Motivating Employees



Overview of the Chapter This chapter describes what motivation is, the psychological forces that encourage it, and why managers need to promote high levels of it for an organization to be effective and achieve its goals. It examines several theories of motivation: expectancy theory, needs theories, equity theory, goal setting theory, and learning theory. Each of these theories provides managers with insight concerning the motivation of organizational members. The theories are complementary, since each focus approaches the topic from a different perspective.

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Only by considering all of the theories together can managers gain a thorough understanding of the many issues involved in achieving high levels of motivation throughout an organization. Finally, the chapter considers the use of pay as a motivation tool. Learning Objectives 1. Explain what motivation is and why managers need to be concerned about it. 2. Describe from the perspectives of expectancy theory and equity theory what managers should do to have a highly motivated workforce. 3.

Explain how goals and needs motivate people and what kinds of goals are especially likely to result in high performance. 4. Identify the motivation lessons that managers can learn from operant conditioning theory and social learning theory. 5. Explain why and how managers can use pay as a major motivation tool. MANAGEMENT SNAPSHOT: HIGH MOTIVATION RULES AT THE SAS INSTITUTE The SAS Institute was ranked number two on Fortune Magazine’s list of Best Places to Work in 2001. SAS is the world’s largest privately owned software company with 8,000 employees worldwide and about $1. billion in sales. SAS employees are highly motivated. They work 35 hours per week in jobs that are intrinsically motivating and provide economic security. The work environment is pleasant, benefits are generous, and the company is very family-oriented. Amenities include an on-site day care center, unlimited sick days, high chairs in the cafeteria some that employees can have lunch with their children, and 200 acres that surround the company headquarters for family walks and picnics. The CEO believes that his employees should be treated as he would like to be. Questions: 1.

How can expectancy theory be used to explain why SAS employees are so highly motivated? SAS has created a work environment that fosters high levels of high levels of instrumentality and valence within employees. For example, managers at SAS realize that the need for work-life balance is a top priority for many employees and therefore seek to satisfy that need in a variety of ways. Therefore, employees can be confident that strong performance will result in the attainment of outcomes that they desire. 2. How can the various need theories be used to explain why SAS employees are so highly motivated?

According to Herzberg’s Motivator-Hygiene Theory, outcomes such as interesting work, autonomy, responsibility, and being able to grow and develop on the job lead to high levels of motivation. SAS ensures that such outcomes are available to employees. The company has also taken steps to ensure that the security needs identified by Maslow are met by compensating employees adequately and providing them with job security. Lecture Outline I. THE NATURE OF MOTIVATION Motivation may be defined as psychological forces that determine the direction of a person’s behavior in an organization.

Motivation is central to management because it explains why people behave the way they do. • The direction of a person’s behavior refers to the many possible behaviors that people actually engage in. • Effort refers to how hard people work. • Persistence refers to whether people keep trying or give up when faced with roadblocks. Motivation can come from intrinsic or extrinsic sources. • Intrinsically motivated behavior is behavior that is performed for its own sake. The source of motivation is actually performing the desired behavior, and motivation comes from doing the work itself. Extrinsically motivated behavior is behavior that is performed to acquire material or social rewards, or to avoid punishment. • People can be intrinsically motivated, extrinsically motivated, or both. Whether a person is intrinsically or extrinsically motivated depends upon a wide vary of factors, including the worker’s personal characteristics, the nature of the job, and the nature of the organization. • People join and are motivated to work in organizations in order to obtain outcomes. An outcome is anything a person gets from a job or organization.

Some outcomes, such as autonomy or a feeling of accomplishment, result in intrinsically motivated behavior. Other outcomes, such as pay and job security, result in extrinsically motivated behavior. Organizations hire people in order to obtain inputs. An input is anything a person contributes to his or her job or organization. • Managers use outcomes to motivate people to contribute their inputs to the organization. Giving people outcomes when they contribute inputs aligns the interests of employees with the goals of the organization. Managers seek to ensure that people are motivated to contribute important inputs to the organization, that these inputs are put to good use or focused in the direction of high performance, and that high performance results in workers obtaining the outcomes they desire. Each of the theories of motivation discussed in this chapter focuses on an aspect of this equation. II. EXPECTANCY THEORY Expectancy theory posits that motivation will be high when workers believe that high levels of effort will lead to high performance and high performance will lead to the attainment of desired outcomes.

Expectancy theory identifies three major factors that determine a person’s motivation level: expectancy, instrumentality, and valence. Expectancy Expectancy is a person’s perception concerning the extent to which effort will result in a certain level of performance. A person’s level of expectancy determines whether he or she believes that a high level of effort will result in a high level of performance. • Members of an organization will be motivated to put forth a high level of effort only if they think that doing so will lead to high performance.

Therefore, managers need to make sure that their subordinates believe that if they try hard, they actually can succeed. • Managers can also boost subordinates’ expectancy levels by providing training so that people have the expertise they need for high performance. Instrumentality Instrumentality is a person’s perception concerning the extent to which performance at a certain level will result in the attainment of outcomes. Employees will be motivated to perform at a high level only if they think that high performance will lead to desirable outcomes. Valence

Expectancy theory acknowledges that people differ in their preferences for outcomes. Valence refers to how desirable each of the outcomes available from a job or organization is to a person. To motivate organizational members, managers need to determine which outcomes have high valence for them. Bringing It All Together High motivation results from high levels of expectancy, instrumentality, and valence. If any one factor is low, motivation is likely to be low. Managers should strive to ensure that employees’ levels of expectancy, instrumentality, and valence are high so that they will be highly motivated.

III. NEEDS THEORIES According to needs theories, people are motivated to obtain outcomes at work that will satisfy their needs. A need is a requirement or necessity for survival and well-being. • Needs theories suggest that, in order to motivate a person to contribute valuable inputs and perform at a high level, a manager must determine what needs the person is trying to satisfy at work and ensure that the person receives outcomes that help to satisfy those needs. • There are several needs theories. Each attempts to describe needs that people try to satisfy at work.

In doing so, they provide managers with insights about what outcomes motivate workers to perform at high levels and contribute outputs to help the organization achieve its goals. Maslow’s Hierarchy of Needs Psychologist Abraham Maslow proposed that all people seek to satisfy five basic kinds of needs: physiological, safety, belongingness, esteem, and self-actualization needs. These constitute a hierarchy of needs, with the most basic needs at the bottom. • According to Maslow, the lowest level of unmet needs is the prime motivator of behavior.

Once a need is satisfied, it ceases to operate as a source of motivation. If and when one level is satisfied, needs at the next highest level will motivate behavior. • Research does not support Maslow’s contention that there is a needs hierarchy or that only one level of needs can be motivational at a time. However, a key conclusion still can be drawn from it: People try to satisfy different needs at work. • In an increasingly global economy, it is important for managers to understand that citizens of different countries often differ in the needs they seek to satisfy though work.

Herzberg’s Motivator-Hygiene Theory Frederick Herzberg focuses on two factors: outcomes that can lead to high levels of motivation and job satisfaction and outcomes that can prevent people from being dissatisfied. According to Herzberg’s motivator-hygiene theory, people have two sets of needs or requirements: motivator needs and hygiene needs. • Motivator needs are related to the nature of the work itself and how challenging it is. Outcomes such as interesting work and responsibility help to satisfy motivator needs.

To have a highly motivated and satisfied workforce, managers should take steps to ensure that employees’ motivator needs are being met. • Hygiene needs are related to the physical and psychological context in which the work is performed. Hygiene needs are satisfied by outcomes such as pleasant working conditions, pay, and job security. • When hygiene needs are not met, workers are dissatisfied. However, satisfying hygiene needs alone does not result in high levels of motivation or job satisfaction.

For motivation and job satisfaction to be high, motivator needs must also be met. • Many research studies have failed to support Herzberg’s propositions. Nevertheless, Herzberg’s formulations have contributed to the understanding of motivation in at least two ways: 1) they helped focus management attention on the distinction between intrinsic motivation and extrinsic motivation, and 2) they helped prompt managers to study how jobs can be designed to be more intrinsically motivating. McClelland’s Needs for Achievement, Affiliation, and Power

Psychologist David McClelland has extensively researched the needs for achievement, affiliation, and power. The need for achievement is the extent to which an individual has a strong desire to perform challenging tasks well and to meet personal standards of excellence. The need for affiliation is the extent to which an individual is concerned about establishing and maintaining good interpersonal relations, being liked, and having other people around them get along with each other. The need for power is the extent to which an individual desires to control or influence others. Research shows that having high needs for achievement and power are assets to first-line and middle managers, and that a high need for power is especially important for upper managers. • A high need for affiliation may not always be desirable in managers and other leaders because it might cause them to focus too much on be liked by others, rather than on high performance. IV. EQUITY THEORY Equity theory is a theory of motivation that concentrates on people’s perception of the fairness of their work outcomes relative to their work inputs.

It focuses upon how people perceive the relationship between the outcomes they receive and the inputs they contribute. • According to J. Stacy Adams, who formulated the equity theory, what is important in determining motivation is the relative rather than the absolute level of outcomes a person receives and inputs a person contributes. • Motivation is influenced by the comparison of one’s own outcome/input ratio with the outcome/input ratio of a referent. The referent could be another person or group who is perceived to be similar to one’s self. One’s perceptions of outcomes and inputs, not any objective indicator of them, are the determinants of motivation. Equity Equity exists when a person perceives his or her own outcome/input ratio to be equal to a referent’s outcome/input ratio. Under conditions of equity, if a referent receives more outcomes than you, then the referent contributes proportionately more inputs to the organization. Therefore, both have the same output/input ratio. • When equity exists, people are motivated to continue contributing their current levels of inputs in order to receive their current levels of outcomes. Under conditions of equity, if people wish to increase their outcomes, they are motivated to increase their inputs. Inequity Inequity exists when a person’s outcome/input ratio is not perceived to be equal to a referent’s. Inequity creates pressure or tension inside people and motivates them to restore equity by bringing the two ratios back into balance. • Underpayment inequity exists when a person’s own outcome/input ratio is perceived to be less than that of a referent. Overpayment inequity exists when a person perceives that his or her own outcome/input ratio is greater than that of a referent.

Ways to Restore Equity Both underpayment inequity and overpayment inequity create tension that motivates most people to restore equity. • When people experience underpayment inequity, they may be motivated to lower their inputs or they may be motivated to increase their outcomes. • When people experience overpayment inequity, they may try to restore equity by changing their perceptions of their own or their referents’ inputs or outcomes. • When experiencing inequities, choosing a more appropriate referent might bring the ratios back into balance. When people experience underpayment inequity, they can change their perceptions of their own or the referents’ inputs or outcomes. • Motivation is highest when as many people as possible in an organization perceive that they are being equitably treated. Ethics in Action: Are Long and Uncompensated Hours Equitable? In White Collar Sweathogs, Jill Andresky Fraser reports that many office workers are working excessively long hours without corresponding increases in compensation. In addition, advances in information technology, such as e-mail and cell phones, have resulted in intrusions on personal time.

Resentment is building and some overworked employees are seeking legal remedies. Many workers are claiming that their employers are classifying them as managers so they don’t have to pay them overtime. Because of the excessive hours that many managers are now expected to work, the lack of fair and equitable compensation seems to outweigh any concerns with maintaining one’s status as an “exempt” employee. V. GOAL SETTING THEORY Goal setting suggests that the goals that organizational members strive to attain are prime determinants of their motivation.

A goal is what a person is trying to accomplish through his or her efforts. • In order to result in high motivation and performance, goals must be specific and difficult. Specific goals are often quantitative. Difficult goals are hard but not impossible to attain. Both easy and moderate goals have less motivational power than difficult goals. • It is important that subordinates accept the goals managers set for them and that they are committed to them. Also, it is important for organizational members to receive feedback concerning how they are doing. Specific, difficult goals motivate people to contribute greater input to their jobs, to be more persistent, and to focus their inputs in the right direction. The fact that their goals are specific and difficult frequently causes people to develop action plans for reaching them. • Research suggests that specific, difficult goals may detract from performance under certain conditions. When people are performing complicated and very challenging tasks, difficult goals may actually impair performance.

All of a person’s attention must first be focused on learning the complicated and difficult tasks. Once a person has learned the tasks, then the assignment of specific, difficult goals is likely to have its usual effects. VI. LEARNING THEORIES Learning theories focus on increasing employee motivation and performance by linking the outcomes that employees receive to the performance of desired behaviors and the attainment of goals. • Learning can be defined as a relatively permanent change in a person’s knowledge or behavior that results from practice or experience. Learning takes place when people learn to perform certain behaviors to receive certain outcomes. Operant Conditioning Theory According to operant conditioning theory, developed by psychologist B. F. Skinner, people learn to perform behaviors that lead to desired consequences and learn not to perform behaviors that lead to undesired consequences. • According to Skinner, managers can motivate organizational members to perform in ways that help an organization achieve its goals by linking the performance of specific behaviors to specific outcomes. Operant conditioning theory provides four tools that managers can use to motivate high levels of performance and prevent workers from engaging in behaviors that detract from organizational effectiveness, such as absenteeism. Those tools are positive reinforcement, negative reinforcement, punishment, and extinction. Positive Reinforcement and Negative Reinforcement • Positive reinforcement gives people outcomes they desire when they perform organizationally functional behaviors. • Desired outcomes, called positive reinforcers, include any outcomes that a person desires, such as pay, a promotion, or praise. Organizationally functional behaviors are behaviors that contribute to organizational effectiveness. • Negative reinforcement is the elimination or removal of undesired outcomes when people perform organizationally functional behaviors. • Undesired outcomes are called negative reinforcers. When negative reinforcement is used, people are motivated to perform behaviors because they want to avoid undesired outcomes such as criticism, unpleasant assignments, or the threat of losing their job. Managers should try to use positive reinforcement, since the use of negative reinforcement can create an unpleasant work environment and sometimes cause subordinates to resent managers and try to get back at them. • It is important that managers identify the right behaviors for reinforcement. Managers must be sure to reinforce only those behaviors over which subordinates have control and that contribute to organizational effectiveness. Extinction and Punishment • Managers can curtail dysfunctional behaviors of organizational members by eliminating whatever is reinforcing those dysfunctional behaviors.

This is called extinction. • However, managers cannot always use extinction as a means of eliminating dysfunctional behaviors. Sometimes they do not have control over whatever is reinforcing the undesired behavior or they cannot afford the time needed for extinction to work. In such cases, punishment may be required. • Punishment is administering an undesired or negative consequence when dysfunctional behavior occurs. When employees are performing dangerous behaviors or behaviors that are illegal or unethical, their behavior must be eliminated immediately.

Punishments used by organizations can include verbal reprimands, pay cuts, or firings. • Sometimes punishment can have unintended side effects, such as resentment, loss of self-respect, or a desire for retaliation. Therefore, it should be used only when necessary. To avoid unintended side effects of punishment, managers should: 1) downplay its emotional aspects, 2) try to punish dysfunctional behaviors as soon after they occur as possible, and 3) try to avoid punishing in front of others. 1) Often negative reinforcement and punishment are confused with each other.

The major differences between the two are: 1) negative reinforcement is used to promote the performance of functional behaviors while punishment is used to stop the performance of dysfunctional behaviors, and 2) negative reinforcement entails the removal of a negative consequence while punishment entails the administration of negative consequences. Information Technology Byte: J. Crew Outfits by Bricks and Clicks J. Crew, one of the most successful clothing companies in the United States, grew and prospered throughout the 1980s and 1990s.

When it hit upon hard times in 1997, the founder, Arthur Cinader, decided to sell the company and retire. Mark Sarvary became its new CEO. Although Arthur Cinader and his daughter made important contributions to J. Crew, they were not adept at managing people. Sarvary changed that by focusing on positive reinforcement of desired behaviors and rarely using punishment. For example, sales associates receive monthly incentives based on sales performance, contests are held to promote desired behaviors, and employees receive bonuses for referring potential job applicants. Social Learning Theory

Social learning theory extends operant conditioning’s contribution to the understanding of motivation by explaining vicarious learning, self-reinforcement, and self-efficacy. • Vicarious learning, also called observational learning, occurs when the learner becomes motivated to perform a behavior by watching another perform it. It is a powerful source of motivation on many jobs in which people learn to perform functional behaviors by watching others. • People are more likely to be motivated to imitate the behavior of models that are highly competent, receive attractive reinforcers, and are friendly.

To promote vicarious learning, managers should ensure that the learner: ? Observes the model performing the behavior. ? Accurately perceives the model’s behavior. ? Remembers the behavior. ? Has the skills and abilities needed to perform the behavior. ? Sees or knows that the model is positively reinforced for the behavior. Self-Reinforcement Sometimes organizational members motivate themselves through self-reinforcement. Self-reinforcement occurs when people control their own behavior by setting goals for themselves and then reinforcing themselves when the goal is achieved. Self-reinforcers are any desired or attractive outcomes or rewards that people can give to themselves for good performance, such as a dinner out or taking time out for a golf game. • When members of an organization manage their own behavior, managers do not need to spend as much time trying to motivate and control behavior. Self-Efficacy Self-efficacy is a person’s belief about his or her ability to perform a behavior successfully. People are not motivated if they do not think that they actually can perform at a high level.

The greater the level of self-efficacy, the greater is the level of motivation and likelihood of high performance. VII. PAY AND MOTIVATION Managers often use pay to motivate employees to perform at a high level and attain their work goals. Pay is used to motivate workers at all levels within the organization. It can also be used to motivate people to join the organization and remain with the organization. • Each of the theories previously discussed in this chapter alludes to the importance of pay. As these theories suggest, pay should be distributed so that high performers receive more pay than low performers. A merit pay plan is a compensation plan that bases pay on performance. Once managers have decided to use a merit pay plan, they face two important choices: 1) whether to base pay on individual, group, or organizational performance, and 2) whether to use salary increases or bonuses. Basing Merit Pay on Individual, Group, or Organizational Performance • Managers can base pay on individual, group, or organizational performance. When individual performance can be accurately determined, individual motivation is likely to be highest when pay is based on individual performance.

When the attainment of organizational goals hinges on members working closely together, group or organization based plans may be more appropriate than individual based plans. • It is possible to combine elements of an individual-based plan with a group or organization based plan so that each individual is motivated, while also motivating all individuals to work well together. Salary Increase or Bonus? Managers can distribute merit pay in the form of a salary increase or a bonus on top of salary. • Bonuses, however, tend to have greater motivational impact because: 1) the bsolute level of salaries are typically based on factors unrelated to current performance, 2) a salary increase may be affected by other factors in addition to performance, and 3) salary levels tend to vary less than performance levels. • Bonuses give managers more flexibility because unlike salary increases, bonus levels can be reduced when organizational performance sags. Bonus plans have a greater motivational impact than salary increases because the amount of a bonus can be directly linked to performance and can vary from year to year and from employee to employee. In addition to pay raises and bonuses, high-level managers and executives are sometimes granted employee stock options. Employee stock options are financial instruments that entitle the bearer to buy shares of an organization’s stock at a certain period of time or under certain conditions. Examples of Merit Pay Plans Managers can choose among several merit pay plans, depending on the work that employees perform and other considerations. • When using piece-rate pay, managers base employees’ pay on the number of units each employee produces. • When using commission pay, managers base pay on a percentage of sales. The Scanlon plan focuses on reducing expenses. Organizational members are encouraged to develop and implement cost cutting strategies, and a percentage of the cost savings achieved is distributed back to employees. • Under profit sharing, employees receive a share of an organization’s profits. Managing Globally: Merit Pay Catches on in Japan Compensation of managers in Japan’s largest organizations has traditionally been based upon seniority. Workers are expected to spend years with the same company before they are promoted to highly responsible positions and receive top salaries.

However, more and more young Japanese professionals are leaving the big companies for Internet start-ups, where they hope to progress more rapidly in their careers. Also, these young professionals are implementing management practices uncommon in Japan, such as merit pay, at their new companies. Managers at the larger companies have taken note and are making changes in an attempt to retain valuable employees. Some are now considering performance instead of seniority when making decisions concerning promotion and pay. VIII. SUMMARY AND REVIEW LECTURE ENHANCERS Lecture Enhancer 9. 1

MOTIVATION AND CREATIVITY In a large studio at the headquarters of Hallmark Cards Inc. , Robert Hurlburt bent over a potter’s wheel. His fingers stained with clay, his face clenched in concentration, Hurlburt was completely out of his element. And in his 17 years at Hallmark, he had never been happier. A metal engraver by trade, Hurlburt was in the midst of a three-month rotation into an artist’s heaven—carte blanche to do whatever he wanted to regenerate his creative spirit. After three weeks in the ceramics shop, Hurlburt was producing pots and vases that looked like the work of a professional.

His work likely will only end up on a shelf at his home, but if Hurlburt’s mood is any indication, Hallmark is likely to see a payoff when he returns to his regular duties. “It has given me an opportunity to get back to thinking wild, crazy things,” he said. Keeping its artists and writers happy and creative is a top priority at Hallmark, the nation’s largest greeting card seller with $3. 4 billion in sales in 1996. Each Father’s Day, Americans snap up approximately 99 million cards. Hallmark traditionally captures about 42 percent of the market.

Sabbaticals like Hurlburt’s are only one way that Hallmark tries to help workers be creative. Staffers can desert Hallmark’s midtown Kansas City headquarters for a downtown loft, where teams of writers and artists get away from phones to exchange ideas. They may spend days in retreat at a farm in nearby Kearney, Missouri, taking part in fun exercises like building birdhouses. Some go farther afield, sent by the company on trips overseas to soak up atmosphere and culture. Not all the methods are high budget. For the creators of the irreverent Shoebox line, there are free movie passes and daily screenings of the hippest television shows.

Hallmark isn’t the only greeting company that makes a special effort to tweak, coax, and nourish its creative staff. Its biggest competitor, American Greetings Corp. , operates similar programs. “No company, especially one that rely on ideas, can afford to do otherwise,” says Calvin Moyer, executive director of the American Creative Association. , a nonprofit group in Hockessin, Del. , that encourages creativity throughout society. “Hiring talented people isn’t enough,” Moyer said. “It’s like planting blueberries or apple trees in your backyard.

They’ll probably grow and produce fruit but if you fertilize and prune them, you’ll have not just fruit but great fruit. ” Massaging Hallmark’s creative staff of about 700 is the responsibility of Marita Wesley-Clough, a 20-year company veteran who was named director of creative strategy about a year ago. Wesley-Clough sounded like the philosophy major she was in college as she tried to explain her job, describing herself alternately as a shepherd, a midwife and a water bearer. “It’s sort of like catching the wind,” she said. “The road to creative strategy isn’t a clear one. ”

Nurturing the creative spirit reaches its wackiest heights at the Shoebox Cards division, where a team of seven writers and four editors usually starts the day by watching a tape of the previous night’s David Letterman show. They flip through magazines and sometimes even work out in the middle of the workday. It sounds like fun, but there are deadlines. The group is expected to turn out 70 cards per week. To do that, they generate an average of 150 pieces of writing per day. At the end of the day, the staff’s efforts are sifted at a raucous conference led by chief editor Steve Finken.

With a practiced ear for the staff’s reaction, Finken reads each card aloud and swiftly separates them into two piles. The reject pile is much larger than the save pile. Hallmark perennially ranks high on lists of the best U. S. companies to work for. Despite massive restructuring to improve efficiency, writers and artists still seem to have a great time. However, the competitive pressure that is typical of any business exists at Hallmark. Each card’s success is rated through surveys and information gathered by electronic cash registers, and the staff knows exactly how well their work is doing.

The appetite for new products must be fed, and the need to be thoughtful, witty, caring, wise and a dozen other things every day is unceasing. It can be a grind. Hurlburt said he felt his artistic impulses narrowing after 17 years. When he gets back to work after a few more weeks of puttering, he said, “I don’t know if I’ll be a better engraver, but I’ll be more creatively applied. ” Lecturer Enhancer 9. 2 MASLOW’S FURTHER STUDY OF MOTIVATION Anyone who has taken Psychology 101 knows about Abraham Maslow’s Hierarchy of Needs.

People, Maslow found, strive to fulfill progressively higher levels of need, from nourishment, safety, love, and esteem to “self-actualization. ” It’s less well known that Maslow, in the early 1960s, also delved deeply into management and economics. Setting up shop in a southern California electronics plant, he produced a journal that applied the concept of self-actualization to both the workplace and the marketplace. “This is by far Maslow’s best book,” says Peter Drucker, perhaps the foremost management authority today. “It had an enormous impact on me. Yet after a limited run, Maslow’s book slipped into obscurity. What made Maslow’s book so special—and why did it vanish? In 1962, a few years after postulating the hierarchy of needs, the Brandeis University professor took a summer sabbatical at a company in Del Mar, California called Non-Linear Systems. The company made voltmeters in a converted blimp hangar. The owner, Andy Kay, had noticed that workers were most productive at the end of the line, where the finality of the assembly provided a sense of accomplishment. So Kay broke his work force into teams, each responsible for an entire product.

Maslow was amazed at the spirit and productivity of the plant and picked up a tape recorder to capture these reactions. The result was a journal, initially called “Summer Notes. ” In these journals, Maslow coined the phrase “enlightened management” to describe the work conditions leading to self-actualization, or the achievement of one’s full potential, such as trust, teamwork, and recognition. Teams, he found, made better workers, and better workers made better teams. “Creativity flowed from ambiguity and knowledge breeds knowledge,” said Maslow. By 1963, Maslow had given mimeographed copies of “Summer Notes” to several fellow academics.

His friend Warren Bennis, a prominent university dean and business theorist, urged him to publish the journal commercially. “It was very radical for the time,” Bennis recalls. Yet, he adds, “it never caught on. ” The main reason was its title. Maslow’s term for a society of self-actualizing people was “eupsychia,” so he gave his book the ghastly title of “Eupsychian Management: A Journal. ” Bennis and Drucker tried to dissuade him, but Maslow was proud of his wordsmithing. The book was reprinted several times during the early 1970s, but they were small runs. Only the terms “synergy” and “enlightened management” endured.

Lecturer Enhancer 8. 3 RECOGNITION: MAKING HEROES Rosabeth Moss Kanter, author of the book The Change Masters, has concluded that companies often make the mistake of equating pay with rewards. Pay is not a reward for outstanding performance, it is compensation for doing the job in the first place. A reward should be a special gain for special achievements. Compensation is a right; recognition is a gift. Recognition—saying thank you in public and perhaps giving a tangible gift along with the words—has multiple functions beyond simple courtesy. To the employee, recognition signifies that someone noticed and someone cares.

To the rest of the organization, recognition creates role models—heroes—and communicates the standards. Kanter’s management consulting firm has also found a remarkable correlation between recognition and innovation. Some basic rules should be followed in handing out praise and recognition: • Deliver recognition and reward in an open and publicized way. If not made public, recognition loses much of its impact and defeats much of its purpose. • Timing is crucial. Recognize contribution throughout a project and reward it close to the time an achievement is realized.

Time delays weaken the impact of most rewards. • Tailor recognition and reward to the unique needs of the people involved. Have several recognition and reward options to enable managers to acknowledge accomplishment in ways appropriate to the particulars of a given situation. • Deliver recognition in a personal and honest manner. Avoid providing recognition that is too “slick” or overproduced. • Strive for a clear, unambiguous, and well-communicated connection between accomplishments and rewards. Be sure people understand why they receive rewards and the criteria used to determine rewards. Recognize recognition. That is, recognize people who recognize others for doing what is best for the company. Celebrating and publicizing employee achievements need not be expensive. Professor Kanter suggests some simple, low-cost ways to make employees “heroes,” such as having coffee with an employee or group of employees that you do not normally see, or letting employees attend important meetings in your place when you’re not available. Other suggestions include: • Send a letter to every team member at the conclusion of their work, thanking them for their contribution. Mention an employee’s outstanding work or ideas during your staff meetings or at meetings with your peers and management. • Create a “Best Accomplishments of the Year” booklet, and include everyone’s picture, name, and statement of their best achievement. • Show a personal interest in the development and career of an employee after a special achievement by asking them how you can help them take the next step. • Invite employees to your home for special celebrations, and recognize them in front of their colleagues and spouses. MANAGEMENT IN ACTION Notes for Topics for Discussion and Action . Discuss why two people with similar abilities may have very different expectancies for performing at a high level. Expectancy is a person’s perception about the extent to which effort (an input) will result in a certain level of performance. Two people with similar abilities may have very different expectancies for performing at a high level. One employee may think that a high level of effort will lead to high performance, while another may think that a high level of effort will not result in high performance. These employees may have similar abilities, but their managers may not rovide the same motivation for the two employees. Managers who encourage their employees and express confidence in their ability to perform at a high level will likely have employees with higher expectancies than managers who do not encourage or support their employees. Also, the employees may receive different training, another factor in expectancy level. Managers who provide training to ensure that employees have the expertise needed for high performance will have employees with higher expectancies than managers who do not provide training for their employees. 2.

Describe why some people have low instrumentalities even when their managers distribute outcomes based on performance. Instrumentalities include perceptions that people have about the extent to which performance at a certain level will result in the attainment of outcomes. One important aspect of instrumentality is the linking of outcomes to performance. Employees will only be motivated to perform at a high level if they think high performance will lead to (is instrumental for attaining) rewards and benefits. Besides linking outcomes to performance, managers need to clearly communicate this linkage to subordinates.

Managers who only apply the outcome aspect, but do not clearly communicate to employees how this works and the steps necessary to achieve desired outcomes, are missing the other half of the equation. Consequently, these managers may have employees with low instrumentalities, despite their efforts to base outcomes on performance. 3. Interview four people who have the same kind of job (such as salesperson, waiter/waitress, or teacher), and determine what kinds of needs they are trying to satisfy at work. A requirement or necessity for survival and well being is called a need.

People are motivated to obtain outcomes at work that will satisfy their needs. Four waitresses at a mid-priced restaurant were asked about the kinds of needs they are trying to satisfy at work. Each woman said that they were working to pay their rent and bills, which is a physiological need as described by Maslow. Two waitresses are working part-time while they go to school and are not looking to make waitressing a career. The other two are full-time waitresses who desire the security and stability of a consistent income, along with safe working conditions. These are safety needs, as described by Maslow.

Besides these “lower level” needs, the waitresses admitted that they valued the friendships they had made in the restaurant, and enjoyed working there because they liked having interacting with customers, managers, and other restaurant staff. Maslow would call the needs satisfied through these interactions belongingness needs. One waitress is training to be a manager, and is trying to fulfill the need to improve her skills and abilities, and engage in meaningful work. This kind of need is can be categorized as an esteem need in Maslow’s hierarchy. 4. Analyze how professors try to promote equity to motivate students.

Equity theory is a motivation theory that concentrates on fairness and people’s perception of the fairness of their work outcomes relative to their inputs. Equity is achieved when a person perceives that his or her own outcome/input ratio is equal to a referent’s outcome/input ratio. Professors try to promote equity to motivate students by establishing standards of performance in their courses. A professor should specify the inputs that will be required for a student to achieve certain outcomes. For example, the amount of work, effort, class participation, and enthusiasm needed to get an “A” in a course should be equal for all students.

If one student contributes significantly more inputs that another student, that student should receive a higher grade, or outcome. A student who fails to contribute even minimal requirements of input should not be allowed to pass the course, a desired outcome. By standardizing these specifications and refraining from giving some students “special treatment,” professors can help ensure that students will feel that their input/outcome ratio is equal to a referent’s ratio, be it another student, or their own ratios in other courses. Motivation is highest when as many people as possible perceive that they are being equitably treated. . Describe three techniques or procedures that managers can use to determine if a goal is difficult. A goal is what a person is trying to accomplish through his or her efforts and behavior. Difficult goals are hard but possible to attain. One technique that managers can use to determine if a goal is difficult is to look at the number of people who achieve the goal. If practically everyone achieves a goal, it is likely an easy rather than a difficult goal. Moderate goals are also more easily attainable than difficult goals, with about half of the people able to attain these goals.

By comparison, difficult goals are those that less than half of the people attain. Another technique is for managers to examine how motivation is affected by the goal. Difficult goals motivate people to contribute more inputs to their jobs. They cause people to put forth high levels of effort. Difficult goals cause people to be more persistent when they run into difficulties than easy, moderate, or vague goals. If the goal is having these effects on employee behavior, it is probably a difficult goal. One other technique is to examine the direction toward which employees focus their inputs.

Specific, difficult goals let people know on what they should be focusing their attention. Managers can determine if employees are developing action plans to help them attain the goal and effectively manage their time. If the goal is motivating this kind of behavior, it is probably a difficult goal. 6. Discuss why managers should always try to use positive reinforcement instead of negative reinforcement. Positive reinforcement gives people outcomes they want when they perform behavior that contributes to organizational effectiveness.

Negative reinforcement also encourages members to perform organizationally functional behavior, but does this by eliminating or removing undesired outcomes once the functional behavior is performed. People are motivated by negative reinforcement because they want to stop receiving undesired outcomes. Managers should always try to use positive reinforcement instead of negative reinforcement for a variety of reasons. Negative reinforcement can create a very unpleasant workplace characterized by threats and control. People do not like to be nagged, threatened, or exposed to other negative outcomes as a “motivation” for doing their jobs.

Employees who are subjected to negative reinforcement may resent their managers and try to get back at them through sabotage of their work, if they quit or are fired. 7. Interview a manager in an organization in your community to determine the extent to which the manager takes advantage of vicarious learning to promote high motivation among his or her subordinates. Social learning theory considers how learning and motivation are influenced by people’s thoughts and beliefs and their observations of other people’s behavior. One component of this theory is vicarious learning.

This is a method by which people are motivated by observing other people perform a behavior and be reinforced for doing so. Jake Bertram is a manager at a men’s clothing store in a large city. He uses vicarious learning to teach his less experienced salespeople how to interact with customers and sell more merchandise. The salespeople are paid on commission, and Jake would like to see his employees sell a lot of clothing to help the store and increase their own paychecks. Jake has new staff members observe the behavior of highly competent and experienced salespeople.

The new staffers watch the salesperson approach customers, direct them to certain items, make suggestions, and offer assistance. They accurately perceive this behavior as leading to higher sales and more repeat business. They then commit this information to memory and use it when they interact with their own customers. Since the new staffers have already received formal training, they have the skills and abilities to perform these behaviors. By observing the experienced salesperson, they see that these behaviors lead to positive reinforcements such as higher commissions, praise from the store manager, and bonuses and discounts for clothing.

Notes for Building Management Skills Diagnosing Motivation (Note to the instructor: Because students will have unique answers for this exercise, the answers given are helpful for definitions and summaries of the relevant topics. ) 1. What would be your levels of expectancy and instrumentality on this job? Which outcomes would have high valence for you on this job? What steps would your manager take to influence your levels of expectancy, instrumentality, and valence? Expectancy is a person’s perception about the extent to which effort will result in a certain level of performance.

Instrumentality is a person’s perception about the extent to which performance at a certain level will result in the attainment of outcomes. Valence refers to how desirable each outcome available from a job or organization is to a person. High expectancy is the belief that a high level of effort will result in a high level of performance. High instrumentality is the belief that a high level of performance will result in attainment of desired outcomes. High valence is subjective, and refers to preferences for certain outcomes over others. Managers can influence levels of expectancy, instrumentality, and valence.

High expectancy can be encouraged by expressing confidence in employees’ abilities, holding employees to high standards, and giving employees autonomy and responsibility. Managers can also provide employees with training to ensure expertise needed for high performance. High instrumentality can be encouraged by linking performance to outcomes and clearly communicating this linkage to all employees. Managers also need to determine which outcomes have high valence for organizational members and make sure that those outcomes are provided when members perform at a high level. 2. Whom would you choose as a referent on this job?

What steps would your manager take to make you feel that you were being equitably treated? What would you do if, after a year on the job, you experienced underpayment equity? A referent is someone to whom comparison is made to determine if treatment is equitable. A referent could be another person or a group of people who are perceived to be similar to oneself. The referent could also be a person from a previous job or one’s expectations about what outcome/input ratios should be. Employees feel equitably treated when they feel that their outcome/input ratio is equal to a referent’s outcome/input ratio.

Equity has to do with fairness of outcomes relative to inputs. Managers can help employees feel equitably treated by making sure that those who contribute many inputs are rewarded with more outcomes than those who contribute fewer inputs. If a person changes one aspect of his or her ratio, the manager should make sure that the other side of the ratio changes as well. If inputs increase, outcomes should increase. If inputs decrease, outcomes should decrease as well. Underpayment equity exists when a person’s own outcome/input ratio is perceived to be less than that of a referent.

This happens when an employee compares himself or herself to a referent and feels that he or she is not receiving the outcomes they should, given their inputs. Equity can be restored by trying to increase outcomes (asking for a raise, bonus, or time off) or by decreasing the inputs (not staying late or coming in early, doing fewer tasks), and changing to a more appropriate referent. If these techniques fail, an employee may choose to leave the organization. 3. What goals would you strive to achieve on this job? Why? What role would your manager play in determining your goals?

A goal is what a person is trying to accomplish through his or her efforts and behavior. Goal-setting theory suggests that to result in high motivation and performance, goals must be specific and difficult. Goals are usually quantitative, such as an amount of merchandise sold, or time needed to finish a project. Managers may be entirely responsible for setting goals, or employees may participate in the setting of goals to ensure acceptance and commitment to the goals. Regardless of whether specific, difficult goals are set by managers, workers, or both together, they lead to high levels of motivation and performance.

Managers also contribute to goal setting by providing feedback about how employees are doing. This feedback allows both managers and employees to determine progress, and helps them to reevaluate goals when necessary. 4. What needs would you strive to satisfy on the job? Why? What role would your manager play in helping you satisfy these needs? A need is a requirement or necessity for survival and well being. Maslow identified five basic kinds of needs: physiological, safety, belongingness, esteem, and self-actualization needs. Maslow proposed that people differ in what needs they are trying to satisfy at work.

Herzberg focused on two factors: motivator needs related to the nature of the work, and hygiene needs related to the physical and psychological context in which the work is performed. Managers can help employees to satisfy their needs at work by determining which needs a person is trying to satisfy at work. It is the manager’s responsibility to ensure that the person receives outcomes that help to satisfy those needs when the person performs at a high level and helps the organization achieve its goals. By doing these things, managers can motivate employees to perform at a high level.

Managers need to align the interests of individual members with the interests of the organization as a whole. In addition, Herzberg’s model emphasizes the distinction between intrinsic and extrinsic motivation, which is important for managers to consider in designing and enriching jobs. 5. What behaviors would your manager positively reinforce for you on this job? Why? What positive reinforcers would your manager use? Behaviors targeted for positive reinforcement are usually quantitative. When people perform organizationally effective behaviors, they are given outcomes they want.

Behaviors that are positively reinforced should be behaviors over which subordinates have control, that is, the freedom and opportunity to perform the behaviors. These behaviors must also contribute to organizational effectiveness. Organizationally functional behaviors can include producing high-quality goods and services, providing high-quality customer service, and meeting deadlines. Positive reinforcers are any outcomes that a person desires, and anything that increases the behavior desired. Specific reinforcers may include time off, bonus pay, praise and recognition, an interesting assignment, or a promotion. 6.

Would there be any vicarious learning on this job? Why or why not? Vicarious learning is a component of social learning theory, which proposes that motivation results not only from the receipt of rewards and punishments but also from a person’s thoughts and beliefs. Vicarious learning occurs when a person (learner) becomes motivated to perform a behavior by watching another person (model) perform the behavior and be positively reinforced for doing so. Vicarious learning is useful when models are available who are highly competent, are experts in the behavior, have high status, receive attractive reinforcers, and are friendly or approachable.

The learner must also meet the following conditions: (1) observe the model performing the behavior, (2) accurately perceive the model’s behavior, (3) remember the behavior, (4) have the skills and abilities needed to perform the behavior, and (5) see or know that the model is positively reinforced for the behavior. 7. To what extent would you be motivated by self-control on this job? Why? Self-control refers to the self-management of behavior, as opposed to management by a manager or other superior. People using self-control set goals for themselves and reinforce them when they achieve their goals.

One benefit of employees using self-control is that managers do not need to spend as much time as they ordinarily would trying to motivate and control behavior through the administration of consequences. Instead, subordinates control and motivate themselves. Another advantage of self-control is that if frees managers from having to determine which reinforcers have high valence for employees, and from the job of monitoring the administration of these reinforcers. 8. What would be your level of self-efficacy on this job? Why would your self-efficacy be at this level?

Should your manager take steps to boost your self-efficacy? If not, why not? If so, what would these steps be? Self-efficacy is a person’s belief about his or her ability to perform behavior successfully. Even if outcomes have been closely linked to performance, people will not be motivated if they do not think that they can actually perform at a high level. Employees need to think that they have the capability to reach goals that they and others set for them. Self-efficacy influences motivation both when managers provide reinforcement and when workers themselves provide it.

The greater the self-efficacy, the greater is the motivation and performance. If managers want to influence employees’ self-efficacy, they need to express confidence in their employees’ abilities to reach challenging goals. Verbal persuasion may help to increase self-efficacy as well. Other factors that play a role in determining a person’s self-efficacy include a person’s past performances and accomplishments, and also the accomplishments of other people. These accomplishments can serve as benchmarks for measuring one’s own abilities. Notes for Small Group Breakout Exercise Increasing Motivation 1.

Discuss the extent to which you believe that you have a motivation problem in your stores. The conclusion that there is a motivation problem in the stores is a likely one because it is apparent that employees are capable of doing the work. The fact that customers receive quality service and treatment when one of the partners is in the store illustrates that employees know how to provide excellent service, remove most stains, and press difficult items well. The problems occur when one of the partners is not there, and employees are not motivated to do their best work. In addition, the problem may not be lack of motivation alone.

If customers are waiting a long time for service, it may be that there are too few employees working at certain times. Employees may be unable to control the volume and speed of business without more assistance. 2. Given what you have learned in this chapter, design a plan to increase the motivation of clerks to provide prompt service to customers even when a partner is not watching them. After determining whether the problem is due to understaffing, a plan for motivating clerks can be devised. An effective plan would include specification of the desired behavior, such as “attend to customers within 30 seconds of their arrival into the store. The clerks should be involved in setting this criterion. This directs clerks’ behavior to an organizationally functional task. This criterion also serves as a goal for employees. If the goal is specific and difficult, the clerks should be motivated to contribute more inputs, such as effort, to their jobs. Employees should be positively reinforced and rewarded for meeting these criteria. Employees should also be reinforced for suggesting ways to decrease the amount of time customers wait for service. The partners should also determine if the clerks believe that they are being equitably treated.

If clerks perceive inequity, their performance will not be at a high level. 3. Design a plan to increase the motivation of spotters to remove as many stains as possible even when a partner is not watching them. After determining whether spotters are capable of performing the behavior, the partners can try to increase expectancy by expressing confidence in the spotters’ ability to perform at a high level even when they are not being directly supervised. A plan similar to the one developed for clerks can be applied to the spotters for increasing motivation to remove as many stains as possible.

This plan may include goal-setting, positive reinforcement, and feedback on performance. Merit pay may also be included, with spotters receiving bonuses for every week in which no clothes are returned to be re-done. 4. Design a plan to increase the motivation of pressers to do a topnotch job on all clothes they press, no matter how difficult. An organizational behavior modification strategy may be implemented with the pressers. There may be a reason why the pressers fail to do a topnotch job on all clothes. It may be that they are paid for the number of garments they press, rather than the quality of work that they do.

Their pay system should be changed to reflect an emphasis on quality instead of quantity. A specific behavior could be identified, such as to continue working on an item even if the garment is difficult to press. After determining how many clothing items are returned to be pressed a second time, partners could positively reinforce pressers for having weeks without any garments returned. By switching the pay system to one that focuses on quality, partners would extinguish the behavior of giving up on difficult garments. Partners could then measure how many garments are being returned and determine if this strategy solved the problem.

Answers to this question should include the type of merit plan in place, and whether pay is based on individual, group, or organizational performance. Merit pay may be distributed in the form of salary increases or bonuses. An example of an individual merit plan is a piece-rate pay system, with pay based on the number of units each employee produces. Commission pay is based on a percentage of sales. The Scanlon plan rewards employees with a percentage of cost savings achieved through cost-cutting strategies. Under profit sharing, employees receive a share of an organization’s profits.

Notes for You’re the Management Consultant It would appear that the analysts have little motivation to fill out the forms. There appears to be no specific reward for filling out the forms, even though they contain important information on the productivity of each person. Hernandez should talk to the analysts and find out why they are not filling out the forms well and why they are late. After talking with the employees, and consulting with her boss, she should try to come up with incentives for the analysts to fill out the forms accurately and on time.

Completing the forms should be part of the employee’s performance appraisal and linked to merit increases. MANAGING ETHICALLY (Note to the instructor: Student responses to these questions will vary. ) 1. Either individually or in a group, think about the ethical implications of closely linking pay to performance. When closely linking pay to performance, the following conditions must exist: a) the worker must have influence or control over all variables that contribute to improved performance levels, and b) an objective, easily quantifiable means of assessing the level and quality of work performance must exist.

If either of these conditions is missing, the meritorious element of the pay-for-performance program can become compromised, and workers will begin to question its fairness. 2. Under what conditions might contingent pay be most stressful and what steps can managers take to try to help their subordinates perform effectively and not experience excessive amounts of stress. Pay for performance should be something extra, compensation that is above and beyond basic wages and salaries.

Ethically speaking, companies should ensure that they are paying all employees a basic wage that, at the minimum, allows employees to support their families at a level above the poverty line. Being forced to rely upon contingent pay to in order to meet basic physiological or security needs can create excessive amounts of stress in an employee. Also, failure of management to base incentive determinations on objective performance data or to encourage two-way communication about other potential problems with a pay-for-performance plan can induce excessive employee stress. CASE FOR DISCUSSION

Case Synopsis: Tindell and Boone Inspire and Motivate at The Container Store The Container Store has experienced tremendous growth. For two years in a row, it was ranked as number one on Fortune Magazine’s survey of the best companies to work for. Early on, the company’s co-founders recognized that people were the organization’s most important asset. After hiring great people, the co-founders’ second most important managerial task was motivating them. While the retail industry typically has a turnover rate in excess of 70% within its sales force, the Container Store’s is a fraction of that.

As part of Fortune Magazine’s survey, 97% of the employees indicated “people care about each other here. ” Tindell and Boone, the company’s co-founders, created an environment of high motivation and performance by being clear what is important in their organization, enabling employees to be high performers, rewarding them in multiple ways, creating a fair and stimulating work environment, and treating employees like the highly capable individuals that they are. Questions: 1. How does the Container Store motivate its employees? Founders Tindell and Boone have developed an effective combination of intrinsic and extrinsic sources of motivation.

Extrinsic sources include wages that are much greater than the industry norm, substantial merit pay increases, and generous benefits. Intrinsic sources stream from the stimulating corporate culture and work environment that the founders created. Employees are treated as leaders and therefore given respect and the autonomy to make their own decisions. They take great pride in their ability to meet customer needs and are given the opportunity to work with other highly motivated employees in an environment that exudes enthusiasm and excitement. These factors engender a sense of accomplishment and achievement among employees. . Why are turnover rates lower at the Container Store than at other comparable retail establishments? Dissatisfaction among employees frequently leads to high levels of turnover. According to Herzberg, when hygiene needs are not met, workers are dissatisfied. Hygiene needs are related to the physical and psychological context in which the work is performed and are satisfied by outcomes such as pleasant working conditions, pay, and job security. Clearly, the Container Store has adequately fulfilled the hygiene needs of its employees while other retailers have apparently fallen short. . Why is training considered to be so important at the Container Store? At the Container Store, top management considers employees their most important asset. Therefore, the organization is willing to devote resources to the development of its employees. Training also increases employee self-efficacy levels and helps to ensure employees that their hard work will result in high performance. Strong customer service is an important part of the Container Store’s competitive advantage, and training increases the employees’ confidence in their ability to satisfy customer needs. 4.

Why do college graduates find it motivating to sell storage and organization products? Unlike many other retail organizations, the Container Store allows college graduates to fulfill many of their needs related to employment. For instance, a challenging environment exists in which an employee can prove their ability to perform challenging tasks well and meet personal standards for excellence, thereby fulfilling a need for achievement. All employees are expected to behave as leaders and take actions that are typically associated with managers, which may fulfill a need for power.

Also, the Container Store’s generous wages, merit pay, and benefits fulfill the typical college student’s need for economic security. BUSINESS WEEK CASES IN THE NEWS Case Synopsis: The Artificial Sweetener of CEO Pay Many corporations continue to give their CEO substantial pay increases in spite of sagging revenues and/or profits. For example, Eastman Kodak’s CEO received a $2. 5 million bonus although the company’s profit growth was flat and shareholder returns declined by 5. 4%. To many, this practice defies logic.

However, board members who authorize such pay increases argue that their CEO’s pay must remain competitive with his peers. Otherwise, the CEO will “take a hike. ” Most boards use competitive benchmarking to set CEO pay. A study suggests that this practice was the main culprit behind the skyrocketing CEO pay of the 1990s when it grew on average by more than 500%. The long-term impact of benchmarking CEO pay has been the institutionalization of a practice that rewards the least deserving, according to one of the study’s authors.

The study found that CEOs who earn less than the average salary median for their peer group received salary and bonus raises twice as large as those granted to the CEOs paid above the average salary median. Questions: 1. What are the motivational implications of benchmarking CEO pay? Traditionally, pay has been used as an extrinsic source of motivation at all levels to management. Because the practice of benchmarking CEO pay has weakened the link between pay and performance, the CEO’s motivation to improve his or her company’s performance is weakened. 2.

What are the ethical implications of this practice? When CEOs receive large increases in compensation that cannot be financially justified by strong corporate performance, an imbalance amongst stakeholders is created. The funds to cover the CEO’s pay increase must come from somewhere, and usually its another group of stakeholders who wind up footing the bill. Shareholders may be forced to accept a decline in returns or employees may be forced to accept little or no increase in compensation, or perhaps layoffs. Such an imbalance is not only inequitable but also demoralizing to the other stakeholders.


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