CHANGING EMPLOYEE BEHAVIOUR
ASSESSING THE INFLUENCE OF EXTRINSIC REWARDS ON EMPLOYEE BEHAVIOUR
AND THEIR READINESS FOR CHANGE
October 2008
BART PLOEGER Student number 1626809
The author is responsible for the content of this master’s thesis. Copyright rests with the author. University of Groningen
Faculty of Economics and Business
Master of Science in Business Administration: Specialization Change Management
Hereweg 282C, 9651 AR Meeden +31(0)6 2427 6626
bartploeger@hotmail.com
Supervision and co-assessment: Prof. dr. D.M. Swagerman Dr. J.F.J. Vos
PREFACE
This master's thesis is written as a result of my conducted research at BelCompany, to finish my master in Change Management at the Faculty of Economics and Business at the Rijksuniversiteit Groningen.
During the writing of this thesis I have had the privilege to receive advice, information, and support from several people. In the first place, I would like to thank my supervisor from BelCompany, Marco Houtman, for the opportunity to develop my research there, for the information I received, and for the freedom I got to conduct my research.
Furthermore, I would like to show my appreciation to my supervisor at the Faculty of Economics and Business: Dirk Swagerman. Thank you for your feedback, your constructive guidance and your very fast replies to my e-mails. In addition, I would like to thank my co-assessor, Janita Vos, for your critical assessment of my draft version.
Last, but definitely not least, I would like to thank my girlfriend, my parents, my brother, and friends for their support during the production of this master's thesis. Thanks to them, I will look back at a very pleasant studying life in Groningen.
Bart Ploeger
ABSTRACT
Present study aims to identify which design features of an extrinsic reward system influence employee expectations so that it positively changes the performance of their behaviour and also stimulates their readiness to change. Existing literature provides a theoretical direction that employees can be 'unfrozen' to create readiness for change by using extrinsic rewards based on pay for performance. For the present study, the concept of 'unfreezing' from the theory of Lewin (1951) provided a basis to conduct the research. Furthermore, employee behaviour can change by influencing the expectations towards the outcomes of the different design features of a reward system. The basis for this part of the study was provided by the expectancy-theory of Vroom (1964). The research was conducted by doing a case study of BelCompany Nederland BV, an international retail organization specialized in mobile communication. Twelve participants were interviewed for this research. Additionally, eight employees were observed, each employee during a period of one day, and useful judgements were noted.
CONTENTS
Preface...2
Abstract...3
1. Introduction...6
1.1 The relevance of rewarding...6
1.2 Towards a research design...7
1.3 Limiting conditions...7
1.4 Schematic overview of the research...8
2. Theory section...8
2.1 An efficient extrinsic reward system...8
2.2 The influence of extrinsic reward systems on organizational change...12
2.3 Factors that change the performance of employee behaviour...14
2.4 Summary theory section...15
3. Method section...17 3.1 Research methodology...17 3.2 Case selection...17 3.3 Data collection...18 3.4 Data analysis...19 4. Analysis of BelCompany...20
4.1 The market of BelCompany...20
4.2 The rewards and changes of BelCompany...20
4.3 Results of the research...22
4.3.1 Disconfirmation...22
4.3.2 Survival anxiety...23
4.3.3 Expectancy...24
4.3.4 Instrumentality...24
5. Discussion...30
5.1 General conclusions...30
5.2 Recommendations...31
5.3 Limitations...33
5.4 Consequences for science and practice...33
References...34
1. INTRODUCTION
In this section, the relevance and context of the problem will be introduced. In addition, a translation into researchable questions will be made, the limiting conditions will be displayed and finally a schematic overview of the research design will be given.
1.1 The relevance of rewarding
Every organization has a reward system. Without this system, people will not perform in any manner consistent with the strategy or mission of a firm (Milkovich & Newman, 2004). This is why managers and executives offer many different kinds of compensation plans to their employees, which have large impact on the way employees behave in organizations. However, these compensations do not mean the same to everyone; the way employees look at compensations affects how they behave at work (Milkovich & Newman, 2004). This organizational behaviour of employees is becoming more and more important these days; in order to be successful, firms in today’s business environment must have capabilities that allow them to coordinate and motivate behaviour in ways that differentiate them from their competitors (Lawler, 2000). Lawler (2000) calls this the ‘new competitive advantage’, suggesting that the old strategies like ‘low pricing’ or ‘quick delivery’ might not work anymore in the current global market.
While a reward system can take many forms and the conditions may vary by organization, current rewards often fail to live up their purpose (Wilson, 2003). Wilson (2003) suggests reward systems have become ineffective in achieving the desired impact, or the practice of it has had a negative influence on people’s behaviour. One of the reasons is that managers often see rewards purely as cash compensation, but Wilson (2003) states that it includes systems, programs and practices that might influence the behaviour of employees.
It becomes clear that making reward systems an effective tool in today’s organizations can be complex and difficult. It is obvious that reward systems stimulate and motivate employees to behave and perform in a certain way, but the main purpose is frequently not accomplished. Because of their influence on behaviour, the relevance of rewarding is also of major importance with regard to organizational change. According to Beer and Nohria (2000), there always have to be some adjustments in the reward system if an organization makes fundamental changes. Beer and Nohria (2000) state that it even became a central motivating mechanism in change management in the 1990s. Wruck (2000) argues that in order to foster effective change, it is at all times necessary to change human behaviour. This makes the motivation of individuals to change the most important element in the change equation. Therefore, compensation systems play a pivotal role in the change process (Wruck, 2000).
way. These rewards can also be of great importance with reference to a successful organizational change; it supports and motivates employees to ‘unfreeze’ or be ready for change.
1.2 Towards a research design
To come to a more concrete research question, the expectancy theory of Lawler (1973), derived from Vroom (1964), can be useful. In essence, it means that individuals act in ways they believe will lead to rewards they value. Hence, the main topic of the research will be to look at reward systems that influence the believes of employees about the outcomes of these rewards so that their behaviour will also change in a positive way. Consequently, these rewards can also stimulate the readiness for change. In the case of readiness for change, the concept of ‘unfreezing’ by Lewin (1951) can be valuable. Lewin (1951) argues that an equilibrium of restraining forces needs to be destabilized before new behaviour can be adopted. Extrinsic rewards might be proper motivational tools to ‘unfreeze’. An operational research question can be derived from this:
“Which design features of an extrinsic reward system influence employee expectations so that it positively changes their behaviour and also stimulates their readiness to change?”
The research questions that support the main question are: 1. Which design features define an extrinsic reward system?
2. What is the influence of an extrinsic reward system on readiness for change? 3. Which factors influence the performance of employee behaviour in a positive way?
4. What influence do the different extrinsic rewards have on employee expectations and on their view towards organizational change?
Answering the first three questions mentioned above will lead to a theoretical model in which it will be clear what role extrinsic reward systems play in organizational changes and which factors will influence employee behaviour in a positive way. This theoretical model will be tested empirically via a case study in an organization. This case study will be analysed and ultimately answer the fourth question.
1.3 Limiting conditions
1.4 Schematic overview of the research
Figure 1 shows a schematic overview of the research and the chapters that deal with the different topics.
Figure 1: Schematic overview of the research
2. THEORY SECTION
First, a definition and a main characterization of reward systems will be analyzed. Then the role of extrinsic rewards in organizational change will be discussed. Subsequently, the factors that influence the performance of employee behaviour will be described. As a final point, a theoretical model will reflect the relations of the different variables.
2.1 An efficient extrinsic reward system
When talking about a reward system, many thoughts may emerge in one’s head. According to Bolger (2004), definitions and terms may vary depending on the industry, audience and
SUBQUESTION METHOD CHAPTER
Which design features define an extrinsic reward system?
What is the influence of an extrinsic reward system on readiness for change?
Which factors influence the performance of employee behaviour in a positive way?
What influence do the different design features of an extrinsic reward system have on employee expectations and on their view towards organizational change?
businesspeople that use these terms. Many of these often used terms and definitions include recognition, rewards (e.g. holidays, TV’s), compensations and so on. Milkovich & Newman (2004) see the variety in views as a good thing because it adds richness to the topic, but they acknowledge the fact that the use of many of these terms and definitions may lead to confusion. To create transparency regarding this issue, Milkovich & Newman (2004, p. 6) provide a definition of compensation, which is the following: “A refer to all forms of financial returns and tangible services and benefits employees receive as part of an employment relationship.” Wruck (2000, p. 3) extends it even further and calls rewards “satisfaction or dissatisfaction generated by participation in one’s job, including the benefits of changes that make a job easier or safer, public recognition, the value of interactions and relationships with peers, raises, promotions, bonuses, profit sharing plans, and equity ownership programs.” There is a major difference in both definitions so far; on the one hand extrinsic rewards (such as pay for performance) are used and on the other hand both intrinsic (such as job design) ánd extrinsic rewards are applied. Despite the fact that both ways of motivating people are very popular methods nowadays, the extrinsic way of motivating was already questioned in the 1920s and 1930s. The researchers of the famous ‘Hawthorne experiments’ showed that social aspects of work increased productivity more than economic rewards (Mayo, 1946). This was also popularized by the ‘hydraulic model’ of motivation, in which is stated that extrinsic rewards actually reduce productivity (Kohn, 1993). Yet, more recent research (Lawler, 1996) produced evidence that show the inconsistency of these statements. Lawler (1996) states that the interpretation of the ‘hydraulic model’ is incorrect and his research actually contradicts these statements, showing that extrinsic rewards are very useful tools. Furthermore, more recent research shows that both intrinsic ánd extrinsic motivation must be high in order to create higher total motivation, so they can be seen as complementary rather than driving each other out (Ledford & Heneman, 2000). While this complementary view of motivators is positive in both ways, the importance of extrinsic rewards by itself must not be underestimated. Lawler (1996) states that if pay is based on performance it can be a high motivator by itself and extrinsic rewards can have a major impact on developing individual skills. Additionally, Pfeffer & Lawler (1980) found that extrinsic rewards stimulate the satisfaction and performance of non-committed employees, who did not show any behavioural commitment without these rewards. Also, Cummings & Worley (2005) mention that even Organizational Development (OD) practitioners, who are originally focused on intrinsic rewards, expanded their focus to include extrinsic rewards, as they admitted that extrinsic rewards also can enhance performance and satisfaction.
factors affecting intrinsic motivation of each individual in a company (Wruck, 2000). The consideration of a reward system so far includes both intrinsic and extrinsic rewards to show the importance of extrinsic rewards in the organizational context; for this research they will be seen as compensations defined by Milkovich & Newman (2004), as mentioned before. This may include wages, fringe benefits, bonuses, incentives and so on. The terms extrinsic rewards, incentives and compensation will be used interchangeably. With a definition given, the next step is to look at the design features of an efficient extrinsic reward system.
Extrinsic reward systems can exist of many types, designs and forms. Design features may vary from job- or person-based pay to pay dependent on hierarchy or seniority, which means the extent to which rewards are based on length of service (Lawler, 2000; Cummings & Worley, 2005). However, the most important and most influential extrinsic reward used by companies is performance-based pay; over 83% of big American companies call improvement of performance by pay the main reason for their incentive plans1
. Other design choices are also necessary, but performance-based pay is the focus or basis of an extrinsic reward system (Cummings & Worley, 2005). Unsurprisingly, this performance-based pay cannot be implemented in a split second. A company has to consider who influences organizational results significantly and which goals have to be obtained (Heiman, 1993). London & Oldham (1976) found that every employee can be paid for performance and this performance increased as long as the difficulty of the goal increased. Moreover, piece-rated and fixed-rated incentives are extra stimulants to achieve these targets, they state. Also, the efficiency of extrinsic rewards is determined by employees’ frame of reference and personal situation. For this reason, extrinsic rewards must have the potential to be meaningful to an individual (Wilson, 2003). Wilson (2003) comes up with perhaps the most covering categorization of performance-based rewards that have this potential, which include verbal/social, tangible/symbolic, work-related and money related extrinsic rewards. Figure 2 gives an overview of this categorization on the next page.
1
Figure 2: Categorization of performance-based pay. (Source: derived from Wilson, 2003, p. 31)
The verbal/social extrinsic rewards are the most direct forms of rewards, as they can be delivered at the time certain behaviour occurs and can produce high returns on investments, as a result of low costs. Milkovich and Newman (2004) see these rewards as relational returns as part of total returns and claim that they are mainly psychological. The tangible/symbolic extrinsic rewards can be given to employees for special achievements and include dinners, tickets or trips. Custers, Hurley, Klazinga and Brown (2008) researched the efficiency of incentives in health care and found this form to be one of the most effective ways to stimulate certain behaviour. Work-related extrinsic rewards involve the person’s role and is frequently based on performance, for instance making a promotion. Baker, Jensen and Murphy (1988) suggest that despite the disadvantages, rewarding through promotion opportunities must be less costly or more effective than other rewards, because they are used as the primary incentive device in most organizations. Money-related extrinsic rewards are compensations one receives as pay-outs from variable-pay programs. They may be short- or long-term and in that way reward employee efforts directly or on multiyear results (Milkovich & Newman, 2004). Baker, Jensen and Murphy (1988) are very much in favour of this way of rewarding because it can provide incentives for all individuals in the organization.
With a categorization of efficient extrinsic rewards made, the influence of extrinsic reward systems on readiness for change will now be analyzed.
Verbal/social
Specific compliments Recognition Commendation letters Award dinners Celebration activities Taking interest in one’s workTangible/symbolic
Trophies/plaquesSpecial achievement clubs Trips, tickets, and dinners $$$ Spot awards
Personal items of interest
Work-related
PromotionsSpecial development programs
Increased decision authority Increased control resources More challenging
assignments
Money-related
Salary and salary increases Variable or incentive payouts Overtime paySpecial assignment pay Promotion or relocation pay Stock options
2.2 The influence of extrinsic reward systems on readiness for change
In every form of change the people who are involved will be affected. Nevertheless, within organizational change this does not directly result in positive behaviour. According to Kayzel (1998), it seems to be a natural reaction to resist change and to hold on to the status quo. Kayzel (1998) argues that people tend to respond negatively to the fact that something is changing and to the content of such a change. This resistance can be reduced by suitable interventions that increase the capacity to change, like participation and training. According to Armenakis et al. (1993), these interventions may minimize resistance to change to the extent that they first create readiness for change. Armenakis et al. (1993) define this readiness for change as ‘the cognitive precursor of the behaviours of either resistance to, or support for, a change effort.’ Furthermore, their definition of readiness for change is similar to the first step of a very influential three-step-model of planned change, which also had a very profound impact on organizational psychology, the concept of ‘unfreezing’ of Kurt Lewin (1951). Lewin (1951) argues that the equilibrium supported by a field of driving and restraining forces needs to be destabilized (unfrozen) before old behaviour can be unlearnt and new behaviour can be adopted. Step two involves moving from a less acceptable to a more acceptable set of behaviours and step three involves refreezing, which means seeking to stabilize the group at a new quasi-stationary equilibrium in order to ensure new behaviour will not deteriorate (Lewin, 1951). As part of the planned change approach, the three-step-model is particularly useful when the focus of the change is on changing attitudes and behaviour (Burnes, 2004).
The need to unfreeze people to create readiness for change may be comprehensible now. The role of extrinsic rewards during this unfreezing part is still left ambiguous, but at least equally important. The influence of extrinsic rewards during organizational change contains several different viewing points. Research discovered that employees value intrinsic, social, organizational and extrinsic rewards during organizational change, but the instrumentality of extrinsic rewards are rated significantly lower by these employees (Buch & Tolentino, 2006). Furthermore, according to Ledford and Heneman (2000), the most important factor in organizational change is business strategy, followed by structure and culture. These factors guide businesses into a change and without these directions, compensation system changes are like launching an unguided missile; one might never know if it hits the target (Ledford & Heneman, 2000). However, Lewis (2004) developed a ‘systems model’ for organizational change in which he states that reward systems are, as part of the input to the system, next to history, strategy, and environment of major importance to deliver the desired output, in this case a change in behaviour which ultimately results in enhanced performance.
compensation system is necessary to create readiness for change. Before this can be conceptualized, the factors that change the performance of behaviour are discussed.
2.3 Factors that change the performance of employee behaviour
Changing employee behaviour is an organizational issue that should not be underestimated. The most complex business challenge is not strategy, structure, culture or systems but behavioural change (Kotter, 1996). In a business context there must be a self-perceived need to change, for example the desire for career advancement or promotion, which can be referred to as ‘creating a sense of urgency’ (Kotter, 1996). Despite the obvious function of extrinsic rewards to support this statement, there are numerous examples, from politics to academia, that prove these rewards to be impractical as the type of behaviour that is rewarded is the behaviour that needs to be discouraged (Kerr, 1995). More recent research on reward systems and behaviour shows that the best way to change employee behaviour and motivate them to improve performance, is to influence their perceptions of how you reward them for their behaviour and performance (Lee et al., 2006). Consequently, one effective way to achieve this is to compensate employees with extrinsic rewards for their achievements (Lee et al., 2006). According to Wilson (2003), these consequences, or things that happen when employees perform certain behaviour, are one of the main forces that can change or influence human behaviour. Positive consequences which employees consider important have the most significant influence on sustaining high performance (Wilson, 2003).
There are numerous theories that strive to predict changes in behaviour based on consequences or expectations towards these consequences. The expectancy-value theory of Fishbein (1995) is the basis of these theories; it states that a person’s attitude towards behaviour is a function of his or her salient beliefs about that behaviour. Later, Azjen (1991) developed the very famous theory of planned behaviour, which states that human behaviour is guided by three kinds of considerations: beliefs about the likely outcomes of the behaviour and the evaluations of these outcomes (behavioural beliefs), beliefs about the normative expectations of others and motivation to comply with these expectations (normative beliefs), and beliefs about the presence of factors that may facilitate or impede performance of the behaviour and the perceived power of these factors (control beliefs). Additional research for this theory also includes the role of formal incentives to predict outcomes of behaviour (Hansen & Avital, 2005).
employees value it is possible to influence the performance of their behaviour which eventually changes their behaviour such that it leads to higher performance and higher rewards. The motivation for changing behaviour can be determined by three variables or concepts that determine the expectation towards the outcomes of certain rewards, which is also schematically represented in figure 3.
Figure 3: Simplified model of the variables of the expectancy theory. (Source: derived from Lawler, 1973, p. 483) According to Lawler (1973), the variable expectancy is the perceived likelihood that increased effort toward a behavioural goal will lead to the successful performance of that behavioural action ( Effort Performance or EP). Expectancy can be affected by such things as having the right resources available, having the right skills and having the necessary support to get the job done (Vroom, 1964). Instrumentality is the belief that if you perform well, a valued reward will be received. The likelihood that the successful accomplishment will result in securing the reward, is shown by Performance Outcome or PO (Lawler, 1973). Instrumentality is affected by such things as having a clear understanding of the relationship between performance and outcome, trust in people who make decisions regarding these outcomes and the transparency of this process (Vroom, 1964). Valence is the importance that employees place upon the expected outcome. For instance, if an employee is mainly motivated to perform certain behaviour by money, rewards that offer recognition might not be valued (Lawler, 1973). All three concepts are required for positive motivation; if an organization achieves two out of three, employees still would not be motivated to change their behaviour (Vroom, 1964).
2.4 Summary theory section
The variables and concept of unfreezing employees to create readiness for change, the role of reward systems regarding this issue and the variables and concept of changing behaviour by influencing employee expectations, are made obvious and understandable in the previous sections. A theoretical framework can now be constructed to give an overview and summary of these variables. Figure 4 provides this theoretical framework.
The different design features of the outcomes of the performance-based reward system can be seen as a main concern. For that reason, the following junction is made from there: the unfreezing of employees to eventually create readiness for change can be distinguished and the employee expectations to ultimately change the performance of certain behaviour can be differentiated. On the one hand, the input for the unfreezing process exists of three concepts,
Outcomes performance-based rewards Verbal/social Tangible/symbolic Work-related Money-related Change process Unfreezing employees Employee expectations Dissatisfaction current reward system Design features Induced survival anxiety
(Psychological safety) Instrumentality
Valence Change variables Expectancy Motivate performance behaviour
Readiness for change Change performance
behaviour
disconfirmation, survival anxiety, and psychological safety. These processes are necessary to eventually create readiness for change. As described before, the disconfirmation and survival anxiety can be stimulated by using different extrinsic, performance-based rewards. The psychological safety shapes the circumstances in which this has to take place. Since this is not directly influenced by the outcome of performance-based rewards, this concept is but between brackets. On the other hand, the employee expectations towards these outcomes resulting in motivated performance of behaviour are determined by the three variables expectancy, instrumentality, and valence. This eventually changes employee behaviour necessary to enhance their performance.
3. METHOD SECTION
First, the choice of the research methodology will be discussed. Then, the selection of the case of the organization were the research was carried out will be dealt with. To conclude, a data collection and analysis of the research follows.
3.1 Research methodology
A research strategy depends on three conditions, namely (1) the type of research question posed, (2) the extent of control an investigator has over actual behavioural events, and (3) the degree of focus on contemporary as opposed to historical events (Yin, 2003). These conditions are related to the five major existing research strategies nowadays; experiments, surveys, archival analyses, histories, and case studies (Yin, 2003). The three conditions can be related to the current study as following: (1) The research question is of explanatory nature, because it tries to explain how and why employees are motivated by certain extrinsic rewards and to what degree they create readiness for change; (2) relevant behaviours cannot be manipulated, and (3) the study examines contemporary events. Despite the fact that the research strategies are not mutually exclusive, by making a characterization of the current study as mentioned above, a case study has a distinct advantage (Yin, 2003). A case study creates insight in a problem and contributes to the exploration of a problem or deepens the insight of a problem (Cooper & Schindler, 2003). For this study there is a clear problem regarding the efficiency of extrinsic rewards that can be explored methodical. An exploration of this problem was made by conducting a literature study, which led to sharp and insightful questions about the topic and eventually to a theoretical framework. This framework will eventually be tested by conducting a case study, of which the selection will now be examined.
3.2 Case selection
The selection of the single-case design for BelCompany is based on the rationale of what Yin (2003) calls the ‘critical case’. This case represents testing a well-formulated theory to confirm, challenge or extend this theory by using a single case (Yin, 2003). Present study tries to realize this by examining the design features of extrinsic rewards and their influence on employees’ readiness to change ( Lewin, 1951), and the change in behaviour by influencing employee expectations ( Lawler, 1973). The case of BelCompany can be used to test these theories and explain which alternatives might be the most relevant and therefore represent a significant contribution to knowledge and theory building.
3.3 Data collection
The main research of the present study existed of semi-structured interviews which were derived from the employees on the shop floor of BelCompany. These case-study interviews were of an open-ended nature, in which key respondents were asked about the facts of a matter as well as their opinions. Interviews lead to specific information collection, because it is possible to directly focus on the subject (Yin, 2003). In total, twelve shop employees where interviewed, varying in function, age, gender and so on. Next to the interviews, two other sources were used to provide additional information about the topic. Firstly, various documents about the organizational change and the existing reward system of BelCompany were collected and analysed. The use of documents provide stable, unobtrusive, and exact information about a topic and are very discrete, because they are not a result of the case study (Yin, 2003). Secondly, direct observation was applied during a period of two months, where every week one employee was observed. During this period, various shop floor employees, eight in total, were observed during a working day while interesting and useful behaviour and judgements with regard to the valence of the extrinsic rewards were noted. Observations are valuable in this case, because they can add new dimensions for understanding either the context or the phenomenon being studied (Yin, 2003). In addition, these multiple sources of evidence, also called data triangulation, help to deal with the problems of establishing construct validity and reliability in case study evidence (Yin, 2003).
3.4 Data analysis
Miles & Huberman (1994) define data analysis as consisting of three concurrent flows of activity, which are all part of this analysis: data reduction, data display, and conclusion drawing/verification. Each of these three flows can be connected to the current research.
Data reduction refers to “the process of selecting, focusing, simplifying, abstracting , and transforming the data that appear in written-up field notes or transcriptions” (Miles & Huberman, 1994). A large part of this data reduction is already done before the actual data collection, namely by deciding which theoretical framework, case, and research questions had to be chosen. The semi-structured interviews were structured to a certain degree, but obviously various information was collected in an unstructured way. Also, not all the written-up field notes during the observation were usable and had to be downsized. The role of data display was helpful in this case; its objective is to deliver an organized, compressed assembly of information that permits conclusion drawing (Miles & Huberman, 1994). For the current research a lot of information was put into tables or matrices which reduced complex information into a simplified configuration. For the interviews, variables of unfreezing employees were categorized by the design features of an extrinsic reward system. Each variable was schematically processed, so that the current information is easily understandable. The variables of the process to change employee behaviour were also put in tables and a score was granted for each variable; a 0 if a very weak linkage existed, a 1 if some linkage existed and a 2 if a strong linkage existed2
. These scores were multiplied and a final score was granted for each design feature of an extrinsic reward system. As the process described, every variable has to be present in order to motivate and eventually change the performance of employee behaviour. As additional information, the observations of the different employees were also processed and put in tables or matrices. Also, the analysis of the studied documents were made less extensive in order to prevent an overload of information-processing, which is also recommended by Miles and Huberman (1994). According to Miles and Huberman (1994), as a final stream of analysis, conclusions and verifications can be made. The goal is to provide an answer to the question what influence the different design features of an extrinsic rewards have on employee expectations and on their view towards an organizational change. Also, for the Management Team (MT) of BelCompany, concrete recommendations were made towards the efficiency of the different reward systems and their influence on the readiness for change. This way, the practical relevance of the study is guaranteed.
With the research methodology being justified, the selection of the case BelCompany being explained and the data collection and analysis of the research made clear, a closer exploration of the case BelCompany can be dealt with in the next chapter.
2 Method derived from a questionnaire performed by the Boise State University, which can be found on
4. ANALYSIS OF BELCOMPANY
With already a short introduction to the firm BelCompany being made, an analysis of the market will be made and a more comprehensive description regarding their reward system and the organizational change will be dealt with. After that, the results of the research will be presented. 4.1 The market of BelCompany
The market in which BelCompany is operating is characterized by quick improvements and changes. Recently BelCompany took over another twenty-nine shops which will operate under the name of ‘Telefoonkopen.nl’, a price-discounter in the market. BelCompany itself tries to be an independent provider of all the different networks and suppliers to make the market more transparent. The concept of ‘Telefoonkopen.nl’ is new in the market, but the shop concept of BelCompany itself will also change to sustain market growth (see section 4.2.2). To sustain market leader in the business, BelCompany has to distinguish itself by delivering objective, skilled advice to the customer. Consequently, the employees on the shopping floor need to be motivated and behave in accordance with the strategy of the firm. To accomplish this, they use different kinds of incentives and rewards, which will be discussed more thorough in the next section. However, the MT of BelCompany senses a negative trend regarding the efficiency of these rewards. They doubt if the current reward system leads to the desired appropriate behaviour on the shopping floor. As stated before, it is difficult for firms to create a reward system that actually influences behaviour in a positive way. Equally important, reward systems can play an important role in stimulating organizational change by influencing behaviour in a positive way. The accent of the research was not to identify the most appropriate type of change or to give advices regarding the change process itself, but to investigate what the role of extrinsic rewards can possibly play to ‘unfreeze’ the employees on the shop floor. The challenge is to achieve both this readiness for organizational change and influencing performance of employee behaviour by using extrinsic rewards.
4.2. The rewards and changes of BelCompany
The before mentioned categorization of the design features of a reward system can be compared with the current situation at BelCompany. A short analysis of the rewards for the employees on the shop-floor and the changes within BelCompany will now be discussed.
perform good on almost every aspect. The Star-system is a quality-program, which allows each shop to show that they perform well. The program exists of two rounds each year and in each round twelve stars (four bronze, four silver, and four gold) can be earned for the performance on different aspects. This involves keeping proper administration, providing a high service level, meeting the targets, and so on. Secondly, they use a Retail-Excellence Program to award the shops if they perform conform the norms and values that BelCompany strives to display. So the accent of the check, which is done two times in a year, lays on keeping a proper shop management. These awards do not directly increase one’s salary, but give the shops status. Thirdly, a lot of tangible rewards are offered by the different partners from BelCompany during the whole year and might include tickets to a concert, flat screen TV’s etcetera if the sales for these partners are sufficient. The normal duration of these campaigns is six weeks and during the year, two or three major incentives (summer and winter) are organized, also during a period of six weeks, with much bigger prices and payouts. Hence, these incentives can also be categorized as money-related extrinsic rewards. Other rewards in this category are the normal salary, which increases every year until it reaches a maximum, and the individual or shop bonuses one receives when selling a certain product or when meeting the weekly targets. Furthermore, everyone but the assistant-salesmen of a shop can earn a bonus when they exceed their turnover year-budget: 3% year-bonus if they exceed the budget >5% and 6% if they exceed it with >10%. The manager and assistant-manager can earn even more if they perform even better, but, on the other hand, items like illness and stock-erosion can have negative effects on this bonus. The work-related extrinsic rewards are less explicitly predetermined, but promotion or increased authority can be earned by the employees on the shop floor according to their performance.
With the new concept of the price-discounter ‘Telefoonkopen.nl’ on the market, the existing shops of BelCompany will also change and renew their plans to sustain market leader. To achieve this, BelCompany will be delivering a broader assortment of products and further expand the advising role of the employees on the shop floor. As part of the new strategy, one of the objectives is to introduce a new shop image. This contains being more distinctive and emphasizing on human advice. Furthermore, the whole lay-out of the shops will change, from new outfits for the employees to more eye-catching showcases and the presence of a broader collection of products.
(2) Emphasize the human aspect, listen to the customer and guide him/her through the shop, (3) Make it fun and approachable for the customer and (4) Make concrete offers of what BelCompany has to offer so that it can lead to up- and cross-selling. In sum, a shop transformation that requires a change in employees’ attitudes and behaviour in order to be successful and, therefore, will not remain unnoticed to the staff on the shopping floor.
4.3 Results of the research
First, the possibility to ‘unfreeze’ employees by using extrinsic rewards will be discussed. The variables disconfirmation and survival anxiety will be examined and analyzed. Subsequently, the three variables that eventually change the performance of employee behaviour by means of extrinsic rewards, expectancy, instrumentality, and valence, will be considered.
4.3.1 Disconfirmation. Every respondent is very positive or optimistic about the organizational change that is planned for the shops of BelCompany. Also, most respondents are optimistic about the new shop image. “As an organization, I think BelCompany has to change to keep up with the market. For an organization like BelCompany it is unacceptable to keep the current things the same. It is part of the survival strategy. I am excited to see how things will work out”. However, this positive perspective can be somehow ambiguous. Most of the respondents are not aware or not satisfied with the way the change is presented by the MT. The shop managers that responded feel that they are involved in a certain way, but are not allowed to participate when it comes to the details of the change. The other respondents on the shop floor mainly think they are not informed very well about the organizational change. “It is one big change, I think our team has to be more involved, but our shop manager has not presented it yet, so I think we will just have to see what it brings.” Furthermore, the respondent of a shop were a pilot of the new shop image is being held, claims the changes have a big impact on the daily routine. “It is a big change and I think the communication to the employees could have been more intensive. Now we step into small problems every day and that is very disturbing.”
When it comes to the performance of the shop, every respondent is satisfied. Moreover, when it comes to the performance of them as an individual, everyone thinks they do well. Two respondents noted that the performance of the shop declined, as a direct result of the current change process. These respondents think that as a result of the recent staff shifts, which were necessary to make the new discount shops of telefoonkopen.nl a success, the teams of BelCompany somehow fell apart.
the necessity to expand this further. “If you compare the normal salary with the competition in the retail sector, I can only say that BelCompany pays well. I think the weekly targets are also necessary and during the major incentive everyone is extra motivated to earn the big payouts.” However, the salesmen and assistant-salesmen are slightly more satisfied with the money-related rewards than the shop manager and the assistant-shop manager. Second, the presence of the verbal/social extrinsic rewards are considered to be inadequate in the current system, especially among the salesmen and assistant-shop managers, who particularly miss recognition and compliments from their superiors. Third, the tangible/symbolic extrinsic rewards are considered to be sufficient or even too much represented in their present state. “These rewards, and personally I think this especially counts for the Star-system, are a little childish and I do not have to see more of these kinds of rewards in the current system.” Fourth, the work-related extrinsic rewards give a variable representation regarding their presence. On the one hand, some respondents, varying from shop manager to assistant-salesmen, think there are enough opportunities to make promotion and to gain more decision-making authority and on the other hand some respondents think very negative about these opportunities.
4.3.2 Survival anxiety. When looking at the anxiety which the employees have to maintain the status quo, two things in particular are worth mentioning. First, none of the respondents directly fear for the future of BelCompany or their personal potential. The respondents, regardless of their function, think the change only leads to better prospects in the future and will support BelCompany’s struggle to maintain market leader.”I am not afraid BelCompany will have to close doors. I think it is a wise move to change the behaviour on the shop floor. Every once in a while it is necessary to change your image, regardless of the expenses.” Second, most respondents have the feeling that, despite their positive ideas about the future, the reward system has to change along with the current organizational change. The roots of these reactions commence with the fact that BelCompany will become more service-oriented, or, as one shop manager said: “If you want to position yourself in a higher service-segment, you have to create more bonding among the employees with the organization. If BelCompany focuses more on that aspect, instead of 5% extra salary because you have obtained your target, you may expect that people perform better.”
An overview of the abovementioned ‘unfreezing’ variables of every respondent, along with various additional data, can be found in table 1 on the next page.
4.3.3 Expectancy. All of the respondents believe to a certain degree that if they put more effort in their jobs, their performance will be better. For the shop managers, this linkage is a little less obvious. As they state: “I think a lot of external factors, like the economic growth, play a role in the performance of the shop” and “you can influence your own performance, but not how many customers will visit your shop.” When looking at the other factors that influence the linkage between effort and performance, the availability of resources, skills, and support, several perceptions are notable. First, all of the twelve respondents, regardless of their function, think to a very strong degree that they have the right skills to do the job. Even the respondents who just worked several months for BelCompany, think they have the abilities to do their job right. These respondents claim that the guidance is excellent and the possibilities to develop the skills are extensive. Every person also praises the possibilities to attend a training or workshop to further improve their skills. Second, the perceptions on the availability of enough resources and support to do the job right are considerably lower than the availability of skills. “Support is only available when a problem occurs, so it kind of looks like fire-fighting. The structure just is not right at the moment, there is no so-called pro-active support.” Mainly the answers to complex questions from customers are found to be not efficient and adequate. Despite these remarks, the general view about the resources and support is still moderately positive. Most of the respondents agree that there always is someone who can resolve a problem or provide an answer a question, but they are not as positive about these issues as they are about the availability of their skills or the possibility to develop this. “There is always someone who can fix your problem, the dilemma is to find this right person. It is not as if BelCompany is some kind of multinational, but there is a lot of calling and mailing before you get the right answer.”
RESPONDENT 1 2 3 4 5 6 7 8 9 10 11 12 General
Function SM SM SM ASM ASM ASM S S S ASSM ASSM ASSM
Years worked for BC 0.5 8 2 7 3 4.5 1 0.5 1 1 3 1.5
Grade BC (scale 1-10) 9 8 6 7 9 7 7.5 8 8.5 7.5 7.5 7
Disconfirmation
Opinion current CP + + + + + +/- + +/- + + +/- +
Opinion participation CP +/- - - +/- - +/- - +/- - +/- +/- +/-
Satisfaction performance shop + + + + + + + + + + +/- +
Satisfaction performance individual + + + +/- + + +/- +/- + + + +
Presence of rewards Money-related High High Med Med Med Med Med High High Med High High
Verbal/social Med Med Low Med Low Low Low Med Low Low Med Low
Symbolic/tangible High Low Med Low Med Low Med High Med Med High High
Work-related Med Low High Low Med Med Low High Med Low High High
Survival anxiety
Status quo Concerns about future if nothing changes Low Low Low Low Low Med Med Low Low Med Med Med
Necessity to change reward system Med Med High High Med High High Med Med High High Med
Benefits of change/ change leads to More money-related +/- +/- + - +/- + - +/- +/- - +/- +/- More verbal/social + +/- + +/- + + + + +/- +/- +/- + More symbolic/tangible +/- + - - +/- - - +/- - +/- +/- - More work-related +/- + +/- + +/- + +/- - +/- - +/- -
Legend: SM = Shop manager
ASM = Assistant-shop manager S =Salesman
ASSM=Assistant-Salesman
A shop manager explained why this can be possible: “I think it is important that everybody in my team knows what they can earn, but you have to look if it is doable. I do not have to tell my team that the unachievable is achievable.” On the other hand, the short-term gains like the weekly targets, personal compensations, and incentives, are well-known to every respondent.
The relationship between performance and the reward outcomes are understandable or even very clear to every respondent. This counts for the Star-system, Retail-Excellence, and the weekly targets and personal compensations. However, because of the lack of knowledge regarding the year-bonus, most respondents do not know the outcomes of this payment. Furthermore, three respondents complained about the rules of the incentives, especially the summer and winter incentive, with the big pay-outs. “Despite the fact that the rules of the incentive have become more clear, it has not become more fair. I think it is vague why we are classified with certain other shops in a pool. Sometimes we even decide at the start as a team we do not participate and we just keep focusing on the weekly targets.” On the other hand, every respondent has a great amount of trust in the people who make the decisions about the outcomes of the rewards. None of the respondents even has the slightest doubt about the integrity of these people. This counts for the employees at the head office of BelCompany, the MT, and also for the partners who, in some cases, provide the prices for the employees. Yet, the transparency of the process that decides who gets what outcome is rated less high by the respondents. This criticism counts for both the pay-outs of the variable remunerations as for the incentives. “I think it is not transparent to see what I get and what I have to get. For every pay-out, I just trust the people of the administration” and “I think it is easy to get everything in one overview, that way the link between performance and outcome is visualised and that helps to perform better.”
more authority than my function profile allows me to, but I think I earned it with the shop manager” and “I am ready to become shop manager now, but I know I will have to wait till there is a spot open, but I am positive about the possibilities” are some of the most commonly heard quotes. As a final issue, the verbal and social rewards can be dealt with. The linkage between a better performance and more of these awards is diminutive. None of the respondents think to a strong degree that their performance directly leads to specific compliments or recognition from their superiors. “I get compliments when I personally think I perform bad, and vice versa, so it is very random and not directly linked to my performance” and “they only think that negative feedback helps to motivate us” are some of the sentences used by the respondents.
4.3.5 Valence extrinsic rewards. With the results regarding the expectancy and the instrumentality of the various extrinsic rewards being discussed, the last variable, the valence towards the outcomes of these rewards, can now be considered. This part starts with the results from the interviews, followed by an examination of the results from the observations.
and more decision-authority, especially for the shop manager and the assistant-salesmen. This seems logically, since they respectively do not have and do not want the opportunities to gain these kinds of rewards.
Legend: SM= Shop Manager ASSM= Assistant-Salesman += Positive High= High 0= weak linkage ASM= Assistant-shop manager +/-= Neutral Med= Medium 1= some linkage
S= Salesman -= Negative Low= Low 2= strong linkage Table 2: Responses to the expectancy-model
Expectancy
Enough resources to do the job - + + - + +/- +/- + +/- - +/- +
Enough skills to do the job + + + + + + + + +/- + + +/-
Enough support to do the job - +/- +/- + +/- +/- +/- - +/- +/- - +
View towards E P linkage 1 2 1 2 2 1 2 2 2 2 1 2
Instrumentality
Familiarity of all of the rewards Low Med High Low Low Med Med Low Low Low Med Med
Understanding rules ‘reward game’ Med High High High Med Med Med Low High Med Med High
Trust in decision-making people High High High High High Med High High High High High High
Transparency of the reward-process Med Med High Low Low High Med Med Med High Low Med
P O linkage Money-related Verbal/social Symbolic/tangible Work-related 2 2 2 2 1 2 2 1 2 1 2 1 0 1 0 1 0 0 0 1 0 1 1 0 2 2 2 2 1 0 2 1 2 1 2 1 1 0 0 2 1 1 2 1 1 2 1 2 Valence
Money-related Normal payment Variable payment Incentive-payment
Med High Med High High Med Med Med High High High Med
Med Low Med High Med Low Med Low Med High Med High
High Med High High High High High High High High High High
Verbal/social Compliments Recognition
High Med High High High Med Med High Med Med High High
High High High High High High High High High Med High Med
Tangible/symbolic Retail-Excellence Star-system
Med Low High Low Low Med Low Med Low Low Low Low
Med Med High Med High Med Low Low Med Low Low Med
Work-related Promotion
Increased decision-authority
Low Med Med Med Med High Med High Low Low Low Med
5. DISCUSSION
This section provides the general conclusions that resulted from the research. Consequently, various concrete recommendations will be offered to the management of BelCompany to complement the research. Furthermore, the limitations of the research will be discussed and, to conclude, the consequences for both science and practice will be considered.
5.1 General conclusions
At this time, a lot of scientific literature has been presented regarding the efficiency of extrinsic rewarding and their potential to change employee behaviour (Lawler, 1996; Wilson, 2003; Milkovich & Newman, 2004). However, there are not many scientific studies that primarily focus on the different design features of the outcomes of these extrinsic rewards and thereby create the possibility to influence employee expectations so that it changes their behaviour. Furthermore, in change management, these design features, in present research subdivided by money-, verbal- or social-, tangible- or symbolic-, and work-related, are rarely exploited to investigate their influence on employees’ readiness to change. The intention of this research was to create more insight in these topics.
To create readiness for change, disconfirmation, or the concept that all forms of change start with some type of dissatisfaction or frustration, must be stimulated. Despite the fact that present research did not discover any dissatisfaction with the current performance of the employees, the study does prove that the presence of the outcomes of verbal and social oriented rewards based on performance, like recognition and receiving compliments, is a main design feature that can be a powerful motivator to change, because it can lead to dissatisfaction with the current reward system. Furthermore, the research shows that survival anxiety, or employees’ feelings that if they maintain the status quo this will lead to failure, is not present among employees, even whilst they have the feeling that it is essential that the reward system should change along with the organizational change as a whole. On the other hand, the benefits of the change, as part of initiating survival anxiety, can be increased if the organizational change leads to more verbal and social oriented rewards.
Furthermore, employees feel to a lesser degree that increased performance leads to more work-related or verbal and social oriented rewards. The absence of the possibility to secure this latter reward is remarkable, since compliments and recognition receive a very high valence-score by the employees, undoubtedly as high as the money-related rewards, such as variable- and incentive-payment. Yet, particularly the tangible and symbolic rewards have a stronger PO linkage, but are not too important to the employees, a truth that also counts for the work-related rewards.
5.2 Recommendations
In this section, the described conclusions will be extended with some concrete recommendations that directly result from the study. These recommendations are mainly based on participants’ answers, but also on own observations.
Recommendation 1: Expand the current reward system with verbal and social rewarding
One of the most interesting findings of the present study is the need for recognition and compliments among employees. Outcomes of rewards like these do not only help to generate dissatisfaction with the current reward system and thereby support the readiness for change, it is also one of the most valued forms of rewarding according to the employees. Money-related rewards, like the incentive pay-outs, also have a major impact on changing employee behaviour on the shopping floor, but these are very expensive and one might expect these results from such inducements. Also, the linkage of increased performance that leads to these money-related rewards is already very strong, whereas the linkage of verbal and social rewards is very weak, despite the high valence of this latter one. Furthermore, the Star-system and Retail-Excellence also have this strong linkage, but are valued to a lesser extent, therefore not leading to a significant change in behaviour. This also counts for the variable payments, like the weekly targets, and the work-related rewards like promotion, the outcomes of these rewards are respectively too low or just not viable to change employee behaviour. Therefore, an employee recognition program would be a powerful tool to influence the performance on the shop floor. For the locking, the absence of seemingly trivial issues, like receiving an anniversary card or a phone call from the Management Team at special occasions or achievements, are mentioned a lot during the construction of this research.
Recommendation 2: Increase participation and provide information before starting the change process
transformation has to be installed on a large scale. Therefore, it seems necessary to prepare the employees better, where the role of the shop manager should not be underestimated. An evening session, where a well-informed shop manager answers questions and provides the other employees with information, seemed to help in a few shops were the interviews were held. In fact, the role of the shop manager as intermediary is an important one. Making such a session obligatory may be part of the solution.
Recommendation 3: Increase the availability of support on the shop floor
Most respondents feel to a strong degree that their performance can be influenced by the degree of effort they put in it, which can be seen as a positive insight. Because of this perception, employees do not feel that the outcomes of the rewards are entirely based on external facts like economic conditions and the presence of competition in the area. However, the support to do the job right impedes this fact. Most examined complaints come from the difficulty to find answers on complex questions. Currently, a lot of information must come from the knowledge of the shop itself or by mailing other colleagues, a process that does not always run smoothly. To increase the linkage between effort and performance, and thereby amplify the feeling that obtaining a certain reward is in employees’ own hands, the availability of support must be increased. An extensive database with the most common questions, more insight in complex procedures, and a comprehensible list of supporting employees from the head office should be available at all shops. A concrete example shows the necessity of this issue: A salesman, who worked three years for BelCompany, did not know the procedure to swap a mobile phone after sending it to the repair centre, several times in vain. He said that he never learned how to deal with such issues, claiming that he only went to sales-trainings until now.
Recommendation 4: Increase transparency and familiarity of rewarding
5.3 Limitations
Current scientific literature does not primarily focus on the outcomes of the different design features of performance-based payments. This may be due to the fact that every organization has his own specific circumstances and measurements to consider. Therefore, the implementation of a certain reward system is different for every organization. This limits the possibility to generalize the research in this thesis. Furthermore, the study focuses on the use of extrinsic rewards to change behaviour and to create readiness for change. Yet, behaviour can be influenced by other factors than rewards only and readiness for change, or the 'unfreezing' process, is part of an extensive model for planned change which has to be analyzed more thorough in order to make a significant contribution to existing literature.
5.4 Consequences for science and practice
Present study stresses the importance of verbal and social rewarding as essential elements in a reward system to change the performance of employee behaviour. Furthermore, this form of rewarding also generates readiness for change. Based on the theoretical direction, the study started with the different design features which are most common in performance-based pay. This study learns that pay, or outcomes of rewarding, does not always has to be emphasized by money or other inducements. Furthermore, present research supports the statement that various elements, like the transparency and knowledge of certain forms of rewarding, the support that employees have when doing their job, and the influence that employees can exercise on their performance, impede or reinforce the efficiency of certain rewards.
Furthermore, when considering the practical implications, the recommendations in this study
might be a contribution to accomplish BelCompany's vision and to distinguish the shops further from Telefoonkopen.nl and other telecom-shops. Adjustments to the change process and the current reward system can be made in order to make the employees more satisfied. In the present telecom-world, which is characterized by consolidation and players leaving the market, it is exceptionally important to create a certain positive change in employees' behaviour to win the battle. Currently, a lot of discussion is going on in the financial world about the excessive rewards that top managers can earn when they exercise or encourage risky behaviour. This study might contribute to the rise of pay-for-performance based rewards other than money, because it might not be the biggest motivator to change behaviour. This may be very crucial for BelCompany to survive the battle, or like Charles Darwin said:
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