It’s Not Fair!
Few topics in the business press have grabbed more headlines recently than highly lucrative annual bonuses for top management. Critics bemoan the multimillion- dollar compensation packages offered in the financial services industry in particular, following the dire consequences of the meltdown of this sector a few short years ago.
How is executive compensation determined by compensation committees? Some researchers suggest that principles from equity theory (making comparisons to referent others) might explain variations in executive pay. To set what is considered a “fair” level of pay for top executives, members of the board find out how much executives with similar levels of experience in similar firms (similar inputs) are being paid and attempt to adjust compensation (outcomes) to be equitable. In other words, top executives in large oil firms are paid similarly to top executives in other large oil firms, top executives in small hospitals are paid similarly to top executives in other small hospitals. In many cases, simply changing the referent others can change the salary range considered acceptable. According to one view of justice theory, this should be perceived as equitable, although executives may encourage boards to consider specific referent others who are especially well-paid.
Critics of executive compensation change the debate by focusing on the ratio of executive compensation to that of the company’s lowest-paid employees. Researcher Cary Cooper notes, “In business, it is important to reward success and not simply status.” Cooper believes all employees should share the company’s good fortune in profitable periods. He has recommended that CEO compensation be capped at 20 times the salary of the lowest paid employee. In fact, the average S&P 500 CEO is paid 263 times what the lowest-paid laborer makes. This is eight times more than the ratio from the 1950s, which might serve as another reference point for determining what is considered “fair.”
1. How does the executive compensation issue relate to equity theory? Who do you think should be the referent others in these equity judgments? What are the relevant inputs for top executives?
2. Can you think of procedural justice implications related to the ways pay policies for top executives have been instituted? Do these pay-making decisions follow the procedural justice principles outlined in the chapter?
3. Do you think the government has a legitimate role in controlling executive compensation? How might we use distributive and procedural justice theories to inform this debate?
4. Are there any positive motivational consequences of tying compensation pay closely to firm performance?
Sources: J. Bizjak, M. Lemmon, and T. Nguyen, “Are All CEOs Above Average? An Empirical Analysis of Compensation Peer Groups and Pay Design,” Journal of Financial Economics 100, no. 3 (2011), pp. 538–555; C. Cooper, “We’re All in This Together,” Director 64 (February 2011), p. 27; and R. Foroohar, “Stuffing Their Pockets: For CEOs, A Lucrative Recession” Newsweek (September 13, 2010), www.newsweek.com .
Multitasking: A Good Use of Your Time?
Multitasking—doing two or more things at once, or rapidly switching from one task to another—is a characteristic of the Millennial generation. One recent study revealed that during a typical week, 81 percent of young people report “media multitasking” at least some of the time.
Multitasking nicely illustrates our point that motivation is not just effort but also the way you direct your efforts. However, is the direction of efforts in multitasking efficient or inefficient?
Many people who multitask say it makes them more efficient: “Why not do two things at once if I can accomplish about as much as if I only did one thing?” they ask. Research, however, suggests multitasking is inefficient, that it actually takes longer to do two things at once than to do one thing first and then turn to the other. David Meyer, a University of Michigan psychologist who has studied multitasking, argues, “You wind up needing to use the same sorts of mental and physical resources for performing each of the tasks. You’re having to switch back and forth between the two tasks as opposed to really doing them simultaneously.”
Multitasking appears to result in adverse outcomes beyond inefficiency. Another study found multitaskers absorb material more superficially; they notice more things in their environment but are able to learn material less deeply. “It’s not that they can’t focus,” says one researcher. “It’s that they focus on everything. They hear everything—even things they would normally be able to block out—because they are now so used to attending to many things at once.” Others note that multitasking can damage productivity and social relationships as individuals devote less concentrated time and attention to the tasks they are working on and conversations they are having. This scattered attention is especially damaging for tasks that require deep insight or creativity.
1. One expert who has studied multitasking calls it “a big illusion,” arguing that multitaskers think they are more motivated and productive even when they aren’t. Do you consider yourself a multitasker? If so, does this case make you reconsider whether multitasking makes you more motivated or productive?
2. The effects of multitasking have been found to be more negative when the tasks are complex. Why do you think this is the case?
3. You might think multitasking makes you happy. While there is less research on this topic, some evidence suggests multitaskers feel more stress in their work. Multitaskers “feel a constant low-level panic.” Do you agree? Why or why not?
4. One expert recommends we “recreate boundaries” by training ourselves, while doing something, not to look at other devices like cell phone or television for increasing periods of time. Do you think you could do that? For how long?
Sources: R. A. Clay, “Mini-Multitaskers,” Monitor on Psychology 40, no. 2 (2009), pp. 38–40; D. Crenshaw, The Myth of Multitasking: How “Doing It All” Gets Nothing Done (San Francisco: Jossey Bass, 2008), and A. Tugend, “Multitasking Can Make You Lose . . . Um . . . Focus,” The New York Times (October 25, 2008), p. B7.
Bonuses Can Backfire
It might seem obvious that people will be motivated by bonuses, but many scholars question this premise. Alfie Kohn has long suggested that workers are “punished by rewards” and urges that organizations avoid tying rewards to performance because of the negative consequences that can result. As an alternative to rewards, some experts recommend that managers foster a positive, upbeat work environment in hopes that enthusiasm will translate into motivation.
Although rewards can be motivating, they can reduce employees’intrinsic interest in the tasks they are doing. Along these lines, Mark Lepper of Stanford University found that children rewarded for drawing with felt-tip pens no longer wished to use the pens at all when rewards were removed, whereas children who were not rewarded for using the pens were eager to use them. Similar experiments in which children completed puzzles have also shown that increasing rewards can decrease interest in the rewarded task. Some have questioned the extent to which these results generalize to working adults, but concern about rewards diminishing intrinsic motivation persists.
Rewards can also lead to misbehavior by workers. Psychologist Edward Deci notes, “Once you start making people’s rewards dependent on outcomes rather than behaviors, the evidence is people will take the shortest route to those outcomes.” Consider factory workers paid purely based on the number of units they produce. Because only quantity is rewarded, workers may neglect quality. Executives rewarded strictly on the basis of quarterly stock price will tend to ignore the long-term profitability and survival of the firm; they might even engage in illegal or unethical behavior to increase their compensation. A review of research on pay-for-performance in medicine found that doctors who were rewarded for treatment outcomes were reluctant to take on the most serious cases, where success was less likely.
Although there might be some problems with providing incentives, the great majority of research cited in this and the previous chapter shows that individuals given rewards for behavior will be more likely to engage in the rewarded behaviors. It is also unlikely that individuals engaged in very boring, repetitive tasks will lose their intrinsic motivation if the task is rewarded, because they never had any intrinsic motivation to begin with. The real issue for managers is finding an appropriate way to reward behaviors so desired behavior is increased while less-desired behavior is reduced.
1. Do you think that, as a manager, you would use bonuses regularly? Why or why not?
2. Can you think of a time in your own life when being evaluated and rewarded on a specific goal lead you to engage in negative or unproductive behavior?
3. Do you think providing group bonuses instead of individual bonuses would be more effective or less effective? Why or why not?
4. How would you design a bonus/reward program to avoid the problems mentioned in this case?
Sources: Based on N. Fleming, “The Bonus Myth” New Scientist 210 (2011), pp. 40–43; D. Woodward, “Perking Up the Workplace,” Director (February 2011), pp. 33–34; and G. G. Scott, “How to Create a Motivating Environment,” Nonprofit World 28 (September/October 2010), p. 9.