Work Motivation and Agency Theory Motivating employees Behavioural

Work, Motivation and Agency Theory Motivating employees Behavioural theories Principal-agent model SEEM 3530 1

Motivation Dale Carnegie: “there is only one way under high heaven to get anybody to do anything. And that is by making the other person want to do it. ” Berelson and Steiner: “motive” is “ an inner state that energizes, activates, or moves, and that directs or channels behaviour towards goals. ” Managers need to learn why people want to do things and how they can be persuaded (motivated) to do things that will enhance organisational goals. Want to encourage employee to change behaviour w. r. t. direction, strength and persistence. SEEM 3530 2

Theory X vs. Theory Y Theory X – authoritarian management style Theory Y – participative management style SEEM 3530 3

Mc. Gregor’s Theory X and Theory Y Theory X involves negative assumptions about human nature of employees. • Frederick Taylor: “workers are lazy, not very bright, … management elite defines exactly the job and provide incentive pay” • Mc. Gregor: “such behaviour not inherent; “carrot-andstick” approach does not work once man has reached an adequate subsistence level and is motivated by higher needs. ” Theory Y represents positive assumptions about human nature and motivation. SEEM 3530 4

Management Implications Mc. Gregor: “Theory X places exclusive reliance on external control of behaviour, while Theory Y relies heavily on self-control and self-direction. ” The basic rationale for using theory Y rather than theory X in most situations is that managerial activities that reflect theory Y assumptions generally are more successful in satisfying the human needs of most organisation members (and hence motivating them) than are managerial activities that reflect theory X assumptions. Peter Drucker: “… environment changed to make Theory X obsolete. … In developed countries, they do not work for manual workers. And nowhere do they work for knowledge workers … SEEM 3530 5

Theory Z Proposed by Ouchi (1981) to explain the success of Japanese management style. Assumptions about workers: want to build happy and intimate working relationships with supervisors, work peers and subordinates, have a high need to be supported by the company, and highly value a working environment in which such things as family, cultures and traditions, and social institutions are regarded as equally important as the work itself, have a very well developed sense of order, discipline, a moral obligation to work hard, and a sense of cohesion with their fellow workers. can be trusted to do their jobs to their utmost ability, so long as management can be trusted to support them and look out for their well being. SEEM 3530 6

Behavioural Theories of Motivation Two Schools of Thoughts Content theories emphasise internal characteristics of people. These theories are based on human needs and people’s (often unconscious) efforts to satisfy the needs. Process theories of motivation assume behaviour choices are made more rationally, based on expected outcomes. SEEM 3530 7

Content theories of motivation There is some evidence that people in general possess strong needs for self-respect, respect from others, promotion, and psychological growth. Several theories have been developed to help managers better understand these needs. SEEM 3530 8

Content Theories – Maslow’s Hierarchy of Needs Maslow: “human needs … in hierarchy of pre -potency, i. e. one is not motivated by higherlevel needs until lower-level needs are satisfied. Self-actualization Needs Esteem Needs Social Needs Security Needs Physiological Needs SEEM 3530 9

Maslow’s Hierarchy of Needs Lower level needs: • Physiological needs relate to the normal functioning of the body e. g. food, air, water, shelter. Before other needs, a significant portion of an individual’s behaviour is aimed at satisfying them. • Security or safety needs are the needs individuals feel to keep themselves free from harm, including both bodily and economic disaster. May include job security and predictable work environment. Higher level needs: • Social needs include the desire for love, companionship, and friendship. These needs reflect a person’s desire to be accepted by others. (Met at work or outside? ) • Esteem needs are the desire for respect, prestige and recognition. They generally are divided into two categories: self-respect and respect for others. • Self-actualisation needs are the desire to maximise whatever potential an individual possesses. E. g. creativity, entrepreneurship. SEEM 3530 10

Alderfer’s ERG theory Identifies three basic categories of needs: • Existence of needs – the need for physical well-being, • Relatedness needs – the need for satisfying interpersonal relationships, • Growth needs – the need for continuing personal growth and development. Alderfer thinks that workers may sometimes activate their higher-level needs before they have completely satisfied all of the lower-level needs. Also a worker frustrated by failing to satisfy an upper level need might regress by trying to fulfil an already satisfied lower level need. SEEM 3530 11

Herzberg’s Two-Factor Theory Factors affecting job attitude divided into two groups: • Growth/Motivator factors that are intrinsic to the job • “Hygiene”/dissatisfaction-avoidance factors that are extrinsic to the job Developed methodology of job enrichment to increase content of motivators in the job, e. g. increase autonomy and decrease controls. Maybe some people are motivation seekers (e. g. engineers, scientists) and others (e. g. blue-collar assembly-line workers) are maintenance seekers. SEEM 3530 12

Motivator vs. Hygiene Factors Achievement Recognition Work Itself Responsibility Advancement SEEM 3530 Company Policies Supervision Relationship with Boss and Peers Working Conditions Salary Status Security 13

Mc. Clelland’ Trio of Needs • Need for achievement • Drive/desire to excel, to improve, e. g. entrepreneurs, • Higher need in society, more prosperity • Need for power • Desire to control one’s environment, • High need => promotion to managers • Need for affiliation • Want reassurance and approval, concerned for people, e. g. counselors, coordinators, sales. • Different people may have different needs. SEEM 3530 14

Content theories of motivation The needs-goal theory is the most fundamental of the motivation theories. Motivation begins with an individual feeling a need. This need is then transformed into behaviour directed at supporting, or allowing, the performance of goal behaviour to reduce the felt need. SEEM 3530 15

Process Theories Process theories treat human needs as just one part of the mechanism that people use to choose their behaviour. Process theories place emphasis on the expectation of favourable consequences or rewards. SEEM 3530 16

Equity Theory Developed by J. Stacey Adams. Based on the simple belief that people want to be treated fairly relative to others. The equity theory looks at an individual’s perceived fairness of an employment situation and finds that perceived inequities can lead to changes in behaviour. SEEM 3530 17

Equity Theory When individuals believe that they have been treated unfairly compared with others, they will react in one of the following ways to attempt to bring the inequity into balance: • • Some will try to change their work inputs to better match the rewards they are receiving. Some will try to change the compensation they receive for their work by asking for a raise or through legal action. Some will try to change the perception of an inequity if attempts to change the actual inequality are unsuccessful. Some will leave the situation rather than try to change it. SEEM 3530 18

Vroom’s Expectancy Theory (1964) Relates the effort a person puts forth to the expectation of achieving some desired goal. Effort-to-performance expectancy • This perceived probability depends on ability, environment in addition to effort applied. Performance-to-outcome expectancy (instrumentality) • Perception that performance will lead to intrinsic rewards (e. g. sense of achievement) or extrinsic rewards (e. g. pay or promotion). Valance • Strength of desired for these outcomes. Motivation is the product of the above three factors. What can managers do to increase motivation via the three factors? SEEM 3530 19

Porter-Lawler Theory Extends Vroom’s Expectancy Theory. Premises: • Felt needs cause human behaviour. • Effort expended on task determined by the perceived value of resulting rewards and the probability that the rewards will materialise. Three other characteristics of the motivation process: • The extent to which an individual effectively accomplishes a task is determined primarily by two variables: the individual’s perception of what is required to perform the task and the individual’s ability to perform the task. • Both intrinsic and extrinsic rewards result when a task is accomplished. Intrinsic rewards come directly from performing a task, and extrinsic rewards are extraneous to the task. • The perceived fairness of rewards influences the amount of satisfaction produced by those rewards. • This satisfaction colours the value placed on rewards anticipated for future cycles of work, and thus influences future effort. SEEM 3530 20

Behaviour Modification Behaviour modification is a program that focuses on managing human activity by controlling the consequences of performing that activity. According to the law of effect, behaviour that is rewarded tends to be repeated, and behaviour that is punished tends to be eliminated. SEEM 3530 21

Behaviour Modification B. F. Skinner: reinforcement theory, operant conditioning Behaviour is followed by an “reward” (reinforcement) that affects the probability that the behaviour is repeated. Positive reinforcement is a reward that is a desirable consequence of behaviour. Negative reinforcement is a reward that is the elimination of an undesirable consequence of behaviour. Punishment is the presentation of an undesirable behavioural consequence or the removal of a desirable behavioural consequence that decreases the likelihood of the behaviour continuing. Extinction seeks to decrease probability of repeating undesired behaviour by ignoring it and withholding positive reinforcement. SEEM 3530 22

Job Design Division of labour has lead to the movement to make jobs simpler and more specialised so as to increase worker productivity. A negative result of work simplification and specialisation however is job boredom. The earlier attempt to overcome job boredom was job rotation. Job enlargement means increasing the number of operations an individual performs and in theory, increasing the individual’s satisfaction in work. Job enrichment is the process of incorporating motivators into a job situation. SEEM 3530 23

Monetary Incentives A number of firms make a wide range of money based compensation programs available to their employees as a form of motivation. For instance, employee stock ownership plans motivate the employee to boost production by offering shares of company stock as a benefit. Other incentive plans include lump-sum bonuses, etc. SEEM 3530 24

Non-Monetary Incentives A firm also has the opportunity to keep employees committed and motivated by other non-monetary means. For instance, some companies have a policy of promoting from within. A firm may also • Organize social gatherings, • Run its own school, • Operate other family support programs. SEEM 3530 25

Motivating Technical Professionals Special characteristics of technical professionals: High need for achievement, motivated by work itself. Desiring autonomy in the conditions, pace and content of work. Identify primarily with profession and secondarily with company; look to peers for recognition. Seeks to maintain expertise via continual education. SEEM 3530 26

Agency Theory SEEM 3530 27

The Knowledge Worker “How can we be sure that Smith thinks SOAP? ” Only Smith know! Only Smith know if that is the best way to do his job! What can managers do to ensure Smith does his job? SEEM 3530 28

Principal –Agent Problem Principal hires an agent to work, to generate profit for principal. Agent works to level that maximizes own utility. SEEM 3530 29

Agent’s problem Maximize utility: • Utility increases (but with diminishing returns) with income. • Increasing marginal disutility of work; the harder one already works, the more is needed to work even harder. There may be a minimum threshold of utility before agent will agree to take the job. Agent’s objective is NOT ALIGNED with principal’s! SEEM 3530 30

Principal’s Problem Principal’s profit depends on agent’s effort, and possibly other factors. Agent maximizes his utility: • Work is a dis-utility, so needs compensation to be induced to work. • Agent may require a minimum level of utility before agreeing to work. Principal’s objective is to maximize her profit. Profit = Revenue generated by agent – payment to agent How much to compensate the agent? What is the “right” compensation scheme so agent works at the “right” level to maximize profit? SEEM 3530 31

Asymmetry of Information Agent’s effort is not observable; only the resulting “performance” is observed. Observed performance depends on effort of agent, but may also be affected by other factors. What is the optimal contract to be offered to induce the agent to work at the level that maximises profit for the principal? It may not be always optimal to induce the highest effort from the agent; income paid may be too high. SEEM 3530 32

Principal-Agent Model “Performance”-based Contract: • Payment to agent depends on revenue generated. Principal’s objective is to maximize her profit. Profit = Revenue generated – payment to agent How much to compensate the agent when revenue is high? How much to compensate when revenue is low? low Dilemma: One gets what one pays for. But what one wants to measure (effort) not observable. Which contracts are “incentive compatible”? SEEM 3530 33

Motivating the Knowledge Worker In the principal-agent model, we consider: • Asymmetry of info – principal cannot observe if agent is working or not. • Remedy – better monitoring! • This may be easier to do for “lower level” work (e. g. assembly line), but difficult for “higher level” work. • It is costly for the firm to determine if the “work” the employee is doing is productive for the firm. SEEM 3530 34

Technology Impacts How does technology change the employment relationship? Monitoring • CCTV, webcam, etc. enables internal monitoring (makes effort more observable). • Data mining, internet search, etc. enable environmental scanning (reduces uncertainty). SEEM 3530 35

Principal-Agent Model Implications Firms should be maximising profit, not worker satisfaction/effort. To counter the asymmetry of information, so compensation contract more aligned with effort, we need to more accurately “measure” environment or effort. Work ethic very valuable (economically) to society: • Can trust people to work, independent of monitoring or compensation. • Even with work ethic, we still need managers to keep employees working on the RIGHT tasks. Managers should try to equalise the environment, e. g. try to find “fair” allocation of sales areas. With perfect monitoring, compensation can be based on effort – seem to be fairer by employees. SEEM 3530 36

http: //www. youtube. com/watch? v=u 6 XAPnu. Fj. Jc SEEM 3530 37

Summary Behavioural theories of motivation Managing the Knowledge worker Principal-agent problem • Incentive-compatible contracts Management/Technological strategies to enhance productivity Job Design? SEEM 3530 38