Exam 1 - Compensation & Motivation PDF

Exam 1 Tuesday, February 4, 2025 7:07 PM w Intro w Motivation w Compensation...

Exam 1 Tuesday, February 4, 2025 7:07 PM w Intro w Motivation w Compensation ► 3 levels within an organization ► Definition of Motivation ► Compensation: Individual Level – Focuses on employees' behaviors, skills, motivation, and performance. It includes The process that initiates, guides, and sustains goal-oriented behavior. All forms of pay or rewards going to employees arising from their employment. factors like job satisfaction, personal development, and leadership potential. ► Intrinsic vs. Extrinsic Motivation ► Merit Pay: Team (Group) Level – Examines how individuals interact within teams or departments. It includes Intrinsic: Internal drive (passion, curiosity). collaboration, communication, group dynamics, and conflict resolution. Extrinsic: External rewards (money, recognition). Definition: Pay increases linked to individual performance evaluations. Organizational Level – Looks at the overall structure, culture, strategy, and goals of the organization. ► P = A x M x O Model Characteristics: Encourages performance improvement, can be demotivating if perceived as unfair. It involves leadership decisions, company policies, and how the business adapts to external Performance = Ability × Motivation × Opportunity ► Incentive Pay (bonuses, commissions, etc.): environments. ► Need-Based Theories ► Context of Strategy Definition: Additional rewards based on achieving specific targets or outcomes. Maslow’s Hierarchy: Needs must be met progressively. Always align actions with the organization's strategic objectives Characteristics: Motivates specific behaviors or outcomes, can be short-term focused. Strategic management is the process of defining an organization's direction, making ► Skill-Based Pay: decisions on allocating resources, and ensuring long-term competitive advantage. It consists of two Definition: Compensation based on the level or range of skills an employee possesses. key phases: Characteristics: Promotes learning and skill acquisition, might lead to higher turnover if not managed well. 1. Strategy Formulation – The process of identifying goals, analyzing the competitive environment, and determining the best course of action. ► Individual vs. Team vs. Organization-level Incentives: 2. Strategy Implementation – Executing the formulated strategy by aligning resources, structure, Individual: Drives personal performance but can foster competition. and processes to achieve organizational objectives. Team: Encourages collaboration but might dilute individual accountability. Strategy as "Context" for Human Capital Practices Organization: Fosters a collective effort but individual contributions might be less recognized. Strategic human capital management aligns HR practices with business strategy. Alderfer’s ERG Theory: Existence, Relatedness, Growth. HR policies on recruitment, training, performance management, and compensation should ► Benchmarking: support strategic goals. Definition: Comparing pay practices with those of other organizations to ensure competitiveness. Example: A company focused on innovation (e.g., Google) invests heavily in employee Characteristics: Helps in setting realistic and market-competitive compensation. development and a creative work environment. ► Characteristics of Successful Compensation Systems: Equity: Perceived fairness in pay distribution. Transparency: Clear communication about how compensation is determined. Alignment with Strategy: Supports organizational goals. ○ Flexibility: Adaptable to changes in business or market conditions. McClelland’s Theory: § Need for Achievement, The desire to accomplish something difficult Motivation: Incentivizes desired behaviors and performance. § Need for power, The desire to influence, coach, teach, or encourage others to achieve Retention: Competitive enough to keep valuable employees. § Need for affiliation, The desire to spend time in social relationships and activities Legality: Complies with all legal standards. ► Job Design Motivation ► Total Compensation vs. Total Rewards Job an employer expands an employee's responsibilities by adding more tasks at the same Total Compensation: Enlargement level of complexity Definition: Refers to all direct financial payments or benefits provided to employees. This includes Job a process that improves a job by adding new tasks and responsibilities, increasing salary, wages, bonuses, commissions, stock options, and benefits like health insurance or Enrichment autonomy, and providing opportunities for growth ○ retirement plans. Job Rotation the practice of moving employees between different tasks to promote experience and Focus: Primarily on monetary aspects of employee remuneration. variety. Total Rewards: ► Derailers of Organizational Behavior Job Crafting a proactive process where an employee actively reshapes their job responsibilities and Definition: A broader concept encompassing not only total compensation but also non-financial Derailers in organizational behavior refer to factors or behaviors that can lead to the failure or work environment to better align with their personal strengths, interests, and needs. rewards. This includes elements like career development opportunities, work-life balance, significant hindrance of organizational performance. Common derailers include: Small changes to their tasks, relationships with colleagues, or perception of job ○ recognition programs, and the organizational culture. Poor Leadership: Lack of vision, ineffective communication, or autocratic leadership styles can Job the process of removing tasks from existing roles in order to make them more focused. demotivate employees. Simplification The objective of work simplification is to develop improved work methods Focus: A holistic approach to employee motivation and satisfaction, considering both tangible and Misalignment of Goals: When individual, team, or departmental goals do not align with intangible benefits. Job Feeling of enjoyment from a job organizational objectives. ► Extrinsic vs. Intrinsic Rewards Satisfaction Resistance to Change: Organizational inertia where employees or management resist new Extrinsic Rewards: strategies or processes. ► Engagement Definition: Rewards that come from outside the individual, often tangible or financial in nature. Poor Communication: Leads to misunderstandings, lack of trust, and inefficiencies. Assumes satisfaction plus a level of excitement and enthusiasm about the work, energy, for the org. and Examples include salary, bonuses, promotions, and perks. Cultural Misfit: When the organizational culture does not support the behaviors needed for passion for what one does ○ strategic success. More strongly correlated with positive work outcomes Impact: These are external motivators that can drive performance through incentive and Ethical Lapses: Issues like corruption, bias, or lack of integrity can severely damage an Gallup Q12 Model of Engagement recognition. organization's reputation and functionality. The Gallup Q12 is a survey instrument designed to measure employee engagement based on 12 key Intrinsic Rewards: Burnout and Stress: Overworking employees without adequate support can lead to decreased questions: Definition: Rewards that come from within the individual, associated with the satisfaction and productivity and high turnover. 1. Do you know what is expected of you at work? fulfillment derived from the work itself. Examples include a sense of achievement, personal 2. Do you have the materials and equipment to do your work right? ○ growth, autonomy, and job satisfaction. 3. At work, do you have the opportunity to do what you do best every day? w Strategy and Strategic Organizational Behavior 4. In the last seven days, have you received recognition or praise for doing good work? Impact: These motivate through internal satisfaction, fostering engagement and long-term ► Elements of Strategy Formulation 5. Does your supervisor, or someone at work, seem to care about you as a person? commitment. Vision & Mission – Defining the organization's purpose and long-term direction. 6. Is there someone at work who encourages your development? ► Government Regulations External Analysis – Assessing industry trends, competition (Porter’s Five Forces), and 7. At work, do your opinions seem to count? FLSA (Fair Labor Standards Act): macroeconomic factors (PESTEL analysis). 8. Does the mission/purpose of your company make you feel your job is important? Internal Analysis – Evaluating company resources, capabilities, and competitive advantages Purpose: Establishes minimum wage, overtime pay, recordkeeping, and youth employment standards 9. Are your associates (fellow employees) committed to doing quality work? affecting full-time and part-time workers in the private sector and in Federal, State, and local (SWOT analysis, VRIO framework). ○ 10. Do you have a best friend at work? Strategic Objectives – Setting specific, measurable goals aligned with the company’s mission. governments. 11. In the last six months, has someone at work talked to you about your progress? Strategy Selection – Choosing between corporate, business, and functional-level strategies 12. In the last year, have you had opportunities at work to learn and grow? ○ Exempt vs. Nonexempt Jobs: (e.g., cost leadership, differentiation, diversification). These questions help assess how engaged employees are by looking at elements like basic needs, Exempt: Employees not covered by FLSA overtime provisions, typically salaried professionals, ► 3 Critical Organization Planning Process individual contribution, team dynamics, and personal growth. managers, or executives who meet certain criteria. Strategic Plan § Meta-Analysis and Engagement Nonexempt: Employees entitled to overtime pay for hours worked over 40 in a workweek. § Describes an organization's long term strategies goals and objectives time frame is typically 5 plus years Definition: A statistical procedure for combining data from multiple studies to draw more robust Equal Pay Act of 1963: Annual operating plan (AOC) conclusions than could be achieved from any single study alone. In the context of organizational behavior, meta-analyses might look at the relationship between various Purpose: Prohibits wage disparity based on sex for equal work on jobs the performance of which § Tribes and organizations short term strategies goals and objectives for the given year ○ requires equal skill, effort, and responsibility, and which are performed under similar working time frame is typically one year HR practices and outcomes like employee engagement. conditions. Human resource plan (HRP) Link with Meta-analyses have been used to explore how various factors influence engagement, Engagement: such as leadership styles, job design, or compensation strategies. They help in ► Determining Wage Structures § Describes an organization's human resource capabilities with regard to short and long term goal objectives, with recommended actions as needed. How can we be strong with understanding general trends, the effectiveness of different practices across industries Grades vs. Bands: people we have? or cultures, and in identifying what drives engagement most consistently. Grades Traditional system where jobs are grouped into specific levels with narrow salary ranges, ► The Galbraith Star Model is a framework for organizational design, ensuring strategy is effectively : promoting internal equity. implemented through five key elements: ○ ► Job Characteristics Model (Hackman & Oldham) Bands: Broader salary ranges for job groups, offering more flexibility, typically used in flatter 1. Strategy – Defines the direction and competitive advantage. organizational structures to promote lateral movement and skill-based pay. 2. Structure – Organizes roles, responsibilities, and reporting relationships. Comp-Ratios: 3. Processes – Workflows, decision-making methods, and communication channels. 4. Rewards – Incentives and compensation systems to motivate employees. Definition: A measure of an employee's salary relative to the midpoint of their salary range. Calculated 5. People – Talent acquisition, development, and management to support strategy. Autonomy Ability to make as (Employee's Salary / Midpoint of Salary Range). Helps in assessing internal equity and decisions ► Human Relations Movement ○ market competitiveness. The Human Relations Movement emerged in the 1920s and 1930s, largely influenced by the Hawthorne Use: A comp-ratio above 1 indicates an employee is paid above the market rate, below 1 means Studies conducted at Western Electric's Hawthorne Works. Process in which working people, through below market rate. their unions, negotiate contracts with their employers to determine their terms of employment ► Different Types of Compensation Key aspects include: Base Pay: Fixed compensation for the job performed. Focus on Social Recognizes that workers are not just economic beings but also have social and Needs: psychological needs. Variable Pay: Includes bonuses, commissions, and performance-based pay. Employee Emphasizes that satisfaction leads to better performance, which in turn Benefits: Non-cash forms like health insurance, retirement plans. Satisfaction: benefits the organization. ► Equity Theory Perquisites: Special privileges or benefits, like company cars or housing allowances. Equity Theory, proposed by J. Stacy Adams in the 1960s, is a theory of motivation in organizational behavior Informal Work Acknowledges the influence of informal groups in shaping work behavior and ► Profit Sharing Groups: productivity. that addresses how perceptions of fairness influence work behavior. Here's a breakdown: Definition: Profit sharing is a compensation plan where employees receive a portion of the company’s profits. Leadership Style: Promotes democratic and participative management styles over authoritarian Basic Employees compare their job inputs (like effort, skill, experience) and outputs (pay, This can be distributed annually, semi-annually, or at other intervals, often as cash or ones. Premise: recognition, job security) to those of their peers. When they perceive inequity, they contributions to retirement accounts. feel discomfort, which motivates them to take action to restore balance. ► McGregor's Theory X and Theory Y Purpose: To align the interests of employees with those of the company, encouraging productivity, loyalty, Douglas McGregor introduced these theories in his 1960 book "The Human Side of Enterprise": Components of Adams' Equity Theory: and a sense of ownership. It also serves as an incentive for employees to contribute to the Theory X Assumptions: Inputs: What employees contribute to their job company's success. ○ Workers inherently dislike work and will avoid it if possible. Outputs: What employees receive from their job, such as salary, benefits, recognition, ► Equity/Ownership ○ Most people must be coerced, controlled, directed, or threatened with punishment to achieve reputation, responsibility, job security, and other tangible and intangible organizational goals. Definition: Equity or ownership refers to giving employees actual ownership in the company, usually through rewards. shares or stock options. This can come in various forms like direct stock grants, stock options, or ○ The average human prefers to be directed, wishes to avoid responsibility, has relatively little ambition, and wants security above all. ○ Comparison Employees compare their input/output ratio with that of relevant others through Employee Stock Ownership Plans (ESOPs). Theory Y Assumptions: (referents), which could be colleagues, friends in similar roles, or even their Purpose: To foster a sense of ownership, which can lead to increased motivation, retention, and alignment ○ Work is as natural as play if the conditions are favorable. own past experiences in different positions. with company goals. ○ People will exercise self-direction and self-control in the service of objectives to which they are Perceived If the ratios are unequal, employees might feel ► Stock Option Programs committed. Inequity: Stock Options: ○ Commitment to objectives is a function of the rewards associated with their achievement. ○ Definition: Options give employees the right to buy company stock at a predetermined price (strike price) Under-rewarded (inequity in leading to actions like reducing effort, seeking higher ○ The average human learns, under proper conditions, not only to accept but to seek within a specified period. If the stock's market value exceeds the strike price, employees can exercise their their favor), rewards, or leaving the job. responsibility. ○ options to purchase at a profit. ○ The capacity to exercise a relatively high degree of imagination, ingenuity, and creativity in the Over-rewarded (inequity prompting them to increase output, decrease inputs, justify ESOPs (Employee Stock Ownership Plans): solution of organizational problems is widely, not narrowly, distributed in the population. against others), the inequity, or feel guilt. § Definition: Plans that provide employees with shares in the company. ► Strategic Implementation § Characteristics: Aligns employee and company interests, can enhance loyalty but value can fluctuate. Restoration of Actions taken might include changing inputs or outputs, altering Strategic implementation involves turning strategy into action. It includes: ○ Equity: perceptions of self or others, or changing the comparison group. Resource Allocation: Ensuring resources (human, financial, technological) are aligned with ○ Types: strategic goals. Incentive Stock Options Offered to employees with tax benefits if certain conditions are met. Organizational Designing or adjusting the structure to facilitate strategy execution. (ISOs): Structure: Non-Qualified Stock More flexible but without the same tax advantages. § Options (NSOs): Leadership and Culture: Leaders must embody the strategy, and the culture should support strategic initiatives. Employee Stock Purchase Allows employees to purchase company stock often at a discount, Performance Setting up metrics, monitoring, and feedback systems to track progress. Plans (ESPPs): usually through payroll deductions over a set period. Management: Concerns with Stock Options: ► Link Between Strategy and Human Resource Management (HRM) Market Risk: The value of stock can decrease, potentially making options worthless. Alignment with HRM practices should be designed to support the overarching business Dilution: Issuing new stock options can dilute existing shareholders' value. Business Strategy: strategy, whether it's cost leadership, differentiation, or innovation. ○ Complexity: Understanding tax implications and exercising options can be complex. Talent Strategies include hiring, developing, and retaining employees who have the Cognitive Dissonance Theory (Festinger) Retention vs. If not managed well, options might not retain employees as intended if the stock Management: skills and motivation to fulfill strategic roles. Turnover: performs poorly or if employees leave before options vest. Performance and HRM influences organizational culture to ensure it aligns with strategic Cognitive Dissonance Theory, developed by Leon Festinger in 1957, examines how people strive for internal consistency among their cognitions (beliefs, attitudes, knowledge). Here are the roots and key ► Vesting and Vesting Period Culture: objectives, such as fostering innovation for a company aiming for aspects: Vesting: differentiation. Root Festinger proposed that humans have an innate drive to reduce the discomfort Definition: The process by which employees gain full ownership of granted benefits or stock over time. ► Strategic Issues in HR Management ○ Concept: (dissonance) caused by holding two or more contradictory beliefs, values, or ideas. Purpose: To incentivize employees to stay with the company by linking benefits to tenure. Workforce Anticipating future workforce needs in light of strategic changes.-' Planning: Origins: The theory was inspired by Festinger's involvement in a study of a doomsday cult, Vesting Period: where members rationalized the non-occurrence of predicted events to maintain Change Managing the human side of business transformation to ensure strategy faith. ○ Definition: The duration over which vesting occurs. Common structures include: Management: adoption. Cliff Vesting: Full vesting after a specific period (e.g., 1 year). Key Points: Globalization: Dealing with multicultural workforces, international compliance, and diverse ○ Dissonance Arousal: When there's a discrepancy between what one believes and what one § Graded Vesting: Vesting occurs gradually over time (e.g., 20% per year over 5 years). labor markets. does or experiences. Technology How to integrate AI, automation, and other technological advancements into ○ Dissonance Reduction: People will undertake efforts to reduce this dissonance, like changing ○ Purpose: Encourages long-term commitment to the company. Integration: HR practices without dehumanizing the workforce. attitudes or behaviors, acquiring new information, or minimizing the importance of ► Incentive/Variable Compensation conflicting cognitions. Definition: Compensation that varies based on performance metrics, including individual, team, or company- Diversity and Ensuring diversity contributes to strategic goals like innovation or market Inclusion: expansion. Implicatio This theory has broad applications, from understanding consumer behavior (buyer's wide achievements. This includes bonuses, commissions, profit sharing, and sometimes stock ns: remorse) to how individuals rationalize personal decisions or lifestyle choices. options. Learning and Continuous upskilling or reskilling to keep pace with industry changes. Development: Connection Between Equity Theory and Cognitive Dissonance Types: Link: Adams' Equity Theory can be seen as an application of Cognitive Dissonance Theory in the Performance Bonuses: Tied to individual or team performance against set goals. Employee Maintaining high levels of engagement critical for strategy execution. workplace. The discomfort from perceived inequity is akin to cognitive dissonance, where Engagement: Sales Commissions: Based on sales volume or revenue. employees seek to restore psychological balance by adjusting their perceptions or behaviors. ○ ► Human Capital as a Key Strategic Asset ► SMART Goal Acronym Short-term Incentives: Often annual bonuses or quarterly commissions. Organizations can use their resources and competencies to create value for customers by lowering SMART is an acronym used to define goals that are: Long-term Incentives: Like stock options or equity, aimed at long-term performance and retention. costs, providing something of unique value, or some combination of the two period this is a strong Specific: Clear and unambiguous. source of competitive advantage. Measurable: Quantifiable or with criteria for success. ○ What makes human capital a source of competitive advantage? (Resource-Based View) Achievable: Realistic and attainable. § Value Relevant: Aligns with broader objectives or needs. § Rareness Time-bound: Has a defined deadline or timeframe. § Not easily imitated ► Organizational Justice § Not easily substituted or replaced Distributive Justice The perceived fairness of how resources and rewards are distributed (decision itself) § Organization able to successfully utilize the resource Procedural Justice The perceived fairness of the processes and procedures used to make allocation Individual Human Capital Social Human Capital decisions Vision and aspirations Shared visions and goals Interactional The extent to which people feel fairly treated when decisions and procedures are Knowledge Shared values and culture Justice implemented Technical and social skills Trust and respect Justice is felt by more than those directly effected Confidence and self esteem Friendship and supportiveness Enthusiasm Cooperation and collaboration Motivation and Engagement commitment