4-2 Reading 1: Motivation – An Overview

Motivation: An Overview of Modern Approaches in the Workforce

“Money makes the world go ’round.” I’ve heard these words many times in my life. The first time I thought, “Now, that’s obviously wrong. Love makes the world go round!” I was a teenager at the time. Now that I have spent some time working for a living, paying the bills, longing for some special item, such as a better car, or a new CD player, I realize the truth in these words. Every morning, millions of people open their doors and step out into the world of work. Every two weeks they pick up the rewards of their labours, their pay check, and they go about satisfying their needs: pay the rent or mortgage, buy food, and so on. In fact, most organizations base their entire approach to motivating their employees on the belief that money, or remuneration in the terminology of the work world, is the key issue to motivation at work.

This seems fairly straightforward. The more you pay the workers, the more work you get out of them. However, as with most things in life, all is not what it seems. I, and I suspect, most managers, have learned, through bitter experience, motivation of their workers is an extremely complex topic. Very often the reward systems used by employers have failed because they have been based on simplistic assumptions - assumptions like the one I had before I spent 20 years of my life attempting to motivate workers in a variety of organizations. Yes, I still think that money makes the world go round, but the truth is that for remuneration systems to be effective they must be based on a sound understanding of the theories of human motivation.

Of course, not surprisingly, the idea that employees’ performance can be controlled by money was the basis of one of the first theories about worker motivation to be formulated. This theory was first developed in the early 1900s as the increase in manufacturing created a demand for a larger, more productive workforce. It was called the classical or “scientific” approach to management. It portrayed working people as making rational economic calculations, and following a logical pattern of behaviour at work, based on these calculations. The basic assumption was that because people were motivated primarily by money, they would maximize their work output if they were offered the incentive of extra money for each additional increment of work.

Fortunately for us, there have always been researchers putting theories to the test. Over the last century we have seen an advancement in our understanding of what motivates the individual to productive performance, and basically what we have learned is that there are no easy answers. No theory works all the time in every situation and most successful organizations use a variety of approaches in order to ensure company productivity. Certainly, money is a major aspect of the reward systems developed by most companies, and some researchers believe that it is uppermost in the minds of most workers. Many of the rewards systems that companies have used over the years are all, in some way, based on the classical approach to management described above. One of the most common reward systems is the variable-pay program.

Variable-Pay Programs

Now don’t let these terms scare you. All this means is that in some form or another, workers are paid in relation to their production. This money is referred to in some cases as “incentives”, in others as “bonuses”. The rewards used are all forms of variable-pay programs. What differentiates these forms of compensation or remuneration from more traditional base-pay programs is that they do not pay a person only for time on the job or seniority. Instead, a portion of an employee’s pay is based on some individual and/or organizational measure of performance. There is no guarantee that just because you made $60,000 last year, you’ll make the same amount this year.

Piece-rate wages are one of the earliest forms of individual-based incentives. Piece-rate pay plans are plans that pay workers a fixed sum for each unit of production completed. So for example, the number of bags of peanuts a vendor sells at a baseball game, or the number of jeans a seamstress completes would be considered as part of the pay package for the day or the week. Many organizations use a modified piece-rate plan, where employees earn a base hourly wage, plus a piece-rate differential. So a legal typist might earn $10.50 an hour plus 50 cents per page. Such modified plans provide a floor under an employee’s earnings, while still offering a productivity incentive. When salespeople are paid commissions based on sales, this is another form of individual-based incentives.

Profit sharing plans are variable-pay rate programs which are organizational-based incentives. These programs distribute compensation to workers based on some established formula designed around a company’s profitability. They can be direct cash outlays, or, particularly in the case of top managers, allocated as stock options. The CEO, for example, at Disney, who earned over $280 million in one year received this from cashing in stock options previously granted based on company profit performance. Profit-sharing is not confined to top executives only, however. IKEA divided every penny rung up in its 152 stores on October 8, 1999, among its 44,000 staffers in 28 countries. This amounted to $2,500 for each employee.

“I remember the day they told us that the management was going to divide up the profits made on that one day with all of us! I can tell you, we planned for that day for months. I made sure that everyone I know came in to buy something. I feel really proud to be part of a company that sees how important the employees are, not just for what they produce, but for how they feel about where they work!”
Alan Parker, Salesclerk

The following table shows monies earned by the five best-paid CEOs in Canada in 1998. Although these figures are somewhat dated, they clearly show how lucrative stock options can be in well-run organizations. Their salaries are all based on some form of profit sharing. For example Peter Munk received an additional 1,283.3% of his base salary as a bonus because the company’s profits rose by 345% in 1998. Obviously, only the most motivated and dedicated people will benefit from this kind of pay system.

1998 Compensation of Canada’s Five Best-Paid CEOs

Variable pay is based on Expectancy Theory predictions. Specifically, under these plans, individual should perceive a strong relationship between their performance and the rewards they receive, and thus be more motivated. In fact, the evidence is consistent with the theory. For example, one study of 400 manufacturing firms found that those companies with wage incentive plans achieved 43 to 64 percent greater productivity than those without such plans. Of course, as our seamstress, Jean Smith explained, a major concern for employees in the variable-pay rate programs is a potential drop in earnings. Not all employees are comfortable with this arrangement. In fact, some research shows that although there is an initial increase in productivity when these kinds of extrinsic rewards are introduced, ultimately they tend to lower employee motivation.

“When I first starting working for this company, I thought that the piece-rate pay plan was a great idea. I figured that I’d be able to control how much I made in a week. So, if I needed a new pair of shoes, or whatever, I’d just work a little harder. On the other hand, if I felt tired or lazy one week, I could relax a bit and not feel guilty that the company was paying me but I wasn’t producing. Now, though, 10 years later, I’m sick of it! I can’t count on a weekly salary. I always have to work flat out, because it isn’t shoes I need now, it’s to pay the hydro bill. If I’m sick, or my child is sick, or if I have to take my mother to the hospital, I lose income. I think that after working for this company for 10 years, I should be able to depend on a constant wage that shows that they value me as a person, because I’m honest, dependable, and responsible. I’d like to think that they don’t just look at me as the number of items I produce for them in a week!”
Jean Smith, Seamstress

In response to these findings, several researchers in the past few years have suggested that the introduction of extrinsic rewards, such as pay for work effort will tend to decrease the overall level of motivation. This proposal-which has come to be called cognitive evaluation theory-has continued to be extensively researched and a large number of studies have been quite supportive. George Croft argues that, rather than motivating people to higher performance, people are actually punished by rewards, doing inferior work when they are enticed by money, grades, or other incentives.

Historically, motivation theorists have generally assumed that intrinsic or internal motivators are independent of extrinsic or external motivators. If a person is intrinsically motivated by, for example, a desire for challenge, this desire is part of the person’s personality and will not be affected by extrinsic motivators such as incentives. But cognitive evaluation theory suggests otherwise. For example, you may offer to help your friend move, and feel good about yourself for doing it. But if your friend pays you, now you no longer feel so good about yourself. In fact, next time you might refuse, thinking that no amount of money could induce you to give up a perfectly good Saturday, and why don’t they just hire a company to move them!

So, can we just eliminate rewards? Well, George Croft says, we can and we should. Croft argues in his book The Punishment of Rewards that “the desire to do something, much less do it well, simply cannot be imposed; in this sense, it is a mistake to talk about motivating other people. All we can do is set up certain conditions that will maximize the probability of their developing an interest in what they are doing, and remove conditions that function as constraints.” Croft thinks that the most important thing that an organization can do to motivate its workers is to create a motivating environment.

How can we do that? Croft suggests taking certain steps as an alternative to simply providing more and different kinds of incentives to try to induce people to work more effectively. One suggestion he makes is to abolish incentives completely. Pay people generously and fairly, make sure people don’t feel exploited, and make sure that pay is not on their minds. According to Croft, in this way people will be more able to focus on the goals of the organization, rather than having their paycheque as their main goal.

Another suggestion Croft makes in his book is to create the conditions for authentic motivation. A noted economist recently summarized the evidence about variable-rate pay as follows: “Changing the way workers are treated may boost productivity more that changing the way they are paid.” There is some consensus about what these conditions might include: for example, help employees rather than put them under surveillance and listen to their concerns, thinking about problems from their viewpoint.

It would be difficult for many organizations to implement these ideas immediately and expect that they would work. It would require managers who are willing to relinquish control and instead take on the job of coaching. It would require employees who truly believe that their participation and input matter. Nevertheless, these steps, when implemented, can lead to quite a different workplace than what we often see. Moreover, these issues suggest that sometimes it is not the type or amount of rewards that makes a difference as much as whether the work itself is intrinsically interesting.

So, we come back to the original statement “Money makes the world go ’round.” It certainly sounds more poetic than saying “Intrinsic motivation or cognitive evaluative theory makes the world go ’round.” But the real truth is that the world is motivated to go round and although we have several theories about it, we still aren’t completely sure why. Our efforts to control it, so far have had little effect. We have had slightly more success in attempting to control productivity in the workforce. But what works in some situations, and at certain times in the life of an employee, doesn’t work in other situations or times. In some cases money makes people work harder, and in other cases it doesn’t. Luckily for us, even though we don’t understand it, the world keeps turning and people still open their doors everyday and step out into the world of work. The why continues to be a mystery.