PRP for increasing employee motivation- Ayush

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Consideration for implementing performance related pay (PRP) throughout the company, with the aim of increasing employee motivation. Impacts, inadequacy and effects on motivation
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  • 1. COVER SHEET PEOPLE & ORGANISATION Assignment: Organisational Behaviour Module code: BEMM 121 Name of Tutor: Stephen Champion Date of submission: 24th March’ 2014 Number of words: 1618 Submitted By: Ayush Agrawal Student Number: 630058475 Candidate Number: 002330
  • 2. 1 BEMM 121 PEOPLE AND ORGANISATION ORGANISATIONAL BEHAVIOUR Table of Contents PRP (Performance related pay)..........................................................................1 Impacts of PRP...................................................................................................1 Inadequacy of PRP .............................................................................................1 Motivation .........................................................................................................2 Motivational Theories concerning PRP in an organisation .................................2 Motivation without PRP.....................................................................................3 Motivating through Job Characteristics .............................................................3 Impacts of culture in Motivating through PRP ...................................................4 Conclusion .........................................................................................................4 Recommendation ..............................................................................................4 Bibliography........................................................................................................i
  • 3. BEMM 121 PEOPLE AND ORGANISATION ORGANISATIONAL BEHAVIOUR Report by: Ayush Agrawal (Student No. 630058475) (Candidate no. 002330) 1 A large multi-national organisation is considering implementing performance related pay (PRP) throughout the company, with the aim of increasing employee motivation. Using your knowledge of theories and evidence concerning motivation, critically evaluate whether you believe the organisation is likely to be successful in achieving its aim. PRP (Performance related pay) It is a monetary remuneration structure for employees where the pecuniary compensation is correlated to their performance assessment relative to stated criteria. In business context the PRP is the variable pay supplemented by the base pay that helps to attain certain goal. It is offered on how an individual, a group or the company as a whole performs during a specified time frame, which benefits both employer/company and employees. (Bi, August 20, 2011). Employees get rewards for their successful endeavours and accomplished targets. This gives them “Satisfaction” as their hard work is appreciated. PRP can be evaluated qualitatively (behaviour based) or quantitatively (results based). The behavioural aspects have very low inter-rater reliability which is mainly because of the ambiguity between the two managers expecting different outcomes. This at time confuses the performance oriented employees and hence effects result. Further for the results the employees lose control on other services which might distract customers. If both behaviour and results are encouraged then better results will be delivered. (Gerhart, et al., 2009). Impacts of PRP The PRP increases the productivity of the employees as they are motivated by the money offered. The new talent also gets encouraged to achieve goals and hence helps the company to retain the employees as they feel loyal to the organisation. The companies being performance oriented prefers variable pay (bonuses and commissions) more than the base pay (annual or hourly salaries). This develops the risks for the low performers as an uncertainty for even getting the minimum is developed, but at the same time develops zeal for those who have high needs and spirit to perform. They are motivated to optimise their capacity for generating maximum possible income. (Gerhart, et al., 2009). Inadequacy of PRP Although PRP schemes are whopping motivational tool but pay always is not an efficient motivator. (Rynes, Sara L.; Gerhart, Barry; Minette, Kathleen A., Winter 2004). According to “Jurgensen” (1978), other significant motivational features are company profile, working conditions, supervisor, co-workers, and benefits. Priority order of which differs between men and women. (Turban, et al., 1993) . The employees compare some crucial characteristics. I.e. promotion opportunity, work type, work load, work hour regulations, commuting time, fringe benefits and security against job loss to remain loyal towards the company. (Grund, August 2009).
  • 4. BEMM 121 PEOPLE AND ORGANISATION ORGANISATIONAL BEHAVIOUR Report by: Ayush Agrawal (Student No. 630058475) (Candidate no. 002330) 2 PRP have certain shortcomings that dwindles the employee motivation. The predicament evolves as it de-motivates those employees who are not rewarded. On every pay related amendment employee’s gets on “high alert” for changes indicating differences as regarded by employer, particularly in relation to the peers. (Rynes, Sara L.; Gerhart, Barry; Minette, Kathleen A., Winter 2004). Due to the competitiveness prompted by PRP, a disagreement regarding targets is developed within the organisation. In lure of the payments, the employees tend to neglect those tasks that are not rewarding. (Chamberlin, et al., 2002). Further there is always a dilemma whether PRP should be rewarded individually or for group performance. It’s a vice versa situation as individual remuneration reduce group performance while group rewards lowers the individual performance. (Gerhart, et al., 2009). PRP on individual basis motivates high performance driven individuals as they desire to achieve high through their performance but at the same time decrease the group cohesion due to the developed competition within the group. On the other hand PRP based on group performance encourage cooperation but unclear line of sight can condense the interest of the personnel’s in the organisation. (Gerhart, et al., 2009). Motivation The PRP scheme being a motivational factor invigorates the allegiance towards the organisation. Motivation is “a set of energetic forces that originates both within and outside of an employee, initiates work-related effort, and determines its direction, intensity, and persistence” (Colquitt, et al., 2009). In particular to a work place or an organisation motivation is a “Psychological processes that direct, energize, and maintain action toward a job, task, role, or project” (Pritchard.R, et al., 1976;1990). Motivation cultivates the ability to perform. Motivational Theories concerning PRP in multinational organisation The implementation of employee motivation can be explained using certain theories. ‘Reinforcement theory’ formulated by Skinner in 1953 is most appropriate for routine work. It includes rewards for desirable work and punishment for undesired work. E.g. To increase punctuality in the organisation, the employees arriving on time are given with bonuses or monetary benefits (Reward) and those arriving late are penalised as salary deduction (Punishment). Vroom in 1964 gave a method called ‘Expectancy Theory’ (or expectancy-valence) related to workplace. He provided a method of cognitive variables that indicates the individual differences and gave implications for motivating employees. Recommendations include altering the person’s efforts by providing knowledge and skills for successful performance, (Expectancy); Rewarding fairly for successful performance (Instrumentality); and valuable monetary compensation (Valences). (Lunenburg, 2011). Adam in 1963 established ‘Equity Theory’ to elucidate employee response to injustice in the workplace. His argument was PRP influence subsequent behaviour which might create
  • 5. BEMM 121 PEOPLE AND ORGANISATION ORGANISATIONAL BEHAVIOUR Report by: Ayush Agrawal (Student No. 630058475) (Candidate no. 002330) 3 difference between the employees. Further In 1960, ‘Goal setting theory’ emerged stating that specifying targets can improve task performance of the employees. (Mowday, et al., 2004) Motivation without PRP All the theories mentioned above states that PRP increases motivation in an organisation. But contradicting these, Deci & Ryan in 1971 gave Cognitive Evaluation Theory (CET) which states that PRP is merely an extrinsic motivational tool which makes the employees more enthusiastic towards the bonus pay. But when these pay rewards are withdrawn, they loses interest. Hence only monetary benefits don’t inculcate motivation. Additionally CET specifies that competence will not develop intrinsic motivation unless supplemented with sense of autonomy and internal perceived locus of causality. (deCharms, 1968) (Ryan & Deci, January 2000). It needs passion and desire to drive individuals internally to accomplish something. PRP might reduce the intrinsic significance as it narrow down the focus and obstruct the creative thinking of an employee because of controlling, restricting and monitoring which employees might not enjoy. (Petrikovic, 2013). In order to establish the substantial reasons for motivating the individuals, Deci & Ryan further continued and came up with Self Determination theory (SDT) in 1985, which concentrate on social-contextual circumstances that facilitate against forestall in instinctive process of self motivation. They postulated three innate motivational needs; first is ‘relatedness’ which means valued by others; second ‘competence’ to know employees are good at their job, and finally ‘autonomy’ which is the need for internal locus of control. When these three psychological needs are contented, self motivation and mental health of the employees will be enhanced. (Ryan & Deci, January 2000). The broad usefulness of PRP suggests that, far from being a mere low order motivator, pay can assist an employee in obtaining virtually any level on Maslow’s motivational hierarchy of needs, but social esteem and self actualization. (Rynes, Sara L.; Gerhart, Barry; Minette, Kathleen A., Winter 2004). Self fulfilment needs are certainly not provided by just pay. Further, in 1964 Hertzberg gave ‘Two factor theory’ (motivational and hygiene factors) which says that pay can stop you being dissatisfied but it cannot satisfy either. Motivational factor leads to job satisfaction while Hygiene factors leads to Dissatisfaction. According to him job satisfaction is a function of perceived characteristic and includes Achievement, Responsibility, Recognition, Career and Interest but not pay which is considered as a hygiene factor and might leads to dissatisfaction. (House & Wigdor, 1967). Hence employees are motivated by more than just money. Motivating through Job Characteristics Apart from PRP, certain amendment in Job characteristics creates a condition that motivates the enthusiastic employees to perform effectively in the work environment. The change will impact positively on their psychological state, making them more internally motivated, productive and satisfied towards work. (Hackman & Oldham, 1976). This is paradoxical in case of people who don’t want to relate to the organisation and work there in order to make money only. E.g.
  • 6. BEMM 121 PEOPLE AND ORGANISATION ORGANISATIONAL BEHAVIOUR Report by: Ayush Agrawal (Student No. 630058475) (Candidate no. 002330) 4 University Students working part time. But yet these amendments motivate them and affect their performance growth. (Ref. Chart below) Impacts of culture in Motivating through PRP Many of the disparity in employee motivational structures all over the world can be outlined on the basis of diversity in the collective mental programming of people in different national cultures. (Hofstede, 1980). In MNC, cultural influence impinges to a great extent in reward preferences. Generalizing variable pay across all cultures in a MNC is irrational. E.g. Individual PRP will be greater in countries which have more individualism. PRP Schemes instigated in different culture have not always been successful. (Steers, et al., 3 July 2008) Although the evidences are only empirical to show impacts of cross cultural differences on the PRP schemes but yet it is a potentially important contextual variable and needs to be focussed especially when in context with an MNC. Conclusion Employee motivation is dependent on various factors which differ in diverse cultures. Motivation through rewards is momentary and is not consistent and same in the long run. PRP schemes develop insecurity about position for the introvert employees. They get de-motivated because of being unrewarded. Poor implementation of PRP schemes motivates behaviour that hinders in achieving organisational goals. Hence applying PRP in all departments of large multi-national organisation is not a favourable option, this can effect inversely to employee motivation. Recommendation The multinational organisation can be successful with the PRP schemes if the rewards are given as a whole in organisational level. E.g. Annually to all the employees on the basis of company’s performance in previous financial year. Category 1 Category 2 PERFORMANCE Growth Need Strength (GNS) moderates effect of Job Characteristics High GNS Low GNS MOTIVATING POTENTIAL LOWHIGH LOW HIGH
  • 7. i BEMM 121 PEOPLE AND ORGANISATION ORGANISATIONAL BEHAVIOUR Bibliography Bi, A., August 20, 2011. Benefits of Performance Related Pay. Inside Business 360, R.R. Donnelley. Chamberlin, R., Wragg, T., Haynes, G. & Wragg, C., 2002. Performance-related pay and the teaching profession: a review of the literature. research papers in education, pp. 17(1), 31-49. Colquitt, J. a., Lepine, J. a. & Wesson, M. J., 2009. Oragnisational Behaviour: Improving performance and commitment in the workplace. s.l.:McGraw-Hill Higher Education, ISBN: 9780071287760. Gerhart, B., Rynes, S. L. & Fulmer, I. S., 2009. Pay and performance: Individuals, groups, and executives. The Academy of Management Annals,3,, pp. 251-315. Grund, C., August 2009. Revealed Job Preferences by employee initiated Job change, University of Würzburg: Department of Business and Economics. Hackman, R. & Oldman, G. R., 1976. Motivation through the Design of Work: Test of a Theory. Organisational Behaviour and Human Performance, Issue 16, pp. 250-279. Hofstede, G., 1980. Motivation, Leadership and Organisation: Do American Theories Apply Abroad?, s.l.: American management Associations. 0090-2616/80/0014-0042. House, R. J. & Wigdor, L. A., 1967. Herzberg's Dual-Factor Theory of Job Satisfaction and motivation:A review of the evidence and a criticism. In: personal pgychology. s.l.:Blackwell Publishing Limited, pp. 369- 389. Lunenburg, F. C., 2011. Expectancy Theory of Motivation: Motivating by Altering Expectations. International journal of Management, Business and Administartion, pp. Vol 15, Number 1. Mowday, R. T., Steers, R. M. & Shapiro, D. L., 2004. The future of work Motivation Theory. Academy of Management Review, Volume 29, No. 3, pp. 379-387. Petrikovic, I., 2013. The Motivation Paradox: Why is a Carrot-and-stick approach Contra-productive, Zlin: Faculty of Humanities, Tomas Bata University . Pritchard.R, Campbell.D.J. & Kanfer.R., 1976;1990. Motivational theory and industrial and organisational psychology. In: Handbook of industrial and organisational psychology, Vol. 1, 2nd ed. Palo Alto: CA: Consulting Psychologists Press., pp. pp.75-130. Ryan, R. M. & Deci, E. L., January 2000. self Determination Theory and the Facilitation of intrinsic motivation, Social development, and well being. American Psychologist, pp. Vol. 55, No. 1, 68-78, DOI: 10.1037/0003-006X.55.1.68. Rynes, Sara L.; Gerhart, Barry; Minette, Kathleen A., Winter 2004. The Importance of pay in employee Motivation: Discrepancies between what people say and what they do. In: Human Resource Management. s.l.:2004 Wiley Periodicals, Inc.Wiley InterScience (www.interscience.wiley.com), pp. Vol. 43, No. 4, Pp. 381–394. Steers, R. M., Meyer, A. D. & sanchez-Runde, C. J., 3 July 2008. National culture and the adoption of new technologies. Journal of world Business, 43(3), pp. 255-260. Turban, D. B., Eyring, A. R. & Campion, J. E., 1993. Job attributes: Preferences compared with reasons given for accepting and rejecting job offers. Journal of Occupational and Organizational Psychology, pp. 66,71-81.
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