chapter six goal setting, performance management, and rewards

Chapter Six

Goal Setting, Performance

Management, and Rewards

Chapter Objectives

• Describe goal setting and relate it to motivation.

• Discuss performance management in organizations.

• Identify the key elements in an effective organizational reward system.

• Describe the issues and processes involved in managing reward systems.

Goal Setting and Motivation

• Goal Setting– A very useful method of enhancing employee

performance.

• Two Purposes of Goals:– They provide a useful framework for managing

motivation since employees can set their own goals.

– Goals are an effective control device; control is the monitoring by management of how well the organization is performing.

Goal-Setting Theory

• Social Learning Theory– Provides insights into why and how goals can

motivate behavior. – The research of Edwin Locke and his associates

most clearly established the utility of goal-setting theory in a motivational context.

• Locke’s Goal Setting Theory assumes behavior is a result of conscious goals and intentions.– By setting goals for employees, a manager should

be able to influence their behavior.

Components of Goal Setting Theory

• Goal Difficulty– The extent to which a goal is challenging and

requires effort

• Goal Specificity– The clarity and precision of a goal

• Goal Acceptance– The extent to which a person accepts a goal

• Goal Commitment– The extent to which an individual is personally

interested in reaching a goal

Figure 6.1: The Goal-Setting Theory

Reference: Goal-Setting Motivational Technique That Works by Gary P. Latham et al. Reprinted from Organizational Dynamics, Autumn, 1979, Latham et al: “The Goal-Setting Theory of Motivation” with permission

from Elsevier Science

Broader Perspectives on Goal Setting

• Management by Objectives– A collaborative goal-setting process through which

organizational goals cascade down throughout the organization.

– A successful MBO program starts with top managers establishing overall goals for the organization.

– After these goals have been met, managers and employees throughout the organization collaborate to set subsidiary goals.

Evaluation and Implications of Goal-Setting Theory

• Evaluation– Research has demonstrated fairly consistently that

goal difficulty and specificity are closely associated with performance.

– Other elements of the theory, such as acceptance and commitment, have been studied less frequently.

• A few studies have shown the importance of acceptance and commitment, but little is currently known about how people accept and become committed to goals.

Evaluation and Implications of Goal-Setting Theory (continued)

• The popularity of MBO stems from its many strengths. – It clearly has the potential to motivate employees

because it helps implement goal-setting theory on a systematic basis throughout the organization.

• MBO also has pitfalls:– Lack of top management support– Overemphasis on quantitative goals– Excessive paperwork and record keeping

Performance Management in Organizations

• Performance measurement, or performance appraisal, is the process by which a manager:– Evaluates an employee’s work behaviors

by measurement and comparison with previously established standards

– Documents the results– Communicates the results to the employee

Figure 6.2: The Performance Management System

Figure 6.3: Purposes of Performance Management

Performance Management Basics

• The Appraiser– In most appraisal systems, the employee’s primary

evaluator is the supervisor.– Problems occur in this area when:

• The supervisor has incomplete or distorted information about the employee’s performance.

• The supervisor has a limited understanding of the technical knowledge involved in an employee’s job.

– Possible solutions:• a multiple-rater system that incorporates the ratings of

several people familiar with the employee’s performance• 360 degree feedback

Performance Management Basics (continued)

• Frequency of the Appraisal– An organization usually conducts performance

appraisals on a regular basis, typically once a year.

– Annual performance appraisals are convenient for administrative purposes such as recordkeeping and scheduling.

• Measuring Performance– Some of the most popular methods for evaluating

individual performance are graphic rating scales, checklists, essays or diaries.

Individual Rewards in Organizations

• The reward system consists of all organizational components, including people, processes, rules and procedures, and decision-making activities, involved in allocating compensation and benefits to employees in exchange for their contributions to the organization.

• Rewards constitute many of the inducements organizations provide to employees as their part of the psychological contract.

Roles, Purposes, and Meanings of Rewards

• The purpose of the reward system in most organizations is to attract, retain, and motivate qualified employees.

• An organization must develop its philosophy of compensation based on its own conditions and needs, and this philosophy must be defined and built into the reward system.

Additional Information About Rewards

• Surface value of a reward – the objective meaning or worth

• Symbolic value of a reward – the subjective and personal meaning or worth

• Types of Rewards:– Base Pay (Money)– Incentives– Indirect Compensation (Benefits)_– Perquisites– Awards

Types of Rewards

• Base Pay– For most people, the most important reward for work is the pay

they receive.

• Incentive Systems– Plans that allow employees to earn additional compensation in

return for certain types of performance• Piecework programs• Gain-sharing programs• Bonus system• Long-term compensation• Merit pay plans• Profit-sharing plans• Employee stock option plans

Types of Rewards (continued)

• Indirect Compensation– Another major component of the compensation

package is indirect compensation, also commonly referred to as the employee benefit plan.

• Payment for time not worked• Social security contributions• Unemployment compensation• Disability and workers’ compensation benefits• Life and health insurance programs• Pension or retirement plans

Types of Rewards (continued)

• Perquisites– Special privileges awarded to selected members

of an organization, usually top managers.

• Awards– At many companies, employees receive awards

for a variety of accomplishments:• Seniority• Perfect attendance• Zero defects

Managing Reward Systems

• Linking Performance to Rewards– For managers to take full advantage of the

symbolic value of pay, employees must perceive that their rewards are linked to their performance.

– Some reward systems are standardized across employees (where wage increases are based on longevity on the job) and some reward systems are strictly tied to individual performance.

– Most organizations try to develop a reward system somewhere between these two extremes.

Table 6.1: Issues to Consider in Developing Reward Systems

Flexible Reward Systems

• A flexible reward system allows employees to choose the combination of benefits that best suits their needs:– A younger worker might prefer to have especially

strong health care coverage with few deductibles.– A worker with a few years of experience might

want more child care benefits.– A mid-career employee with greater financial

security might want more time off with pay.– An older worker might want more rewards

dedicated to his/her retirement plan.

Other Issues Pertaining to Pay Systems

• Participative Pay Systems– In keeping with the current trend toward involving

workers in organizational decision making, employee participation in the pay process is also increasing.

• Open Salary Information– A company’s policy of making exact salary amounts

public knowledge (such as state governments).

• Pay Secrecy– A company’s policy of making no information available

to employees regarding other employees’ salaries, average or percentage raises, or salary ranges.

Expatriate Compensation

• Expatriate Compensation– Organizations that ask employees to

accept assignments in foreign locations must usually adjust their compensation levels to account for differences in cost of living and similar factors.

Figure 6.4: The Expatriate Compensation Balance Sheet

chapter six goal setting, performance management, and rewards

goal goal acceptance

goal goal commitment

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goal setting management

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lockes goal setting

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