MANAGERIAL PSYCHOLOGY A REASON

FOR POOR INCENTIVES

MANAGERIAL PSYCHOLOGY A REASON FOR

POOR INCENTIVES
Final term presentation
Submitted by
Azeem Dilawar
Jawwad
Submitted to:
Sir Nazir Ahmed Sheikh
Course Instructor for
Organisational Behaviour

MANAGERIAL PSYCHOLOGY A REASON FOR

POOR INCENTIVES
1.

Research on employee compensation is sporadic and sparse.

2.

A meta-analysis of 40 years of research on financial incentives

and performance yielded only 39 studies, about one per year
(Jenkins, Mitra, Gupta, & Shaw, 1998).

3.

1200 sessions at the 2013 annual meetings of the Society for

Industrial and Organizational Psychology (SIOP), only three
are related to compensation, rewards, or benefit

4.

Of 111 articles published in Personnel Psychology in 2003

2007, only two

focused on compensation issues; the parallel proportion was

seven of 457 in
Journal of Applied Psychology(Cascio & Aguinis, 2008)

COMPENSATION PROBLEMATIC AREA

One, compensation is
arguably one of the most critical
influences (if not the most critical influence) on the quality
and effectiveness of human capital.

Compensation influences the quality of the people who

apply, the quality of
those hired, the likelihood of job
acceptance, the motivation and performance level of the
workforce, and the quality of who stays with the company

compensation has powerful incentive and sorting effects .

In virtually every aspect of organizational functioning,
compensation can shape employee behavior
and
organizational effectiveness

WHY MANAGERS PSYCHOLOGY IS RELATED TO

POOR INCENTIVES

Dilute employee performance consideration factors

Only focus motivation

Extrinsic incentive bias

underestimate the importance of freedom, respect, learning

new
information and developing skills

the undermining of intrinsic motivation, and the neglect of social

and relational
rewards

Manager s social neglect

Weak extrinsic motivation

Efficacy

WHY MANAGERS PSYCHOLOGY IS

RELATED TO POOR INCENTIVES

underestimate the need for training programs, clear task

instructions, and other forms of support for employees.

managers might layer on more rewards (or punishments)

Contingency

PSYCHOLOGICAL STAND POINT

a psychological standpoint, compensation affects employee attitudes and

behaviors. Simple and minimal reminders of money (e.g., a U.S. dollar bill
on a screen saver) can increase feelings of self-reliance

unless the compensation system is done right, other organizational

policies and procedures cannot have their desired effects.

The centrality of compensation systems is amply displayed in our

everyday life in phrases such as money talks, follow the money, and
pay the piper.

Indeed, the design and implementation of compensation systems not only

can affect employee motivation, but also can be harnessed to improve
safety, quality, creativity, innovation and a myriad other outcomes critical
in a successful

COMPENSATION TRENDS

Many compensation decisions are not particularly expensive. It would, of course

increase payroll costs to raise salaries for the entire workforce.

On the other hand, the same level of total payroll dollars can be distributed across
employees in a variety of different ways

All employees in a job category can be paid the same, or pay can vary based on
performance seniority and skills etc

Distinctions in pay across employees can be large or small; the system can be
hierarchical with most of the compensation dollars going to top executives whereas
lower-level employees are paid the lowest possible rates, or the compensation
system can be more egalitarian, with greater parity across organizational echelons;

BAD INCENTIVE SYSTEM AND MANAGER

Managers generally compares subordinate employees

performance against a benchmark of performance standard
an objective or may be relative comparison between
employees

particular rewards and punishments that managers

administer contingent on how employees performance
compares to these standards (incentive instruments)

Managers designs incentive systems with the intent to induce

employees to behave more productively for the organization,
or, perhaps more accurately, for the managers. No incentive
system works equally well for all employees,

MANAGERS' PSYCHOLOGY AND

INCENTIVE

Bad incentive system can be linked to manager psychological tendencies

We propose that managers have a propensity to design systems that fail (a)
by over-emphasizing financial and material compensation, either because no
extrinsic incentive is necessary to motivate employees because employees would
be more responsive to social and relational rewards (over-emphasis on
compensation )

OR

by not sufficiently motivating the desired behavior, either because the

incentive instrument is too weak or because the employee feels unable to
reach the performance standard (weak extrinsic motivation)
OR

by motivating undesirable behavior (perverse motivation)

OR

communicating values and expectations for behavior

that are at odds with the organizational culture (misalignment with culture)

EXAMPLES

example, a CEOs ambitious goals nearly destroyed Bausch and

Lomb in the 1990s. As the sales force faced impossible targets,
many salespeople started forcing unwanted products out to
distributors and booking shipments before orders were placed
(Maremont & Barnathan, 1995). Thus,
RESULTS

perverse motivation counterproductive behaviors

weak motivation because of impossible targets

As this example illustrates, incentives can have different

effects for different people

WHY DO BAD INCENTIVE SYSTEMS GO

ON?
Hierarchy and managerial psychology
who becomes manager and how will he change people (process
of hiring and promotion ,competent manager more productive)
high workload limits the time and available cognitive capacity of
manager.
Second, we propose that managers power over
subordinates fundamentally transforms how they think about
incentives in a number of predictable ways.
power is the greatest source of managers folly in the
design of incentives and mostly results in poor incentives

FOLLY OF POWER

Differences in competence and workload between managers

and subordinates

we conceptualize power as asymmetric control over

valued resources

low-power individuals are dependent on high-power

individuals for outcomes

Managers use their discretion to set objectives and

provide rewards and punishments to influence their
subordinates motivation. This process of designing
incentive systems is by definition a form of powerit
involves discretion over how valued resources are allocated

FOLLY OF POWER

The power difference so different concerns of managers

managers position of control , pursue their own interests with less

constraint

high-power individuals less perspective-taking more self-efficacy

greater self enhancement

The self-efficacy effect suggests that, even when managers are not
more competent than their subordinates, they are apt to think that
they are

more self-efficacy and less perspective-takingcombine to create

problems in the design of incentive systems

managers power is apt to cause them to fail at taking the

perspectives of their employees and insufficiently adjust from their
own relatively high levels of self-efficacy and competence result is
poor compensation or incentive

confidence optimism

and sense of control

CONSTRUAL LEVEL THEORY A PSYCHOLOGICAL

DIFFERENCE

Power requires to process abstract information

Construal level is defined by two features in mental

representationcentrality and super ordination

Construal level theory focuses on psychological distance

desirability of the options over their feasibility

high-level

construal emphasizes goals over behaviors.

abstract cognition

Psychological d distance, temporal distance (i.e., far away

from now) and social distance

BAD INCENTIVES AND MANAGERS

Extrinsic and intrinsic incentives

Cognition and feasibility of goals

Perspective of subordinates

Discount and dilute the performance of employee

Extrinsic incentive bias

Social and relational reward

Undermining of intrinsic one

WEAK MOTIVATION

Weak extrinsic motivation

Unreachable goals

Contingency

aggressive standards

planning fallacy

Perceptions

Intended value of incentive

Motivational difference

Perverse motivation

Misalignment with the culture

REMEDIES

Mental simulation

Consultation with employees

Fostering a more egalitarian culture

Pilot testing

CONCLUSION
These characteristics of managerial psychology discussed
can combine to create incentive systems that are faulty in
at least one of the following ways:
they
over-emphasize
financial
and
material
compensation, offer weak extrinsic motivation, generate
perverse