Managing Human Resources through balanced Intrinsic and Extrinsic Motivation

Transcription

1 Message 41 Managing Human Resources through balanced Intrinsic and Extrinsic Motivation Psychologists have distinguished between intrinsic and extrinsic motivation in organizations. While intrinsic motivation refers to motivation by challenge and enjoyment from belonging to and working for an organization, extrinsic motivation refers to the various incentives, which usually managers establish aiming at enhancing commitment and performance in organizations. Extrinsic motivation includes monetary and non-monetary compensation. Compensation is viewed as key to effectively managing human resources consistent with the needs of both organizations and their employees. In most cases, managers concentrate on extrinsic incentives and rewards hoping to cause enduring commitment to organizations values and actions. Yet, the effectiveness of extrinsic motivation in organizations has been questioned. Higher pay does not necessarily produce better performance. Just because too little money can irritate and demotivate people, does not mean that more money will bring about increased satisfaction and motivation. Moreover, managers fixation to control people s behavior in organizations through extrinsic motivation solely may sometimes have an adverse effect. Do this and you ll get that may sometimes sound like Do this, or else you ll loose this. Offering good things to people on the condition that they do what managers tell them is, almost by definition, a way of trying to exert control. A number of studies have found that people working for a reward generally try to minimize challenge. In addition, when extrinsic motivation is individualized, it is the surest way to destroy cooperation and organizational excellence because it forces people to compete for rewards. If the reward practice in an organization focuses on individual gains and no one is pressing for collective gains, the organization will inevitably crash because people will most likely begin to see each other as obstacles to their own success. Psychologists have argued that receiving a reward for a particular behavior sends a certain message about what people have done and controls their future behavior. The more people experience being controlled, the more they tend to loose interest in what they re doing. If people go to work thinking about the 1

2 possibility of getting a bonus, they come to feel that their work is not selfdirected; rather it is the bonus that drives their behavior. If this is the case with extrinsic motivation, then it seems that promising a reward to someone who appears to lack intrinsic motivation is a bit like offering salt water to someone who is thirsty. If managers seeking to improve performance and commitment in organizations use extrinsic motivation solely, most likely they will get two results: first, nothing will happen, and second, they will spend a lot of money. Those managers, who believe that they can instill attraction, retention, and motivation to people in their organizations solely through the use of extrinsic motivation, are probably not spending much time and effort on the work environment and the culture of their organizations. Managing human resources successfully requires balancing intrinsic and extrinsic motivation. Managing human resources through balanced intrinsic and extrinsic motivation means that prudent managers consider the following: 1. People do work for more than money people work for meaning in their lives. Managers that ignore this fact are essentially bribing their employees and will pay the price in a lack of commitment and loyalty. 2. Individualized extrinsic motivation undermines performance of both the individual and the organization. Individual gains encourage short-term focus and leads people to believe that pay is not related to performance but to having the right relationships and an ingratiating personality. 3. Extrinsic motivation should be largely collective. People in organizations are interdependent. Therefore organizational results are the consequence of collective behavior and performance. Rewarding groups of employees and organizational units is more powerful than rewarding individuals. 4. Rewards and extrinsic motivation have symbolic components. They signal what and who in organizations are valued; they reflect organizational culture. Therefore, managers must make sure that rewards and extrinsic motivation send the right message to the right people in organizations. 5. Compensation and reward practices should pay people equitably rather than use pay as a means for motivation. Money should be presented as the outcome of people s high performance and commitment in organizations. Intrinsic motivation should be promoted as the means to achieve high performance and commitment in organizations. 2

3 6. Compensation and reward practices should be directly tied to organizational units performance and not only to the whole organization s results. Managers should avoid making people belonging to organizational units feel that extrinsic motivation for high performance and commitment are beyond their control. 7. The use of incentives and rewards must represent management strategy for aligning organizational and individual goals by treating employees as partners in both the risks and the successes of the organization. 8. The more salient extrinsic motivation is in organizations, the more emphasis should managers give on intrinsic motivation. 9. Compensation and reward practices for managers could come in distinct ways such as salary, equity stake in the organization, profit shares, and remuneration for contribution to the organization s reputation. While salaries across countries may depend upon the cost of living, the distribution of equity stake and profit shares among managers must be consistent across the whole organization. Remuneration for contribution to the organization s reputation may be assessed upon commonly accepted criteria. 10. Wage or salary compensation is different from incentive pay. Incentive pay can either reduce or increase the wage dispersion that might exist within an organization. Psychology research suggests that people in organizations tend to figure out why they are doing what they do by looking at themselves as an outside observer would. If they are well paid on a contingent basis i.e. extrinsic motivation in the form of Do this and you ll get that, they tend to attribute their performance to economic rewards. If, however, pay is less salient and distributed on a less contingent basis, then people are likely to attribute their behavior and performance to intrinsic motivation more rather than extrinsic motivation. Thus, compensation that could have strategic value should de-emphasize extrinsic motivation and emphasize intrinsic motivation such as job satisfaction, participation in organizational culture, and work with colleagues in the organization. In most cases, extrinsic motivation takes the form of performance-based pay plans. To be effective, these plans, must deal at least with the following major issues: 1. Specify and measure performance. 2. Specify the reward. 3

4 3. Gain employees acceptance. 4. Base on a clear vision of the organization s strategy and culture. 5. Provide sufficient time for implementation. Regarding issue no. 3, performance-based plans appear to gain employees acceptance when: 1. The plans are clearly communicated to employees. 2. The plans are understood and easily assessed. 3. The employees have a hand in establishing and administering the plans. 4. The employees believe that they are treated fairly. 5. Management has established an appeal process for those employees who might believe that they are treated unfairly. 6. Compensation and rewards are given as soon as possible after the desired performance. Extrinsic motivation through performance-based pay plans might be of many types. The following table presents succinctly plan types and their advantages and disadvantages: PLAN TYPE (% in total pay) Lump-sum payment IT WORKS ADVANTAGES DISADVANTAGES Payment is not added to the base salary Control of fixed wage-cost Is more visible than salary increase Might be subjective Might be selective Instant incentive Payment to an individual for noteworthy achievement Easy to administer Does not encourage teamwork Individual piecework incentive (5-15%) Payment to an individual a certain rate for each unit of output Allows high productivity Easy to administer individualism Inappropriate for interdependent tasks Team incentive (10%) Uniform payment to all members of a team based on predetermined goals Encourages teamwork interdependence competition among teams resentment for low performers Profit sharing Uniform payment to all employees based on the organization s profits Allows high productivity financial interests Might risk longterm performance Forces the organization to open its books Stock Payment (20%) Stock are granted to employees Increases loyalty Provides retirement income Enables sharing of an organization s success Might risk longterm performance Difficult to administer Not motivational in economic downturns 4

5 Indirect payments through benefits and services (10-20%) Payment to employees in the form of private protection programs, health care benefits, paid leave services, life cycle benefits etc Attract good employees Reduce turnover Increase job satisfaction Enhances organization s image Might not value for all employees Might appear as the organization s social responsibility References: Randall S. Schuler and Susan E. Jackson (New York University), Human Resource Management Positioning for the 21 st Century, (Sixth Edition), West Publishing Company, Alfie Kohn ( Why Incentive Plans Cannot Work, Harvard Business Review (September-October 1993), reprint # Alfie Kohn ( Rethinking Rewards, Harvard Business Review (November-December 1993), reprint # Jeffrey Pfeffer (Stanford University, Graduate School of Business), Six Dangerous Myths about Pay, Harvard Business Review (May- June), reprint # Jeffrey Pfeffer (Stanford University, Graduate School of Business), Competitive Advantage through People Unleashing the Power of the Work Force, Harvard Business School Press, Egon Zehnder (Chairman of Egon Zehnder International Inc.), A Simpler Way to Pay, Harvard Business Review (April 2001), reprint # R0104B. 5