Organizational Behavior Course Notes – Employee Issues


Class notes from my core MBA Organizational Behavior (OB) course. These focus on employee issues.

How can employees be motivated to perform?

  1. Rewards in general: must first understand what performance you desire, then structure reward system to encourage that performance while considering the constraints of the firm (org. structure, profitability, size, etc.). If your firm doesn’t have a strong culture (higher intrinsic rewards) then you may have to utilize extrinsic rewards more. Rewards must be consistent. Also, reference “Why Incentive Plans Can’t Work” by Alfie Kohn, which basically argues that rewards only result in temporary compliance.
    • Intrinsic rewards – the process of work and the individual’s response to it. If an employee is doing something he or she likes in a fostering environment, if they relate and embrace the corporate culture, intrinsic rewards may be high. Also, this is a function of personality, so hiring can be important. Beware that sometimes extrinsic rewards can undermine intrinsic ones. {See below on environment}
    • Extrinsic reward – find the right mix to complement your firm’s constraints and overall reward philosophy bearing in mind that employees compare their own input/output ratio with that of others (equity theory). Common rewards include:
      • high wages
      • incentive pay
      • perquisites
      • recognition
      • promotions/advancements
      • employee ownership
      • It’s very important to maintain both internal and external equity (comparison with others inside the firm as well as others in same industry)
    • Performance evaluation – this is critical. Failure to include all activities that are important for effectiveness can lead to negative consequences (i.e. salesmen selling unneeded products thus damaging customer relations). Also, goal setting is a difficult issue. Setting conservative goals might not encourage highest performance; setting lofty goals may lead to frustration and subjectivity of evaluation system. What gets measured gets done.
  2. Environment 
    • Provide opportunities for job advancement/promotion
    • Reduce fear of separation; encourage risk-taking (sometimes this is at odds with reward system)
    • Employment security – fosters productivity, concentration, less stress
    • Participation and empowerment:
      • evidence is that participation increases both satisfaction and productivity
      • self-managed teams can work b/c of peer monitoring and expectations of coworkers
      • provide training necessary to do the job AND provide opportunity to utilize any training received
      • cross-utilization can make work more interesting BUT this must fit with overall company organization design and goals (i.e. company may have functional org. that requires in-depth skill development)
      • provide timely and useful feedback on performance, “big picture”, etc.
    • Symbolic egalitarianism – the reduction in the number of social categories tends to decrease the salience of various subdivisions in the org., diminishes “us” versus “them” thinking, and provides more of a sense of everyone working toward a common goal (ex. everyone wears blue smocks, all-salaried system, etc.)
  3. Measurement systems (separate from job performance evaluation systems) – what gets measured gets noticed (i.e. employee satisfaction, attitudes, etc.). Can be useful for designing HR systems that are consistent with goals and which maintain equity.

How do employees assess issues of ‘fairness’ or ‘equity’ in the workplace? [1]

Outputs = Inputs

This topic was the crux of a lot of discussions in class, highlighted by the equity theory of motivation. This is often tied in to compensation and rewards, both extrinsic and intrinsic. Individuals compare their ratio of outcomes (Salary, title) to the inputs (age, experience, education, etc.) that they bring to the table. Any perceived difference will result in an inequitable situation, which people tend to attempt to rectify on their own (stealing from the company to increase outcomes, conceding that the other person is more qualified, etc.). Comparisons within the firm are made to specific referents, and most often to others in the organization with similar backgrounds. There are comparisons across the industry as well. Maintaining internal and external equity is a difficult task, as companies will overpay some individuals and underpay others, resulting in a destruction of external equity. Also, intrinsic rewards (or lack of them) such as having no assigned parking spaces, one general cafeteria, etc. keep the employees from perceiving inequality among the workforce.

As simple as this might seem, there are some difficulties in implementing equality or fairness in the system. For example, people tend to overestimate their own performance, which can lead to perceived inequity. A solution for this would be clear communication from the management to temper the self-enhancing vision that the employee has of himself. Also, people tend to misperceive the rewards of others, overestimating the rewards that others receive. This is due to the inaccurate or insufficient salary information available in a company.

Employees must believe that effective performance will lead to certain rewards, that the rewards are attractive, and that their individual effort will achieve the firms standard of performance-if these are met they will be motivated. The important issue with the fairness issue is that it ties in so closely with motivation, and that the compensation system must inspire trust and confidence in the eyes of the employees.

[1] Reference the following articles:
Beer, Michael and Richard E. Walton. “Reward Systems and the Role of Compensation” in Managing People and Organizations, ed John J, Gabarro, 474-486. Harvard Business School Publications, 1992

Pfeffer, J. (1995). “Producing sustainable competitive advantage through the effective management of people” in Academy of Management Executive

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