Real Organization & Organization Design Project
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PP_07Anderson.pptxOrganization Design: Creating Strategic and Agile Organizations
Donald L. Anderson
Rewards
Chapter 7
Rewards
Rewards systems help connect individual performance behaviors to the accomplishment of organizational goals.
Important to strategy point of STAR model
Anderson, Organization Design
SAGE Publishing, 2019
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Lo 7-1: How the rewards point of the star influences motivation for individuals to achieve personal and organizational goals which support the strategy and the rest of the organization design
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Approaches to Rewards
Traditional, hierarchical or bureaucratic approach
Rewards primarily determined by tenure and performance
Performance-based strategic design approach
Salary increases based on overall market rate
Bonuses given on a manager’s individual or division results
Anderson, Organization Design
SAGE Publishing, 2019
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Misaligned Rewards: When Rewards Fail
Outcomes of poorly designer rewards systems:
Unethical behavior
Counterproductive behavior
Conflict and Competition
Slower Changes and Resistance
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LO 7-2: Why rewards are often misaligned and how rewards can have unintended consequences
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Why Designing Rewards is So Challenging
Discipline of organization design generally focused less on rewards
Organization designers vs. compensation professionals
Lack of education about designing rewards systems
Focus on other organizations’ reward systems
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Organization designers try to differentiate the organization by creating unique, hard-to-replicate capabilities that can produce lasting and sustainable competitive advantage
Compensation professionals are driven by the need to ensure that an organizations’ practices are not out of step with the majority of its competitors.
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Motivation
Most reward systems are developed according to the following model:
Anderson, Organization Design
SAGE Publishing, 2019
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Expectancy Theory, Goal Setting, and Equity
Expectancy theory posits that behavior is a result of a person’s ability and his or her motivation to complete a task
Three tenets must be in place for a reward system to work:
Valence
Instrumentality
Expectancy
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SAGE Publishing, 2019
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Valence: The perceived outcome of performance, positive or negative
Instrumentality: Individual must have confidence that if performance is achieved, the reward will be granted
Expectancy: Individual must believe that the outcome required to receive the reward is achievable through personal effort of behavior
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Expectancy Theory, Goal Setting, and Equity
Goal setting is an important variable of motivation
Three conditions:
A specific high goal leads to higher performance than no goal setting
Given goal commitment, the higher the goal the higher an employee’s performance
Variables, such as performance feedback or incentives increase performance to the extent that they lead to the setting of and commitment to a specific goal
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SAGE Publishing, 2019
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Expectancy Theory, Goal Setting, and Equity
Feelings of justice and equity affect employee motivation
Two types of justice are important to rewards systems:
Distributive justice
Procedural justice
Anderson, Organization Design
SAGE Publishing, 2019
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Intrinsic Motivation
Work itself is a source of motivation:
Employee finds enjoyment or fascination in work
Job allows employee to achieve personal goals
Employee feels fulfilled by work
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SAGE Publishing, 2019
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Extrinsic Motivation
Job or work activity is the instrument by which the extrinsic rewards are achieved:
Pay
External recognition
Approval from others
Fame
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Motivation-Hygiene Theory
Herzberg’s theory: People are made dissatisfied by bad environment, the extrinsics of the job. They are seldom satisfied by good environment (the hygienes). Instead, they are made satisfied by the intrinsics of what they do, or by motivators.
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SAGE Publishing, 2019
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Motivation-Hygiene Theory
Key motivators:
Achievement and quality performance
Recognition for achievement and feedback on performance
Work itself and the client relationship
Responsibility
Advancement, growth, and learning
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Motivation-Hygiene Theory
Hygiene factors that can cause dissatisfaction:
Supervision
Interpersonal relationships
Salary
Benefits
Job security
Company policies
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Intrinsic Motivation and Extrinsic Rewards
Intrinsic and extrinsic motivation may work in combination
Intrinsic motivation may be increased by properly designed rewards
Jobs can be designed in motivating ways
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Motivational Impact of Job Design
Three psychological states associated with increased motivation:
Experienced meaningfulness of work
Experienced responsibility for work outcomes
Knowledge of results
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Motivational Impact of Job Design
Jobs should be designed to maximize five dimensions:
Skill variety
Task identity
Task significance
Autonomy
Feedback
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Metrics and the Balanced Scorecard
Seven purposes of performance measures:
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LO 7-3: How to design metrics through the balanced scorecard to focus attention on what is important
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Metrics and the Balanced Scorecard
The balanced scorecard was developed for designing strategic performance measures.
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Characteristics of Effective Performance Measures
Linked to the strategy and are focused
Accessible
Timely and actionable
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LO 7-4: How organizations can approach elements of a rewards system, such pay for performance, skill-based pay, and team compensation.
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Characteristics of Effective Performance Measures
Focus on more than just financials
Include counterbalanced metrics to avoid unintended consequences
Relevant and outcome-based
Track past performance and future trends
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Reward Strategy and Systems
The rewards strategy should follow from the organization’s strategy, driven by the external and internal environment
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Basis for Rewards
Pay for individual performance
Skill based pay
Pay for team performance
Pay for organizational performance
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Types of Rewards
Bonus systems
Profit-sharing plans
Stock ownership plans
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Designing a Reward System that Works
Define and measure performance accurately
Make rewards contingent on performance
Reward employees in a timely manner
Maintain justice in the reward system
Use monetary and nonmonetary rewards
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Rewards, Strategy, and Other STAR Points
Rewards can support the structure point of the star when members of the same division or unit are measured and rewarded similarly based on performance
Rewards can lead to a shift in approach and structure
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