Chapter Six
Goal Setting,
Performance
Management, and
Rewards
Chapter Objectives
• Describe goal setting and relate it to
motivation.
• Discuss performance management in
organizations.
• Identify the key elements in an effective
organizational reward system.
• Describe the issues and processes
involved in managing reward systems.
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Goal Setting and Motivation
• Goal Setting
– A very useful method of enhancing employee
performance.
• Two Purposes of Goals:
– They provide a useful framework for managing
motivation since employees can set their own
goals.
– Goals are an effective control device; control is the
monitoring by management of how well the
organization is performing.
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Goal-Setting Theory
• Social Learning Theory
– Provides insights into why and how goals can
motivate behavior.
– The research of Edwin Locke and his associates
most clearly established the utility of goal-setting
theory in a motivational context.
• Locke’s Goal Setting Theory assumes
behavior is a result of conscious goals and
intentions.
– By setting goals for employees, a manager should
be able to influence their behavior.
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Components of Goal Setting Theory
• Goal Difficulty
– The extent to which a goal is challenging and
requires effort
• Goal Specificity
– The clarity and precision of a goal
• Goal Acceptance
– The extent to which a person accepts a goal
• Goal Commitment
– The extent to which an individual is personally
interested in reaching a goal
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Figure 6.1: The Goal-Setting Theory
Reference: Goal-Setting Motivational Technique That Works by Gary P. Latham et al. Reprinted from
Organizational Dynamics, Autumn, 1979, Latham et al: “The Goal-Setting Theory of Motivation” with permission
from Elsevier Science
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Broader Perspectives on Goal Setting
• Management by Objectives
– A collaborative goal-setting process through which
organizational goals cascade down throughout the
organization.
– A successful MBO program starts with top
managers establishing overall goals for the
organization.
– After these goals have been met, managers and
employees throughout the organization
collaborate to set subsidiary goals.
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Evaluation and Implications of Goal-Setting
Theory
• Evaluation
– Research has demonstrated fairly consistently that
goal difficulty and specificity are closely associated
with performance.
– Other elements of the theory, such as acceptance
and commitment, have been studied less
frequently.
• A few studies have shown the importance of acceptance
and commitment, but little is currently known about how
people accept and become committed to goals.
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Evaluation and Implications of Goal-Setting
Theory (continued)
• The popularity of MBO stems from its many
strengths.
– It clearly has the potential to motivate employees
because it helps implement goal-setting theory on
a systematic basis throughout the organization.
• MBO also has pitfalls:
– Lack of top management support
– Overemphasis on quantitative goals
– Excessive paperwork and record keeping
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Performance Management in Organizations
• Performance measurement, or
performance appraisal, is the process
by which a manager:
– Evaluates an employee’s work behaviors
by measurement and comparison with
previously established standards
– Documents the results
– Communicates the results to the employee
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Figure 6.2: The Performance Management
System
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Figure 6.3: Purposes of Performance
Management
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Performance Management Basics
• The Appraiser
– In most appraisal systems, the employee’s primary
evaluator is the supervisor.
– Problems occur in this area when:
• The supervisor has incomplete or distorted information
about the employee’s performance.
• The supervisor has a limited understanding of the
technical knowledge involved in an employee’s job.
– Possible solutions:
• a multiple-rater system that incorporates the ratings of
several people familiar with the employee’s performance
• 360 degree feedback
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Performance Management Basics (continued)
• Frequency of the Appraisal
– An organization usually conducts performance
appraisals on a regular basis, typically once a
year.
– Annual performance appraisals are convenient for
administrative purposes such as recordkeeping
and scheduling.
• Measuring Performance
– Some of the most popular methods for evaluating
individual performance are graphic rating scales,
checklists, essays or diaries.
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Individual Rewards in Organizations
• The reward system consists of all
organizational components, including people,
processes, rules and procedures, and
decision-making activities, involved in
allocating compensation and benefits to
employees in exchange for their contributions
to the organization.
• Rewards constitute many of the inducements
organizations provide to employees as their
part of the psychological contract.
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Roles, Purposes, and Meanings of Rewards
• The purpose of the reward system in
most organizations is to attract, retain,
and motivate qualified employees.
• An organization must develop its
philosophy of compensation based on
its own conditions and needs, and this
philosophy must be defined and built
into the reward system.
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Additional Information About Rewards
• Surface value of a reward – the objective
meaning or worth
• Symbolic value of a reward – the subjective
and personal meaning or worth
• Types of Rewards:
–
–
–
–
–
Base Pay (Money)
Incentives
Indirect Compensation (Benefits)_
Perquisites
Awards
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Types of Rewards
• Base Pay
– For most people, the most important reward for work is
the pay they receive.
• Incentive Systems
– Plans that allow employees to earn additional
compensation in return for certain types of performance
•
•
•
•
•
•
•
Piecework programs
Gain-sharing programs
Bonus system
Long-term compensation
Merit pay plans
Profit-sharing plans
Employee stock option plans
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Types of Rewards (continued)
• Indirect Compensation
– Another major component of the compensation
package is indirect compensation, also commonly
referred to as the employee benefit plan.
•
•
•
•
•
•
Payment for time not worked
Social security contributions
Unemployment compensation
Disability and workers’ compensation benefits
Life and health insurance programs
Pension or retirement plans
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Types of Rewards (continued)
• Perquisites
– Special privileges awarded to selected members
of an organization, usually top managers.
• Awards
– At many companies, employees receive awards
for a variety of accomplishments:
• Seniority
• Perfect attendance
• Zero defects
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Managing Reward Systems
• Linking Performance to Rewards
– For managers to take full advantage of the
symbolic value of pay, employees must perceive
that their rewards are linked to their performance.
– Some reward systems are standardized across
employees (where wage increases are based on
longevity on the job) and some reward systems
are strictly tied to individual performance.
– Most organizations try to develop a reward system
somewhere between these two extremes.
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Table 6.1: Issues to Consider in Developing
Reward Systems
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Flexible Reward Systems
• A flexible reward system allows employees to
choose the combination of benefits that best
suits their needs:
– A younger worker might prefer to have especially
strong health care coverage with few deductibles.
– A worker with a few years of experience might
want more child care benefits.
– A mid-career employee with greater financial
security might want more time off with pay.
– An older worker might want more rewards
dedicated to his/her retirement plan.
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Other Issues Pertaining to Pay Systems
• Participative Pay Systems
– In keeping with the current trend toward involving
workers in organizational decision making, employee
participation in the pay process is also increasing.
• Open Salary Information
– A company’s policy of making exact salary amounts
public knowledge (such as state governments).
• Pay Secrecy
– A company’s policy of making no information available
to employees regarding other employees’ salaries,
average or percentage raises, or salary ranges.
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Expatriate Compensation
• Expatriate Compensation
– Organizations that ask employees to
accept assignments in foreign locations
must usually adjust their compensation
levels to account for differences in cost of
living and similar factors.
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Figure 6.4:
The Expatriate
Compensation
Balance Sheet
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