Can theory be applied to the topic area – what does it tell us?
What does the empirical evidence suggest – how does pay compare to other forms of motivation?
How successful are incentive schemes in terms of their effect on
a) Motivation and
b) Performance?
What conclusions can be drawn?
Maslow’s Hierarchy of Needs – pay will only be a motivator for people functioning at the lower levels of need.
Need for achievement (Murray / McClelland) – pay may motivate if and when it indicates that the person has succeeded in his or her work tasks.
Expectancy theory (Vroom, 1964, adapted by Lawler, 1971) – pay could be a motivator if all the following can be satisfied - a) it is desired by the person (is valued and is perceived as fair) b) he or she can identify behaviours that lead to higher payment c) he or she feels capable of performing those behaviours.
Equity theory – pay will only be a motivator if it is seen to be a fair reward relative to the rewards received by others and procedures are considered fair. This is a big problem with PRP.
Goal-setting theory – this theory advocates goals that are defined in terms of a persons’ behaviour and/or accomplishments, not pay. However, if there is a clear and direct link between a person’s accomplishments and pay then specific, difficult goals defined in terms of earnings may be motivating.
Caveat – if pay is seen as an indicator of how one is doing compared to others this could encourage a ‘performance goal orientation’ (individuals being primarily concerned with demonstrating / proving their competency via their present level of task performance) rather than a ‘learning goal orientation’ (individuals approaching a task with the objective of improving their level of competence) which is believed to be more productive in improving an individual’s level of performance (Farr et al, 1993)
Intrinsic versus Extrinsic motivation (Herzberg, 1966) – Rewards can be seen as Intrinsic to the task (interest, sense of achievement) or Extrinsic (separate to the task). Pay is arguably one of the latter. The work of Jahoda (1982) and Gallie and White (1983) suggests that intrinsic rewards are valued as highly, if not more so that extrinsic. In some cases, high pay may undermine intrinsic motivation by focussing individuals’ attention on extrinsic factors (Deci and Ryan, 1980).
Hertzberg (1959) – Pay is not associated to times when people feel good and have worked hard in their job.
Goldthorpe et al (1968) – workers will accept repetitive line production work, and manipulate output, to maximise the balance between effort and pay. Related studies suggest that provision of incentives can be seen to be power based and may cause workers to manipulate the system to gain control, indeed control may be a more valued reward.
This suggests that it is necessary to look beyond types of scheme and consider people’s responses to pay.
Gallie and White (1993) – They found a relatively low ranking of pay when compared with some intrinsic aspects of the job but also found that 40% went to work primarily as a way to earn a living. This could be explained by the fact that nearly 50% of respondents said they had little choice when they were looking for their current job.
Such studies do not show that pay is not a motivator, and can be criticised for ignoring group and individual differences. However, they do show that we should be cautious in assuming that financial incentives will have a profound and powerful effect.
Jahoda (1982) considered the importance of pay by looking at behaviour under conditions where a change in pay had occurred.
Conclusions – the manifest functions of work are to earn money and provide goods and services. The latent functions are concerned with intrinsic rewards of work as well as structure and self-esteem provided by having a job. The experience of the unemployed provides a vivid reminder that work is more than just pay.
Thierry (1992) Identified a number of ways in which pay can be seen to be important:
1. Salient motives – pay allows important motives to be satisfied and important goals to be reached. These may be intrinsic or extrinsic.
2. Relative position – pay can provide feedback about progress on a task or in a job and provides feedback about how the individual is doing against others inside and outside the organisation.
3. Control – pay is a means of exercising and reflecting control over others or oneself.
4. Spending – it is a function of individual welfare.
Conclusion – pay may be a motivator but to be effective, policy makers must understand the pay needs of their staff and design pay systems accordingly.
Motivation – Marsden and Richardson (1994). Using Lawler’s adapted Expectancy model considered the introduction of PRP. It was found that: -
40% of people felt that good performance was not being fairly assessed.
The amount of money offered was not worth the extra effort.
The general feeling of inequity undermined morale and caused jealousy.
Conclusion – The majority of staff said they were in favour of PRP in principle, Marsden and Richardson show that Expectancy Theory might be useful in designing, implementing and evaluating systems. Ironically against other forms of incentives, Merit Pay (of which PRP is a form) came out badly, yet it is the fastest growing form of incentive.
Performance – Blinder (1990), Mitchell et al (1990). Firms that offer incentive schemes (mainly ESOPs) are more productive and more profitable.
Four reasons to be cautious of such statements: -
1. Issues with cause and effect
2. Weitzman and Kruse (1990) – productivity gains average out at a median of 4.4%, calling into question the self-financing capability of profit sharing.
3. Conte and Svejar (1990) – Participation is key. Where there were productivity gains, and there were only a few, it seems to be more closely linked with a participation scheme than the ESOP itself.
4. Dunn and Richardson (1991) – in a longitudinal study following the implementation of an ESOP scheme found a growing negativity in attitude towards the scheme.
Conclusion
Motivation theory can be applied to analyse the role of pay as a motivator.
Analysis has found that the way in which pay is used is often inappropriate.
The analysis does not demonstrate that pay cannot and should not be used to motivate performance, but that it is difficult to do so effectively.
Many schemes pay scant attention to the basic theories of motivation.
Outside the rhetoric, they possibly aren’t as interested in using pay incentives as a motivational tool as much as an attempt to increase organisational performance. Ironically, in cases of performance improvements, more may be attributable to ‘participation’, group-based goal setting and feedback than the incentive scheme itself (Pritchard et al, 1988).