The pay negotiation activity

The Task
This simulation is about pay negotiation.
You and another person must divide $2 between you today; what you get, the other
person loses. There may not be any side deals, or "paybacks tomorrow," or
circumventions of any other kind; this is straight, distributive (win/lose) bargaining.
Please follow the instructions, just for today, even if they are distasteful to you. Many
people like this kind of bargaining. Other people hate it. If you hate it, play it out
anyway and please tell me in the discussion how you feel about it. Remember,
please, no circumventions; please try very hard to follow your Secret Instructions in
each iteration of this simulation.
You will have specific, personal instructions with each new partner; they will be
different each time. You may not tell anyone else about these instructions until the
bargaining is over. Again, please follow the instructions as precisely as possible.
You will have a few minutes to consider strategy and tactics; please make notes as
to your plans and ideas about how you will bargain. Here are your questions:

What do you want here? What is your most optimistic hope? Your realistic
expectation? What will you settle for?

What does the other person probably want? How will you find out?

How will you persuade the other person?

What will your moves be?

It is not possible to ask questions for more instructions; just do as well as you can.

Discussion 1
Remember from this weeks lecture we have been challenging the idea that pay can
be used to motivate performance:

1. How fair did you feel the negotiation activity was to decide who got the 2?
2. How satisfied were you with the amount of the 2 you were able to win?
3. How does the negotiation activity relate to performance related pay systems
in organisations?

In his seminal work, Six dangerous myths about pay, Pfeffer (1998: 117) reminds us
that:
in the typical individual-based merit pay system, the boss works with a raise budget thats
some percentage of the total salary budget for the unit. Its inherently a zero-sum process:
the more I get in my raise, the less is left for my colleagues.

Forced distribution rating systems

Forced distribution rating systems (FDRS) have achieved considerable popularity among employers in
recent years (Scullen et al 2005). FDRS is also known as forced ranking, and involves rating
individuals employee performance so that it is directly compared to that of other workers in a group.
FDRS is based on the idea that the performance of a group of employees is likely to be normally
distributed: there will be lots of average performers, and relatively few high and low performers.
However, managers are more likely to show a central tendency (where more employees than
expected receive a middle ranking)or positive bias when rating their own staff. In FDRS managers are
required to identify the 20 per cent of staff who are top performers, the 70 per cent who are
average performers and the bottom 10 per cent who are low performers (see diagram below).
Managers are also expected to act on these ratings by rewarding top performers (e.g. with increased
wages or promotions) and dealing with underperformers by setting explicit expectations regarding
improved performance or potentially by firing the bottom 5-10 per cent. As such FDRS is seen as a
way of encouraging managers to take a more critical look at the people that work for them: by
constraining the distribution of rating it is designed to reduce leniency.
Perhaps not surprisingly, FDRS is not always popular among managers and staff. A common
complaint from managers is that because they can allocate top grades to only 20 percent of their
staff, the system forces them to downgrade other excellent performers, making them appear like
mediocre performers. In fact there are situations where it may not be valid to assume that the
performance of a group of employees is normally distributed for example, when there are relatively
few people in a group, or when the company is facing challenging market conditions. It is also
difficult to implement FDRS when the performance of a group member is co-dependent on that of
others. Consequently, FDRS may be better suited to situations where managers supervise large
numbers of relatively independent employees.

Source: Arnold J, Randall R et al (2010)Work Psychology, Understanding human behaviour

in the workplace, Harlow, Pearson Educaiton Ltd

Discussion 2
1. How do you feel about forced distribution schemes?
2. How does this approach to pay setting relate to the negotiation activity?

Rank and Yank

According to Jack Welch, former CEO of General Electric, A company that bets its future on
its people must remove the lower 10 percent, and keep removing it every year always
raising the bar of performance and increasing the quality of its leadership, (General Electric
Company 2000, p4). That message seems to resonate with many in the business community.
By some estimates, as many as a quarter of the fortune 500 companies, including Cisco
Systems, Hewett-Packard, Microsoft, Lucent, Conoco, EDS and Intel, may be currently using
some type of performance management system built around that principle (Meisler, 2003)

(Scullen et al 2005:1)

Summary Discussion

Based on your discussions to what extent do you think performance related

pay works in organisations?

Further reading:

Hazels B., Sasse C. M.(2008) Forced Ranking: A Review, SAM Advanced

Management Journal, Spring: 35-39
Pfeffer J. (1998) Six dangerous myths about pay, Harvard Business Review,
Vol 76 No 3, May-June: 109-119
Scullen S.E., Bergey P.K., Aiman-Smith L.(2005) Forced distribution rating
systems and the improvement of workforce potential: A baseline simulation,
Personnel Psycholoy, 58: 1-32