PROBLEM 5. MONEY MONEY… 1
Enhancing Performance through Pay and Reward
Systems
Henk Thierry
Introduction
Kerr’s analysis about reward and punishment systems and how
they effectively reinforce congruence between
employee/organization’s goals devastating
Compensation’s possible gains (Thierry):
1. Applicants attracted to the market
2. Retaining of personnel in an organization
3. Motivation to perform well
4. Employees and managers altered to engage in different
performance behaviors
5. Inconvenient work conditions balanced with rewards
6. Industrial conflicts might be solved/prevented
7. Labor costs may be cut down
8. A distinct unit or group culture may be furthered
Expectancy Theory
Three cognitions related to decision making:
1. Probability of a particular level of effort specific performance
level
2. Performance level attainment of outcomes
3. Attractiveness of outcomes
Highest subjective utilitychoice
Importance of pay (based on 2 & 3):
Extent to which compensation is perceived to provide means that
satisfy needs
Importance of these needs
The more compensation is seen as “instrumental” (gain
recognition, security, etc.) (2) and the more these needs are
important or attractive (3) = the more compensation is
important
Pay for performance systems: link one or more performance
characteristics to a bonus or salary increase
Effective: when employee’s or manager’s belief that a particular
performance outcome is related to a specific amount of pay
Belief influenced by feedback, trust in system, self-efficacy and
cynicism
Cynicism: negative impact on instrumentality belief
Reduce motivation of an individual to make an effort for a change
, PROBLEM 5. MONEY MONEY… 2
Instrumentality belief much lower when salary system compared
to system of hourly wages (a fixed-pay system)
Performance-pay relationship is reduced to zero or even might
become negative
Organizational Behavior Modification
Behavior is a function of its contingent consequences 5
steps for changing behavior-performance links:
1. Identification of critical performance related behaviors
2. Measurement of those behaviors’ baseline frequencies
3. Analysis of antecedents and consequences of these behaviors
4. Intervention to increase their frequencies
5. Test if frequencies increased
Reinforcement increase of strength (behavior-consequence)
and frequency of behaviors
o Feedback and pay most important reinforcements in
manufacturing (reinf. Important)
o Pay and recognition in service jobs
Continuous Reinforcement(CR): often results in higher
performance
Variable Reinforcement (VR): can result in high or lower
performance
o Hard to distinguish between VR and CR in an organization
(because CR should be immediate reinforcement but in real life
you get a bonus at the end of the month, year)
o Both led to higher performance compared to control groups
Goal Setting
Goal-setting theory specifies the conditions under which an
individual is motivated to perform on a high level
1. Goals should be set at a high, difficult level.
2. Goals ought to be very specific in terms of the result to be
achieved.
3. Feedback has to be provided on a regular basis.
4. Employees must accept these goals.
High performance cycle: moderators e.g. ability, mediators
e.g. persistence, task-specificity motivation
Recent research: self-set goals and self-efficacy the most
important motivational determinants
Enhancing Performance through Pay and Reward
Systems
Henk Thierry
Introduction
Kerr’s analysis about reward and punishment systems and how
they effectively reinforce congruence between
employee/organization’s goals devastating
Compensation’s possible gains (Thierry):
1. Applicants attracted to the market
2. Retaining of personnel in an organization
3. Motivation to perform well
4. Employees and managers altered to engage in different
performance behaviors
5. Inconvenient work conditions balanced with rewards
6. Industrial conflicts might be solved/prevented
7. Labor costs may be cut down
8. A distinct unit or group culture may be furthered
Expectancy Theory
Three cognitions related to decision making:
1. Probability of a particular level of effort specific performance
level
2. Performance level attainment of outcomes
3. Attractiveness of outcomes
Highest subjective utilitychoice
Importance of pay (based on 2 & 3):
Extent to which compensation is perceived to provide means that
satisfy needs
Importance of these needs
The more compensation is seen as “instrumental” (gain
recognition, security, etc.) (2) and the more these needs are
important or attractive (3) = the more compensation is
important
Pay for performance systems: link one or more performance
characteristics to a bonus or salary increase
Effective: when employee’s or manager’s belief that a particular
performance outcome is related to a specific amount of pay
Belief influenced by feedback, trust in system, self-efficacy and
cynicism
Cynicism: negative impact on instrumentality belief
Reduce motivation of an individual to make an effort for a change
, PROBLEM 5. MONEY MONEY… 2
Instrumentality belief much lower when salary system compared
to system of hourly wages (a fixed-pay system)
Performance-pay relationship is reduced to zero or even might
become negative
Organizational Behavior Modification
Behavior is a function of its contingent consequences 5
steps for changing behavior-performance links:
1. Identification of critical performance related behaviors
2. Measurement of those behaviors’ baseline frequencies
3. Analysis of antecedents and consequences of these behaviors
4. Intervention to increase their frequencies
5. Test if frequencies increased
Reinforcement increase of strength (behavior-consequence)
and frequency of behaviors
o Feedback and pay most important reinforcements in
manufacturing (reinf. Important)
o Pay and recognition in service jobs
Continuous Reinforcement(CR): often results in higher
performance
Variable Reinforcement (VR): can result in high or lower
performance
o Hard to distinguish between VR and CR in an organization
(because CR should be immediate reinforcement but in real life
you get a bonus at the end of the month, year)
o Both led to higher performance compared to control groups
Goal Setting
Goal-setting theory specifies the conditions under which an
individual is motivated to perform on a high level
1. Goals should be set at a high, difficult level.
2. Goals ought to be very specific in terms of the result to be
achieved.
3. Feedback has to be provided on a regular basis.
4. Employees must accept these goals.
High performance cycle: moderators e.g. ability, mediators
e.g. persistence, task-specificity motivation
Recent research: self-set goals and self-efficacy the most
important motivational determinants
