Chapter Six
Goal Setting, Performance
Management, and Rewards
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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.
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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.
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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.
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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
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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
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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.
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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.
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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
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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
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Figure 6.2: The Performance Management System
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Figure 6.3: Purposes of Performance Management
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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
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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.
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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.
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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.
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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
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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
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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
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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
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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.
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Table 6.1: Issues to Consider in Developing Reward Systems
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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.
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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.
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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.
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Figure 6.4: The Expatriate Compensation Balance Sheet