le#el of total payroll dollars can be distributed acrossemployees in a #ariety of di


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BAD INCENTIVE SYSTEM AND MANAGER

• 0ana!ers !enerally compares subordinate employees

performance a!ainst a benchmark of performance standardan ob=ecti#e or may be relati#e comparison betweenemployees

• particular rewards and punishments that mana!ersadminister contin!ent on how employees@ performance

compares to these standards /incenti#e instruments4

• 0ana!ers desi!ns incenti#e systems with the intent to induceemployees to beha#e more producti#ely for the or!anization.or. perhaps more accurately. for the mana!ers% No incenti#esystem works e;ually well for all employees.


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MANAGERS' PSYCHOLOGY AND

INCENTIVE• "ad incenti#e system can be linked to mana!er psycholo!ical tendencies

• e propose that mana!ers ha#e a propensity to desi!n systems that fail /a4by o#er(emphasizin! +nancial and material compensation. either because noe?trinsic incenti#e is necessary to moti#ate employees because employees wouldbe more responsi#e to social and relational rewards /o#er(emphasis oncompensation 4

&

• by not suBciently moti#atin! the desired beha#ior. either because theincenti#e instrument is too weak or because the employee feels unable to

reach the performance standard /weak e?trinsic moti#ation4

&

• by moti#atin! undesirable beha#ior /per#erse moti#ation4

&

• communicatin! #alues and e?pectations for beha#ior

that are at odds with the or!anizational culture /misali!nment with culture4


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EXAMPLES

• e?ample. a C>@s ambitious !oals nearly destroyed "ausch and

Gomb in the $--*s% As the sales force faced impossible tar!ets.many salespeople started forcin! unwanted products out todistributors and bookin! shipments before orders were placed/0aremont 2 "arnathan. $--94% hus.

&>SGS

• per#erse moti#ation counterproducti#e beha#iors

• weak moti#ation because of impossible tar!ets

As this e?ample illustrates. incenti#es can ha#e di


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WHY DO BAD INCENTIVE SYSTEMS GO

ON?

•Hierarchy and mana!erial psycholo!y

•who becomes mana!er and how will he chan!e people /processof hirin! and promotion .competent mana!er more producti#e4

•hi!h workload limits the time and a#ailable co!niti#e capacity ofmana!er%

•Second. we propose that mana!ers@ power o#er

subordinates fundamentally transforms how they think aboutincenti#es in a number of predictable ways%

• power is the !reatest source of mana!ers@ folly in thedesi!n of incenti#es and mostly results in poor incenti#es


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FOLLY OF POWER

• Di


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FOLLY OF POWER

• he power di


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CONSTRUAL LEVEL THEORY A PSYCHOLOGICAL

DIFFERENCE

• 5ower re;uires to process abstract information

• Construal le#el is de+ned by two features in mentalrepresentationcentrality and super ordination

• Construal le#el theory focuses on psycholo!ical distance

• desirability of the options o#er their feasibility

• hi!h(le#el

• construal emphasizes !oals o#er beha#iors%

• abstract co!nition

• 5sycholo!ical d distance. temporal distance /i%e%. far awayfrom now4 and social distance


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BAD INCENTIVES AND MANAGERS

• >?trinsic and intrinsic incenti#es

• Co!nition and feasibility of !oals• 5erspecti#e of subordinates

• Discount and dilute the performance of employee

• >?trinsic incenti#e bias

• Social and relational reward

• nderminin! of intrinsic one


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WEAK MOTIVATION

• eak e?trinsic moti#ation

• nreachable !oals• Contin!ency

• a!!ressi#e standards

• plannin! fallacy

• 5erceptions

• Intended #alue of incenti#e

• 0oti#ational di


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REMEDIES

• 0ental simulation

• Consultation with employees• Fosterin! a more e!alitarian culture

• 5ilot testin!


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CONCLUSION

hese characteristics of mana!erial psycholo!y discussedcan combine to create incenti#e systems that are faulty inat least one of the followin! ways:

they o#er(emphasize +nancial and materialcompensation. o

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Managerial Psychology a Reason for Poor Incentives