12Chapter PowerPoint Presentation by Charlie Cook © Copyright The McGraw-Hill Companies, Inc., 2003. All rights reserved. MotivationMotivation

1212Chapter

PowerPoint Presentation by Charlie Cook© Copyright The McGraw-Hill Companies, Inc., 2003. All rights reserved.

MotivationMotivation

© Copyright McGraw-Hill. All rights reserved. 12–2

Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

• After studying the chapter, you should be able to:After studying the chapter, you should be able to:Explain what motivation is and why managers Explain what motivation is and why managers

need to be concerned about it.need to be concerned about it.Describe from the perspectives of expectancy Describe from the perspectives of expectancy

theory and equity theory what managers theory and equity theory what managers should do to have a highly motivated should do to have a highly motivated workforce.workforce.

Explain how goals and needs motivate people Explain how goals and needs motivate people and what kinds of goals are especially likely to and what kinds of goals are especially likely to result in high performance.result in high performance.

Identify the motivation lessons that managers Identify the motivation lessons that managers can learn from operant conditioning theory and can learn from operant conditioning theory and social learning theory.social learning theory.


Learning Objectives (cont’d)Learning Objectives (cont’d)Learning Objectives (cont’d)Learning Objectives (cont’d)

Explain why and how managers can use pay Explain why and how managers can use pay as a major motivation tool.as a major motivation tool.


Chapter OutlineChapter OutlineChapter OutlineChapter Outline

• The Nature of MotivationThe Nature of Motivation

• Expectancy TheoryExpectancy TheoryExpectancyExpectancyInstrumentalityInstrumentalityValenceValenceBringing It All TogetherBringing It All Together

• Need TheoriesNeed TheoriesMaslow’s Hierarchy of NeedsMaslow’s Hierarchy of NeedsAlderfer’s ERG TheoryAlderfer’s ERG TheoryHerzberg’s Motivator-Hygiene TheoryHerzberg’s Motivator-Hygiene Theory


Chapter Outline (cont’d)Chapter Outline (cont’d)Chapter Outline (cont’d)Chapter Outline (cont’d)

• Need Theories (cont’d)Need Theories (cont’d)McClelland’s Needs for Achievement, McClelland’s Needs for Achievement,

Affiliation, and PowerAffiliation, and PowerOther NeedsOther Needs

• Equity TheoryEquity TheoryEquityEquityInequityInequityWays to Restore EquityWays to Restore Equity

• Goal-Setting TheoryGoal-Setting Theory


Chapter Outline (cont’d)Chapter Outline (cont’d)Chapter Outline (cont’d)Chapter Outline (cont’d)

• Learning TheoryLearning TheoryOperant Conditioning TheoryOperant Conditioning Theory

• Social Learning TheorySocial Learning Theory

• Pay and MotivationPay and MotivationBasing Merit Pay on Individual, Group, or Basing Merit Pay on Individual, Group, or

Organizational PerformanceOrganizational PerformanceSalary Increase or Bonus?Salary Increase or Bonus?Examples of Merit Pay PlansExamples of Merit Pay Plans


The Nature of MotivationThe Nature of MotivationThe Nature of MotivationThe Nature of Motivation

• MotivationMotivationThe psychological forces acting on an The psychological forces acting on an

individual that determine:individual that determine:• DirectionDirection——possible behaviors the individual could possible behaviors the individual could

engage inengage in

• EffortEffort——how hard the individual will workhow hard the individual will work

• PersistencePersistence—whether the individual will keep trying —whether the individual will keep trying or give upor give up

Explains why people behave the way they do Explains why people behave the way they do in organizationsin organizations


The Nature of Motivation (cont’d)The Nature of Motivation (cont’d)The Nature of Motivation (cont’d)The Nature of Motivation (cont’d)

• Intrinsic MotivationIntrinsic MotivationBehavior that is performed for its own sake.Behavior that is performed for its own sake.

• The source of the motivation that comes from actually The source of the motivation that comes from actually engaging in the behavior.engaging in the behavior.

• The sense of accomplishment and achievement The sense of accomplishment and achievement derived from doing the work itselfderived from doing the work itself

• Extrinsic MotivationExtrinsic MotivationBehavior that is performed to acquire Behavior that is performed to acquire

material or social rewards or to avoid material or social rewards or to avoid punishment.punishment.

• The source of the motivation is the consequences of The source of the motivation is the consequences of the behavior and not the behavior itself.the behavior and not the behavior itself.


Sources of MotivationSources of MotivationSources of MotivationSources of Motivation

Nature of the Nature of the OrganizationOrganization

Nature of the Nature of the OrganizationOrganization

Personal Personal CharacteristicsCharacteristics

Personal Personal CharacteristicsCharacteristics

Nature of theNature of theJobJob

Nature of theNature of theJobJob

Individual Individual MotivationMotivation

Individual Individual MotivationMotivation


Outcomes and InputsOutcomes and InputsOutcomes and InputsOutcomes and Inputs

• OutcomeOutcomeAnything a person gets from a job or an Anything a person gets from a job or an

organizationorganization• Pay, job security, autonomy, accomplishmentPay, job security, autonomy, accomplishment

• InputInputAnything a person contributes to his or her Anything a person contributes to his or her

job or organizationjob or organization• Time, effort, skills, knowledge, work behaviorsTime, effort, skills, knowledge, work behaviors


The Motivation EquationThe Motivation EquationThe Motivation EquationThe Motivation Equation

Figure 12.1


Expectancy TheoryExpectancy TheoryExpectancy TheoryExpectancy Theory

• Motivation will be high when workers believe:Motivation will be high when workers believe:High levels of effort will lead to high High levels of effort will lead to high

performance. performance. High performance will lead to the attainment of High performance will lead to the attainment of

desired outcomes.desired outcomes.

• Major Factors of Motivation Major Factors of Motivation ExpectancyExpectancy—the belief that effort (input) will —the belief that effort (input) will

result in a certain level of performanceresult in a certain level of performanceInstrumentalityInstrumentality—the belief that performance —the belief that performance

results in the attainment of outcomesresults in the attainment of outcomesValenceValence—how desirable each of the available —how desirable each of the available

outcomes from the job is to a personoutcomes from the job is to a person


Expectancy, Instrumentality, and ValenceExpectancy, Instrumentality, and ValenceExpectancy, Instrumentality, and ValenceExpectancy, Instrumentality, and Valence

Figure 12.2Source:


Expectancy Theory in PracticeExpectancy Theory in PracticeExpectancy Theory in PracticeExpectancy Theory in Practice

Expectancy: Effort will result in a level of Expectancy: Effort will result in a level of performance.performance.

• Employees will work work hard if they believe they can Employees will work work hard if they believe they can attain high performanceattain high performance—organizations must provide the —organizations must provide the resources that support performance.resources that support performance.

Instrumentality: Performance leads to outcomes.Instrumentality: Performance leads to outcomes.• Workers are only motivated if they think performance Workers are only motivated if they think performance

leads to an outcomeleads to an outcome—managers must link —managers must link performance performance to outcomes.to outcomes.

Valence: How desirable an outcome is to a Valence: How desirable an outcome is to a person.person.

• Workers have preferences for outcomesWorkers have preferences for outcomes—m—managers anagers must determine which outcomes are valued.must determine which outcomes are valued.


Expectancy and MotivationExpectancy and MotivationExpectancy and MotivationExpectancy and Motivation

• Motivation is highest when expectancy, Motivation is highest when expectancy, instrumentality, and valence levels are high.instrumentality, and valence levels are high.If one of the values is low, motivation will be If one of the values is low, motivation will be

low.low.• Workers do not believe they can perform well.Workers do not believe they can perform well.

• Workers do not believe that performance and rewards Workers do not believe that performance and rewards are closely linked.are closely linked.

• Workers do not value the rewards offered for Workers do not value the rewards offered for performance.performance.


Expectancy TheoryExpectancy TheoryExpectancy TheoryExpectancy Theory

Figure 12.3Source:


Need TheoriesNeed TheoriesNeed TheoriesNeed Theories

• Need Need A requirement for survival and well-being.A requirement for survival and well-being.

• Need TheoriesNeed TheoriesTheories of motivation that focus on what Theories of motivation that focus on what

needs people are trying to satisfy at work needs people are trying to satisfy at work and what outcomes will satisfy those needs.and what outcomes will satisfy those needs.

Basis premise is that people are motivated to Basis premise is that people are motivated to obtain outcomes at work to satisfy their obtain outcomes at work to satisfy their needs.needs.

• Managers must determine what needs a worker Managers must determine what needs a worker wants satisfied and ensure that a person receives the wants satisfied and ensure that a person receives the outcomes when performing well.outcomes when performing well.


Maslow’s Hierarchy of NeedsMaslow’s Hierarchy of NeedsMaslow’s Hierarchy of NeedsMaslow’s Hierarchy of Needs

Table 12.1

Self-Self-actualizationactualization

Self-Self-actualizationactualization

Realize one’sRealize one’s full potentialfull potential

Realize one’sRealize one’s full potentialfull potential

Use abilities Use abilities to the fullestto the fullest

Use abilities Use abilities to the fullestto the fullest

EsteemEsteemEsteemEsteem Feel good Feel good about oneselfabout oneself

Feel good Feel good about oneselfabout oneself

PromotionsPromotions and recognitionand recognition

PromotionsPromotions and recognitionand recognition

BelongingnessBelongingnessBelongingnessBelongingness Social Social interaction, loveinteraction, love

Social Social interaction, loveinteraction, love

Interpersonal Interpersonal relations, partiesrelations, parties

Interpersonal Interpersonal relations, partiesrelations, parties

SafetySafetySafetySafety Security, stabilitySecurity, stabilitySecurity, stabilitySecurity, stability Job security, Job security, health insurancehealth insurance

Job security, Job security, health insurancehealth insurance

PhysiologicalPhysiologicalPhysiologicalPhysiological Food, water, Food, water, sheltershelter

Food, water, Food, water, sheltershelter

Basic pay level Basic pay level to buy itemsto buy items

Basic pay level Basic pay level to buy itemsto buy items

NeedsNeeds DescriptionDescription ExamplesExamples

Lower-level needs must be satisfied Lower-level needs must be satisfied before higher-level needs are addressed.before higher-level needs are addressed.

Highest-level Highest-level needsneeds

Lowest-level Lowest-level needsneeds


Alderfer’s ERG TheoryAlderfer’s ERG TheoryAlderfer’s ERG TheoryAlderfer’s ERG Theory

Table 12.2Source:

After lower level needs satisfied, person seeks higher needs. WhenAfter lower level needs satisfied, person seeks higher needs. Whenunable to satisfy higher needs, lower needs motivation is raised.unable to satisfy higher needs, lower needs motivation is raised.

GrowthGrowthGrowthGrowth Self-development,Self-development,creative workcreative work

Self-development,Self-development,creative workcreative work

ContinuallyContinuallyimprove skillsimprove skills

ContinuallyContinuallyimprove skillsimprove skills

RelatednessRelatednessRelatednessRelatedness Interpersonal Interpersonal relations, feelingsrelations, feelings

Interpersonal Interpersonal relations, feelingsrelations, feelings

Good relations,Good relations,accurate feedbackaccurate feedback

Good relations,Good relations,accurate feedbackaccurate feedback

ExistenceExistenceExistenceExistence Food, water, Food, water, clothing, and shelterclothing, and shelter

Food, water, Food, water, clothing, and shelterclothing, and shelter

Adequate payAdequate payfor necessitiesfor necessities

Adequate payAdequate payfor necessitiesfor necessities

NeedsNeeds DescriptionDescription ExamplesExamples

Highest-level Highest-level needsneeds

Lowest-level Lowest-level needsneeds


Herzberg’s Motivation-Hygiene TheoryHerzberg’s Motivation-Hygiene TheoryHerzberg’s Motivation-Hygiene TheoryHerzberg’s Motivation-Hygiene Theory

• Focuses on outcomes that lead to higher Focuses on outcomes that lead to higher motivation and job satisfaction, and those motivation and job satisfaction, and those outcomes that can prevent dissatisfaction.outcomes that can prevent dissatisfaction.Motivator needs relate to the nature of the Motivator needs relate to the nature of the

work itselfwork itself—a—autonomy, responsibility, utonomy, responsibility, interesting work.interesting work.

Hygiene needs are related to the physical and Hygiene needs are related to the physical and psychological context of the workpsychological context of the work——comfortable comfortable work environment, pay, job work environment, pay, job security.security.

• Unsatisfied hygiene needs create dissatisfaction; Unsatisfied hygiene needs create dissatisfaction; satisfaction of hygiene needs does satisfaction of hygiene needs does notnot lead to lead to motivation or job satisfaction.motivation or job satisfaction.


McClelland’s Needs for Achievement, McClelland’s Needs for Achievement, Affiliation, and PowerAffiliation, and Power

McClelland’s Needs for Achievement, McClelland’s Needs for Achievement, Affiliation, and PowerAffiliation, and Power

• Need for AchievementNeed for AchievementA strong need to perform challenging tasks A strong need to perform challenging tasks

well and meet personal standards for well and meet personal standards for excellenceexcellence

• Need for AffiliationNeed for AffiliationA concern for good interpersonal relations, A concern for good interpersonal relations,

being liked, and getting alongbeing liked, and getting along

• Need for PowerNeed for PowerA desire to control or influence othersA desire to control or influence others


Adam’s Equity TheoryAdam’s Equity TheoryAdam’s Equity TheoryAdam’s Equity Theory

• Focuses on people’s perceptions of the Focuses on people’s perceptions of the fairness (or lack of fairness) of their work fairness (or lack of fairness) of their work outcomes in proportion to their work inputs.outcomes in proportion to their work inputs.A relative outcome to input ratio comparison A relative outcome to input ratio comparison

to oneself or to another person (referent) to oneself or to another person (referent) perceived as similar to oneself. perceived as similar to oneself.

Equity exists when a person perceives that Equity exists when a person perceives that their outcome/input ratio to be equal to the their outcome/input ratio to be equal to the referent’s ratio.referent’s ratio.

• If the referent receives more outcomes, they should If the referent receives more outcomes, they should also give more inputs to achieve equity.also give more inputs to achieve equity.


Equity TheoryEquity TheoryEquity TheoryEquity Theory

Table 12.3

Condition Person Referent Example

EquityEquityEquityEquity OutcomesOutcomes = = OutcomesOutcomesInputs InputsInputs Inputs

OutcomesOutcomes = = OutcomesOutcomesInputs InputsInputs Inputs

Worker contributesWorker contributesmore inputs but alsomore inputs but also

gets more outputsgets more outputsthan referentthan referent

Worker contributesWorker contributesmore inputs but alsomore inputs but also


UnderpaymentEquity

UnderpaymentEquity

Outcomes < OutcomesInputs Inputs

Outcomes < OutcomesInputs Inputs

Worker contributesmore inputs but also

gets the same outputsas referent

Worker contributesmore inputs but also

gets the same outputsas referent

OverpaymentOverpaymentEquityEquity

OverpaymentOverpaymentEquityEquity

OutcomesOutcomes > > OutcomesOutcomesInputs InputsInputs Inputs

OutcomesOutcomes > > OutcomesOutcomesInputs InputsInputs Inputs

Worker contributesWorker contributessame inputs but alsosame inputs but also


Worker contributesWorker contributessame inputs but alsosame inputs but also



Equity Theory (cont’d)Equity Theory (cont’d)Equity Theory (cont’d)Equity Theory (cont’d)

• Inequity exists when worker’s outcome/input Inequity exists when worker’s outcome/input ratio is not equal to referent.ratio is not equal to referent.Underpayment inequity: ratio is less than the Underpayment inequity: ratio is less than the

referent.referent.• Workers feel they are not getting the outcomes they Workers feel they are not getting the outcomes they

should for their inputs.should for their inputs.

Overpayment inequity: ratio is higher than Overpayment inequity: ratio is higher than the referent.the referent.

• Workers feel they are getting more outcomes than Workers feel they are getting more outcomes than they should for their inputs.they should for their inputs.


Equity Theory (cont’d)Equity Theory (cont’d)Equity Theory (cont’d)Equity Theory (cont’d)

• Restoring Equity: Inequity creates tension in Restoring Equity: Inequity creates tension in workers causing them to attempt to restore workers causing them to attempt to restore equity.equity.In underpayment, workers may reduce input In underpayment, workers may reduce input

levels to correct (rebalance) the ratio or seek levels to correct (rebalance) the ratio or seek a raise.a raise.

In overpayment, workers may change the In overpayment, workers may change the referent person and readjust their ratio referent person and readjust their ratio perception.perception.

If inequity persists, workers will often choose If inequity persists, workers will often choose leave the organization.leave the organization.


Goal Setting TheoryGoal Setting TheoryGoal Setting TheoryGoal Setting Theory

• Focuses on identifying the types of goals that Focuses on identifying the types of goals that are effective in producing high levels of are effective in producing high levels of motivation and explaining why goals have motivation and explaining why goals have these effects.these effects.

• Considers how managers can ensure that Considers how managers can ensure that workers focus their inputs in the direction of workers focus their inputs in the direction of high performance and the achievement of high performance and the achievement of organizational goals.organizational goals.


Goal Setting Theory (cont’d)Goal Setting Theory (cont’d)Goal Setting Theory (cont’d)Goal Setting Theory (cont’d)

• GoalGoalWhat a person is trying to accomplish.What a person is trying to accomplish.

• Characteristics of Motivating GoalsCharacteristics of Motivating GoalsSpecific and not vague in providing directionSpecific and not vague in providing directionDifficult but not impossible to attainDifficult but not impossible to attainAccepted and committed to by workersAccepted and committed to by workersFeedback on goal attainment is important.Feedback on goal attainment is important.

• Goals point out what is important to the firm.Goals point out what is important to the firm.Workers should be encouraged to develop Workers should be encouraged to develop

action plans to attain goals.action plans to attain goals.


Learning TheoriesLearning TheoriesLearning TheoriesLearning Theories

• Theories that focus on increasing motivation Theories that focus on increasing motivation and performance by linking outcomes to and performance by linking outcomes to performance and the attainment of goals.performance and the attainment of goals.

• LearningLearningA relatively permanent change in person’s A relatively permanent change in person’s

knowledge or behavior that results from knowledge or behavior that results from practice or experience.practice or experience.


Operant Conditioning TheoryOperant Conditioning TheoryOperant Conditioning TheoryOperant Conditioning Theory

• Operant ConditioningOperant ConditioningPeople learn to perform behaviors that lead People learn to perform behaviors that lead

to desired consequences and learn not to to desired consequences and learn not to perform behaviors that lead to undesired perform behaviors that lead to undesired consequences.consequences.

Linking specific behaviors to the attainment Linking specific behaviors to the attainment of specific outcomes can motivate high of specific outcomes can motivate high performance and prevent behaviors that performance and prevent behaviors that detract from organizational effectiveness.detract from organizational effectiveness.


Operant Conditioning ToolsOperant Conditioning ToolsOperant Conditioning ToolsOperant Conditioning Tools

• Positive ReinforcementPositive ReinforcementGetting desired outcomes for performing Getting desired outcomes for performing

needed work behaviorsneeded work behaviors• Positive reinforcers: Pay, praises, or promotionsPositive reinforcers: Pay, praises, or promotions

• Negative ReinforcementNegative ReinforcementEliminating undesired outcomes once the Eliminating undesired outcomes once the

desired behavior occursdesired behavior occurs• Negative reinforcers: criticisms, pay cuts, suspensionNegative reinforcers: criticisms, pay cuts, suspension


Operant Conditioning Tools (cont’d)Operant Conditioning Tools (cont’d)Operant Conditioning Tools (cont’d)Operant Conditioning Tools (cont’d)

• ExtinctionExtinctionCurtailing the performance of a dysfunctional Curtailing the performance of a dysfunctional

behavior by eliminating whatever is behavior by eliminating whatever is reinforcing it. reinforcing it.

• Behavior is not rewarded and over time, the worker Behavior is not rewarded and over time, the worker stops performing it.stops performing it.

• PunishmentPunishmentAdministering an undesired/negative Administering an undesired/negative

consequence to immediately stop a consequence to immediately stop a dysfunctional behavior.dysfunctional behavior.

• Manager administers an undesired consequence to Manager administers an undesired consequence to worker (verbal reprimand, demotion, pay cut).worker (verbal reprimand, demotion, pay cut).


Organizational Behavior ModificationOrganizational Behavior ModificationOrganizational Behavior ModificationOrganizational Behavior Modification

• Organizational Behavior Modification (OB MOD)Organizational Behavior Modification (OB MOD)The systematic application of operant The systematic application of operant

conditioning techniques to organizationally conditioning techniques to organizationally functional behaviors and discourage functional behaviors and discourage dysfunctional behaviors.dysfunctional behaviors.

Improves productivity, attendance, punctuality Improves productivity, attendance, punctuality and other behaviors that are specific, objective and other behaviors that are specific, objective and countable.and countable.

Has Criticized for ethicality of application and Has Criticized for ethicality of application and effects on workers.effects on workers.

Appears to be effective in promoting Appears to be effective in promoting organizational efficiency.organizational efficiency.


Steps in Steps in OrganizationOrganizational Behavior al Behavior ModificationModification

Steps in Steps in OrganizationOrganizational Behavior al Behavior ModificationModification

Figure 12.4Source: Adapted from Organizational Behavior Modification and Beyond by F. Luthans and R. Kreitner (Scott, Foresman, 1985). With permission of the authors.


Social Learning TheorySocial Learning TheorySocial Learning TheorySocial Learning Theory

• A theory that takes into account how learning A theory that takes into account how learning and motivation are influenced by people’s and motivation are influenced by people’s thoughts and beliefs and their observations of thoughts and beliefs and their observations of other people’s behavior.other people’s behavior.

• Vicarious Learning (Observational Learning)Vicarious Learning (Observational Learning)Learning that occurs when a learner is Learning that occurs when a learner is

motivated to perform a behavior by watching motivated to perform a behavior by watching another person perform and be rewarded.another person perform and be rewarded.

• People are motivated to imitate models who are People are motivated to imitate models who are highly competent, expert, receive attractive highly competent, expert, receive attractive reinforcers, and are friendly or approachable.reinforcers, and are friendly or approachable.


Social Learning Theory (cont’d)Social Learning Theory (cont’d)Social Learning Theory (cont’d)Social Learning Theory (cont’d)

• Conditions for Social LearningConditions for Social LearningThe learner observes the model performing The learner observes the model performing

the behavior.the behavior.The learner accurately perceives the model’s The learner accurately perceives the model’s

behavior.behavior.The learner remembers the behavior.The learner remembers the behavior.The learner has the skills and abilities The learner has the skills and abilities

needed to perform the behavior.needed to perform the behavior.The learner sees or knows that the model is The learner sees or knows that the model is

positively reinforced for the behavior.positively reinforced for the behavior.


Social Learning Theory (cont’d)Social Learning Theory (cont’d)Social Learning Theory (cont’d)Social Learning Theory (cont’d)

• Self-ReinforcementSelf-ReinforcementAny desired or attractive outcome or award Any desired or attractive outcome or award

that a person can give himself or herself for that a person can give himself or herself for good performance.good performance.

• ““The self-management of behavior”The self-management of behavior”

• Self-efficacySelf-efficacyA person’s belief about his or her ability to A person’s belief about his or her ability to

perform a behavior successfully.perform a behavior successfully.• Influences motivation both when managers provide Influences motivation both when managers provide

reinforcement and when workers themselves provide reinforcement and when workers themselves provide it.it.


Pay and MotivationPay and MotivationPay and MotivationPay and Motivation

• Pay as a MotivatorPay as a MotivatorExpectancy: pay is an instrumentality (and Expectancy: pay is an instrumentality (and

outcome), must be high for motivation to be outcome), must be high for motivation to be high.high.

Need Theory: pay is used to satisfy many Need Theory: pay is used to satisfy many needs.needs.

Equity Theory: pay is given in relation to inputs.Equity Theory: pay is given in relation to inputs.Goal Setting Theory: pay is linked to attainment Goal Setting Theory: pay is linked to attainment

of goals.of goals.Learning Theory: outcomes (pay), is distributed Learning Theory: outcomes (pay), is distributed

upon performance of functional behaviors.upon performance of functional behaviors.


Merit Pay and PerformanceMerit Pay and PerformanceMerit Pay and PerformanceMerit Pay and Performance

• Merit Pay PlanMerit Pay PlanA compensation plan that bases pay on A compensation plan that bases pay on

based on individual, group and/or based on individual, group and/or organization performance.organization performance.

Individual plan: when individual performance Individual plan: when individual performance (sales) can accurately measured.(sales) can accurately measured.

Group plan: when group that works closely Group plan: when group that works closely together is measured and rewarded as a together is measured and rewarded as a group.group.

Organization plan: when group or individual Organization plan: when group or individual outcomes not easily measured.outcomes not easily measured.


Salary Increase or Bonus?Salary Increase or Bonus?Salary Increase or Bonus?Salary Increase or Bonus?

• Motivational Value of a Bonus Is Higher When:Motivational Value of a Bonus Is Higher When:Salary levels are unrelated to current Salary levels are unrelated to current

performance.performance.Changes in other compensation items (cost of Changes in other compensation items (cost of

living, seniority) are not having a large effect in living, seniority) are not having a large effect in increasing compensation.increasing compensation.

Salaries rarely change and performance does.Salaries rarely change and performance does.

• Benefits of Using BonusesBenefits of Using BonusesDo not become permanent part of compensationDo not become permanent part of compensationAre more directly tied to current performanceAre more directly tied to current performanceProvide more flexibility in distributing rewardsProvide more flexibility in distributing rewards


Salary Increase or Bonus? (cont’d)Salary Increase or Bonus? (cont’d)Salary Increase or Bonus? (cont’d)Salary Increase or Bonus? (cont’d)

• Employee Stock OptionEmployee Stock OptionA financial instrument that entitles the A financial instrument that entitles the

bearer to buy shares of an organization’s bearer to buy shares of an organization’s stock at a certain price during a certain stock at a certain price during a certain period of time or under certain conditions.period of time or under certain conditions.

UsesUses• To attract high-level managersTo attract high-level managers

• To motivate employee performance through To motivate employee performance through ownership in the firmownership in the firm


Examples of Merit Pay PlansExamples of Merit Pay PlansExamples of Merit Pay PlansExamples of Merit Pay Plans

• Piece-rate PayPiece-rate PayEmployee’s pay is based on the number of Employee’s pay is based on the number of

units that the employee produces.units that the employee produces.

• Commission PayCommission PayEmployee’s pay is based on a percentage of Employee’s pay is based on a percentage of

sales that the employee makes.sales that the employee makes.

• Organization-based Merit PlansOrganization-based Merit PlansScanlon planScanlon plan—focuses on reduced expenses —focuses on reduced expenses

or cutting costsor cutting costsProfit sharingProfit sharing—employees receive a share of —employees receive a share of

an organization’s profitsan organization’s profits

Documents

12Chapter PowerPoint Presentation by Charlie Cook © Copyright The McGraw-Hill Companies, Inc., 2003. All rights reserved. MotivationMotivation